Wall St rallies on stimulus bill; ADRs zoom
The Wall Street ended with smart gains on Wednesday after the US House approved the $825 billion stimulus package. The Dow Jones industrial average index rallied 201 points to 8,375. The Nasdaq gained 53 points at 1,558. The Indian ADRs, too, ended with sharp gains. ICICI Bank zoomed over 15% to $17.46, and Satyam soared 10% to $2.09. HDFC Bank surged 8.5% to $62.64. Tata Motors moved up over 6% to $4.35. Infosys, Wipro, MTNL, Tata Motors, Dr.Reddy's and Tata Communications gained 2-6% each.
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Thursday, January 29, 2009
Engineers, MBAs, IT professionals, pilots and fashion designers are struggling to find a decent job
Engineers, MBAs, IT professionals, pilots and fashion designers are struggling to find a decent job
The word ‘recession’ is being frequently used in India in recent months despite the fact that the economy continues to grow and that even at ~7 per cent in the current fiscal and perhaps ~ 6 per cent in the next one, these will be amongst the better growth years for the Indian economy since independence. However, there is certainly a deep recession as far as jobs for the highly educated are concerned. Ironically, this may be the first time in India’s history when it is more difficult for the professional graduates to find employment or appropriate employment, compared to the less educated millions. Those who are currently struggling to find a decent job include engineers, management graduates, IT sector-trained professionals, fashion designers, merchandisers and other retail sector professionals, pilots and other aviation industry staff, and other professionals. The problem is even more acute for those in the middle and senior management functions who have lost their jobs in the last few months.
To compound the misery further for these job seekers, even if the overall business sentiment improves in India during this year sometime, it is very unlikely that prospective employers will go back to aggressive hiring of professional staff anytime during the next 12-18 months. During most of the 1990s and early 2000s, developed countries such as the US and EU shed hundreds of thousands of middle-management jobs. Even in the boom times of the last five years, many of those jobs were never really filled up. The job creation actually happened in different sectors, eg real estate and housing, financial services, travel and hospitality, retail and healthcare, to list just a few. These job seekers will also be facing the adverse fallout of the otherwise much heralded demographic dividend of India. In the next 12 months, India will add more than three million graduates to the employable pool. Of these, there will be more than 10,000 engineers from just the top 25 colleges alone (including the IITs), more than 5,000 MBAs from the top 25 business schools, more than 500 textile, apparel and accessories designers from the top 10 fashion institutes, more than 2,000 retail sector professionals (corporate staff level) from the miscellaneous sub-streams of specialization, and more than 2,500 aviation sector professionals (cockpit & cabin staff level) etc. And finally, a trickle has already begun of professionals of Indian origin returning to India as job opportunities dry up in the US and other developed economies.
The booming IT/ITES and financial services businesses’ back-office sectors, till recently, absorbed just about every category of professionals including all kinds of engineers, architects, MBAs and other graduates even though the inductees’ job profiles had no match with their professional qualifications. Hence, perhaps an illusion was created about the actual demand of some of these professionals’ categories, especially that for MBAs. The manufacturing sector could indeed absorb all or most of the output of the engineers but was unable to do so on account of its inability to compete with the lure of the IT sector and the MNC financial institutions (even if the job was that of a glorified BPO operator).
What should the newly graduating (and their parents) do? They have to start with the acceptance of this new ground reality that merely a professional degree even if it is from a top-10 or a top-25 institute is not enough to guarantee them a job of their choice. In the euphoria of recent years, many of these fresh professionals had started to believe in the illusion that they could have their pick of the industry, company, city, job profile and compensation package. Hence, civil and mechanical engineers could decide to sit in the swank Bangalore or Hyderabad campuses of IT companies, ensconced in front of a computer screen in an air-conditioned almost five-star hotel environment rather than being in the field or on the shop floor. It is important for those who are in the job market today to understand that India’s economy is spread across India and not confined to the top eight or nine cities only. Hence, jobs are also spread across the entire urban and even rural India and, therefore, the employees must be willing to work from there. Similarly, the current and future growth of India will actually be driven by agriculture including food processing, manufacturing, and relatively less attractive service areas such as real estate, infrastructure, healthcare, education, travel and tourism, transportation etc.
Once this reality is accepted, the next adjustment has to be in the mindset regarding the employers themselves. Most young professionals in India have an extraordinary affection for MNC employers. They should understand that there are just good companies and not-so-good companies. Likewise, small and medium businesses can be as professionally rewarding as those having global or local headcounts of 10,000 or more.
The final reality that the young must accept is that all professional and financial aspirations cannot be met in their first five years of employment. Hence, initially there should be less focus on the CTC (cost to the company) package and job titles, and more on building a career that is rewarding in many ways over the next 30 years.
The word ‘recession’ is being frequently used in India in recent months despite the fact that the economy continues to grow and that even at ~7 per cent in the current fiscal and perhaps ~ 6 per cent in the next one, these will be amongst the better growth years for the Indian economy since independence. However, there is certainly a deep recession as far as jobs for the highly educated are concerned. Ironically, this may be the first time in India’s history when it is more difficult for the professional graduates to find employment or appropriate employment, compared to the less educated millions. Those who are currently struggling to find a decent job include engineers, management graduates, IT sector-trained professionals, fashion designers, merchandisers and other retail sector professionals, pilots and other aviation industry staff, and other professionals. The problem is even more acute for those in the middle and senior management functions who have lost their jobs in the last few months.
To compound the misery further for these job seekers, even if the overall business sentiment improves in India during this year sometime, it is very unlikely that prospective employers will go back to aggressive hiring of professional staff anytime during the next 12-18 months. During most of the 1990s and early 2000s, developed countries such as the US and EU shed hundreds of thousands of middle-management jobs. Even in the boom times of the last five years, many of those jobs were never really filled up. The job creation actually happened in different sectors, eg real estate and housing, financial services, travel and hospitality, retail and healthcare, to list just a few. These job seekers will also be facing the adverse fallout of the otherwise much heralded demographic dividend of India. In the next 12 months, India will add more than three million graduates to the employable pool. Of these, there will be more than 10,000 engineers from just the top 25 colleges alone (including the IITs), more than 5,000 MBAs from the top 25 business schools, more than 500 textile, apparel and accessories designers from the top 10 fashion institutes, more than 2,000 retail sector professionals (corporate staff level) from the miscellaneous sub-streams of specialization, and more than 2,500 aviation sector professionals (cockpit & cabin staff level) etc. And finally, a trickle has already begun of professionals of Indian origin returning to India as job opportunities dry up in the US and other developed economies.
The booming IT/ITES and financial services businesses’ back-office sectors, till recently, absorbed just about every category of professionals including all kinds of engineers, architects, MBAs and other graduates even though the inductees’ job profiles had no match with their professional qualifications. Hence, perhaps an illusion was created about the actual demand of some of these professionals’ categories, especially that for MBAs. The manufacturing sector could indeed absorb all or most of the output of the engineers but was unable to do so on account of its inability to compete with the lure of the IT sector and the MNC financial institutions (even if the job was that of a glorified BPO operator).
What should the newly graduating (and their parents) do? They have to start with the acceptance of this new ground reality that merely a professional degree even if it is from a top-10 or a top-25 institute is not enough to guarantee them a job of their choice. In the euphoria of recent years, many of these fresh professionals had started to believe in the illusion that they could have their pick of the industry, company, city, job profile and compensation package. Hence, civil and mechanical engineers could decide to sit in the swank Bangalore or Hyderabad campuses of IT companies, ensconced in front of a computer screen in an air-conditioned almost five-star hotel environment rather than being in the field or on the shop floor. It is important for those who are in the job market today to understand that India’s economy is spread across India and not confined to the top eight or nine cities only. Hence, jobs are also spread across the entire urban and even rural India and, therefore, the employees must be willing to work from there. Similarly, the current and future growth of India will actually be driven by agriculture including food processing, manufacturing, and relatively less attractive service areas such as real estate, infrastructure, healthcare, education, travel and tourism, transportation etc.
Once this reality is accepted, the next adjustment has to be in the mindset regarding the employers themselves. Most young professionals in India have an extraordinary affection for MNC employers. They should understand that there are just good companies and not-so-good companies. Likewise, small and medium businesses can be as professionally rewarding as those having global or local headcounts of 10,000 or more.
The final reality that the young must accept is that all professional and financial aspirations cannot be met in their first five years of employment. Hence, initially there should be less focus on the CTC (cost to the company) package and job titles, and more on building a career that is rewarding in many ways over the next 30 years.
FIIs net buy Rs 1,233 cr in F&O on Wednesday
FIIs net buy Rs 1,233 cr in F&O on Wednesday
The Foreign institutional investors (FIIs) were net buyers of Rs 1,232.83 crore in the futures & options segment on Wednesday. According to data released by the NSE, FIIs were net buyers of index futures to the tune of Rs 1,130.35 crore and bought index options worth Rs 226.40 crore. They were net sellers of stock futures to the tune of Rs 124.44 crore while bought stock options worth Rs 0.52 crore.
The Foreign institutional investors (FIIs) were net buyers of Rs 1,232.83 crore in the futures & options segment on Wednesday. According to data released by the NSE, FIIs were net buyers of index futures to the tune of Rs 1,130.35 crore and bought index options worth Rs 226.40 crore. They were net sellers of stock futures to the tune of Rs 124.44 crore while bought stock options worth Rs 0.52 crore.
HK shares open up 7.8 pc; banks ride on US rally
HK shares open up 7.8 pc; banks ride on US rally
HONG KONG: Hong Kong shares were set to rise 7.8 percent in opening trade on Thursday after the US House of Representatives passed an $825 billion stimulus bill to combat the worst economic crisis since the Great Depression. Financial stocks looked firm, with sentiment on the sector buoyed by the US government's plan to create a government "bad bank" to absorb toxic assets. Europe's biggest lender HSBC jumped 9.9 percent, driving the benchmark Hang Seng Index up 981.47 points to 13,560.07 in pre-opening trade. The China Enterprises Index of top locally listed mainland firms was indicated to open up 7.5 percent at 7,159.00
HONG KONG: Hong Kong shares were set to rise 7.8 percent in opening trade on Thursday after the US House of Representatives passed an $825 billion stimulus bill to combat the worst economic crisis since the Great Depression. Financial stocks looked firm, with sentiment on the sector buoyed by the US government's plan to create a government "bad bank" to absorb toxic assets. Europe's biggest lender HSBC jumped 9.9 percent, driving the benchmark Hang Seng Index up 981.47 points to 13,560.07 in pre-opening trade. The China Enterprises Index of top locally listed mainland firms was indicated to open up 7.5 percent at 7,159.00
Job scenario still better in Asia than western economies
Job scenario still better in Asia than western economies
Even as the International Labour Organization (ILO) paints a grim picture on the employment front predicting a possible addition of 18-50 million to the globally unemployed in 2009, figures on employment creation in 2008 published indicate that things, till now, have not been as bad for East and South Asia as for the western economies. In 2008, South Asia, led by India, created 33% of the global jobs, up from 28% in 2007. South Asia, along with other Asian regions - East Asia, South-East Asia & the Pacific - accounted for the lion's share of 57% in providing employment opportunities globally last year, according to ILO Global Employment Trends Report 2009. Unemployment rates for 2008 in the region were also significantly lower than that in the developed world. East Asia recorded the lowest unemployment rate at 3.8%, followed by South Asia and South-East Asia & the Pacific, at 5.4 % and 5.7%, respectively. The European Union & other developed countries, the region with the largest increase in the unemployment rate from 5.7% in 2007 to 6.4% last year, became the worst case in global unemployment scenario, according to the report. The total number of unemployed increased by 3.5 million, reaching 32.3 million. Also, the total employment in these economies decreased from 473.1 million to 472.2 million in 2008, translating into almost a million job losses.
Globally, between 2007 and 2008, the unemployed population increased by 10.7 million to reach 190 million, which is the largest year-on-year increase since 1998. Going ahead, ILO has forecasted a steep rise in the global unemployment rate for 2009, which can be expected to touch anything between 6.1-7.1%, compared to 5.7% in 2007. This could leave another 18 million to 50 million people unemployed globally. The repercussions could be severe, warned the report, in case the economic outlook takes a turn for the worst. This could push some 200 million workers, mostly in developing economies, into extreme poverty. Also, in 2009, the proportion of people in vulnerable employment could rise considerably to reach 53 % of the employed population. Vulnerable employment means that the majority of workers do not enjoy the possible security that wage and salary jobs could provide. The South, South-East Asia & the Pacific regions, along with Sub-Saharan Africa, have already recorded the highest workers in vulnerable employment, owing to harsh labour market conditions. Though, in case of East Asian region, there has been a decline in vulnerable employment, which plummeted by 8.3 percentage points between 1997 and 2007. "Even the number of working poor - people who are unable to earn above the $2 per person, per day poverty line - may rise up to 1.4 billion, or 45% of all the world's employed this year," the report said.
Even as the International Labour Organization (ILO) paints a grim picture on the employment front predicting a possible addition of 18-50 million to the globally unemployed in 2009, figures on employment creation in 2008 published indicate that things, till now, have not been as bad for East and South Asia as for the western economies. In 2008, South Asia, led by India, created 33% of the global jobs, up from 28% in 2007. South Asia, along with other Asian regions - East Asia, South-East Asia & the Pacific - accounted for the lion's share of 57% in providing employment opportunities globally last year, according to ILO Global Employment Trends Report 2009. Unemployment rates for 2008 in the region were also significantly lower than that in the developed world. East Asia recorded the lowest unemployment rate at 3.8%, followed by South Asia and South-East Asia & the Pacific, at 5.4 % and 5.7%, respectively. The European Union & other developed countries, the region with the largest increase in the unemployment rate from 5.7% in 2007 to 6.4% last year, became the worst case in global unemployment scenario, according to the report. The total number of unemployed increased by 3.5 million, reaching 32.3 million. Also, the total employment in these economies decreased from 473.1 million to 472.2 million in 2008, translating into almost a million job losses.
Globally, between 2007 and 2008, the unemployed population increased by 10.7 million to reach 190 million, which is the largest year-on-year increase since 1998. Going ahead, ILO has forecasted a steep rise in the global unemployment rate for 2009, which can be expected to touch anything between 6.1-7.1%, compared to 5.7% in 2007. This could leave another 18 million to 50 million people unemployed globally. The repercussions could be severe, warned the report, in case the economic outlook takes a turn for the worst. This could push some 200 million workers, mostly in developing economies, into extreme poverty. Also, in 2009, the proportion of people in vulnerable employment could rise considerably to reach 53 % of the employed population. Vulnerable employment means that the majority of workers do not enjoy the possible security that wage and salary jobs could provide. The South, South-East Asia & the Pacific regions, along with Sub-Saharan Africa, have already recorded the highest workers in vulnerable employment, owing to harsh labour market conditions. Though, in case of East Asian region, there has been a decline in vulnerable employment, which plummeted by 8.3 percentage points between 1997 and 2007. "Even the number of working poor - people who are unable to earn above the $2 per person, per day poverty line - may rise up to 1.4 billion, or 45% of all the world's employed this year," the report said.
Australian bank reviews Satyam contract; may switch to TCS, Infy
NAB's Satyam outsourcing contract under review
BANGALORE: National Australia Bank (NAB) has put its outsourcing contract with Satyam Computer Services under review, as Australia's biggest bank seeks to mitigate the risks involved with outsourcing of mission critical applications to the scandal-hit Satyam. NAB, along with other Satyam customers such as Qantas, Telstra and Caterpillar are realising the harsh realities of offshore outsourcing, and could move their information technology projects to Infosys and TCS if the new Satyam board is unable to provide more clarity on the company's leadership. "We could even look at establishing our own captive centre as a derisking strategy," a senior official at one of these customer organisations told ET on conditions of anonymity. The Australian bank, which awarded outsourcing contracts for deploying and managing its core banking applications almost three years ago to Satyam and Infosys, finds itself in a difficult situation because Satyam is part of the bank's five-year IT transformation strategy involving over $250 million worth of outsourcing contracts. "As of now, Satyam is providing services, however, because of the developments, we are reviewing the contract, and we do have contingency plans as with any other supplier," said Brandon Phillips, a spokesperson for NAB. NAB has already moved over 200 IT positions to the vendor, said a person familiar with the contract requesting anonymity. Experts involved with NAB's outsourcing contracts added that Satyam has been a part of the bank's 18-month plan to migrate its ledger systems, scheduled to get over by September this year. "However, the current situation at Satyam is forcing NAB to reconsider whether it should risk its critical business transformation applications with the vendor at all," said an outsourcing expert who requested anonymity. Going forward, NAB had plans to outsource more projects to Satyam in the areas of account services and payments. "Infosys, which is already helping NAB deploy and manage some Oracle applications, could be the best option for NAB in the long run," the expert added.
BANGALORE: National Australia Bank (NAB) has put its outsourcing contract with Satyam Computer Services under review, as Australia's biggest bank seeks to mitigate the risks involved with outsourcing of mission critical applications to the scandal-hit Satyam. NAB, along with other Satyam customers such as Qantas, Telstra and Caterpillar are realising the harsh realities of offshore outsourcing, and could move their information technology projects to Infosys and TCS if the new Satyam board is unable to provide more clarity on the company's leadership. "We could even look at establishing our own captive centre as a derisking strategy," a senior official at one of these customer organisations told ET on conditions of anonymity. The Australian bank, which awarded outsourcing contracts for deploying and managing its core banking applications almost three years ago to Satyam and Infosys, finds itself in a difficult situation because Satyam is part of the bank's five-year IT transformation strategy involving over $250 million worth of outsourcing contracts. "As of now, Satyam is providing services, however, because of the developments, we are reviewing the contract, and we do have contingency plans as with any other supplier," said Brandon Phillips, a spokesperson for NAB. NAB has already moved over 200 IT positions to the vendor, said a person familiar with the contract requesting anonymity. Experts involved with NAB's outsourcing contracts added that Satyam has been a part of the bank's 18-month plan to migrate its ledger systems, scheduled to get over by September this year. "However, the current situation at Satyam is forcing NAB to reconsider whether it should risk its critical business transformation applications with the vendor at all," said an outsourcing expert who requested anonymity. Going forward, NAB had plans to outsource more projects to Satyam in the areas of account services and payments. "Infosys, which is already helping NAB deploy and manage some Oracle applications, could be the best option for NAB in the long run," the expert added.
Petrol cheaper by Rs 5, diesel Rs 2, LPG Rs 25 (Source: ET)
Petrol cheaper by Rs 5, diesel Rs 2, LPG Rs 25
NEW DELHI: In the second such move in less than two months, the government slashed the price of petrol by Rs 5 a litre, diesel by Rs 2 a litre and cooking gas by Rs 25 per 14.2 kg cylinder from Wednesday midnight. The price cut is expected to tame inflation and boost demand in the economy, but will reduce oil companies’ margins, which had been improving with the fall in crude oil prices since October 2008. The Cabinet Committee on Political Affairs (CCPA) decided to slash fuel prices late night on Wednesday, an oil ministry official, who didn’t wish to be named, said. The government also fixed the MSP for wheat at Rs 1,080 per quintal.
However, according to the official, “The government has deferred its proposal to deregulate the prices of petrol and diesel.” “It may happen later.” The official said the government decided against raising excise and customs duty at this stage. It will issue more oil bonds to the three public sector oil marketing companies—IOC, BPCL and HPCL—to save them from posting losses this fiscal. “It is likely that the upstream companies may have to bear more subsidy burden in the form of oil discount to these oil marketing companies,” he said. This, incidentally, is the second and final round of fuel price cuts before the general elections. In December, while announcing a price reduction of petrol by Rs 5 a litre and diesel by Rs 2 a litre, oil minister Murli Deora had said it was an “interim measure” and the government would reduce fuel prices further if global prices of crude oil maintain a downward trend. Crude oil prices fell below $36 a barrel on December 24. On June 4, 2008, the government had raised prices of petrol by Rs 5 a litre, diesel by Rs 3 a litre and cooking gas by Rs 50 a cylinder when crude oil prices were at $129 a barrel. Oil companies that slipped into the red in the second quarter of the 2008-09 fiscal may continue to be in the red in the third quarter too. Most of the oil companies have been taking a huge hit on their refining margins with inventory losses on the rise.
NEW DELHI: In the second such move in less than two months, the government slashed the price of petrol by Rs 5 a litre, diesel by Rs 2 a litre and cooking gas by Rs 25 per 14.2 kg cylinder from Wednesday midnight. The price cut is expected to tame inflation and boost demand in the economy, but will reduce oil companies’ margins, which had been improving with the fall in crude oil prices since October 2008. The Cabinet Committee on Political Affairs (CCPA) decided to slash fuel prices late night on Wednesday, an oil ministry official, who didn’t wish to be named, said. The government also fixed the MSP for wheat at Rs 1,080 per quintal.
However, according to the official, “The government has deferred its proposal to deregulate the prices of petrol and diesel.” “It may happen later.” The official said the government decided against raising excise and customs duty at this stage. It will issue more oil bonds to the three public sector oil marketing companies—IOC, BPCL and HPCL—to save them from posting losses this fiscal. “It is likely that the upstream companies may have to bear more subsidy burden in the form of oil discount to these oil marketing companies,” he said. This, incidentally, is the second and final round of fuel price cuts before the general elections. In December, while announcing a price reduction of petrol by Rs 5 a litre and diesel by Rs 2 a litre, oil minister Murli Deora had said it was an “interim measure” and the government would reduce fuel prices further if global prices of crude oil maintain a downward trend. Crude oil prices fell below $36 a barrel on December 24. On June 4, 2008, the government had raised prices of petrol by Rs 5 a litre, diesel by Rs 3 a litre and cooking gas by Rs 50 a cylinder when crude oil prices were at $129 a barrel. Oil companies that slipped into the red in the second quarter of the 2008-09 fiscal may continue to be in the red in the third quarter too. Most of the oil companies have been taking a huge hit on their refining margins with inventory losses on the rise.
Fed to hold rates near zero, mulls other tools (Source: ET)
Fed to hold rates near zero, mulls other tools
WASHINGTON: The Federal Reserve resumed a policy meeting on Wednesday that some investors hoped might end with a signal it was moving closer to buying long-term government bonds now that its traditional interest rate cutting tools have been exhausted. Policy-makers are expected to focus on steps aimed at lowering borrowing costs for businesses and consumers, adding to measures that have already doubled the size of the Fed's credit to financial system to more than $2 trillion. The central bank will also assure investors they can keep short-term rates very low for a long time. The central bank will issue a statement around 2:15 p.m. With benchmark overnight rates lowered as far as they can go -- to a range of zero to 0.25 percent -- investors are waiting to hear what else the Fed plans to do to lower other borrowing costs and spur economic growth. The Fed's efforts are part of a broader government campaign to combat a year-long recession and a financial crisis that is stalling economies around the globe. President Barack Obama is aggressively promoting an $825 billion government tax-cut and spending plan to provide an economic boost and his administration is wrestling with steps might to prop up an ailing banking system. In its statement, the Fed is expected to discuss unconventional measures to ease stress in financial markets. In a statement after its last policy meeting in December, the central bank said it was weighing the benefits of purchases of long-dated Treasury debt to push down borrowing costs. Government bond prices rose on Wednesday on expectations the Fed would move closer to that initiative. "That's the bond market hope," said Kim Rupert, managing director, global fixed-income analysis with Action Economics LLC in San Francisco.
WASHINGTON: The Federal Reserve resumed a policy meeting on Wednesday that some investors hoped might end with a signal it was moving closer to buying long-term government bonds now that its traditional interest rate cutting tools have been exhausted. Policy-makers are expected to focus on steps aimed at lowering borrowing costs for businesses and consumers, adding to measures that have already doubled the size of the Fed's credit to financial system to more than $2 trillion. The central bank will also assure investors they can keep short-term rates very low for a long time. The central bank will issue a statement around 2:15 p.m. With benchmark overnight rates lowered as far as they can go -- to a range of zero to 0.25 percent -- investors are waiting to hear what else the Fed plans to do to lower other borrowing costs and spur economic growth. The Fed's efforts are part of a broader government campaign to combat a year-long recession and a financial crisis that is stalling economies around the globe. President Barack Obama is aggressively promoting an $825 billion government tax-cut and spending plan to provide an economic boost and his administration is wrestling with steps might to prop up an ailing banking system. In its statement, the Fed is expected to discuss unconventional measures to ease stress in financial markets. In a statement after its last policy meeting in December, the central bank said it was weighing the benefits of purchases of long-dated Treasury debt to push down borrowing costs. Government bond prices rose on Wednesday on expectations the Fed would move closer to that initiative. "That's the bond market hope," said Kim Rupert, managing director, global fixed-income analysis with Action Economics LLC in San Francisco.
Investors dump share-pledging cos (Source: ET)
Investors dump share-pledging cos
CHENNAI: After the Satyam fiasco, investors seem to be paying more attention to whether promoters have pledged holdings a la Rajus, rather than concentrate on fundamentals. After Satyam announced that lenders had sold 2.45 crore shares pledged by the promoter, the market have shown a negative reaction to similar instances. Signalling their aversion at promoters being financially weak, investors sold shares in companies where market got a wind of pledged shares by promoters. That is evident from the stock prices falling between 20 to 40% in the last 15 trading days. From January 6 (the day when Raju disclosed his pledged shares), most stocks such as Nagarjuna Construction (-43 %), United Spirits (-42 %), Rolta (-37 %), XL Telecom (-33 %), Bombay Rayon (-32 %), KEI Industries (-28 %) and Bharati Shipyard (-26 %) have been the worst hit in terms of price correction. Even the likes of Peninsula Land (-20 %) and Indage Vinters (-20 %) have also not been spared. The synchronised fall of ‘pledged counters’ - as they are now being referred to as in the broking circles - should be seen along side sensex fall which lost 10% during the same period. “Investors will naturally treat these pledged stocks with disdain, fearing the worst. It will take more time for investors to get accustomed to share pledging. So, companies which come out with disclosures on their own may be seen in better light,’’ B Madhuprasad, vice-chairman of investment bank Keynote Corporate Services, said. Pledged counters such as Gayatri Projects (-7%), Great Offshore (-7%), Shree Renuka Sugar (-7%) and Godrej Consumer (-7%) have fallen less than sensex. IT consulting MindTree said its promoters have pledged 0.78% of their holding in the company to ICICI Bank and HDFC. Godrej Consumer, in fact, told shareholders that Godrej Industries, one of its promoters , has taken a loan from JP Morgan Security India by way of a share pledge. “Promoters of most of these companies, with the exception of United Spirits (acquisition) and KEI Industries (term-loan ) and Godrej Consumer to some extent, have not stated why they leveraged themselves. But revelations could come sooner than later as SEBI has said that it would make it mandatory for founders of companies to disclose their pledged shares,’’ a Mumbai-based broker said. Promoters pledge a part or substantial portion of their holdings in the company for a fixed term (up to 2 years) at rates of interest varying from 15 to 25%. This could have led to promoters in companies such as XL Telecom pledging 20% stake and United Spirits (18%), Nagarjuna Construction (12%), Great Offshore (14.88%) as well as Shree Renuka Sugar (10%) taking the same route, according to a survey done by brokerage Prabhudas Lilladher. The percentage of stake pledged could not be ascertained for the likes of Indage Vinters (formerly Champagne Indage) and Gayatri Projects. On the other hand, Akruti City, which has managed to release pledged shares with Indiabulls Financial, has seen its stock gain 23% in just five days after news of the release 2.32% stake came out (while sensex gained only 5%).
CHENNAI: After the Satyam fiasco, investors seem to be paying more attention to whether promoters have pledged holdings a la Rajus, rather than concentrate on fundamentals. After Satyam announced that lenders had sold 2.45 crore shares pledged by the promoter, the market have shown a negative reaction to similar instances. Signalling their aversion at promoters being financially weak, investors sold shares in companies where market got a wind of pledged shares by promoters. That is evident from the stock prices falling between 20 to 40% in the last 15 trading days. From January 6 (the day when Raju disclosed his pledged shares), most stocks such as Nagarjuna Construction (-43 %), United Spirits (-42 %), Rolta (-37 %), XL Telecom (-33 %), Bombay Rayon (-32 %), KEI Industries (-28 %) and Bharati Shipyard (-26 %) have been the worst hit in terms of price correction. Even the likes of Peninsula Land (-20 %) and Indage Vinters (-20 %) have also not been spared. The synchronised fall of ‘pledged counters’ - as they are now being referred to as in the broking circles - should be seen along side sensex fall which lost 10% during the same period. “Investors will naturally treat these pledged stocks with disdain, fearing the worst. It will take more time for investors to get accustomed to share pledging. So, companies which come out with disclosures on their own may be seen in better light,’’ B Madhuprasad, vice-chairman of investment bank Keynote Corporate Services, said. Pledged counters such as Gayatri Projects (-7%), Great Offshore (-7%), Shree Renuka Sugar (-7%) and Godrej Consumer (-7%) have fallen less than sensex. IT consulting MindTree said its promoters have pledged 0.78% of their holding in the company to ICICI Bank and HDFC. Godrej Consumer, in fact, told shareholders that Godrej Industries, one of its promoters , has taken a loan from JP Morgan Security India by way of a share pledge. “Promoters of most of these companies, with the exception of United Spirits (acquisition) and KEI Industries (term-loan ) and Godrej Consumer to some extent, have not stated why they leveraged themselves. But revelations could come sooner than later as SEBI has said that it would make it mandatory for founders of companies to disclose their pledged shares,’’ a Mumbai-based broker said. Promoters pledge a part or substantial portion of their holdings in the company for a fixed term (up to 2 years) at rates of interest varying from 15 to 25%. This could have led to promoters in companies such as XL Telecom pledging 20% stake and United Spirits (18%), Nagarjuna Construction (12%), Great Offshore (14.88%) as well as Shree Renuka Sugar (10%) taking the same route, according to a survey done by brokerage Prabhudas Lilladher. The percentage of stake pledged could not be ascertained for the likes of Indage Vinters (formerly Champagne Indage) and Gayatri Projects. On the other hand, Akruti City, which has managed to release pledged shares with Indiabulls Financial, has seen its stock gain 23% in just five days after news of the release 2.32% stake came out (while sensex gained only 5%).
Merrill Lynch puts a BUY on Cairn With a target of Rs 219
Merrill Lynch
Cairn India-BUY
PO Rs 219
Current low Duri-Widuri oil price not worrying; retain Buy The pricing of crude from the main Rajasthan block of Cairn India (CIL) has not yet been finalized. Production is scheduled to start in 2H 2009E. Rajasthan crude is similar to and therefore is expected to priced as per Indonesian Duri-Widuri. The discount of Duri-Widuri crude to Brent has risen sharply to 32-33% in the last two months. Our earnings and valuation assume 8% discount to Brent. The prevailing steep discount is not a serious concern as average discount over reasonable time period like one year has been 8.4-11%. CIL is not yet producing in Rajasthan and so will not be hit by steep discounts. We retain Buy on CIL.
Rajasthan crude similar to Indonesian Duri-Widuri
As per the PSC Rajasthan crude has to be priced in line with the price of the most similar international crude in terms of quality. CIL's Rajasthan crude is believed to be most similar to a basket of two Indonesian crude Duri and Widuri.
Duri-Widuri discount to Brent over 30% now; 8% assumed
The discount of Duri-Widuri to Brent has widened sharply to 32-33% in November and December 2008. We are assuming Cairn's Rajasthan crude will be priced at 8% discount to Brent in our earnings and valuation. CIL management guidance has been of a 5-10% discount of Rajasthan crude to Brent.
Average annual discount of Duri-Widuri to Brent 8.4-11%
The 5-year average discount of Duri-Widuri to Brent is 9.1%. The average annual discount in the last 5 years is in a range of 8.4-11.0%. The average annual discount was 8.4% in 2005 and is 11% in 2008. There have been months in 2008, when Duri-Widuri discount to Brent was as low as 3.4%. In fact from January to September 2008 the discount of Duri-Widuri to Brent was 3.4-8.1%.
Cairn India-BUY
PO Rs 219
Current low Duri-Widuri oil price not worrying; retain Buy The pricing of crude from the main Rajasthan block of Cairn India (CIL) has not yet been finalized. Production is scheduled to start in 2H 2009E. Rajasthan crude is similar to and therefore is expected to priced as per Indonesian Duri-Widuri. The discount of Duri-Widuri crude to Brent has risen sharply to 32-33% in the last two months. Our earnings and valuation assume 8% discount to Brent. The prevailing steep discount is not a serious concern as average discount over reasonable time period like one year has been 8.4-11%. CIL is not yet producing in Rajasthan and so will not be hit by steep discounts. We retain Buy on CIL.
Rajasthan crude similar to Indonesian Duri-Widuri
As per the PSC Rajasthan crude has to be priced in line with the price of the most similar international crude in terms of quality. CIL's Rajasthan crude is believed to be most similar to a basket of two Indonesian crude Duri and Widuri.
Duri-Widuri discount to Brent over 30% now; 8% assumed
The discount of Duri-Widuri to Brent has widened sharply to 32-33% in November and December 2008. We are assuming Cairn's Rajasthan crude will be priced at 8% discount to Brent in our earnings and valuation. CIL management guidance has been of a 5-10% discount of Rajasthan crude to Brent.
Average annual discount of Duri-Widuri to Brent 8.4-11%
The 5-year average discount of Duri-Widuri to Brent is 9.1%. The average annual discount in the last 5 years is in a range of 8.4-11.0%. The average annual discount was 8.4% in 2005 and is 11% in 2008. There have been months in 2008, when Duri-Widuri discount to Brent was as low as 3.4%. In fact from January to September 2008 the discount of Duri-Widuri to Brent was 3.4-8.1%.
Infosys puts over 5,000 employees under scanner (Source: HBL)
Infosys Technologies has placed around 5 per cent of its global workforce under the scanner.
The move, which is being seen as an offshoot of the global financial meltdown, is expected to affect over 5,000 of the 100,000-plus employees on the company's rolls. It is learnt that Infosys [Get Quote], the country's second-largest information technology services provider, has told its senior managers (project managers, senior and group project managers, delivery managers) to give the lowest performance rating (4 on a scale of 1-4) to the 'underperforming' 5 per cent as a part of the company's consolidated relative ranking (CRR). Though rock-bottom rankings are not unknown in the company, this is the first time that Infosys has made it mandatory. CRR is decided based on the employee's appraisals which is done twice a year. "The recommendations have already been submitted this month," a senior project manager working with Infosys told Business Standard on the condition of anonymity. Infosys Vice-president and Group HR Head Nandita Gurjar said there was no change in the policy but "...the percentage of employees who are given CRR 4 keeps varying every year between 1 per cent and 5 per cent based on their performance." The company has decided to implement a six-month mentoring programme for such employees after which it will decide their future based on the improvements they have made. As a part of this programme, each affected employee will be asked to work under the supervision of a mentor who is a senior executive. During this period, the employee will not be given any important assignment, even though he will be allowed to work on the project where he is working at present. If the concerned employee is on bench, he will give all his time for the mentoring programme. During this time, the employee will get full salary as well as the regular allowances. "While 50 per cent of such employees come back to the system, others get the message and quit voluntarily in most cases," Gurjar said. It has also been learnt that about 40-50 pre-sale executives, most of who were located in the US, have been asked to quit during the last two months. Most of these people are from consulting background who are in a client-facing role. Gurjar confirmed the move but did not cite the number of people who have been asked to quit. "This is a part of our annual CRR initiative," she said.
The move, which is being seen as an offshoot of the global financial meltdown, is expected to affect over 5,000 of the 100,000-plus employees on the company's rolls. It is learnt that Infosys [Get Quote], the country's second-largest information technology services provider, has told its senior managers (project managers, senior and group project managers, delivery managers) to give the lowest performance rating (4 on a scale of 1-4) to the 'underperforming' 5 per cent as a part of the company's consolidated relative ranking (CRR). Though rock-bottom rankings are not unknown in the company, this is the first time that Infosys has made it mandatory. CRR is decided based on the employee's appraisals which is done twice a year. "The recommendations have already been submitted this month," a senior project manager working with Infosys told Business Standard on the condition of anonymity. Infosys Vice-president and Group HR Head Nandita Gurjar said there was no change in the policy but "...the percentage of employees who are given CRR 4 keeps varying every year between 1 per cent and 5 per cent based on their performance." The company has decided to implement a six-month mentoring programme for such employees after which it will decide their future based on the improvements they have made. As a part of this programme, each affected employee will be asked to work under the supervision of a mentor who is a senior executive. During this period, the employee will not be given any important assignment, even though he will be allowed to work on the project where he is working at present. If the concerned employee is on bench, he will give all his time for the mentoring programme. During this time, the employee will get full salary as well as the regular allowances. "While 50 per cent of such employees come back to the system, others get the message and quit voluntarily in most cases," Gurjar said. It has also been learnt that about 40-50 pre-sale executives, most of who were located in the US, have been asked to quit during the last two months. Most of these people are from consulting background who are in a client-facing role. Gurjar confirmed the move but did not cite the number of people who have been asked to quit. "This is a part of our annual CRR initiative," she said.
Steel majors take a hit in Q3 as demand dips, costs rise (Source: HBL)
Steel majors take a hit in Q3 as demand dips, costs rise
Tata Steel net halves; JSW Steel reports net loss of Rs 128 cr.
Our Bureau Mumbai, Jan. 28 Slackening demand for steel due to the economic slowdown and a sharp rise in prices of raw materials, especially coal, have made a major dent on the bottomlines of Indian steel majors.While Tata Steel, the world’s sixth largest steel maker, on Wednesday reported a nearly 56 per cent dip in its third quarter net profit, JSW Steel posted a loss during the quarter. On Tuesday, Steel Authority of India Ltd also reported a 56 per cent drop in its quarterly net profit at Rs 843 crore.Tata Steel clocked a net profit of Rs 466.24 crore during the quarter, against Rs 1,068.58 crore in the corresponding quarter of last fiscal. JSW Steel, on the other hand, reported a loss of Rs 128 crore for the quarter against a profit of Rs 328 crore in the year-ago quarter. JSW Steel said despite the intense measures to trim costs, control inventory and sharpen focus on the rural markets for value-added products, its sales realisation fell 50 per cent compared to the peak levels.
The company has put off the 10-million tonne expansion project at Vijaynagar works, along with benefication plant and power plant by six months, and it will now be commissioned in March 2011. “All other greenfield projects are currently under review and will be taken up at an appropriate time on achieving financial closure and on improvement of market conditions,” JSW Steel said.Tata Steel’s net sales too registered a decline to touch Rs 4,735.68 crore during the quarter (Rs 4,928.23 crore). The company’s steel production was nearly flat at 1.23 million tonnes (1.24 million tonnes).A sharp rise in cost of raw materials during the quarter pushed up Tata Steel’s expenditure. Its raw materials bill during the quarter was Rs 1,611.17 crore, against Rs 902.32 crore in the year-ago quarter.
Tata Steel reported a foreign exchange loss of Rs 126.80 crore for the quarter, as compared with a gain of Rs 47.92 crore in the corresponding quarter. The company’s third quarter results do not include the results of Corus, which was acquired by the Tatas in 2007 for $12.9 billion. Mr B. Muthuraman, Tata Steel’s Managing Director, felt that the demand for steel will continue to be weak in the current quarter, although there were some positive signs for the later part of the year.Steel prices would remain at current levels for the next few months, he said, adding that the current steel prices are about 50 to 60 per cent below what they were four to five months ago.Replying to a question, he said the market conditions would not impact the company’s two key projects, the expansion of its Jamshedpur plant to 10 million tonnes and the greenfield Kalinganagar (Orrissa) project. “There is no change in our schedule for commissioning the Jamshedpur expansion by April 2011,” he added.Corus, which constitutes Tata Steel’s Europe operations, is facing a 40 per cent fall in demand. “We have currently slashed production by 40 per cent in tune with the market conditions,” Mr Phillpe Varin, Corus’s CEO, said.He was not willing to predict how long the production cut will continue.
Tata Steel net halves; JSW Steel reports net loss of Rs 128 cr.
Our Bureau Mumbai, Jan. 28 Slackening demand for steel due to the economic slowdown and a sharp rise in prices of raw materials, especially coal, have made a major dent on the bottomlines of Indian steel majors.While Tata Steel, the world’s sixth largest steel maker, on Wednesday reported a nearly 56 per cent dip in its third quarter net profit, JSW Steel posted a loss during the quarter. On Tuesday, Steel Authority of India Ltd also reported a 56 per cent drop in its quarterly net profit at Rs 843 crore.Tata Steel clocked a net profit of Rs 466.24 crore during the quarter, against Rs 1,068.58 crore in the corresponding quarter of last fiscal. JSW Steel, on the other hand, reported a loss of Rs 128 crore for the quarter against a profit of Rs 328 crore in the year-ago quarter. JSW Steel said despite the intense measures to trim costs, control inventory and sharpen focus on the rural markets for value-added products, its sales realisation fell 50 per cent compared to the peak levels.
The company has put off the 10-million tonne expansion project at Vijaynagar works, along with benefication plant and power plant by six months, and it will now be commissioned in March 2011. “All other greenfield projects are currently under review and will be taken up at an appropriate time on achieving financial closure and on improvement of market conditions,” JSW Steel said.Tata Steel’s net sales too registered a decline to touch Rs 4,735.68 crore during the quarter (Rs 4,928.23 crore). The company’s steel production was nearly flat at 1.23 million tonnes (1.24 million tonnes).A sharp rise in cost of raw materials during the quarter pushed up Tata Steel’s expenditure. Its raw materials bill during the quarter was Rs 1,611.17 crore, against Rs 902.32 crore in the year-ago quarter.
Tata Steel reported a foreign exchange loss of Rs 126.80 crore for the quarter, as compared with a gain of Rs 47.92 crore in the corresponding quarter. The company’s third quarter results do not include the results of Corus, which was acquired by the Tatas in 2007 for $12.9 billion. Mr B. Muthuraman, Tata Steel’s Managing Director, felt that the demand for steel will continue to be weak in the current quarter, although there were some positive signs for the later part of the year.Steel prices would remain at current levels for the next few months, he said, adding that the current steel prices are about 50 to 60 per cent below what they were four to five months ago.Replying to a question, he said the market conditions would not impact the company’s two key projects, the expansion of its Jamshedpur plant to 10 million tonnes and the greenfield Kalinganagar (Orrissa) project. “There is no change in our schedule for commissioning the Jamshedpur expansion by April 2011,” he added.Corus, which constitutes Tata Steel’s Europe operations, is facing a 40 per cent fall in demand. “We have currently slashed production by 40 per cent in tune with the market conditions,” Mr Phillpe Varin, Corus’s CEO, said.He was not willing to predict how long the production cut will continue.
TRAI wants more than one CDMA player to get 3G spectrum (Source: HBL)
TRAI wants more than one CDMA player to get 3G spectrum
The telecom regulator has told the Government that it should explore allotting 3G spectrum to more than one CDMA-based mobile operator. There are four CDMA-based mobile players in the country for whom the Department of Telecom is yet to specify the roadmap for adoption third generation mobile technology. As of now, the DoT is planning to auction spectrum to only one CDMA player as it does not have spectrum to accommodate more players. However, the telecom regulator has suggested that optimum utilisation of existing users in the 800 Mhz band could free up enough spectrum for one more player.Ensuring Competition “The authority understands that it is perhaps possible to identify more than one carrier in the 800-MHz band. It is all the more imperative as there are more than two access service providers in this category of technology for competition. Therefore, the authority recommends DoT may explore more than one block in the 800-MHz band for CDMA 3G services,” TRAI said. The recently announced information memorandum for 3G auction had not specified the policy for CDMA players. The Association of Unified Telecom Service Provider had written to the Government that limiting 3G auction to GSM operators would destroy the level playing field. Policy call Sistema Shyam, one of the new operators, had also written to the DoT to spell out the policy for CDMA operators. The company said that harmonisation of 800 Mhz band should be done after the auction is over. Subsequently, the DoT decided to auction one slot in the 800 Mhz band for CDMA players and sought TRAI’s views on pricing and allocation method. In its recommendation, TRAI on Wednesday said that only existing CDMA players may be allowed to participate in the auction. It also said that the price of this spectrum should be 25 per cent of the amount paid by the GSM players during their auction to be held in February.
The telecom regulator has told the Government that it should explore allotting 3G spectrum to more than one CDMA-based mobile operator. There are four CDMA-based mobile players in the country for whom the Department of Telecom is yet to specify the roadmap for adoption third generation mobile technology. As of now, the DoT is planning to auction spectrum to only one CDMA player as it does not have spectrum to accommodate more players. However, the telecom regulator has suggested that optimum utilisation of existing users in the 800 Mhz band could free up enough spectrum for one more player.Ensuring Competition “The authority understands that it is perhaps possible to identify more than one carrier in the 800-MHz band. It is all the more imperative as there are more than two access service providers in this category of technology for competition. Therefore, the authority recommends DoT may explore more than one block in the 800-MHz band for CDMA 3G services,” TRAI said. The recently announced information memorandum for 3G auction had not specified the policy for CDMA players. The Association of Unified Telecom Service Provider had written to the Government that limiting 3G auction to GSM operators would destroy the level playing field. Policy call Sistema Shyam, one of the new operators, had also written to the DoT to spell out the policy for CDMA operators. The company said that harmonisation of 800 Mhz band should be done after the auction is over. Subsequently, the DoT decided to auction one slot in the 800 Mhz band for CDMA players and sought TRAI’s views on pricing and allocation method. In its recommendation, TRAI on Wednesday said that only existing CDMA players may be allowed to participate in the auction. It also said that the price of this spectrum should be 25 per cent of the amount paid by the GSM players during their auction to be held in February.
Scope for further cuts in lending, deposit rates: RBI
Scope for further cuts in lending, deposit rates: RBI
Structural factors, large Govt borrowing, risk aversion may constrain banks.
Interest rate response to monetary policy easing has been faster in the money and bond markets as compared to the credit market.
Our Bureau Mumbai, Jan. 28 Even as the Reserve Bank of India wants banks to respond to its earlier policy cues by cutting deposit and lending rates, its third quarter review of Monetary Policy 2008-09 clearly recognises structural factors, including the administered interest rate structure on small savings, persistence of large government borrowing and risk aversion, that would constrain banks from doing so.Pointing out that the interest rate response to monetary policy easing has been faster in the money and bond markets as compared to the credit market, the RBI said the administered interest rate structure on small savings could potentially constrain the reduction in deposit rates below some threshold. Given that a substantial portion of bank deposits are mobilised at fixed interest rates with an asymmetric contractual relationship, during upturn of the interest rate cycle, depositors have the flexibility to prematurely terminate the existing deposits and re-deposit the funds at higher interest rates. However, in the downturn of the interest rate cycle, banks have to necessarily carry these deposits at higher rates of interest till their maturity.RBI underscored the fact that competition among banks for wholesale deposits, for meeting the higher credit demand in the upswing, leads to an increase in the cost of funds. Further, linkage of concessional lending rates (loans to priority sector) to banks’ BPLRs makes overall lending rates less flexible.Persistence of large market borrowing programme of the Government, the central bank pointed out, hardens interest rate expectations. “The Government’s additional borrowing programme could be managed through issuance of securities by the Government directly to RBI on private placement basis at a negotiated rate. This move will not distort the market yields. This way the cost of government’s borrowing will come down and bond yields in the market will trend lower. But then the FRBM Act and the MoU that the Government signs with the RBI will need to be looked at,” said Mr N.S. Venkatesh, MD & CEO, IDBI Gilts Ltd.With increase in risk aversion, the RBI pointed out that lending rates tend to be high even during a period with falling credit demand.Economic perspective “From the real economy perspective, however, for monetary policy to have demand inducing effects, lending rates will have to come down. As such, current deposit and lending rates have significant room for further reduction,” the central bank said.Major public sector banks, according to RBI, have reduced their term deposit rates in the range of 50-150 basis points. Benchmark prime lending rates (BPLRs) of major public sector banks have come down by 150-175 basis points. Major private sector banks have reduced their BPLRs by 50 basis points, while major foreign banks are yet to do so. The RBI emphasised that as a result of several measures initiated by it since mid-September 2008, banks’ cost of funds would come down. This should encourage banks to reduce their lending rates in the coming months.
Structural factors, large Govt borrowing, risk aversion may constrain banks.
Interest rate response to monetary policy easing has been faster in the money and bond markets as compared to the credit market.
Our Bureau Mumbai, Jan. 28 Even as the Reserve Bank of India wants banks to respond to its earlier policy cues by cutting deposit and lending rates, its third quarter review of Monetary Policy 2008-09 clearly recognises structural factors, including the administered interest rate structure on small savings, persistence of large government borrowing and risk aversion, that would constrain banks from doing so.Pointing out that the interest rate response to monetary policy easing has been faster in the money and bond markets as compared to the credit market, the RBI said the administered interest rate structure on small savings could potentially constrain the reduction in deposit rates below some threshold. Given that a substantial portion of bank deposits are mobilised at fixed interest rates with an asymmetric contractual relationship, during upturn of the interest rate cycle, depositors have the flexibility to prematurely terminate the existing deposits and re-deposit the funds at higher interest rates. However, in the downturn of the interest rate cycle, banks have to necessarily carry these deposits at higher rates of interest till their maturity.RBI underscored the fact that competition among banks for wholesale deposits, for meeting the higher credit demand in the upswing, leads to an increase in the cost of funds. Further, linkage of concessional lending rates (loans to priority sector) to banks’ BPLRs makes overall lending rates less flexible.Persistence of large market borrowing programme of the Government, the central bank pointed out, hardens interest rate expectations. “The Government’s additional borrowing programme could be managed through issuance of securities by the Government directly to RBI on private placement basis at a negotiated rate. This move will not distort the market yields. This way the cost of government’s borrowing will come down and bond yields in the market will trend lower. But then the FRBM Act and the MoU that the Government signs with the RBI will need to be looked at,” said Mr N.S. Venkatesh, MD & CEO, IDBI Gilts Ltd.With increase in risk aversion, the RBI pointed out that lending rates tend to be high even during a period with falling credit demand.Economic perspective “From the real economy perspective, however, for monetary policy to have demand inducing effects, lending rates will have to come down. As such, current deposit and lending rates have significant room for further reduction,” the central bank said.Major public sector banks, according to RBI, have reduced their term deposit rates in the range of 50-150 basis points. Benchmark prime lending rates (BPLRs) of major public sector banks have come down by 150-175 basis points. Major private sector banks have reduced their BPLRs by 50 basis points, while major foreign banks are yet to do so. The RBI emphasised that as a result of several measures initiated by it since mid-September 2008, banks’ cost of funds would come down. This should encourage banks to reduce their lending rates in the coming months.
Rules of promoter-less corporates (Source: HBL)
Rules of promoter-less corporates
With more than 95 per cent of Indian companies being family-owned, the country needs specific rules that efficiently handle this model. The governance rules of promoter-less corporates in the US cannot hold good for promoter-led entities in India, says S. GURUMURTHY
Now, after the Satyam scam, a furious debate on corporate governance is on in India. Like the US had debated it, even more furiously, after Enron and Worldcom scams. The author of the current Indian debate undoubtedly is Ramalinga Raju. To capture the end of the debate at the opening, Raju has proved what was always known. Namely, in India, the owner is the CEO, directly or by proxy. So management functions cannot be neatly separated from corporate ownership in India. Again, the essence of governance is that it hedges against wrongdoing, while the law usually steps in later to punish the wrongdoers. But in Raju’s kingdom of Satyam, all internal and external pillars of governance — independent directors, auditors, regulators, and the government — collectively failed to prevent the wrong. Why? The protagonists of the Anglo-American model of corporate governance failed to see the obvious in India. And that is, here the promoter writes the corporate script and dialogue, and directs the play, regardless of who is the hero in the corporate board. But in the Anglo-American situation, the hero of the corporate play is the professional CEO. Even the principal shareholders, equivalent to promoters here, are side-shows. The Indian establishment had trusted, like the US establishment does, mainly the independent directors and the auditors to oversee governance. So, the governance model meant to contain the professional CEO in the US was adopted to restrain the promoter here. Raju has now proved that the Anglo-American model is inadequate to deal with the Indian promoter, whether he is CEO or not. Economy and corporates Originally, corporate governance was integral to corporate law. But in recent times it has become an obsession in the Anglo-American market economic discourse. This is because, in the last couple of decades, three tectonic changes have altered the character and role of corporates in the Anglo-American economies. First, thanks to the ‘Own a Share of America’ campaign launched by the New York Stock Exchange in the 1950s, American households began investing more and more in the stocks of listed corporates, and over the years, got integrated with them. In the 1950s just about 5 per cent of US households held stocks. This rose to 25 per cent in 1990s and to over 50 per cent in 2000. Households, thus — why, the national economy itself — became annexes of the corporates. Second, the mass invasion into corporate membership led to proliferation in financial intermediaries — mutual funds, hedge funds, asset managers and others. These intermediaries themselves emerged as the de facto shareholders of companies. Individual shareholders who had entrusted their money to them did not even care to know in which company their money stood invested. Finally, the advent of derivatives in stock and financial markets changed scrip-based trading to index-based trading. Result, individual companies and their scrips disappeared from the mind of the investor in index-based trading. Shareholder disconnect These tectonic changes first distanced, later disconnected, the shareholders from specific corporates and stocks. The funds, holding most shares in companies, are now like the principal shareholders of the past, and they hire and fire the CEOs. In the process, the funds and the CEOs tended to become too close for the good of the companies. With corporates dominant in the national economy, their governance centred on the separation of ownership led by the funds, from managements led by CEOs, and soon became a field of study in market economics. Result, what was just a matter of corporate law became integral to market economics. Subsequently, the East Asian crisis, and later, the Enron and Worldcom collapses, turned corporate governance into an obsession in the Anglo-American West. But this obsession did not lead to performance. And despite the decade-old obsession with corporate governance, the crisis in the banks and financial institutions in recent months and the financial meltdown are even now attributed to absence of governance. So, in the Anglo-American economies, the much-hyped corporate governance is yet to take shape as an effective mechanism. In contrast, Japan, which was made fun of by the US as promoting crony capitalism, is better off without the US brand of corporate governance. So much for corporate governance in its Mecca where it has become an obsession!Now, coming to India, with the hype of globalisation and the entry of foreign funds in the Indian stock market, the Anglo-American obsession with corporate governance became part of the domestic discourse. In its anxiety to show that India too has done what the US has, the Indian establishment instituted governance rules based on the Anglo-American model, which depended on the independent directors and auditors for its effectiveness. Multi-national accounting firms were forced on local companies having foreign listing to improve the quality of overseeing the governance. This is despite the very multinational accounting firms having abetted to subvert the rules of corporate governance in the Anglo-American economies. Here too, as the Price Waterhouse role in Saytam and Global Trust Bank has shown, they have done precisely what they do there. Where promoter is king Also, the governance rules in India are blind to the obvious truth that the Indian promoter, whether he is a CEO or not, is like a king with a heritable office. He is neither hired nor fired. In contrast, the CEO in the US is hired and fired like a minister is. Yet, many Indian promoters live, even die, for their companies. In the US the CEO or the fund will desert the sinking ship without a second thought. While most Indian promoters will pray for their companies, for some CEOs in the US-West, the company is itself a prey — like it was for Tyco International’s Kozlowski, who was indicted for stealing millions, buying paintings for $13 million and hosting his wife’s birthday party for $1 million at company’s cost. It was mainly to discipline CEOs like Kenneth Lay and Kozlowski that the Anglo-American economies had to enact their corporate governance rules. See how these very rules, imported from the US, actually helped wrongdoing in India. Corporate law in India disqualifies the promoter-directors from voting on the businesses where they are personally interested. But with the advent of the new corporate governance regime, which celebrates independent directors, this very rule has become the safety-net for promoters. It actually helps them avoid all responsibility for the transactions the company enters into with them because independent directors alone can vote on them. See what happened in Satyam. Ramalinga Raju and associates wanted the merger of the Maytas twins — Maytas Infra and Maytas Properties — with Satyam. But the law asked them to abstain from voting, leaving the independent directors to vote. The independent directors did precisely what Raju wanted done. Imagine the law is the other way round, and had permitted the promoter, Raju, to vote in his favour on condition that he must compensate for damages if the transaction proves bad for the company. Raju voting for himself would have been a warning to shareholders before they approved the deal. But the corporate governance rules helped Raju to hide behind the independent directors and get the board to approve the Maytas deal. That the deal finally failed is not because of corporate governance, but thanks to media exposure and resultant shareholder vigil. So, what is the lesson here? In India, where promoters directly or indirectly run the corporates, the law should allow them to vote on the business they are interested in on full disclosure and on the condition that they will compensate the company for any future damages. Owners taking responsibility for their actions is a better protection for the shareholders than owners hiding behind independent directors. With more than 95 per cent of the companies in India said to be family-owned, India has to live with promoter-managed companies for a long time to come, and needs rules that efficiently handle this model.
QED: The governance rules of promoter-less corporates in the US cannot deal with promoter-led corporates in India.
With more than 95 per cent of Indian companies being family-owned, the country needs specific rules that efficiently handle this model. The governance rules of promoter-less corporates in the US cannot hold good for promoter-led entities in India, says S. GURUMURTHY
Now, after the Satyam scam, a furious debate on corporate governance is on in India. Like the US had debated it, even more furiously, after Enron and Worldcom scams. The author of the current Indian debate undoubtedly is Ramalinga Raju. To capture the end of the debate at the opening, Raju has proved what was always known. Namely, in India, the owner is the CEO, directly or by proxy. So management functions cannot be neatly separated from corporate ownership in India. Again, the essence of governance is that it hedges against wrongdoing, while the law usually steps in later to punish the wrongdoers. But in Raju’s kingdom of Satyam, all internal and external pillars of governance — independent directors, auditors, regulators, and the government — collectively failed to prevent the wrong. Why? The protagonists of the Anglo-American model of corporate governance failed to see the obvious in India. And that is, here the promoter writes the corporate script and dialogue, and directs the play, regardless of who is the hero in the corporate board. But in the Anglo-American situation, the hero of the corporate play is the professional CEO. Even the principal shareholders, equivalent to promoters here, are side-shows. The Indian establishment had trusted, like the US establishment does, mainly the independent directors and the auditors to oversee governance. So, the governance model meant to contain the professional CEO in the US was adopted to restrain the promoter here. Raju has now proved that the Anglo-American model is inadequate to deal with the Indian promoter, whether he is CEO or not. Economy and corporates Originally, corporate governance was integral to corporate law. But in recent times it has become an obsession in the Anglo-American market economic discourse. This is because, in the last couple of decades, three tectonic changes have altered the character and role of corporates in the Anglo-American economies. First, thanks to the ‘Own a Share of America’ campaign launched by the New York Stock Exchange in the 1950s, American households began investing more and more in the stocks of listed corporates, and over the years, got integrated with them. In the 1950s just about 5 per cent of US households held stocks. This rose to 25 per cent in 1990s and to over 50 per cent in 2000. Households, thus — why, the national economy itself — became annexes of the corporates. Second, the mass invasion into corporate membership led to proliferation in financial intermediaries — mutual funds, hedge funds, asset managers and others. These intermediaries themselves emerged as the de facto shareholders of companies. Individual shareholders who had entrusted their money to them did not even care to know in which company their money stood invested. Finally, the advent of derivatives in stock and financial markets changed scrip-based trading to index-based trading. Result, individual companies and their scrips disappeared from the mind of the investor in index-based trading. Shareholder disconnect These tectonic changes first distanced, later disconnected, the shareholders from specific corporates and stocks. The funds, holding most shares in companies, are now like the principal shareholders of the past, and they hire and fire the CEOs. In the process, the funds and the CEOs tended to become too close for the good of the companies. With corporates dominant in the national economy, their governance centred on the separation of ownership led by the funds, from managements led by CEOs, and soon became a field of study in market economics. Result, what was just a matter of corporate law became integral to market economics. Subsequently, the East Asian crisis, and later, the Enron and Worldcom collapses, turned corporate governance into an obsession in the Anglo-American West. But this obsession did not lead to performance. And despite the decade-old obsession with corporate governance, the crisis in the banks and financial institutions in recent months and the financial meltdown are even now attributed to absence of governance. So, in the Anglo-American economies, the much-hyped corporate governance is yet to take shape as an effective mechanism. In contrast, Japan, which was made fun of by the US as promoting crony capitalism, is better off without the US brand of corporate governance. So much for corporate governance in its Mecca where it has become an obsession!Now, coming to India, with the hype of globalisation and the entry of foreign funds in the Indian stock market, the Anglo-American obsession with corporate governance became part of the domestic discourse. In its anxiety to show that India too has done what the US has, the Indian establishment instituted governance rules based on the Anglo-American model, which depended on the independent directors and auditors for its effectiveness. Multi-national accounting firms were forced on local companies having foreign listing to improve the quality of overseeing the governance. This is despite the very multinational accounting firms having abetted to subvert the rules of corporate governance in the Anglo-American economies. Here too, as the Price Waterhouse role in Saytam and Global Trust Bank has shown, they have done precisely what they do there. Where promoter is king Also, the governance rules in India are blind to the obvious truth that the Indian promoter, whether he is a CEO or not, is like a king with a heritable office. He is neither hired nor fired. In contrast, the CEO in the US is hired and fired like a minister is. Yet, many Indian promoters live, even die, for their companies. In the US the CEO or the fund will desert the sinking ship without a second thought. While most Indian promoters will pray for their companies, for some CEOs in the US-West, the company is itself a prey — like it was for Tyco International’s Kozlowski, who was indicted for stealing millions, buying paintings for $13 million and hosting his wife’s birthday party for $1 million at company’s cost. It was mainly to discipline CEOs like Kenneth Lay and Kozlowski that the Anglo-American economies had to enact their corporate governance rules. See how these very rules, imported from the US, actually helped wrongdoing in India. Corporate law in India disqualifies the promoter-directors from voting on the businesses where they are personally interested. But with the advent of the new corporate governance regime, which celebrates independent directors, this very rule has become the safety-net for promoters. It actually helps them avoid all responsibility for the transactions the company enters into with them because independent directors alone can vote on them. See what happened in Satyam. Ramalinga Raju and associates wanted the merger of the Maytas twins — Maytas Infra and Maytas Properties — with Satyam. But the law asked them to abstain from voting, leaving the independent directors to vote. The independent directors did precisely what Raju wanted done. Imagine the law is the other way round, and had permitted the promoter, Raju, to vote in his favour on condition that he must compensate for damages if the transaction proves bad for the company. Raju voting for himself would have been a warning to shareholders before they approved the deal. But the corporate governance rules helped Raju to hide behind the independent directors and get the board to approve the Maytas deal. That the deal finally failed is not because of corporate governance, but thanks to media exposure and resultant shareholder vigil. So, what is the lesson here? In India, where promoters directly or indirectly run the corporates, the law should allow them to vote on the business they are interested in on full disclosure and on the condition that they will compensate the company for any future damages. Owners taking responsibility for their actions is a better protection for the shareholders than owners hiding behind independent directors. With more than 95 per cent of the companies in India said to be family-owned, India has to live with promoter-managed companies for a long time to come, and needs rules that efficiently handle this model.
QED: The governance rules of promoter-less corporates in the US cannot deal with promoter-led corporates in India.
Wednesday, January 28, 2009
Nomura catches Lehman omen - posts massive 3Q loss amid global turmoil
TOKYO (AP) Nomura Holdings Inc. says it posted a group net loss of 342.9 billion yen ($3.8 billion) for the October-December quarter, as the global financial turmoil and slumping equity markets dragged Japan's biggest brokerage deeper into the red.The company posted a profit of 21.8 billion yen in the same period a year earlier. The third quarter loss exceeded the 72.9 billion yen loss that Nomura posted for the June-September quarter.The company, which bought Lehman Brothers' operations in Europe, Asia and the Middle East, says pretax losses for the latest quarter totaled 399.5 billion yen from a profit of 44.4 billion yen the previous year. For the nine months ended December, it reported a net loss of 492.4 billion yen on revenue of 518.3 billion yen.
Tuesday, January 27, 2009
Investors pull record $155 bn out of hedge funds
Investors pull record $155 bn out of hedge funds
BOSTON: Investors pulled a record $155 billion out of hedge funds last year, punishing the once red-hot asset class for delivering its worst-ever Company FDs continue to lureInvestment TipsReturn of the Non-Equity Schemes returns, according to numbers released on Wednesday. Hedge funds around the world now manage an estimated $1.4 trillion, the same sum they managed in 2006 and far less than the $1.93 trillion they invested in the middle of 2008, Chicago-based tracking firm Hedge Fund Research said. This is only the second time since 1990 that the exclusive and often secretive hedge fund industry suffered net outflows for the full year, HFR said. Consulting firm Hennessee Group, which also tracks performance and asset flows, said last year was the worst for the industry in terms of performance and redemptions since 1987. HFR reported that investors simply wanted their money back last year, paying little attention to the size of the hedge fund they were invested with, its particular strategy, or how the hedge fund was performing. "Investor risk aversion remained at historically extreme levels through year end, even as implied and realized asset volatility moderated," HFR president Kenneth Heinz said in a statement.
At the end of the year many hedge fund firms, including industry powerhouses Tudor Investment Corp and Citadel Investment Group, took an unusual step and told their investors they could not get their money back just yet as they suspended redemptions. WORST-EVER RETURNS Despite many managers' promises to make money in all markets, the average hedge fund lost 19 percent last year, marking the industry's first full year loss since 2002 when the average fund slipped 2.9 percent, Hennessee Group data show. Hedge funds can sell securities short and use leverage, trading techniques that are off limits at most other portfolios. "2008 hedge fund losses were widespread, with 70 percent of the funds that report to us ending the year in the red," said Sol Waksman, founder and president of BarclayHedge, another industry research group. As a group, hedge funds outperformed the average stock mutual fund's 38 percent drop, but many of the industry's stars suffered losses far steeper than the average 19 percent decline, investors and managers said. Faced with a worsening financial crisis, the collapse of investment bank Lehman Brothers and gyrating stock markets, and steeper hedge fund losses, wealthy individuals and many endowments and some pension funds raced for the exits in the third quarter. They stepped up their calls to exit in the fourth quarter, pulling out $152 billion in the last three months alone, HFR data show. Investors added $16.5 billion in the first quarter of 2008 and put in another $12.5 billion in the second quarter. In the third quarter, they pulled $31.7 billion out, HFR data show. Hedge funds, unlike most mutual funds, lock up assets for months and sometimes years, often requiring their investors to give 45 days' notice before getting their money back.
BOSTON: Investors pulled a record $155 billion out of hedge funds last year, punishing the once red-hot asset class for delivering its worst-ever Company FDs continue to lureInvestment TipsReturn of the Non-Equity Schemes returns, according to numbers released on Wednesday. Hedge funds around the world now manage an estimated $1.4 trillion, the same sum they managed in 2006 and far less than the $1.93 trillion they invested in the middle of 2008, Chicago-based tracking firm Hedge Fund Research said. This is only the second time since 1990 that the exclusive and often secretive hedge fund industry suffered net outflows for the full year, HFR said. Consulting firm Hennessee Group, which also tracks performance and asset flows, said last year was the worst for the industry in terms of performance and redemptions since 1987. HFR reported that investors simply wanted their money back last year, paying little attention to the size of the hedge fund they were invested with, its particular strategy, or how the hedge fund was performing. "Investor risk aversion remained at historically extreme levels through year end, even as implied and realized asset volatility moderated," HFR president Kenneth Heinz said in a statement.
At the end of the year many hedge fund firms, including industry powerhouses Tudor Investment Corp and Citadel Investment Group, took an unusual step and told their investors they could not get their money back just yet as they suspended redemptions. WORST-EVER RETURNS Despite many managers' promises to make money in all markets, the average hedge fund lost 19 percent last year, marking the industry's first full year loss since 2002 when the average fund slipped 2.9 percent, Hennessee Group data show. Hedge funds can sell securities short and use leverage, trading techniques that are off limits at most other portfolios. "2008 hedge fund losses were widespread, with 70 percent of the funds that report to us ending the year in the red," said Sol Waksman, founder and president of BarclayHedge, another industry research group. As a group, hedge funds outperformed the average stock mutual fund's 38 percent drop, but many of the industry's stars suffered losses far steeper than the average 19 percent decline, investors and managers said. Faced with a worsening financial crisis, the collapse of investment bank Lehman Brothers and gyrating stock markets, and steeper hedge fund losses, wealthy individuals and many endowments and some pension funds raced for the exits in the third quarter. They stepped up their calls to exit in the fourth quarter, pulling out $152 billion in the last three months alone, HFR data show. Investors added $16.5 billion in the first quarter of 2008 and put in another $12.5 billion in the second quarter. In the third quarter, they pulled $31.7 billion out, HFR data show. Hedge funds, unlike most mutual funds, lock up assets for months and sometimes years, often requiring their investors to give 45 days' notice before getting their money back.
Steelmaker Corus cuts 3,500 jobs, extends outages
Steelmaker Corus cuts 3,500 jobs, extends outages
LONDON: Corus, Europe's second biggest steelmaker, is cutting 3,500 jobs worldwide, mostly in Britain, as it restructures to battle a global
downturn in demand from automotive and construction industries. The Anglo-Dutch steel group, owned by India's Tata Steel, also said its order book was down more than a third and it was to extend production cuts. "The blast furnaces will be idled until into the second quarter of this year. It could be more... This will depend on the market. We're at a very low level of demand," chief executive Philippe Varin told reporters on Monday. Corus wants to achieve the job losses, equivalent to 8.3 per cent of its workforce, through voluntary redundancies. It is cutting 2,500 jobs in Britain as part of its plan to counter the downturn in the car and construction industries, which make up 50 percent of it sales, and boost annual operating profit by 200 million pounds ($276 million).
LONDON: Corus, Europe's second biggest steelmaker, is cutting 3,500 jobs worldwide, mostly in Britain, as it restructures to battle a global
downturn in demand from automotive and construction industries. The Anglo-Dutch steel group, owned by India's Tata Steel, also said its order book was down more than a third and it was to extend production cuts. "The blast furnaces will be idled until into the second quarter of this year. It could be more... This will depend on the market. We're at a very low level of demand," chief executive Philippe Varin told reporters on Monday. Corus wants to achieve the job losses, equivalent to 8.3 per cent of its workforce, through voluntary redundancies. It is cutting 2,500 jobs in Britain as part of its plan to counter the downturn in the car and construction industries, which make up 50 percent of it sales, and boost annual operating profit by 200 million pounds ($276 million).
Dish TV India (Rs 19.05): Buy (Source: HBL)
Dish TV India (Rs 19.05): Buy
We recommend a buy in Dish TV India from a short-term trading perspective. It is evident from the charts of Dish TV that it has been on an intermediate-term up trend from its 52-week low of Rs 11.75, recorded in late October 2008. On December 10, the stock conclusively broke through a key resistance level of Rs 18 by surging 16 per cent. This resistance level is currently acting as a significant support level for the stock.
Taking twin support from a significant support level at Rs 18 and the intermediate-term up trendline, the stock moved up by 3.5 per cent with good volume on January 23. This up move has reinforced the bullish momentum.
The daily relative strength index (RSI) is rising in the neutral region towards the bullish zone. Considering that the intermediate-term up trendline continues to be intact, we are bullish on the stock from a short-term perspective. We anticipate the stock to move up further until it hits our price target of Rs 21 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 18.
We recommend a buy in Dish TV India from a short-term trading perspective. It is evident from the charts of Dish TV that it has been on an intermediate-term up trend from its 52-week low of Rs 11.75, recorded in late October 2008. On December 10, the stock conclusively broke through a key resistance level of Rs 18 by surging 16 per cent. This resistance level is currently acting as a significant support level for the stock.
Taking twin support from a significant support level at Rs 18 and the intermediate-term up trendline, the stock moved up by 3.5 per cent with good volume on January 23. This up move has reinforced the bullish momentum.
The daily relative strength index (RSI) is rising in the neutral region towards the bullish zone. Considering that the intermediate-term up trendline continues to be intact, we are bullish on the stock from a short-term perspective. We anticipate the stock to move up further until it hits our price target of Rs 21 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 18.
FIIs net buy Rs 112 cr in F&O on Friday
FIIs net buy Rs 112 cr in F&O on Friday
The Foreign institutional investors (FIIs) were net buyers of Rs 111.94 crore in the futures & options segment on Friday.
According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 333.34 crore while bought index options worth Rs 517.41 crore. They were net sellers of stock futures to the tune of Rs 51.14 crore and sold stock options worth Rs 20.99 crore.
The Foreign institutional investors (FIIs) were net buyers of Rs 111.94 crore in the futures & options segment on Friday.
According to data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 333.34 crore while bought index options worth Rs 517.41 crore. They were net sellers of stock futures to the tune of Rs 51.14 crore and sold stock options worth Rs 20.99 crore.
Easing international prices may drive inflation down: RBI (Source: BS)
Easing international prices may drive inflation down: RBI
Recent Cenvat rate cut will lead to a general reduction in price levels.
The Reserve Bank of India (RBI) today said softening of international commodity prices is expected to result in further downward pressure on domestic prices.
Lower pressure on inflation seemed to be the only good news in the Macroeconomic and Monetary Developments report ahead of the RBI’s third quarter review tomorrow. The report said that crude oil prices are expected to be lower this year than what they were in 2008, when they touched an all-time high of $147 a barrel due to weaker demand across the OECD (Organisation for Economic Co-operation and Development) countries and the prolonged global economic downturn.
Lower global prices will augur well for Indian consumers, oil marketing companies and government finances. With the oil marketing companies unable to fully pass on the benefits of higher global crude oil prices, the government has been forced to issue special bonds to partly subsidise their sales.
In addition, a moderation in aggregate demand on account of the expected slowdown is expected to further lower the upside risks to inflation in coming months. “Following the international trend, prices of manufacturing products are expected to moderate. In addition, the pass-through of recent reduction in the Cenvat rate by 4 per cent by the government of India as part of the fiscal stimulus package would lead to a general reduction in price levels,” the report said.
But the central bank has warned of upside risks to the prices of food, oilseeds, sugar and cotton on account of a shortfall in output, according to the first advance estimates of kharif production for 2008-09. “Easing international prices, however, along with improved rabi sowing could eventually balance these risks,” the report added.
Driven by stiff correction of key commodity prices, year-on-year (y-o-y) headline inflation showed a sharp correction from a peak of 12.9 per cent on August 2, 2008, to 5.6 per cent for the-week ended January 10, 2009. “The recent decline in WPI inflation was driven by a decline in prices of minerals, oil, iron and steel, oilseeds, edible oils, oil cakes, raw cotton,” the report said.
Even at the present level, inflation is above the RBI’s comfort level of 5-5.5 per cent. But with a further round of reduction in auto and cooking fuel prices expected in the weeks before the general elections, economists expect inflation to fall further. The third quarter (October-December) witnessed fuel group inflation turning negative to -1.30 per cent during the week ended January 10, as against an intra-year peak of 18 per cent on August 2, 2008.
“This reflected the reduction in the price of petrol by Rs 5 per litre and diesel by Rs 2 per litre effective December 6, 2008, as well as a decline in the prices of freely priced petroleum products in the range of 30-65 per cent since August 2008,” the report said.
With the increase in prices of sugar, edible oils/oil cakes, textiles, chemicals, iron and steel and machinery and machine tools manufactured products, inflation increased to 5.9 per cent on January 10, compared with 4.6 per cent a year ago. However, it came down sharply from its peak of 11.9 per cent in mid-August 2008.
However, increase in the prices of food articles, especially of wheat, fruits, milk, eggs, fish and meat as well as non-food articles such as oilseeds and raw cotton, saw primary articles inflation (y-o-y) rise to 11.6 per cent on January 10, from 4.5 per cent a year ago (it was 9.7 per cent at end-March 2008).
“Inflation, based on year-on-year variation in consumer price indices (CPIs), increased further during November-December 2008 mainly due to increase in the prices of food, fuel and services (represented by the ‘miscellaneous’ group). During the period, various measures of consumer price inflation were placed in the range of 10.4-11.1 per cent as compared with 7.3-8.8 per cent in June 2008 and 5.1- 6.2 per cent in November 2007,” the report said.
Recent Cenvat rate cut will lead to a general reduction in price levels.
The Reserve Bank of India (RBI) today said softening of international commodity prices is expected to result in further downward pressure on domestic prices.
Lower pressure on inflation seemed to be the only good news in the Macroeconomic and Monetary Developments report ahead of the RBI’s third quarter review tomorrow. The report said that crude oil prices are expected to be lower this year than what they were in 2008, when they touched an all-time high of $147 a barrel due to weaker demand across the OECD (Organisation for Economic Co-operation and Development) countries and the prolonged global economic downturn.
Lower global prices will augur well for Indian consumers, oil marketing companies and government finances. With the oil marketing companies unable to fully pass on the benefits of higher global crude oil prices, the government has been forced to issue special bonds to partly subsidise their sales.
In addition, a moderation in aggregate demand on account of the expected slowdown is expected to further lower the upside risks to inflation in coming months. “Following the international trend, prices of manufacturing products are expected to moderate. In addition, the pass-through of recent reduction in the Cenvat rate by 4 per cent by the government of India as part of the fiscal stimulus package would lead to a general reduction in price levels,” the report said.
But the central bank has warned of upside risks to the prices of food, oilseeds, sugar and cotton on account of a shortfall in output, according to the first advance estimates of kharif production for 2008-09. “Easing international prices, however, along with improved rabi sowing could eventually balance these risks,” the report added.
Driven by stiff correction of key commodity prices, year-on-year (y-o-y) headline inflation showed a sharp correction from a peak of 12.9 per cent on August 2, 2008, to 5.6 per cent for the-week ended January 10, 2009. “The recent decline in WPI inflation was driven by a decline in prices of minerals, oil, iron and steel, oilseeds, edible oils, oil cakes, raw cotton,” the report said.
Even at the present level, inflation is above the RBI’s comfort level of 5-5.5 per cent. But with a further round of reduction in auto and cooking fuel prices expected in the weeks before the general elections, economists expect inflation to fall further. The third quarter (October-December) witnessed fuel group inflation turning negative to -1.30 per cent during the week ended January 10, as against an intra-year peak of 18 per cent on August 2, 2008.
“This reflected the reduction in the price of petrol by Rs 5 per litre and diesel by Rs 2 per litre effective December 6, 2008, as well as a decline in the prices of freely priced petroleum products in the range of 30-65 per cent since August 2008,” the report said.
With the increase in prices of sugar, edible oils/oil cakes, textiles, chemicals, iron and steel and machinery and machine tools manufactured products, inflation increased to 5.9 per cent on January 10, compared with 4.6 per cent a year ago. However, it came down sharply from its peak of 11.9 per cent in mid-August 2008.
However, increase in the prices of food articles, especially of wheat, fruits, milk, eggs, fish and meat as well as non-food articles such as oilseeds and raw cotton, saw primary articles inflation (y-o-y) rise to 11.6 per cent on January 10, from 4.5 per cent a year ago (it was 9.7 per cent at end-March 2008).
“Inflation, based on year-on-year variation in consumer price indices (CPIs), increased further during November-December 2008 mainly due to increase in the prices of food, fuel and services (represented by the ‘miscellaneous’ group). During the period, various measures of consumer price inflation were placed in the range of 10.4-11.1 per cent as compared with 7.3-8.8 per cent in June 2008 and 5.1- 6.2 per cent in November 2007,” the report said.
LIC to pump in Rs 4K cr more in stock market by March
LIC to pump in Rs 4K cr more in stock market by March
26 Jan 2009, 1104 hrs IST, PTI
NEW DELHI: The Life Insurance Corporation is all set to pump in an additional over Rs 4,000 crore (about one billion dollar) in the equity market
by March 2009, a move that could bolster the volatile bourses.
"We have made investment of Rs 31,000 crore till December and it may cross Rs 35,000 crore (by the end of March)," LIC Chairman T S Vijayan told PTI.
However, even the huge quantum of fund infusion this year is quite less by the standards that LIC has itself set, as it would be 15 per cent less than Rs 41,000 crore that it invested in equity during the last fiscal year.
As a result, the cumulative investment in equities by March 2009 must be touching Rs 2,00,000 crore, he said.
"Yes it (exposure to equities) is continuously growing. I believe, of all the listed companies' market capitalisation, There may be around 4 per cent with us. It is huge money," he said.
"We have a responsibility. Responsibility to policy holders. Whether the company is performing or not or we have to take investment decision, whether to continue with the company or get out of it," he added.
The public sector insurer is putting in more funds in the equity market at a time when it is seeking to resolve the issues that followed a 10 per cent equity cap announced by insurance regulator IRDA in August.
"If they are changing the goal posts, we are asking them (IRDA) to teach us how to score goals next time," he said.
26 Jan 2009, 1104 hrs IST, PTI
NEW DELHI: The Life Insurance Corporation is all set to pump in an additional over Rs 4,000 crore (about one billion dollar) in the equity market
by March 2009, a move that could bolster the volatile bourses.
"We have made investment of Rs 31,000 crore till December and it may cross Rs 35,000 crore (by the end of March)," LIC Chairman T S Vijayan told PTI.
However, even the huge quantum of fund infusion this year is quite less by the standards that LIC has itself set, as it would be 15 per cent less than Rs 41,000 crore that it invested in equity during the last fiscal year.
As a result, the cumulative investment in equities by March 2009 must be touching Rs 2,00,000 crore, he said.
"Yes it (exposure to equities) is continuously growing. I believe, of all the listed companies' market capitalisation, There may be around 4 per cent with us. It is huge money," he said.
"We have a responsibility. Responsibility to policy holders. Whether the company is performing or not or we have to take investment decision, whether to continue with the company or get out of it," he added.
The public sector insurer is putting in more funds in the equity market at a time when it is seeking to resolve the issues that followed a 10 per cent equity cap announced by insurance regulator IRDA in August.
"If they are changing the goal posts, we are asking them (IRDA) to teach us how to score goals next time," he said.
Saudi asks cos to sack expats first, then locals (Source: Local Newspapers)
Saudi asks cos to sack expats first, then locals
Dubai: In a move that may affect hundreds of expatriates, including Indians, Saudi Arabia has asked all companies in the Kingdom to fire foreigners first if they have to layoff staff. "Labour offices are instructing companies to start with foreigners first if they have to sack staff,'' the 'Saudi Gazette' quoted Muhammad al-Hamdan, head of the labour office in the eastern province, as saying. In fact, Al-Hamdan said that labour office inspectors, working for the ministry of labour, have started investigating companies believed to have sacked Saudi staff, because of the financial meltdown. "Businesses are not permitted to fire Saudi staff and must retain them by transferring them to other jobs made available within a firm by firing expatriate staff,'' he said. According to government figures, the unemployment rate among Saudis is 5.4%. However, government data shows it is closer to 11% and private economists say the figure could be much higher. In the eastern province, the labour office has visited major companies like Sabic or Saudi Arabian Basic Industries Corporation, whose profits plunged 95% last year as a result of the global slowdown, to ascertain jobs of Saudis are not affected. The labour office has a history of protecting the jobs of Saudis in the private sector.
Dubai: In a move that may affect hundreds of expatriates, including Indians, Saudi Arabia has asked all companies in the Kingdom to fire foreigners first if they have to layoff staff. "Labour offices are instructing companies to start with foreigners first if they have to sack staff,'' the 'Saudi Gazette' quoted Muhammad al-Hamdan, head of the labour office in the eastern province, as saying. In fact, Al-Hamdan said that labour office inspectors, working for the ministry of labour, have started investigating companies believed to have sacked Saudi staff, because of the financial meltdown. "Businesses are not permitted to fire Saudi staff and must retain them by transferring them to other jobs made available within a firm by firing expatriate staff,'' he said. According to government figures, the unemployment rate among Saudis is 5.4%. However, government data shows it is closer to 11% and private economists say the figure could be much higher. In the eastern province, the labour office has visited major companies like Sabic or Saudi Arabian Basic Industries Corporation, whose profits plunged 95% last year as a result of the global slowdown, to ascertain jobs of Saudis are not affected. The labour office has a history of protecting the jobs of Saudis in the private sector.
Slowdown ahead, signals RBI
Slowdown ahead, signals RBI
Forecasters’ survey puts GDP growth at 6.8% in the current financial year, 6.3% next year.
The Reserve Bank of India (RBI) today said that economic growth could moderate significantly due to a drop in domestic demand, the global economic slowdown and deterioration in global financial markets.
In its quarterly report ahead of the Monetary Policy review tomorrow, RBI added that the risks to inflation had come down significantly due to the softening in international food and oil prices.
A survey of professional forecasters conducted by the central bank in December showed that gross domestic product (GDP) growth could drop to 6.8 per cent during the current financial year, after clocking 9 per cent or more during the last three years. This is lower even than the forecast of 7.1 per cent announced by the Prime Minister’s Economic Advisory Council last Friday. This would be the first year since 2002-03 that the economy would grow at less than 7 per cent.
* Based on survey of professional forecasters conducted by RBISurvey 1 conducted in March ‘08; Survey 2 conducted in June ‘08Survey 3 conducted in September ‘08; Survey 4 conducted in December ‘08(All data for growth in %)Source: RBI
* Based on survey of professional forecasters conducted by RBISurvey 1 conducted in March ‘08; Survey 2 conducted in June ‘08Survey 3 conducted in September ‘08; Survey 4 conducted in December ‘08(All data for growth in %)Source: RBI
The outlook for 2009-10 was not too good either with the median from a survey of professional forecasters estimating GDP growth at 6.3 per cent.
Various agencies have forecast that the Indian economy would grow between 6.3 per cent and 8 per cent this year, with the Confederation of Indian Industry putting out the most optimistic outlook of over 8 per cent, while the World Bank was at the other end of the spectrum.
A sharp decline in growth in the industrial sector and a deceleration in services, particularly transport and communications, trade, hotels and restaurants, are expected to adversely affect economic growth this year. RBI said that industrial activity, especially in manufacturing and infrastructure, was decelerating.
Though global commodity prices have declined in recent months, higher input costs and lower demand are expected to affect profits of companies. RBI warned that the slowdown in the real sector was affecting the financial sector.
According to the latest data, private and foreign banks saw a sharp drop in growth in credit flow as lenders have turned wary of advancing loans, fearing defaults. In addition, the incremental flow of credit to segments such as non-banking finance companies and small and medium enterprises and other industry groups have also dropped.
The median forecast of the professional forecasters indicated that during the fourth quarter, industrial growth would fall to 4 per cent, while the services sector was likely to register growth of 8 per cent. With the farm sector projected to clock 3.5 per cent rise in output during January-April 2009, the economy is expected to grow at 6.1 per cent during the period.
The global economic downturn could result in export growth dropping to 12 per cent from 23.7 per cent during the last financial year, while imports are expected to rise 17.7 per cent, against nearly 30 per cent in 2007-08, the survey showed. For the first time in seven years, exports declined during October and November 2008.
RBI said that the award of the recommendations of the Sixth Pay Commission for all central government employees, the rise in exemption in tax slabs, pre-election spending and the farm loan waiver scheme will positively impact the economy.
What could also augur well for the Indian economy were the prospects of an improvement in the consumption expenditure in the medium-term due to the changing demographic pattern and the diversified export basket with Asian countries emerging as a major destination for shipment of goods from India.
RBI's growth worries also emanate from the global downturn. "If the recession is deeper and the recovery is long drawn as is the current expectation, emerging economies have also to contend with second round effects in the form of potential terms of trade losses, erosion of export competitiveness and restricted external financing," the report said.
Forecasters’ survey puts GDP growth at 6.8% in the current financial year, 6.3% next year.
The Reserve Bank of India (RBI) today said that economic growth could moderate significantly due to a drop in domestic demand, the global economic slowdown and deterioration in global financial markets.
In its quarterly report ahead of the Monetary Policy review tomorrow, RBI added that the risks to inflation had come down significantly due to the softening in international food and oil prices.
A survey of professional forecasters conducted by the central bank in December showed that gross domestic product (GDP) growth could drop to 6.8 per cent during the current financial year, after clocking 9 per cent or more during the last three years. This is lower even than the forecast of 7.1 per cent announced by the Prime Minister’s Economic Advisory Council last Friday. This would be the first year since 2002-03 that the economy would grow at less than 7 per cent.
* Based on survey of professional forecasters conducted by RBISurvey 1 conducted in March ‘08; Survey 2 conducted in June ‘08Survey 3 conducted in September ‘08; Survey 4 conducted in December ‘08(All data for growth in %)Source: RBI
* Based on survey of professional forecasters conducted by RBISurvey 1 conducted in March ‘08; Survey 2 conducted in June ‘08Survey 3 conducted in September ‘08; Survey 4 conducted in December ‘08(All data for growth in %)Source: RBI
The outlook for 2009-10 was not too good either with the median from a survey of professional forecasters estimating GDP growth at 6.3 per cent.
Various agencies have forecast that the Indian economy would grow between 6.3 per cent and 8 per cent this year, with the Confederation of Indian Industry putting out the most optimistic outlook of over 8 per cent, while the World Bank was at the other end of the spectrum.
A sharp decline in growth in the industrial sector and a deceleration in services, particularly transport and communications, trade, hotels and restaurants, are expected to adversely affect economic growth this year. RBI said that industrial activity, especially in manufacturing and infrastructure, was decelerating.
Though global commodity prices have declined in recent months, higher input costs and lower demand are expected to affect profits of companies. RBI warned that the slowdown in the real sector was affecting the financial sector.
According to the latest data, private and foreign banks saw a sharp drop in growth in credit flow as lenders have turned wary of advancing loans, fearing defaults. In addition, the incremental flow of credit to segments such as non-banking finance companies and small and medium enterprises and other industry groups have also dropped.
The median forecast of the professional forecasters indicated that during the fourth quarter, industrial growth would fall to 4 per cent, while the services sector was likely to register growth of 8 per cent. With the farm sector projected to clock 3.5 per cent rise in output during January-April 2009, the economy is expected to grow at 6.1 per cent during the period.
The global economic downturn could result in export growth dropping to 12 per cent from 23.7 per cent during the last financial year, while imports are expected to rise 17.7 per cent, against nearly 30 per cent in 2007-08, the survey showed. For the first time in seven years, exports declined during October and November 2008.
RBI said that the award of the recommendations of the Sixth Pay Commission for all central government employees, the rise in exemption in tax slabs, pre-election spending and the farm loan waiver scheme will positively impact the economy.
What could also augur well for the Indian economy were the prospects of an improvement in the consumption expenditure in the medium-term due to the changing demographic pattern and the diversified export basket with Asian countries emerging as a major destination for shipment of goods from India.
RBI's growth worries also emanate from the global downturn. "If the recession is deeper and the recovery is long drawn as is the current expectation, emerging economies have also to contend with second round effects in the form of potential terms of trade losses, erosion of export competitiveness and restricted external financing," the report said.
Monday, January 26, 2009
Petrofac Awarded US$2.3 Billion Abu Dhabi Contract
Petrofac Awarded US$2.3 Billion Abu Dhabi Contract
25 January 2009
Petrofac, the international oil & gas facilities service provider, has been awarded a US$2.3 billion contract by Abu Dhabi Company for Onshore Oil Operations (ADCO) for the development of the onshore Asab oil field. Under the 44-month lump-sum contract, Petrofac will provide engineering, procurement and construction (EPC) services to upgrade the production capacity of the Asab field. The rejuvenation of the Asab field is central to ADCO's overall development plan to increase its production and achieve the committed 1.8 million barrels of oil per day contributing towards achieving the country's additional production. In addition to the production capacity upgrade of Asab, Petrofac's scope includes upgrading the facility's capacity to accept increased production from Sahil, Shah and other south east fields and to upgrade the associated utilities and water handling facilities. Mr Abdul Munim Al Kindy, ADCO general manager stated: "This award is a clear indication of Abu Dhabi's commitment to achieving its future production targets and such an investment clearly indicates that the UAE will continue to play an active role in future energy supply." Petrofac's group chief operating officer, Maroun Semaan, commented: "The Asab development is one of the largest upstream projects recently awarded in the region. We are delighted to have secured this significant project, which clearly demonstrates our competitive position in the Middle East. This further reflects the commitments of major oil companies in the region to continue with strategic upstream projects." Commenting on the award, Ayman Asfari, Petrofac's group chief executive, said: "This contract represents one of Petrofac's most important project awards to date and is a significant achievement for our Engineering & Construction business. In 2008, Petrofac separately engaged in a joint venture with Mubadala Petroleum Services Company, and the creation of Petrofac Emirates reinforces our commitment to working in Abu Dhabi and to establishing a long-term and sustainable business in the Emirate."
25 January 2009
Petrofac, the international oil & gas facilities service provider, has been awarded a US$2.3 billion contract by Abu Dhabi Company for Onshore Oil Operations (ADCO) for the development of the onshore Asab oil field. Under the 44-month lump-sum contract, Petrofac will provide engineering, procurement and construction (EPC) services to upgrade the production capacity of the Asab field. The rejuvenation of the Asab field is central to ADCO's overall development plan to increase its production and achieve the committed 1.8 million barrels of oil per day contributing towards achieving the country's additional production. In addition to the production capacity upgrade of Asab, Petrofac's scope includes upgrading the facility's capacity to accept increased production from Sahil, Shah and other south east fields and to upgrade the associated utilities and water handling facilities. Mr Abdul Munim Al Kindy, ADCO general manager stated: "This award is a clear indication of Abu Dhabi's commitment to achieving its future production targets and such an investment clearly indicates that the UAE will continue to play an active role in future energy supply." Petrofac's group chief operating officer, Maroun Semaan, commented: "The Asab development is one of the largest upstream projects recently awarded in the region. We are delighted to have secured this significant project, which clearly demonstrates our competitive position in the Middle East. This further reflects the commitments of major oil companies in the region to continue with strategic upstream projects." Commenting on the award, Ayman Asfari, Petrofac's group chief executive, said: "This contract represents one of Petrofac's most important project awards to date and is a significant achievement for our Engineering & Construction business. In 2008, Petrofac separately engaged in a joint venture with Mubadala Petroleum Services Company, and the creation of Petrofac Emirates reinforces our commitment to working in Abu Dhabi and to establishing a long-term and sustainable business in the Emirate."
HSBC reiterates `Overweight’ rating on Bharti Airtel
HSBC reiterates `Overweight’ rating on Bharti Airtel
RESEARCH: HSBC RATING: OVERWEIGHT CMP: RS 616
HSBC reiterates `Overweight’ rating on Bharti Airtel. The 15% fall in Bharti’s share price since the launch of RCOM’s GSM service in December is an overreaction. Instead, investors should focus on Bharti’s market leadership strengths and RCOM’s longer-term structural limitations of operations in 1,800 MHz which require additional base stations. HSBC believes the combination of low revenue yields and bloated cost structure will reduce the scope for disruptive pricing and competitive intensity will become more rational . HSBC estimates FY10E traffic growth of 32% against the historical average of about 70% and cuts FY10-11 E EPS by 7% and 4% respectively to factor in increasing competition and the slowing economy. The core business is valued at Rs 645 on 13.7x FY10E core earnings based on a 15% premium to HSBC’s Sensex target of 11.9x. The tower business is valued at Rs 141, which reflects a 36% discount to recent transaction multiples. Risks are early implementation of MNP (mobile number portability), rollout of flat rate plans, higher than estimated slowdown in usage, higher than estimated decline in margins on the back of rural penetration, lower termination charges and higher spectrum charges.
RESEARCH: HSBC RATING: OVERWEIGHT CMP: RS 616
HSBC reiterates `Overweight’ rating on Bharti Airtel. The 15% fall in Bharti’s share price since the launch of RCOM’s GSM service in December is an overreaction. Instead, investors should focus on Bharti’s market leadership strengths and RCOM’s longer-term structural limitations of operations in 1,800 MHz which require additional base stations. HSBC believes the combination of low revenue yields and bloated cost structure will reduce the scope for disruptive pricing and competitive intensity will become more rational . HSBC estimates FY10E traffic growth of 32% against the historical average of about 70% and cuts FY10-11 E EPS by 7% and 4% respectively to factor in increasing competition and the slowing economy. The core business is valued at Rs 645 on 13.7x FY10E core earnings based on a 15% premium to HSBC’s Sensex target of 11.9x. The tower business is valued at Rs 141, which reflects a 36% discount to recent transaction multiples. Risks are early implementation of MNP (mobile number portability), rollout of flat rate plans, higher than estimated slowdown in usage, higher than estimated decline in margins on the back of rural penetration, lower termination charges and higher spectrum charges.
Goldman Sachs puts buy on NTPC
Goldman Sachs puts buy on NTPC
RESEARCH: Goldman Sachs RATING: Buy CMP: RS 179
Goldman Sachs maintains its earning estimates of NTPC and `Buy’ rating on the stock. The 12-month target price of Rs 208 is the value of its FY2010E financial assets (Rs 37/share) plus the value of its operating assets using a residual income (RI) model (Rs 171/share). India’s central electricity regulator (CERC) has announced the final tariff norms for generation and transmission projects for FY2010-14 . Takeaways for NTPC - [1] Minimum regulated post-tax ROE (return on equity) raised from 14% to 15.5% (16% in case of new projects completed within prescribed time). [2] Benefit of tax holidays to be retained, but tax on incentives will not be a pass-through . [3] Fixed-cost recovery linked to ‘plant availability’ and not utilisation rate (PLF or plant load factor). [4] Option to avail R&M (repairs and maintenance) allowance for more than 25-year-old units. [5] Normative levels for operational and working capital parameters have been tightened. [6] Depreciation rate for tariff setting largely aligned with accounting norms. Prima facie, CERC’s final tariff norms for FY10-14 are neutral-to-positive for NTPC’s earnings outlook; consensus expected them to be neutral-to-negative . We maintain that [1] effective tax rate and, [2] economic life of projects, are critical parameters to assess NTPC’s profitability during FY10-14.
RESEARCH: Goldman Sachs RATING: Buy CMP: RS 179
Goldman Sachs maintains its earning estimates of NTPC and `Buy’ rating on the stock. The 12-month target price of Rs 208 is the value of its FY2010E financial assets (Rs 37/share) plus the value of its operating assets using a residual income (RI) model (Rs 171/share). India’s central electricity regulator (CERC) has announced the final tariff norms for generation and transmission projects for FY2010-14 . Takeaways for NTPC - [1] Minimum regulated post-tax ROE (return on equity) raised from 14% to 15.5% (16% in case of new projects completed within prescribed time). [2] Benefit of tax holidays to be retained, but tax on incentives will not be a pass-through . [3] Fixed-cost recovery linked to ‘plant availability’ and not utilisation rate (PLF or plant load factor). [4] Option to avail R&M (repairs and maintenance) allowance for more than 25-year-old units. [5] Normative levels for operational and working capital parameters have been tightened. [6] Depreciation rate for tariff setting largely aligned with accounting norms. Prima facie, CERC’s final tariff norms for FY10-14 are neutral-to-positive for NTPC’s earnings outlook; consensus expected them to be neutral-to-negative . We maintain that [1] effective tax rate and, [2] economic life of projects, are critical parameters to assess NTPC’s profitability during FY10-14.
Citigroup maintains `Buy’ rating on Federal Bank
Citigroup maintains `Buy’ rating on Federal Bank
RESEARCH: CITIGROUP RATING: BUY CMP:RS 151
Citigroup maintains `Buy’ rating on Federal Bank. However, it revises the price target down to Rs 215 from Rs 270. Federal Bank reported a strong P&L quarter in 3Q09, with high NIMs (net interest margins) of over 450 bps, core fee income growth over 90%, trading and bond portfolio gains, and relative cost moderation (excluding one-offs ). However, the balance sheet was under pressure, with high asset deterioration and loan-loss provisions . Overall, a mixed quarter - a resilient P&L but marked by increasing asset risks. Federal Bank’s loan
book comprises 36% SMEs (small and medium enterprises) and 32% retail, both of which have seen significant pressures over the last couple of quarters, and contribute to the bulk of the deterioration in asset quality. Incremental slippages increased to about 1.4% of loans in 3Q09, meaningfully above its larger peers. Citigroup increases FY09E earnings by 28%, to incorporate gains on the bond portfolio, but reduces FY10E and FY11E earnings by 21% and 31% respectively, reflecting significantly higher loan-loss provisioning costs.
RESEARCH: CITIGROUP RATING: BUY CMP:RS 151
Citigroup maintains `Buy’ rating on Federal Bank. However, it revises the price target down to Rs 215 from Rs 270. Federal Bank reported a strong P&L quarter in 3Q09, with high NIMs (net interest margins) of over 450 bps, core fee income growth over 90%, trading and bond portfolio gains, and relative cost moderation (excluding one-offs ). However, the balance sheet was under pressure, with high asset deterioration and loan-loss provisions . Overall, a mixed quarter - a resilient P&L but marked by increasing asset risks. Federal Bank’s loan
book comprises 36% SMEs (small and medium enterprises) and 32% retail, both of which have seen significant pressures over the last couple of quarters, and contribute to the bulk of the deterioration in asset quality. Incremental slippages increased to about 1.4% of loans in 3Q09, meaningfully above its larger peers. Citigroup increases FY09E earnings by 28%, to incorporate gains on the bond portfolio, but reduces FY10E and FY11E earnings by 21% and 31% respectively, reflecting significantly higher loan-loss provisioning costs.
Deutsche maintains `Sell’ rating on NALCO
Deutsche maintains `Sell’ rating on NALCO
RESEARCH: DEUTSCHE BANK RATING: SELL CMP: RS 187
Deutsche maintains `Sell’ rating on Nalco with a price target of Rs 126. Nalco’s latest alumina sale tender, which is used as a benchmark for the spot market globally, has been closed at US$194/MT. The new contracted price is down 58% from a high of US$458/MT which Nalco got for a 30,000-tonne shipment in July ‘08. Outlook for alumina remains negative as brought out by the bidding range. Apart from the winning bid of US$194/MT, the majority of bids from traders ranged between US$153-US $176/MT, which provides an indication of market expectations of future alumina price movement. Nalco is averse to any production cuts despite the global demand weakness. Consequently, its aluminum inventory situation is expected to get worse. According to the news flow, inventory is hovering around 15 Kt which is already double of the normal levels of 8 Kt. The inventory situation is expected to get even worse with average inventory increasing to 30 Kt by the year-end . Deutsche remains negative on alumina /aluminium demand and pricing outlook in 2009.
RESEARCH: DEUTSCHE BANK RATING: SELL CMP: RS 187
Deutsche maintains `Sell’ rating on Nalco with a price target of Rs 126. Nalco’s latest alumina sale tender, which is used as a benchmark for the spot market globally, has been closed at US$194/MT. The new contracted price is down 58% from a high of US$458/MT which Nalco got for a 30,000-tonne shipment in July ‘08. Outlook for alumina remains negative as brought out by the bidding range. Apart from the winning bid of US$194/MT, the majority of bids from traders ranged between US$153-US $176/MT, which provides an indication of market expectations of future alumina price movement. Nalco is averse to any production cuts despite the global demand weakness. Consequently, its aluminum inventory situation is expected to get worse. According to the news flow, inventory is hovering around 15 Kt which is already double of the normal levels of 8 Kt. The inventory situation is expected to get even worse with average inventory increasing to 30 Kt by the year-end . Deutsche remains negative on alumina /aluminium demand and pricing outlook in 2009.
Fin markets closed for holiday on Monday
Fin markets closed for holiday on Monday
MUMBAI: Financial markets are closed on Monday for a holiday. Trading resumes on Tuesday.
India's main stock index fell to 1.58 per cent to 8,674.35, its lowest close in two months on Friday, driven down by grim prospects for corporate earnings and fading hopes for a rate cut at next week's central bank policy review. The partially convertible rupee closed at 49.27/29 per dollar, 0.3 per cent weaker than its previous close of 49.13/16. The unit is down 1.2 per cent so far in 2009. The yield on the 10-year benchmark bond ended at 5.72 per cent, off the day's high of 5.86 and below Thursday's close of 5.81 per cent.
MUMBAI: Financial markets are closed on Monday for a holiday. Trading resumes on Tuesday.
India's main stock index fell to 1.58 per cent to 8,674.35, its lowest close in two months on Friday, driven down by grim prospects for corporate earnings and fading hopes for a rate cut at next week's central bank policy review. The partially convertible rupee closed at 49.27/29 per dollar, 0.3 per cent weaker than its previous close of 49.13/16. The unit is down 1.2 per cent so far in 2009. The yield on the 10-year benchmark bond ended at 5.72 per cent, off the day's high of 5.86 and below Thursday's close of 5.81 per cent.
Take salary revisions in your stride (Source: HBL)
Take salary revisions in your stride
It doesn’t pay to think negatively, but if your boss plans to trim your pay and perks, be ready to take changes on the chin, this way.
‘Broking houses resort to layoffs, pay cuts’, ‘Kingfisher cuts pay’, ‘Jet wants employees to take voluntary pay cut’, ‘Corus to pay half salaries to 1000 workers in UK’— lay-off and salary cut news is now heard more often than ever earlier.
But if you thought such a thing could never happen to you, sample this. 143 companies of the total 512 that posted their results for the December quarter have shown over a 5 per cent dip in their staff cost sequentially.
Even in well-known companies such as Zee Entertainment, the salary has dipped by 71 per cent, Reliance Capital (43 per cent), Apollo Tyres (16 per cent) and United Breweries (14 per cent).
Like it or not, retrenchments and pay-scale revisions are happening across industries. In such dicey times, it is imperative that you have a back-up plan — a plan ‘B’ that can help you sail through the tough times, if, God forbid, you happen to find yourself in the middle of the financial crisis. Here are a few suggestions that can help.When mobile reimbursement is cut
Tough times may call for tough measures, but one of the easiest and the first things that companies may resort to in these times is cutting down on employees’ mobile reimbursements. So, how can you bring down your telephone bills, especially when you have to pay from your pockets? Well, for starters, by being mindful of the numbers of minutes you talk.
Try to talk only for the free minutes offered by the service provider. Pen down the numbers you call up frequently and if possible try to get concessional tariffs for the same. Better still, enquire if closed user group (CUG) facility can be activated between these numbers. Note that there are schemes that offer unlimited CUG facilities now. You can also consider moving to pre-paid mobile connections, which can help you set a limit to your mobile spending.
But remember to do a complete homework on the tariff rates of various service providers before you opt for a specific plan. Select only the one that best fits your needs and bill.When bonus is deferred
Try not to commit the bonus money that has not yet come on hand towards expenses that can be postponed or better still avoided — especially so, when you swipe your credit card on hopes that you will pay up from the bonus you get.
At a time when companies are tightening their belts, the possibility that your much-coveted bonus can be deferred looms large. Not paying up credit card bills on time may not only attract exorbitant interest rates but can also make your bank reduce your credit limit. Another word of caution — if you thought you can convert the outstanding on your card to a personal loan; remember you need to have a good credit history for that.
Your bank will give you the loan at a competitive rate only if you have one. If, however, for some reason you do not have a credible credit record, you can consider trying your luck with other banks.
But remember that converting your dues to a loan requires you to shell out a fixed amount towards the interest payment every month; you can no longer get away with paying just the minimum amount due every month. When conveyance allowance is cut
Don’t lose heart if and when your company cuts down on your conveyance expenses, instead explore other means of transport. Try to work out other options such as car pooling with your colleagues or neighbours who take the same route.
To share the burden equally, you can even share your fuel costs. Another option can be to take the public transport. Some bigger cities also have private mass transport options. Explore if your city has it. Cover your needs
Let’s face it — all of us have recurring expenditures regardless of what we earn. So, start saving for the rainy day now. Have at least three months’ salary as a buffer in your account to help you tide over difficult times. You can opt for an insurance cover on bigger commitments such as home loans.
The insurance cover can help you take care of the EMIs for at least a few months if you happen to lose your job. But while taking the insurance cover, remember to specify this need clearly to the insurer as there are several variants in the householders’ insurance cover and some don’t cover loss of employment on layoff.
Also, if you have all along had your employer cover up your medical expenses, choosing a health policy now may also be of help. And, do not commit yourself towards large premium payments when you are selecting the policy.
Take just the basic cover, with no additional frills and that which best addresses your specific needs.Look for extra earnings
If your busy work life left you with no time to pursue hobbies or other interest, now is the time. Hobbies such as painting and stitching can be pursued seriously to earn the extra penny. You can even consider taking up part time jobs- working in super markets, taking tuitions, etc, to bring in that extra moolah. Also, use your free time to read and improve your knowledge and skill set.
Cost pressures can force the management to set high performance standards. Working on improving your skills will help you put in better performance in your current job and may also come in handy in finding a new one. And when on the job, do take conscious efforts to build your network. Remember, references can be of great help at times.
It doesn’t pay to think negatively, but if your boss plans to trim your pay and perks, be ready to take changes on the chin, this way.
‘Broking houses resort to layoffs, pay cuts’, ‘Kingfisher cuts pay’, ‘Jet wants employees to take voluntary pay cut’, ‘Corus to pay half salaries to 1000 workers in UK’— lay-off and salary cut news is now heard more often than ever earlier.
But if you thought such a thing could never happen to you, sample this. 143 companies of the total 512 that posted their results for the December quarter have shown over a 5 per cent dip in their staff cost sequentially.
Even in well-known companies such as Zee Entertainment, the salary has dipped by 71 per cent, Reliance Capital (43 per cent), Apollo Tyres (16 per cent) and United Breweries (14 per cent).
Like it or not, retrenchments and pay-scale revisions are happening across industries. In such dicey times, it is imperative that you have a back-up plan — a plan ‘B’ that can help you sail through the tough times, if, God forbid, you happen to find yourself in the middle of the financial crisis. Here are a few suggestions that can help.When mobile reimbursement is cut
Tough times may call for tough measures, but one of the easiest and the first things that companies may resort to in these times is cutting down on employees’ mobile reimbursements. So, how can you bring down your telephone bills, especially when you have to pay from your pockets? Well, for starters, by being mindful of the numbers of minutes you talk.
Try to talk only for the free minutes offered by the service provider. Pen down the numbers you call up frequently and if possible try to get concessional tariffs for the same. Better still, enquire if closed user group (CUG) facility can be activated between these numbers. Note that there are schemes that offer unlimited CUG facilities now. You can also consider moving to pre-paid mobile connections, which can help you set a limit to your mobile spending.
But remember to do a complete homework on the tariff rates of various service providers before you opt for a specific plan. Select only the one that best fits your needs and bill.When bonus is deferred
Try not to commit the bonus money that has not yet come on hand towards expenses that can be postponed or better still avoided — especially so, when you swipe your credit card on hopes that you will pay up from the bonus you get.
At a time when companies are tightening their belts, the possibility that your much-coveted bonus can be deferred looms large. Not paying up credit card bills on time may not only attract exorbitant interest rates but can also make your bank reduce your credit limit. Another word of caution — if you thought you can convert the outstanding on your card to a personal loan; remember you need to have a good credit history for that.
Your bank will give you the loan at a competitive rate only if you have one. If, however, for some reason you do not have a credible credit record, you can consider trying your luck with other banks.
But remember that converting your dues to a loan requires you to shell out a fixed amount towards the interest payment every month; you can no longer get away with paying just the minimum amount due every month. When conveyance allowance is cut
Don’t lose heart if and when your company cuts down on your conveyance expenses, instead explore other means of transport. Try to work out other options such as car pooling with your colleagues or neighbours who take the same route.
To share the burden equally, you can even share your fuel costs. Another option can be to take the public transport. Some bigger cities also have private mass transport options. Explore if your city has it. Cover your needs
Let’s face it — all of us have recurring expenditures regardless of what we earn. So, start saving for the rainy day now. Have at least three months’ salary as a buffer in your account to help you tide over difficult times. You can opt for an insurance cover on bigger commitments such as home loans.
The insurance cover can help you take care of the EMIs for at least a few months if you happen to lose your job. But while taking the insurance cover, remember to specify this need clearly to the insurer as there are several variants in the householders’ insurance cover and some don’t cover loss of employment on layoff.
Also, if you have all along had your employer cover up your medical expenses, choosing a health policy now may also be of help. And, do not commit yourself towards large premium payments when you are selecting the policy.
Take just the basic cover, with no additional frills and that which best addresses your specific needs.Look for extra earnings
If your busy work life left you with no time to pursue hobbies or other interest, now is the time. Hobbies such as painting and stitching can be pursued seriously to earn the extra penny. You can even consider taking up part time jobs- working in super markets, taking tuitions, etc, to bring in that extra moolah. Also, use your free time to read and improve your knowledge and skill set.
Cost pressures can force the management to set high performance standards. Working on improving your skills will help you put in better performance in your current job and may also come in handy in finding a new one. And when on the job, do take conscious efforts to build your network. Remember, references can be of great help at times.
Vishal Retail: Sell (Source: HBL)
Vishal Retail: Sell
A slowing topline may lead to a deteriorating profit picture, pointing to earnings uncertainty for the next couple of years.
In the light of slowing consumer spending, Vishal is restricting expansion plans.
Bhavana Acharya
Value retailers were, for some time, a preferred option among retail stocks based on the belief that they fare better during tough times. But recent numbers from Vishal Retail, a value retailer present in 181 stores across most Indian states, suggest that not all value retailers are well-placed to weather the slowdown.
Despite its very low valuations, investors can consider selling this stock. The company’s sales growth appears set to slow down sharply, as its same-store sales moderate and it scales back on expansion plans.
A slowing topline, given the thin margins and a high debt burden, may lead to a deteriorating profit picture, pointing to earnings uncertainty for the next couple of years. The stock has fallen precipitously from our earlier ‘Book Profits’ recommendation at Rs 689 (June 22, 2008) and now trades at Rs 53. It is valued at a PE of four times its trailing 12 month earnings with an enterprise value of 0.6 times its 12 month sales and 0.5 times its estimated FY-10 sales.
Space addition was aggressively pursued, its store network surging from the pre-IPO 49 to the current 181. Vishal had floated its IPO in mid-2007, raising about Rs 110 crore, primarily to fund space expansion. Of this, Rs 104 crore, besides debt, was employed for the purpose.Sales slowdown
Successive quarters, post-IPO, saw revenues on the rise, and sales in the quarter ended December 2008 increased 24 per cent over the same period last fiscal. But this is clouded by the fact that sales have been weakening sequentially, shrinking by 5 per cent in June quarter and again by 6 per cent in December quarter of this fiscal.
Vishal’s sales in North India, especially, have been severely affected; its concentration in that region has dealt quite a blow to sales. The company’s focus on Tier-III cities — 139 of its 181 stores — means an overall yield per square foot that is lower than peers. Over 50 per cent of Vishal’s sales come from apparel retailing, where spending has been vulnerable as consumers feel the pinch on their household budgets.Reliance on existing stores
In the light of slowing consumer spending, and narrowing discretionary spending evidenced by low turnover in the consumer durables segment, Vishal is restricting expansion plans to about 5-10 per cent on a year-on-year basis.
Any addition to retail space will be undertaken through franchisees. Franchise stores currently number 13, and have not contributed significantly to the company’s expenses or margins as yet.
Cutting back expansion means that Vishal will have to rely for its growth on sales generation from existing stores rather than additions as has been the case thus far. The picture on this is not confidence-inspiring, as same-store sales growth for the first two quarters of FY-08 was just 7-8 per cent and then turned negative in the third quarter.
There has also been a drop in daily footfalls on a quarterly basis by about 7 per cent. Vishal has managed a marginal increase in conversion rates, but given an overall slowdown in spending, this aspect offers little cheer.Narrowing margins
Viewed in relation to its peers, Vishal has performed reasonably well at the operating level, with margins for the past two quarters at 12 per cent. It has been able to bring down operating costs by re-negotiating rentals with landlords; in some cases managing a 40-50 per cent reduction in rates.
Added to this, it has reduced areas in some stores, and cut down on its warehouse space by nearly half. Logistics has been redesigned in an effort to make it more cost efficient. Using the franchisee mode of expansion in place of owning new stores will require almost nil capex requirements and reduced expenses on power and rentals. Such cost controls may not be possible with owned stores.
However, despite these measures, with the deceleration in sales, high interest costs and depreciation have cut net profit margins down to less than 1 per cent in the December quarter. Debt rose by 44 per cent , with interest payouts more than doubling in the past year. Fixed assets increased 34 per cent in FY09, having already doubled in FY08, pushing up depreciation costs by 80 per cent in a year.
Even so, asset turnover has steadily declined in the past three years, a trend mirrored by inventory turnover. Vishal aims at minimising inventory levels by bringing them in line with sales and will attempt clearing out stocks via discounts. While this may unlock working capital, it will have negative margin implications.Burdened by debt
Vishal’s debt equity ratio is fairly high at 2.6 times. However, it is the interest cover which is more of a concern, having shrunk from seven times to 2.6 times in three years. A portion of debt is due to be repaid this March, and the company has stated that it proposes to roll over debt, for the second time since last year.
Given the more stringent environment now prevailing on bank credit, this may pose challenges, especially given its weak operational cash flows and depleting interest cover. Benefits from extending credit period allowed to it by other creditors may also not improve cash flows significantly.
A slowing topline may lead to a deteriorating profit picture, pointing to earnings uncertainty for the next couple of years.
In the light of slowing consumer spending, Vishal is restricting expansion plans.
Bhavana Acharya
Value retailers were, for some time, a preferred option among retail stocks based on the belief that they fare better during tough times. But recent numbers from Vishal Retail, a value retailer present in 181 stores across most Indian states, suggest that not all value retailers are well-placed to weather the slowdown.
Despite its very low valuations, investors can consider selling this stock. The company’s sales growth appears set to slow down sharply, as its same-store sales moderate and it scales back on expansion plans.
A slowing topline, given the thin margins and a high debt burden, may lead to a deteriorating profit picture, pointing to earnings uncertainty for the next couple of years. The stock has fallen precipitously from our earlier ‘Book Profits’ recommendation at Rs 689 (June 22, 2008) and now trades at Rs 53. It is valued at a PE of four times its trailing 12 month earnings with an enterprise value of 0.6 times its 12 month sales and 0.5 times its estimated FY-10 sales.
Space addition was aggressively pursued, its store network surging from the pre-IPO 49 to the current 181. Vishal had floated its IPO in mid-2007, raising about Rs 110 crore, primarily to fund space expansion. Of this, Rs 104 crore, besides debt, was employed for the purpose.Sales slowdown
Successive quarters, post-IPO, saw revenues on the rise, and sales in the quarter ended December 2008 increased 24 per cent over the same period last fiscal. But this is clouded by the fact that sales have been weakening sequentially, shrinking by 5 per cent in June quarter and again by 6 per cent in December quarter of this fiscal.
Vishal’s sales in North India, especially, have been severely affected; its concentration in that region has dealt quite a blow to sales. The company’s focus on Tier-III cities — 139 of its 181 stores — means an overall yield per square foot that is lower than peers. Over 50 per cent of Vishal’s sales come from apparel retailing, where spending has been vulnerable as consumers feel the pinch on their household budgets.Reliance on existing stores
In the light of slowing consumer spending, and narrowing discretionary spending evidenced by low turnover in the consumer durables segment, Vishal is restricting expansion plans to about 5-10 per cent on a year-on-year basis.
Any addition to retail space will be undertaken through franchisees. Franchise stores currently number 13, and have not contributed significantly to the company’s expenses or margins as yet.
Cutting back expansion means that Vishal will have to rely for its growth on sales generation from existing stores rather than additions as has been the case thus far. The picture on this is not confidence-inspiring, as same-store sales growth for the first two quarters of FY-08 was just 7-8 per cent and then turned negative in the third quarter.
There has also been a drop in daily footfalls on a quarterly basis by about 7 per cent. Vishal has managed a marginal increase in conversion rates, but given an overall slowdown in spending, this aspect offers little cheer.Narrowing margins
Viewed in relation to its peers, Vishal has performed reasonably well at the operating level, with margins for the past two quarters at 12 per cent. It has been able to bring down operating costs by re-negotiating rentals with landlords; in some cases managing a 40-50 per cent reduction in rates.
Added to this, it has reduced areas in some stores, and cut down on its warehouse space by nearly half. Logistics has been redesigned in an effort to make it more cost efficient. Using the franchisee mode of expansion in place of owning new stores will require almost nil capex requirements and reduced expenses on power and rentals. Such cost controls may not be possible with owned stores.
However, despite these measures, with the deceleration in sales, high interest costs and depreciation have cut net profit margins down to less than 1 per cent in the December quarter. Debt rose by 44 per cent , with interest payouts more than doubling in the past year. Fixed assets increased 34 per cent in FY09, having already doubled in FY08, pushing up depreciation costs by 80 per cent in a year.
Even so, asset turnover has steadily declined in the past three years, a trend mirrored by inventory turnover. Vishal aims at minimising inventory levels by bringing them in line with sales and will attempt clearing out stocks via discounts. While this may unlock working capital, it will have negative margin implications.Burdened by debt
Vishal’s debt equity ratio is fairly high at 2.6 times. However, it is the interest cover which is more of a concern, having shrunk from seven times to 2.6 times in three years. A portion of debt is due to be repaid this March, and the company has stated that it proposes to roll over debt, for the second time since last year.
Given the more stringent environment now prevailing on bank credit, this may pose challenges, especially given its weak operational cash flows and depleting interest cover. Benefits from extending credit period allowed to it by other creditors may also not improve cash flows significantly.
Bank of India: Buy (Source: HBL)
Bank of India: Buy
Fresh investments can be considered in Bank of India stock as it has continued to deliver better-than-expected earnings growth on a consistent basis.
Its superior return ratios (Return on Assets of 1.52 per cent and Return on Equity of 30.1 per cent), efficient operations due to controlled costs, diversified-high quality loan book and sustainable growth in its core operating revenues are the key positives for the bank. At current market price of Rs 230, the stock is trading at 4.1 times its trailing one year earnings and 1.1 times its December 2008 book value. Though profit growth may moderate from current levels, it is likely to remain well above peers in PSU space.
In the nine months ended December 2008, Bank of India posted a 75 per cent profit growth. The bank’s global advances have grown at 31 per cent while global deposits grew at 26 per cent year-on-year. Advances growth was driven by growth in corporate advances (72 per cent), even as retail credit stayed almost flat. The bank has a high credit-deposit ratio which boosted growth in net interest income to 40 per cent.
Net Interest Margin for first 9 months improved to 3.14 per cent from 2.97 per cent, due to a higher yield on advances. Going forward, as the bank trims lending rates, margins may moderate from this level. However, the fall may be contained as recent relaxations in CRR, SLR and repo rates bring down the cost of deposits.
On the cost side, employee expenses and provisions have risen as the AS-15 transition liability carries higher costs due to a fall in discount rates. But complete rollout of the Core Banking Solution, may help offset this over the next year.
While treasury gains aided profits this quarter, mark-to-market provision on overseas credit linked notes, higher taxes and provision for NPAs partially offset this. If not for these provisions, net profit would have grown at a higher rate. Asset quality, a key concern surrounding bank stocks, improved year-on-year, but showed slippage sequentially. The net NPA/advances for the bank has increased from 0.48 per cent to 0.52 per cent, but remains at manageable levels. The loan book is divided into Corporate (48 per cent), SME (21 per cent), retail (17 per cent), Agriculture (14 per cent).
Going forward, apart from its diversified loan book and focus on corporate advances, a high provision cover of 77 per cent will also shield asset quality.
The concerns over the service tax on deposit insurance premium appear to be overdone as the bank may take a hit of around 6 per cent of current quarter profit in worst case scenario (assuming all its deposits are below Rs 1 lakh).
Fresh investments can be considered in Bank of India stock as it has continued to deliver better-than-expected earnings growth on a consistent basis.
Its superior return ratios (Return on Assets of 1.52 per cent and Return on Equity of 30.1 per cent), efficient operations due to controlled costs, diversified-high quality loan book and sustainable growth in its core operating revenues are the key positives for the bank. At current market price of Rs 230, the stock is trading at 4.1 times its trailing one year earnings and 1.1 times its December 2008 book value. Though profit growth may moderate from current levels, it is likely to remain well above peers in PSU space.
In the nine months ended December 2008, Bank of India posted a 75 per cent profit growth. The bank’s global advances have grown at 31 per cent while global deposits grew at 26 per cent year-on-year. Advances growth was driven by growth in corporate advances (72 per cent), even as retail credit stayed almost flat. The bank has a high credit-deposit ratio which boosted growth in net interest income to 40 per cent.
Net Interest Margin for first 9 months improved to 3.14 per cent from 2.97 per cent, due to a higher yield on advances. Going forward, as the bank trims lending rates, margins may moderate from this level. However, the fall may be contained as recent relaxations in CRR, SLR and repo rates bring down the cost of deposits.
On the cost side, employee expenses and provisions have risen as the AS-15 transition liability carries higher costs due to a fall in discount rates. But complete rollout of the Core Banking Solution, may help offset this over the next year.
While treasury gains aided profits this quarter, mark-to-market provision on overseas credit linked notes, higher taxes and provision for NPAs partially offset this. If not for these provisions, net profit would have grown at a higher rate. Asset quality, a key concern surrounding bank stocks, improved year-on-year, but showed slippage sequentially. The net NPA/advances for the bank has increased from 0.48 per cent to 0.52 per cent, but remains at manageable levels. The loan book is divided into Corporate (48 per cent), SME (21 per cent), retail (17 per cent), Agriculture (14 per cent).
Going forward, apart from its diversified loan book and focus on corporate advances, a high provision cover of 77 per cent will also shield asset quality.
The concerns over the service tax on deposit insurance premium appear to be overdone as the bank may take a hit of around 6 per cent of current quarter profit in worst case scenario (assuming all its deposits are below Rs 1 lakh).
No doubt over Satyam employee count
‘No doubt over Satyam employee count’
Chennai, Jan. 25 It’s official. There are no ghost employees in Satyam and the stated figure of 53,000 as of September 30, 2008 is correct, according to a member of the new board of directors of the company.
Mr T.N. Manoharan, past President of The Institute of Chartered Accountants of India and one of the six government nominees on the new Satyam board, told Business Line: “There is no doubt over the employee count. There are about 45,000 employees in Satyam and another 6,000, including contract employees, working in subsidiary companies in India and abroad. The balance 2,000 is the attrition over the last four months.”
He said though the new board had already checked this out in the last couple of weeks, it has initiated a fresh count now following the statement in court about the fictitious employees.
“We will know the result in the course of the coming week,” he said.Arranging funds, payments
Meanwhile, the board, which will meet again on Monday and Tuesday, is trying to arrange funds for payment of salaries at the end of this month to employees in India and the US.
A senior official involved in the process who wished to remain anonymous said the company needs about Rs 500 crore immediately to pay salaries and clear pending utility and contractor bills.
It is understood that talks are on with some Indian banks to raise funds by mortgaging freehold land and buildings of Satyam. The official said though receivables are being pursued, securing a loan will help the new board focus on strategy rather than spend its time in “firefighting” day-to-day problems.Stabilising operations
The official said the strategy of the board is to stabilise the operations, while keeping an eye out for potential suitors. Investment bank Goldman Sachs made a presentation at the board meeting on Friday, while UBS is understood to have made a telephonic presentation. L&T, which holds 12 per cent in Satyam now, did not make a presentation nor has it contacted the board.
Mr Deepak Parekh and Mr Kiran Karnik, both board members, are understood to be talking to the three short-listed candidates for the CEO position and Monday’s meeting is likely to finalise the appointment of one of the three.
The members have also individually addressed Satyam’s employees, recordings of which have already been webcast to Satyamites across the world.
The official said the commitment of employees continues to be high. Similarly, the board has also spoken individually to clients whose “comfort levels” are gradually increasing, said the official.
Chennai, Jan. 25 It’s official. There are no ghost employees in Satyam and the stated figure of 53,000 as of September 30, 2008 is correct, according to a member of the new board of directors of the company.
Mr T.N. Manoharan, past President of The Institute of Chartered Accountants of India and one of the six government nominees on the new Satyam board, told Business Line: “There is no doubt over the employee count. There are about 45,000 employees in Satyam and another 6,000, including contract employees, working in subsidiary companies in India and abroad. The balance 2,000 is the attrition over the last four months.”
He said though the new board had already checked this out in the last couple of weeks, it has initiated a fresh count now following the statement in court about the fictitious employees.
“We will know the result in the course of the coming week,” he said.Arranging funds, payments
Meanwhile, the board, which will meet again on Monday and Tuesday, is trying to arrange funds for payment of salaries at the end of this month to employees in India and the US.
A senior official involved in the process who wished to remain anonymous said the company needs about Rs 500 crore immediately to pay salaries and clear pending utility and contractor bills.
It is understood that talks are on with some Indian banks to raise funds by mortgaging freehold land and buildings of Satyam. The official said though receivables are being pursued, securing a loan will help the new board focus on strategy rather than spend its time in “firefighting” day-to-day problems.Stabilising operations
The official said the strategy of the board is to stabilise the operations, while keeping an eye out for potential suitors. Investment bank Goldman Sachs made a presentation at the board meeting on Friday, while UBS is understood to have made a telephonic presentation. L&T, which holds 12 per cent in Satyam now, did not make a presentation nor has it contacted the board.
Mr Deepak Parekh and Mr Kiran Karnik, both board members, are understood to be talking to the three short-listed candidates for the CEO position and Monday’s meeting is likely to finalise the appointment of one of the three.
The members have also individually addressed Satyam’s employees, recordings of which have already been webcast to Satyamites across the world.
The official said the commitment of employees continues to be high. Similarly, the board has also spoken individually to clients whose “comfort levels” are gradually increasing, said the official.
Jain Irrigation: Harvesting profits (Source: BS)
Jain Irrigation: Harvesting profits
Focus on high potential areas, foray into new markets and improving macro environment will help Jain Irrigation sustain growth rates.
In light of the tough times that many industries are facing, there are only a few areas that provide the comfort of safety and growth. One of them is Jain Irrigation, a dominant player and catering to the needs of the large untapped agriculture equipment market. Even during the current uncertain times, the company is expected to report revenue and earnings growth of about 35-40 per cent over the next two years.
Growth drivers
Jain Irrigation has presence in water irrigation, piping systems, plastic sheets and food processing. The company’s biggest growth driver has been the micro irrigation systems (MIS), which is also the largest revenue contributor accounting for about 50 per cent of its total consolidated income.
This segment has grown at about 80 per cent annually in last four years and should continue to grow at 45-50 per cent for the next two to years as the company explores new and untapped markets. It’s diversification into new crops such as cotton, groundnut, potato, and chilly and vegetables, as well as the government’s emphasis on agriculture also augur well for the company.
MIS, which includes drip systems, sprinkler, valves, water filters, and plant tissue products, helps in effectively utilising water (in water scare areas and oddly shaped fields), and thus, enhances productivity of seeds and fertiliser (yield and quality of crop).
In order to strengthen its MIS portfolio, the company had earlier made several overseas acquisitions including NaanDan of Israel (specialist in oilseeds, potato and cotton crops), the world’s fifth largest micro-irrigation company. Similarly, it acquired Thomas Machines of Switzerland, a specialist in drip irrigation lines. Besides providing access to superior technology, the acquisitions help the company to enhance presence in growing markets such as South Africa, US and Europe.
Huge opportunities
According to estimates, there is about 140 million hectare of area under cultivation. Of this, about 50 per cent has adequate water resources and only 1.7 million hectare (1.2 per cent of total area) is cultivated using irrigation systems. In this context, and with the government focusing on effective utilisation of existing cultivable land and adding new area for agriculture use, India is seen as a promising market.
These modern techniques (like MIS) are being given a subsidy (about 50-70 per cent of the cost) by central and state governments, thus making it affordable for farmers and thereby resulting in higher penetration.
Jain Irrigation has major presence in the states like Andhra Pradesh, Maharashtra and Gujarat and, commands a market share of 50-70 per cent in these markets. The company has now entered other states like Chattisgarh, MP, Rajasthan, Haryana, Punjab and Himachal Pradesh.
“More importantly, these markets hold lot of potential as penetration level is still very low. As compared to penetration levels ranging 5-8 per cent in our existing markets, the penetration in these new markets is just 1-1.5 per cent. Also, northern states like Punjab, MP, UP and Rajasthan are relatively huge markets,” says Anil Jain, managing director, Jain Irrigation Systems.
Small, but...
Post the acquisition of Cascade Specialities USA, in November 2006, Jain Irrigation has emerged as a global player in the onion dehydration business. Today, the company is among the largest processors globally, having six plants and annual processing capacity of 3,50,000 tonne, of fruits and vegetables which it supplies to domestic companies like Coca Cola India, Nestle, HUL and global players such as Sun Juice (UK) and Langers Juice (US).
This business has grown three-fold from a turnover of Rs 102 crore in FY05 to Rs 303 crore in FY08. Notably, considering that there are ample opportunities in the food processing industry (fruit juices, etc) and as company is now expanding its range to include other fruits (banana, oranges) and vegetables in the near future, this business should grow at about 40-45 per cent over the next two years.
Better margins
The food processing and MIS businesses enjoy operating margins of 25-30 per cent, while the pipes business earns margins of 10-12 per cent. Thus, overall margins are lower at about 15 per cent. Notably, the contribution of the pipes business has declined from 62 per cent in FY05 to 36 per cent in FY08, and is seen falling further as the share of food processing and MIS rise.
Additionally, thanks to the fall in crude oil prices, international polymer prices have come down by 40-45 per cent in last six months. Polymer is the key raw material accounting for 60-70 per cent of total manufacturing cost in the pipes and MIS divisions. This should also lead to improvement in operating margins as well as a decline in working capital required (by about 15-20 per cent; value of inventories and debtors should fall).
Favourable changes
The company’s working capital requirement stood at Rs 1,097 crore or six month sales in FY08 (working capital loan facility was Rs 620-650 crore; total loan outstanding was Rs 1,276 crore). In FY09, assuming a 35 per cent growth in revenue, working capital requirement should typically rise to about Rs 1,500 crore.
However, thanks to the lower polymer price, better receivables and decrease in inventory levels, the overall working capital required should be about Rs 1,275 crore. “As the cash flow will improve due to better working capital and lower capex, the company will require less working capital loan,” says Manoj Lodha, president- finance and banking, Jain Irrigation Systems. Going ahead, even as there may be a marginal increase (Rs 200 crore) in working capital loans (due to jump in turnover), the fall in interest rates (13-13.5 per cent to less than 12 per cent) suggests that interest cost is unlikely to increase in FY10.
Additionally, the company is also talking to state governments for providing a refinancing facility (for subsidy portion) from banks, which if materialises, will further reduce interest expenses.
Valuations
The company is operating in high growth areas, which will help sustain robust revenue growth for many years. The recent developments such as falling interest rates, lower raw material prices and improved cash flow are also some key positives in the near term. At Rs 321.25, the stock trades at 9.26 times its FY10 estimated earnings, and offers a good long-term investment opportunity.
Focus on high potential areas, foray into new markets and improving macro environment will help Jain Irrigation sustain growth rates.
In light of the tough times that many industries are facing, there are only a few areas that provide the comfort of safety and growth. One of them is Jain Irrigation, a dominant player and catering to the needs of the large untapped agriculture equipment market. Even during the current uncertain times, the company is expected to report revenue and earnings growth of about 35-40 per cent over the next two years.
Growth drivers
Jain Irrigation has presence in water irrigation, piping systems, plastic sheets and food processing. The company’s biggest growth driver has been the micro irrigation systems (MIS), which is also the largest revenue contributor accounting for about 50 per cent of its total consolidated income.
This segment has grown at about 80 per cent annually in last four years and should continue to grow at 45-50 per cent for the next two to years as the company explores new and untapped markets. It’s diversification into new crops such as cotton, groundnut, potato, and chilly and vegetables, as well as the government’s emphasis on agriculture also augur well for the company.
MIS, which includes drip systems, sprinkler, valves, water filters, and plant tissue products, helps in effectively utilising water (in water scare areas and oddly shaped fields), and thus, enhances productivity of seeds and fertiliser (yield and quality of crop).
In order to strengthen its MIS portfolio, the company had earlier made several overseas acquisitions including NaanDan of Israel (specialist in oilseeds, potato and cotton crops), the world’s fifth largest micro-irrigation company. Similarly, it acquired Thomas Machines of Switzerland, a specialist in drip irrigation lines. Besides providing access to superior technology, the acquisitions help the company to enhance presence in growing markets such as South Africa, US and Europe.
Huge opportunities
According to estimates, there is about 140 million hectare of area under cultivation. Of this, about 50 per cent has adequate water resources and only 1.7 million hectare (1.2 per cent of total area) is cultivated using irrigation systems. In this context, and with the government focusing on effective utilisation of existing cultivable land and adding new area for agriculture use, India is seen as a promising market.
These modern techniques (like MIS) are being given a subsidy (about 50-70 per cent of the cost) by central and state governments, thus making it affordable for farmers and thereby resulting in higher penetration.
Jain Irrigation has major presence in the states like Andhra Pradesh, Maharashtra and Gujarat and, commands a market share of 50-70 per cent in these markets. The company has now entered other states like Chattisgarh, MP, Rajasthan, Haryana, Punjab and Himachal Pradesh.
“More importantly, these markets hold lot of potential as penetration level is still very low. As compared to penetration levels ranging 5-8 per cent in our existing markets, the penetration in these new markets is just 1-1.5 per cent. Also, northern states like Punjab, MP, UP and Rajasthan are relatively huge markets,” says Anil Jain, managing director, Jain Irrigation Systems.
Small, but...
Post the acquisition of Cascade Specialities USA, in November 2006, Jain Irrigation has emerged as a global player in the onion dehydration business. Today, the company is among the largest processors globally, having six plants and annual processing capacity of 3,50,000 tonne, of fruits and vegetables which it supplies to domestic companies like Coca Cola India, Nestle, HUL and global players such as Sun Juice (UK) and Langers Juice (US).
This business has grown three-fold from a turnover of Rs 102 crore in FY05 to Rs 303 crore in FY08. Notably, considering that there are ample opportunities in the food processing industry (fruit juices, etc) and as company is now expanding its range to include other fruits (banana, oranges) and vegetables in the near future, this business should grow at about 40-45 per cent over the next two years.
Better margins
The food processing and MIS businesses enjoy operating margins of 25-30 per cent, while the pipes business earns margins of 10-12 per cent. Thus, overall margins are lower at about 15 per cent. Notably, the contribution of the pipes business has declined from 62 per cent in FY05 to 36 per cent in FY08, and is seen falling further as the share of food processing and MIS rise.
Additionally, thanks to the fall in crude oil prices, international polymer prices have come down by 40-45 per cent in last six months. Polymer is the key raw material accounting for 60-70 per cent of total manufacturing cost in the pipes and MIS divisions. This should also lead to improvement in operating margins as well as a decline in working capital required (by about 15-20 per cent; value of inventories and debtors should fall).
Favourable changes
The company’s working capital requirement stood at Rs 1,097 crore or six month sales in FY08 (working capital loan facility was Rs 620-650 crore; total loan outstanding was Rs 1,276 crore). In FY09, assuming a 35 per cent growth in revenue, working capital requirement should typically rise to about Rs 1,500 crore.
However, thanks to the lower polymer price, better receivables and decrease in inventory levels, the overall working capital required should be about Rs 1,275 crore. “As the cash flow will improve due to better working capital and lower capex, the company will require less working capital loan,” says Manoj Lodha, president- finance and banking, Jain Irrigation Systems. Going ahead, even as there may be a marginal increase (Rs 200 crore) in working capital loans (due to jump in turnover), the fall in interest rates (13-13.5 per cent to less than 12 per cent) suggests that interest cost is unlikely to increase in FY10.
Additionally, the company is also talking to state governments for providing a refinancing facility (for subsidy portion) from banks, which if materialises, will further reduce interest expenses.
Valuations
The company is operating in high growth areas, which will help sustain robust revenue growth for many years. The recent developments such as falling interest rates, lower raw material prices and improved cash flow are also some key positives in the near term. At Rs 321.25, the stock trades at 9.26 times its FY10 estimated earnings, and offers a good long-term investment opportunity.
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