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Saturday, February 28, 2009
US stocks slide to 12-year lows, oil also down
A deep contraction of the US economy pushed oil prices down on Friday while global equity markets fell on the latest US government move to save ailing Citigroup, knocking the S&P 500 and Dow to 12-year lows. The US government said it could take as much as a 36 percent state in Citigroup's common stock, leading the US dollar to rise broadly as investors worried that other American banks might also need a similar show of support. US Treasuries erased early gains and long-dated bonds turned lower after a brief paring of stock losses led investors to fear a rebounding equity markets could take money away from looming massive sales of government debt. The broad market Standard & Poor's 500 Index fell to its lowest close since December 1996, increasing the depth of a bear market that is now off 53 percent from its peak in 2007. The Dow Jones industrial average fell to its lowest close since May 1997. The US government will swap up to $25 billion of its preferred shares of Citigroup into common stock of the bank in one of its most dramatic efforts to prop up the battered banking sector. Citigroup will stop paying dividends on its preferred and common stock and promised to shake up its board of directors. Citigroup shares plunged 39 percent to close at $1.50, while shares of Bank of America plummeted almost 26 percent to $3.95. "There are continued beliefs that Citibank is not the last bank that the government will take a large stake in," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. "Some people believe that if the government takes a 30 to 40 percent stake, which they did in Citibank, that would be considered some form of nationalization," he said. The Dow fell 119.15 points, or 1.66 percent, at 7,062.93. The S&P 500 lost 17.74 points, or 2.36 percent, at 735.09. The Nasdaq Composite Index declined 13.63 points, or 0.98 percent, at 1,377.84. The dollar rose but the yen rebounded from sharp weekly losses as month-end and repatriation flows gave some support to the currency, analysts said. The dollar rose against a basket of major currencies, with the US Dollar Index up 0.33 percent at 88.132. Against the yen, the dollar fell 0.87 percent at 97.53.
Berkshire net sinks; Buffett says economy in shambles
Berkshire Hathaway Inc, Warren Buffett's insurance and investment company, barely broke even in the fourth quarter because of losses on contracts tied to the stock market, which caused its net worth to tumble $10.9 billion. Buffett also offered a gloomy outlook for the economy, saying in his annual letter to Berkshire shareholders: "The economy will be in shambles throughout 2009 -- and for that matter, probably well beyond." Quarterly net income for Omaha, Nebraska-based Berkshire sank 96 percent to $117 million, or $76 per Class A share, from $2.95 billion, or $1,904, a year earlier, based on company filings. Revenue fell 12 percent to $24.59 billion. Results were battered by $4.61 billion of pretax losses on about 251 derivative contracts largely tied to the longer-term performance of four stock market indexes and the creditworthiness of higher-risk "junk" bonds. The losses were twice what Berkshire suffered in the prior nine months.
A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire. While the losses exist on paper, accounting rules require Berkshire to report them with earnings. Berkshire's net worth fell to $109.27 billion at year end from $120.16 billion at the end of September, and $120.73 billion at the end of 2007. For all of 2008, profit at Berkshire fell 62 percent to $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548. Earnings were the lowest since 2002. Revenue fell 9 percent to $107.8 billion. Berkshire Class A shares closed Friday at $78,600 on the New York Stock Exchange. They have fallen 44 percent since the end of February 2008, while the Standard & Poor's 500 has dropped 45 percent.
A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire. While the losses exist on paper, accounting rules require Berkshire to report them with earnings. Berkshire's net worth fell to $109.27 billion at year end from $120.16 billion at the end of September, and $120.73 billion at the end of 2007. For all of 2008, profit at Berkshire fell 62 percent to $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548. Earnings were the lowest since 2002. Revenue fell 9 percent to $107.8 billion. Berkshire Class A shares closed Friday at $78,600 on the New York Stock Exchange. They have fallen 44 percent since the end of February 2008, while the Standard & Poor's 500 has dropped 45 percent.
L&T eyes 30% rise in sales next fiscal
With a healthy Rs 68,000 crore order-book, the construction major Larsen & Toubro (L&T) today said it expects to maintain 30 per cent growth rate in sales in the next fiscal despite slowdown in the economy.
"There will be sale growth of 30 per cent during 2008-09. We are confident that we will be able to maintain that for the next fiscal. That is our hope," L&T whole-time Director and President (Machinery and Industrial Products) J P Nayak told reporters on the sidelines of a CII conference.
As on January-end, L&T is sitting on a hefty order-book for projects to be executed over the next two years.
However, he said a lot will depend on the orders coming in the next few months. He also noted that overall the company has not been affected by the slowdown.
"About 75 per cent of our business is project-based which has not seen a slowdown as of now. Our order backlog is for over two years so in our case there is no slowdown as such as you can see in the first nine months, our sales have grown by 40 per cent over the last year," he said.
Nayak said the firm's manufacturing components business has witnessed some slowdown. He added slowdown may impact future order-booking, but it all depends on how economic situation unfolds.
L&T's sales for the quarter ended December 31, rose by 35 per cent to Rs 8,700 crore over the year-ago period.
"There will be sale growth of 30 per cent during 2008-09. We are confident that we will be able to maintain that for the next fiscal. That is our hope," L&T whole-time Director and President (Machinery and Industrial Products) J P Nayak told reporters on the sidelines of a CII conference.
As on January-end, L&T is sitting on a hefty order-book for projects to be executed over the next two years.
However, he said a lot will depend on the orders coming in the next few months. He also noted that overall the company has not been affected by the slowdown.
"About 75 per cent of our business is project-based which has not seen a slowdown as of now. Our order backlog is for over two years so in our case there is no slowdown as such as you can see in the first nine months, our sales have grown by 40 per cent over the last year," he said.
Nayak said the firm's manufacturing components business has witnessed some slowdown. He added slowdown may impact future order-booking, but it all depends on how economic situation unfolds.
L&T's sales for the quarter ended December 31, rose by 35 per cent to Rs 8,700 crore over the year-ago period.
Wkly review: Sensex ends up 48pts
The markets last week ended on a positive note despite largely negative global cues. The Sensex, which, began on a negative note finally ended the week with a gain of 48 points at 8,892, helped by smart gains in auto stocks.
Among the index stocks - Tata Motors zoomed nearly 12% to Rs 134. Mahindra & Mahindra rallied 10% to Rs 281, and Maruti surged 7% to Rs 633.
Infosys, NTPC, ONGC, Tata Steel, BHEL, HDFC Bank, Grasim and Hindustan Unilever gained 2-5% each.
On the other hand, Ranbaxy slumped nearly 22% to Rs 162 on the back of adverse ruling by the US FDA.
HDFC tumbled over 6% to Rs 1,354.
Wipro, ACC, ICICI Bank, DLF, Hindalco, SBI and Larsen & Toubro shed 2-4% each.
Among the index stocks - Tata Motors zoomed nearly 12% to Rs 134. Mahindra & Mahindra rallied 10% to Rs 281, and Maruti surged 7% to Rs 633.
Infosys, NTPC, ONGC, Tata Steel, BHEL, HDFC Bank, Grasim and Hindustan Unilever gained 2-5% each.
On the other hand, Ranbaxy slumped nearly 22% to Rs 162 on the back of adverse ruling by the US FDA.
HDFC tumbled over 6% to Rs 1,354.
Wipro, ACC, ICICI Bank, DLF, Hindalco, SBI and Larsen & Toubro shed 2-4% each.
India's stimulus plans stunned, GDP falls to 5.3 pc
The latest health report of the economy is not good. Despite attempts by the Government to talk up the growth story, the country's GDP has declined sharply to 5.3 per cent from last year's healthy growth of 8.9 per cent.
This is slowest quarter growth for the year 2008-2009. Despite the drop, however, the Government is still hopeful of ending this year with a 7 per cent growth.
Economic Affairs Secretary, Ashok Chawla says, "Our expectation still is that the fourth quarter is going to show robust growth which will add up close to seven per cent for the year."
But the Industry does not think so. CII says achieving 7 per cent will be extremely difficult.
CII Director General, Chandrajit Bannerjee says, "It's a tall order. It's a very, very tough situation. We need to take certain concrete and quick measures."
Bajaj Auto Chairman, Rahul Bajaj adds, "2009 for the manufacturing and the service sector will be a very difficult year indeed."
It will be a difficult year because the third quarter industrial output is down to 2.4 per cent against 8 per cent for the same period last year. Agricultural output too down 2.2 per cent compared to 6.9 per cent over the same period last year.
Economists say the weak numbers were expected and the fiscal position of the country is a bigger worry.
MD & Region Head Southeast Asia of S&P, R Ravi Mohan says, "I think the bigger constraint is not so much the economic growth but the fiscal position of the Government."
But with a slew of stimulus packages under implementation, the fiscal position is only likely to deteriorate.
The only silver lining is the service sector which grew by a strong 17.3 per cent against 5.5 per cent in the year-ago period. The big questions are - will this be the worst quarter and will the Government be able to generate growth?
This is slowest quarter growth for the year 2008-2009. Despite the drop, however, the Government is still hopeful of ending this year with a 7 per cent growth.
Economic Affairs Secretary, Ashok Chawla says, "Our expectation still is that the fourth quarter is going to show robust growth which will add up close to seven per cent for the year."
But the Industry does not think so. CII says achieving 7 per cent will be extremely difficult.
CII Director General, Chandrajit Bannerjee says, "It's a tall order. It's a very, very tough situation. We need to take certain concrete and quick measures."
Bajaj Auto Chairman, Rahul Bajaj adds, "2009 for the manufacturing and the service sector will be a very difficult year indeed."
It will be a difficult year because the third quarter industrial output is down to 2.4 per cent against 8 per cent for the same period last year. Agricultural output too down 2.2 per cent compared to 6.9 per cent over the same period last year.
Economists say the weak numbers were expected and the fiscal position of the country is a bigger worry.
MD & Region Head Southeast Asia of S&P, R Ravi Mohan says, "I think the bigger constraint is not so much the economic growth but the fiscal position of the Government."
But with a slew of stimulus packages under implementation, the fiscal position is only likely to deteriorate.
The only silver lining is the service sector which grew by a strong 17.3 per cent against 5.5 per cent in the year-ago period. The big questions are - will this be the worst quarter and will the Government be able to generate growth?
India fares better than developed markets
But comes last among BRIC as Brazil, China gain.
Indian equity indices have fared better than their counterparts in developed countries in the past month. However, they have not done as well as the other BRIC nations, which have logged positive returns in the past month.
India’s domestic growth story is still intact and in that sense India is better placed compared to other world economies, said Mr Dharmesh Mehta, Head of Broking, Enam Securities.
Currently, insurance companies are getting high inflows from premium collections and are providing buying support by investing heavily in domestic equities, said Mr Gaurav Dua, Head of Research, Sharekhan Ltd.
In February, while major indices such as Dax of Germany, FTSE of London, CAC of France, New York’s Nasdaq and Dow of US have fallen in the range of four to 11 per cent, the Indian benchmark index, the Sensex, is down by 1.25 per cent. The broader index Nifty has fallen by 1.62 per cent during this month.
Germany’s Dax witnessed its four-year lows last week (closing at the lowest level since November 2004) on concerns that the Government measures will fail to revive the global economy. The Dow Jones index was also at its 12-year low during this month as the US economy continued to battle the slowdown.
The indices of the developed economies such as US and those in Europe are performing badly due to the weak macroeconomic data in those countries, said Mr Dua.
Another reason for the Indian markets to have fallen less compared to the US and European indices, marketmen said, is that the Indian markets had already seen a major fall in the past year.
The Indian markets were heavily battered in the past year’s bear rally due to heavy selling by FIIs, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets.
Also, according to analysts, the Indian economy has got a boost in the form of the stimulus packages announced by the Government and to some extent oil prices, commodity prices and inflation are under control.
Among the BRIC nations, Brazil’s Bovespa is up by 1.58 per cent, Russia’s RTS Index is up by 5.74 per cent and China’s Shanghai SE Composite index is up by 8.97 per cent in February.
Brazil’s economy has been relatively unaffected by the global economic crisis as the country’s main policy is seeking stability rather than growth at any cost, according to experts.
Russia and China’s stock market indices have performed better as both the countries had witnessed a sharp fall in the past year, said marketmen.
Indian equity indices have fared better than their counterparts in developed countries in the past month. However, they have not done as well as the other BRIC nations, which have logged positive returns in the past month.
India’s domestic growth story is still intact and in that sense India is better placed compared to other world economies, said Mr Dharmesh Mehta, Head of Broking, Enam Securities.
Currently, insurance companies are getting high inflows from premium collections and are providing buying support by investing heavily in domestic equities, said Mr Gaurav Dua, Head of Research, Sharekhan Ltd.
In February, while major indices such as Dax of Germany, FTSE of London, CAC of France, New York’s Nasdaq and Dow of US have fallen in the range of four to 11 per cent, the Indian benchmark index, the Sensex, is down by 1.25 per cent. The broader index Nifty has fallen by 1.62 per cent during this month.
Germany’s Dax witnessed its four-year lows last week (closing at the lowest level since November 2004) on concerns that the Government measures will fail to revive the global economy. The Dow Jones index was also at its 12-year low during this month as the US economy continued to battle the slowdown.
The indices of the developed economies such as US and those in Europe are performing badly due to the weak macroeconomic data in those countries, said Mr Dua.
Another reason for the Indian markets to have fallen less compared to the US and European indices, marketmen said, is that the Indian markets had already seen a major fall in the past year.
The Indian markets were heavily battered in the past year’s bear rally due to heavy selling by FIIs, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets.
Also, according to analysts, the Indian economy has got a boost in the form of the stimulus packages announced by the Government and to some extent oil prices, commodity prices and inflation are under control.
Among the BRIC nations, Brazil’s Bovespa is up by 1.58 per cent, Russia’s RTS Index is up by 5.74 per cent and China’s Shanghai SE Composite index is up by 8.97 per cent in February.
Brazil’s economy has been relatively unaffected by the global economic crisis as the country’s main policy is seeking stability rather than growth at any cost, according to experts.
Russia and China’s stock market indices have performed better as both the countries had witnessed a sharp fall in the past year, said marketmen.
Apple, Google among 10 American cos that won't cut jobs: Time
NEW YORK: Bucking the recessionary trend, US corporates Apple, Google and Colgate are doing so well that they are unlikely to fire their employees and may even recruit, a media report has said. The Time magazine in its report published online has named Cisco, Visa, education company Apollo, cigarettes firm Altria, cellular operator Verizon, Corinthian College and pharma entity Amgen in the list of 10 companies which are defying the trend. "The other firms included have large amounts of cash on their balance sheets and have elected to use the slow economy to develop new products and services to take share away from financially weaker competitors," the magazine said On search engine giant Google, which had fired a small number of people last year, the magazine said, "if the company wants to control personnel costs, it can simply stop hiring."
About Apple, the magazine said because its success is based on creating new products, improving old ones and aggressive marketing, it would need all the people who work at the company and perhaps more. "The company has 24 billion dollar in cash and securities and adds to that every quarter. Apple refuses to make acquisitions, preferring to create and market its own products," Time said. Further, Apple would also not lay people off because its CEO Steve Jobs would have to admit he had made a bad decision and that the entity would not appear to be perfect, the magazine added. Besides, Colgate has "side-stepped the global slowdown" and in the most recent quarter the company's profits were up 20 per cent. It would be hard to pick a better time to sell toothpaste, pet food, and shampoo. Even in a bad economy, most of these are products would have stable sales, it stated. Apart from this, quoting networking major Cisco Chief Executive Officer John Chambers, who has said that the company plans to avoid job cuts the magazine stated that Cisco probably has as much or more cash on hand as any tech company in the US, holding 27 billion dollar in available funds. On Visa, which acts as an agent to transfer funds between buyers and merchants, it noted that unlike large banks, when a customer defaults, Visa's balance sheet is not at risk, while in the last quarter, its profits rose to 35 per cent. The Time magazine stated that, "employees at these firms are as close to being safe from being thrown into the job market as almost anyone in the country." Further, the education company Apollo which has a stock market value of 12 billion dollar and had sales of 970 million dollar last quarter, Time points out that as people find that they need new skills to find work, it is in a position to take advantage of a drop in the economy and rise in unemployment.
About Apple, the magazine said because its success is based on creating new products, improving old ones and aggressive marketing, it would need all the people who work at the company and perhaps more. "The company has 24 billion dollar in cash and securities and adds to that every quarter. Apple refuses to make acquisitions, preferring to create and market its own products," Time said. Further, Apple would also not lay people off because its CEO Steve Jobs would have to admit he had made a bad decision and that the entity would not appear to be perfect, the magazine added. Besides, Colgate has "side-stepped the global slowdown" and in the most recent quarter the company's profits were up 20 per cent. It would be hard to pick a better time to sell toothpaste, pet food, and shampoo. Even in a bad economy, most of these are products would have stable sales, it stated. Apart from this, quoting networking major Cisco Chief Executive Officer John Chambers, who has said that the company plans to avoid job cuts the magazine stated that Cisco probably has as much or more cash on hand as any tech company in the US, holding 27 billion dollar in available funds. On Visa, which acts as an agent to transfer funds between buyers and merchants, it noted that unlike large banks, when a customer defaults, Visa's balance sheet is not at risk, while in the last quarter, its profits rose to 35 per cent. The Time magazine stated that, "employees at these firms are as close to being safe from being thrown into the job market as almost anyone in the country." Further, the education company Apollo which has a stock market value of 12 billion dollar and had sales of 970 million dollar last quarter, Time points out that as people find that they need new skills to find work, it is in a position to take advantage of a drop in the economy and rise in unemployment.
Wages at IT multinationals start melting down
Software multinationals in India have begun freezing wage increases, slashing salaries and postponing merit-based hikes, a study by Indian consulting firm Zinnov has found. "Though Bangalore stands highest in its average salary for multinational R&D firms, followed by Pune and Chennai, the economic slump is causing undue pressure on them to retain compensation levels," Zinnov director for advisory services C S Chandramouli, said after the survey was made public. Hinting that IT salaries in 2009 would see a freeze across the board in a majority of the firms surveyed, Chandramouli said the average increment would be in the 5-12 per cent range. "Of the 30 representative multinationals surveyed in these three cities (Bangalore, Pune and Chennai), 27 per cent of them said they have frozen salary increases this year, while 42 per cent said they would provide salary increases and 15 per cent have postponed their merit increase cycle to take a call at a later stage if the economic scenario changes," Chandramouli said. As a preferred destination for IT services and R&D, about 680 multinationals operate in India. Many of them have more than one R&D centre and presence in one or two of the three cities surveyed.
According to Zinnov's annual report on "Compensation and Benefit Study 2009", 12 per cent of the MNCs have announced 5-10 per cent salary cuts either for senior management or across levels. "The survey highlights that multinationals are also shifting focus to the variable pay component to reward and retain top performers as opposed to fixed pay. Some of them have even restructured their compensation, linking employee rewards to individual and organisational results," the report said.
Re takes another hit, falls to 51.16
The rupee entered uncharted territory on Friday, breaching the 51-mark against the US dollar. The currency ended the day at 51.16, down from Thursday’s closing price of 50.45. Dealers forecast a further drop on Monday. The recent decline is being attributed to the dollar’s strength in global currency markets, renewed vigour in arbitraging between onshore and offshore contracts, and increased month-end dollar demand from importers played spoilsport for the local unit. “Balance of payments flows should be neutral for the rupee, with policy rather than flows likely to drive a mild depreciation of the unit towards Rs 52 per dollar
in 2009,” a Credit Suisse Report issued on Friday said. “We believe the collapse in exports, job losses, and growth risks will bias RBI to follow an asymmetric currency policy, allowing moderate currency depreciation but not currency appreciation,” Cem Karacadag, regional economist at Credit Suisse based out of Singapore, said in the report. But dealers said RBI did intervene on Friday to contain the fall in the local currency. “Demand for the dollar was so huge that it easily overpowered dollars that state-owned banks were selling for RBI,” says a dealer at a private sector bank. He pointed out there was a clean 40-50 bps to be made during the course of the day by arbitraging between the onshore and offshore rupee dollar contracts. The dollar rallied sharply on Friday, hitting a three-month high versus a basket of currencies, traders worried about weak European stock markets and banking sector. Indian dealers are mostly taking leads from the movement of the dollar in international markets for trading. Liquidity was good with banks parking close to Rs 63,000 crore of surplus funds
with RBI. Bonds gained strongly on rate cut speculation. While yield on the old 10-year benchmark 8.24% paper maturing in 2018 fell 14 bps to 6.34%, the new benchmark 6.05% paper expiring in 2019 ended 13 bps lower at 6%. When yields fall, prices rise. RBI has announced another buyback of dated government securities worth Rs 6,000 crore with a green-shoe option of Rs 3,000 crore through an auction on March 5. The next day, the government will sell three dated securities for Rs 12,000 crore. India’s economy grew a slower-than-expected 5.3% in the December quarter from a year earlier, slowing sharply from the previous quarter’s 7.6%, as the global economic crisis hit Indian trade. This has made many traders believe that it’s only a matter of time before RBI cuts rates.
in 2009,” a Credit Suisse Report issued on Friday said. “We believe the collapse in exports, job losses, and growth risks will bias RBI to follow an asymmetric currency policy, allowing moderate currency depreciation but not currency appreciation,” Cem Karacadag, regional economist at Credit Suisse based out of Singapore, said in the report. But dealers said RBI did intervene on Friday to contain the fall in the local currency. “Demand for the dollar was so huge that it easily overpowered dollars that state-owned banks were selling for RBI,” says a dealer at a private sector bank. He pointed out there was a clean 40-50 bps to be made during the course of the day by arbitraging between the onshore and offshore rupee dollar contracts. The dollar rallied sharply on Friday, hitting a three-month high versus a basket of currencies, traders worried about weak European stock markets and banking sector. Indian dealers are mostly taking leads from the movement of the dollar in international markets for trading. Liquidity was good with banks parking close to Rs 63,000 crore of surplus funds
with RBI. Bonds gained strongly on rate cut speculation. While yield on the old 10-year benchmark 8.24% paper maturing in 2018 fell 14 bps to 6.34%, the new benchmark 6.05% paper expiring in 2019 ended 13 bps lower at 6%. When yields fall, prices rise. RBI has announced another buyback of dated government securities worth Rs 6,000 crore with a green-shoe option of Rs 3,000 crore through an auction on March 5. The next day, the government will sell three dated securities for Rs 12,000 crore. India’s economy grew a slower-than-expected 5.3% in the December quarter from a year earlier, slowing sharply from the previous quarter’s 7.6%, as the global economic crisis hit Indian trade. This has made many traders believe that it’s only a matter of time before RBI cuts rates.
Reliance Industries, Reliance Petroleum mull merger
The $34.5-billion Reliance Industries, India's largest private sector company, on Friday announced that it will consider a proposal next week to merge another group company into itself to bring in operational efficiency. The Mukesh Ambani-controlled Reliance Industries and its oil refining and export-oriented subsidiary Reliance Petroleum, have both informed the stock exchanges of their boards' agenda to consider the merger. "The board of directors of the company will consider and recommend the amalgamation on March 2," the identical statutory filings by the two companies with the stock exchanges
said. The deal is expected to also lead to Reliance Industries acquiring the 5-percent stake that US oil major Chevron holds in the company's subsidiary, a company official said. "The merger is being considered for achieving operational efficiency." Reacting to the announcement, the government said it did not see any immediate issues with the merger proposal. "There should be no legal issues," Petroleum Minister Murli Deora said in New Delhi. "The merger will not affect the export-oriented unit status of Reliance Petroleum," Commerce Secretary G.K. Pillai added. Reliance Petroleum has claimed an annual crude processing capacity of 580,000 barrels per day, making it the sixth largest refinery in the world. The parent is a Fortune Global 500 company and largest private sector entity in India.
The Reliance group, which also has interests in oil exploration, petrochemicals, life sciences and retail trade, says its petroleum complex at the port town of Jamnagar in Gujarat is the largest grassroots refinery in the world. The merger was announced after the close of trading hours on Indian bourses, where the Reliance Industries scrip fell 1.97 percent to Rs.1,265.05, while that of Reliance Petroleum also dropped 1.23 percent to Rs.76.20. Reliance Industries holds a 70.38-percent stake in Reliance Petroleum, while Chevron holds another 5 percent. The rest is widely held, including those by financial institutions and the public. The promoters of Reliance Industries, which was founded by legendary industrialist, the late Dhuirubhai Ambani, hold a 49.03 percent stake in the company as on Dec 31.
said. The deal is expected to also lead to Reliance Industries acquiring the 5-percent stake that US oil major Chevron holds in the company's subsidiary, a company official said. "The merger is being considered for achieving operational efficiency." Reacting to the announcement, the government said it did not see any immediate issues with the merger proposal. "There should be no legal issues," Petroleum Minister Murli Deora said in New Delhi. "The merger will not affect the export-oriented unit status of Reliance Petroleum," Commerce Secretary G.K. Pillai added. Reliance Petroleum has claimed an annual crude processing capacity of 580,000 barrels per day, making it the sixth largest refinery in the world. The parent is a Fortune Global 500 company and largest private sector entity in India.
The Reliance group, which also has interests in oil exploration, petrochemicals, life sciences and retail trade, says its petroleum complex at the port town of Jamnagar in Gujarat is the largest grassroots refinery in the world. The merger was announced after the close of trading hours on Indian bourses, where the Reliance Industries scrip fell 1.97 percent to Rs.1,265.05, while that of Reliance Petroleum also dropped 1.23 percent to Rs.76.20. Reliance Industries holds a 70.38-percent stake in Reliance Petroleum, while Chevron holds another 5 percent. The rest is widely held, including those by financial institutions and the public. The promoters of Reliance Industries, which was founded by legendary industrialist, the late Dhuirubhai Ambani, hold a 49.03 percent stake in the company as on Dec 31.
US stocks fall on shrinking GDP, Citigroup deal
Wall Street shares tumbled at the opening on Friday after data showing a deeper-than-anticipated fourth-quarter contraction in the US economy and a deal announced to boost the government stake in Citigroup. The Dow Jones Industrial Average slipped 115.01 points (1.60 percent) to 7,067.07 in the first trades while the Nasdaq composite slumped 14.34 points (1.03 percent) to 1,377.13. The Standard & Poor's 500 index retreated 15.47 points (2.05 percent) to 737.36. The market reacted to news of a 6.2 percent drop in US economic activity in the fourth quarter, worse than expected and far steeper than the earlier government estimate of a 3.8 percent decline. The news "is perhaps the clearest indication of the current woes of the US economy. The report indicates contraction throughout most of the economy," said Augustine Faucher at Economy.com. Also denting sentiment was an announcement that the US government will own up to 36 percent of Citigroup under a deal announced Friday to convert up to 25 billion dollars of capital injected into the ailing bank to ordinary shares. The conversion does not call for more government funds but helps shore up the troubled banking giant's capital position, according to Citi and US officials. "Both entities are playing up the idea that this bid to boost Citi's tangible common equity doesn't involve any extra taxpayer money," said Patrick O'HAre at Briefing.com. "What this maneuver does involve is a sobering reminder to private investors that the rules can change to benefit the government's holdings when it is deemed necessary."
US government to control 36 percent of Citi
The US government on Friday announced a deal with Citigroup that will give it control over as much as 36 percent of its common stock and replace a majority of its independent directors. But Indian American CEO Vikram Pandit and Chairman Richard Parsons will retain their positions at one of America's three largest bank holding companies. In a call with investors, Pandit said the decision was difficult because of what it would do to current investors, but that the bank had little choice. "In the end, our business is about confidence," he said. "We wanted to take definitive steps to put all capital issues aside." Pandit also insisted that Citi management would continue to be in charge, not the federal government or federal regulators, and that decisions would be made to maximise profits and shareholder return, rather than public policy agenda. "For those people who have a concern about nationalisation, this should put those concerns to rest," he said.
The deal will convert preferred shares that Treasury already holds in Citigroup for common shares, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending. The US government has already given Citigroup $45 billion for which it received preferred shares and warrants in the company. The new deal on Friday did not give the bank any additional taxpayer dollars. But the government is taking on a greater risk by assuming more volatile common shares. The market price is well below the $3.25 per-share conversion price the government is paying. Taxpayers will also lose roughly $2 billion in dividends, because the preferred shares they are giving up paid eight percent dividends. Citi suspended its common share dividend as part of the agreement. In the deal, Treasury will convert up to $25 billion of preferred shares, matching dollars that Citigroup is able to bring in from other investors, such as sovereign wealth funds. Shares of Citigroup, a component of the Dow Jones industrial average, have plunged about 90 percent in the past year. With the large dilution of existing share value, Citi plunged another 40 percent in pre-market trading after the announcement. Still the bank hopes that the move will eventually help rebuild its battered share price.
The deal will convert preferred shares that Treasury already holds in Citigroup for common shares, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending. The US government has already given Citigroup $45 billion for which it received preferred shares and warrants in the company. The new deal on Friday did not give the bank any additional taxpayer dollars. But the government is taking on a greater risk by assuming more volatile common shares. The market price is well below the $3.25 per-share conversion price the government is paying. Taxpayers will also lose roughly $2 billion in dividends, because the preferred shares they are giving up paid eight percent dividends. Citi suspended its common share dividend as part of the agreement. In the deal, Treasury will convert up to $25 billion of preferred shares, matching dollars that Citigroup is able to bring in from other investors, such as sovereign wealth funds. Shares of Citigroup, a component of the Dow Jones industrial average, have plunged about 90 percent in the past year. With the large dilution of existing share value, Citi plunged another 40 percent in pre-market trading after the announcement. Still the bank hopes that the move will eventually help rebuild its battered share price.
Rate cut seen as growth slows sharply
Economic growth slowed much more than expected in the December quarter, slumping to its weakest pace in almost six years and raising expectations the central bank would cut rates, possibly as soon as this weekend. Both manufacturing and farm output in Asia's third-biggest economy dropped from a year earlier and the data prompted a weak share market to extend losses to more than 2 per cent, which in turn pushed the rupee to a record low. Figures provide the latest evidence of the impact in Asia of the global financial crisis that has already forced Japan, Singapore and Hong Kong into recession and pushed Thailand and South Korea into economic contractions. "We have been calling for significant rate cuts for a long time. We are looking for a 100 basis points cut as soon as probably tomorrow in the repo rate and reverse repo rate," said Sailesh Jha, senior regional economist at Barclays Capital. "After seeing this number, I think the market is now pricing in a 100 basis points cut." The economy in the December quarter grew by 5.3 per cent from a year earlier, below forecasts of 6.2 per cent and the previous quarter's growth of 7.6 per cent. It marked the slowest growth since the March quarter of 2003, and while India is far from recession many analysts say growth is grinding down to level that threatens jobs and a rise in poverty, underlining the need for more action by policy makers to stimulate activity. The central bank cut its main lending rate, the repo rate, by 350 basis points to 5.50 per cent in four moves between Oct 20 and Jan 2, but it held rates steady at a review in late January because banks were yet to pass on the full extent of its rate cuts.
DISMAL DATA
India's economy has lost altitude from growth rates of 9.0 per cent or higher in the past three fiscal years, and economists said the government's forecast of 7.1 per cent growth in the 2008/09 fiscal year ending March 31 would not be met. "The overly optimistic projection now needs to be revised downward," Moodys, economist Sherman Chan said. "The sharper-than-expected deceleration in the December quarter perhaps makes up for the slowdown that should have taken place in the September quarter when the rest of the region began to show strong signs of fatigue," she said in a report. But junior finance minister Pawan Kumar Bansal said the government still expected growth of around 7 per cent in 2008/09, and had anticipated December quarter growth would be below market expectations.
DISMAL DATA
India's economy has lost altitude from growth rates of 9.0 per cent or higher in the past three fiscal years, and economists said the government's forecast of 7.1 per cent growth in the 2008/09 fiscal year ending March 31 would not be met. "The overly optimistic projection now needs to be revised downward," Moodys, economist Sherman Chan said. "The sharper-than-expected deceleration in the December quarter perhaps makes up for the slowdown that should have taken place in the September quarter when the rest of the region began to show strong signs of fatigue," she said in a report. But junior finance minister Pawan Kumar Bansal said the government still expected growth of around 7 per cent in 2008/09, and had anticipated December quarter growth would be below market expectations.
Thursday, February 26, 2009
India to see single-digit salary hikes for the first time in 6 years, says Hewitt
India Inc will see single-digit salary increases for the first time in six years and the salary increase projections may fall even further in the coming months, says a report by HR consultants Hewitt Associates.
The report noted that while salary increase projections for 2009 in India dipped to 8.2 per cent from an actual increase of 13.3 per cent in 2008, they continued to be highest in the Asia-Pacific and among the highest, globally.
And, amidst global layoffs, less than 16 per cent of companies in India are considering retrenchment. More than 60 per cent of companies in India are still hiring, and nine out of every 10 companies are still giving promotions.
Of the 480 companies surveyed, 16 per cent have reported salary freezes in 2009. According to the Hewitt report, almost all employee levels have been impacted equally by the reduction in salary increase budgets but there is some marginal respite for general staff and the manual workforce.
A sectoral comparison shows that despite the economic downturn, sectors that cater directly to consumers, such as FMCG, consumer durables and telecom, have a positive outlook and are projecting among the highest salary increases. The pharma industry has the highest salary increases. Given the economic downturn, over 90 per cent of organisations are projecting a reduction in bonus payouts as a result of business performance falling below expectations, notes the report.
On how employees can cope with changing market conditions, Sandeep Chaudhary, leader of Hewitt’s performance and rewards consulting practice in India, said, “Trainees and new joiners can expect longer probation periods, with lower salaries. There may also be cutbacks in intern stipends or even no stipends, though companies will continue to provide opportunities for such assignments.”
The report noted that while salary increase projections for 2009 in India dipped to 8.2 per cent from an actual increase of 13.3 per cent in 2008, they continued to be highest in the Asia-Pacific and among the highest, globally.
And, amidst global layoffs, less than 16 per cent of companies in India are considering retrenchment. More than 60 per cent of companies in India are still hiring, and nine out of every 10 companies are still giving promotions.
Of the 480 companies surveyed, 16 per cent have reported salary freezes in 2009. According to the Hewitt report, almost all employee levels have been impacted equally by the reduction in salary increase budgets but there is some marginal respite for general staff and the manual workforce.
A sectoral comparison shows that despite the economic downturn, sectors that cater directly to consumers, such as FMCG, consumer durables and telecom, have a positive outlook and are projecting among the highest salary increases. The pharma industry has the highest salary increases. Given the economic downturn, over 90 per cent of organisations are projecting a reduction in bonus payouts as a result of business performance falling below expectations, notes the report.
On how employees can cope with changing market conditions, Sandeep Chaudhary, leader of Hewitt’s performance and rewards consulting practice in India, said, “Trainees and new joiners can expect longer probation periods, with lower salaries. There may also be cutbacks in intern stipends or even no stipends, though companies will continue to provide opportunities for such assignments.”
HUL sues Subhiksha for non-payment of dues
The rift between fast moving consumer goods (FMCG) companies and modern trade retailers is widening with India's largest FMCG player Hindustan Unilever (HUL) now taking modern trade retailer Subhiksha to court for non-payment of dues.
"We have filed a petition with regard to objections to the proposed scheme of merger and winding up of Subhiksha, for non-payment of outstanding payments, before the High Court of Madras," said an HUL spokesperson who refused to comment further on the nature of the case and the amount of outstanding dues.
Modern trade retail accounts for 5-6 per cent of the overall sales revenues of FMCG companies. It has been reported in the past that FMCG players like Godrej Consumer Products and Dabur had taken a tough stance against defaulting modern trade retailers and had stopped supplying to them or supplying only in return for cash payment, a deviation from the practice of supplying against credit.
"Most FMCG companies had stopped supplying to these modern trade retailers by November 2008, when the global crisis had reached its peak. And now, if they do supply, it is against a demand draft instead of credit," says Anand Shah, FMCG sector analyst, Angel Broking.
"We experienced default in payments from some modern trade retailers," acknowledged Ramesh Vishwanathan, executive director, CavinKare. However, CavinKare has yet not planned any legal actions against the defaulting retailers.
H K Press, president and executive director, Godrej Consumer Products, told Business Standard, "We had stopped supplying to Subhiksha early in September 2008 as it failed to meet with the agreed terms and conditions. These kind of problems don't happen overnight and we made sure our credit exposure was limited to defaulting retailers."
"We have filed a petition with regard to objections to the proposed scheme of merger and winding up of Subhiksha, for non-payment of outstanding payments, before the High Court of Madras," said an HUL spokesperson who refused to comment further on the nature of the case and the amount of outstanding dues.
Modern trade retail accounts for 5-6 per cent of the overall sales revenues of FMCG companies. It has been reported in the past that FMCG players like Godrej Consumer Products and Dabur had taken a tough stance against defaulting modern trade retailers and had stopped supplying to them or supplying only in return for cash payment, a deviation from the practice of supplying against credit.
"Most FMCG companies had stopped supplying to these modern trade retailers by November 2008, when the global crisis had reached its peak. And now, if they do supply, it is against a demand draft instead of credit," says Anand Shah, FMCG sector analyst, Angel Broking.
"We experienced default in payments from some modern trade retailers," acknowledged Ramesh Vishwanathan, executive director, CavinKare. However, CavinKare has yet not planned any legal actions against the defaulting retailers.
H K Press, president and executive director, Godrej Consumer Products, told Business Standard, "We had stopped supplying to Subhiksha early in September 2008 as it failed to meet with the agreed terms and conditions. These kind of problems don't happen overnight and we made sure our credit exposure was limited to defaulting retailers."
GMR acquires Indonesian coal firm for Rs 400 cr
GMR Energy, a subsidiary of GMR Infrastructure, has acquired Indonesian coal company PT Barasentosa Lestari for $80 million (around Rs 400 crore) through its wholly-owned subsidiary GMR Energy. The move is aimed at securing coal supply to its proposed 1,500 mega watt (MW) plant in the western coast. The company is looking for locations in Maharashtra and Gujarat for the plant.
The infrastructure firm has paid half of the acquisition amount upfront and the balance will be paid after commercial production begins two years from now. Coal from the Indonesian mine, spread over 25 acres, would be shipped to the new plant during the time of power generation, said A Subba Rao, chief financial officer, GMR.
The coal mine has reserves of 100 million tonne (MT) and is expecting an annual production of 5 MT. Barasentosa Lestari is holding a legal coal mining licence issued by the government of Indonesia. The licence provides a 30-year mining authorisation over two separate coal blocks in South Sumatra, Indonesia.
GMR Energy has acquired 100 per cent ownership interest of Barasentosa Lestari and looking for more mines in Indonesia and South Africa for its power plants.
“When the coal price was high in mid-2008, we negotiated for buying the firm for $100 million. Later, we renegotiated and managed to buy it at $80 million, and that too in two tranches. We have to pay the remaining amount only after the beginning of the commercial production, expected after two years,” said Rao.
Shares of GMR Infra today closed at Rs 76.70, down 1.60 per cent, on the Bombay Stock Exchange.
The GMR Group has been reworking all its acquisition deals in the wake of the global slowdown. Besides hammering down the cost of these coal mines, the company had earlier successfully bargained a price reduction for acquiring the Netherlands-based power generation firm Intergen from the earlier $1.2 billion to just under $900 million.
The infrastructure firm has paid half of the acquisition amount upfront and the balance will be paid after commercial production begins two years from now. Coal from the Indonesian mine, spread over 25 acres, would be shipped to the new plant during the time of power generation, said A Subba Rao, chief financial officer, GMR.
The coal mine has reserves of 100 million tonne (MT) and is expecting an annual production of 5 MT. Barasentosa Lestari is holding a legal coal mining licence issued by the government of Indonesia. The licence provides a 30-year mining authorisation over two separate coal blocks in South Sumatra, Indonesia.
GMR Energy has acquired 100 per cent ownership interest of Barasentosa Lestari and looking for more mines in Indonesia and South Africa for its power plants.
“When the coal price was high in mid-2008, we negotiated for buying the firm for $100 million. Later, we renegotiated and managed to buy it at $80 million, and that too in two tranches. We have to pay the remaining amount only after the beginning of the commercial production, expected after two years,” said Rao.
Shares of GMR Infra today closed at Rs 76.70, down 1.60 per cent, on the Bombay Stock Exchange.
The GMR Group has been reworking all its acquisition deals in the wake of the global slowdown. Besides hammering down the cost of these coal mines, the company had earlier successfully bargained a price reduction for acquiring the Netherlands-based power generation firm Intergen from the earlier $1.2 billion to just under $900 million.
Sharekhan maintains buy on Shiwani Oil
MUMBAI: Brokerage Sharekhan has maintained a ‘Buy’ rating on the Shivvani Oil & Exploration Company and expect the stock to hit a target price of Rs 370 per share. “At the current market price of Rs101, the stock discounts at 2.2x its FY2010E earnings and is quoting at an enterprise value/earnings before interest, depreciation, tax and amortisation of 3.3x. We maintain our Buy recommendation on Shiv-Vani with a price target of Rs 370,” said Sharekhan report. The Sharekhan analysis took into account reports of delay by Shivvani Oil & Exploration in supply of deep driller rigs to ONGC and has left out the possible penalty of 5 per cent from its earnings estimates. “Shiv-Vani Oil and Gas Explorations (Shiv-Vani) had earlier bagged an order worth Rs1,610 crore from ONGC for charter hire of eight onshore deep driller rigs for the latter’s Tripura, Sivasagar and Rajahmundry assets for a period of three years. As per our interaction with the management of Shiv-Vani, out of the eight rigs contracted, only three have been delivered as yet, two are in advanced stages of mobilization while there has been a delay in another three rigs for which the company is seeking extension. As per the contract, ONGC can take punitive measures against Shiv-Vani for its failure to fulfill the contractual obligations. It can impose a 5% penalty on Shiv- Vani in case of failure in delivering the rigs on time. The management of Shiv-Vani believes that such kinds of delays are normal in such huge contracts, considering the various logistic and technical issues involved. The management is quite confident of resolving this issue amicably in view of its long standing relationship with ONGC for over 15 years and believes that ONGC would agree to the extensions sought by the company. Considering that the average day rate of the ONGC contract is about $25,000, the annual revenue from one rig works out to about Rs43 crore. Taking into account a 5% penalty, the total penalty on the delayed three rigs could work out to about Rs 6.5 crore. Consequently, it could potentially affect our earnings estimates by 2.3% to Rs 44.8. However, we are not taking this into account in our estimates on account of a lack of clarity on ONGC’s final decision. Shiv-Vani has debt of about Rs1,400 crore in its books currently and the same is payable in about six years. Delays or deferment in contracts, any renegotiation of contracts or fall in the operating profit margins going forward could potentially hamper its cash flows and remain risks,” the report concludes.
Tata Chemicals (Rs 130.70): Sell
We recommend a sell in Tata Chemicals stock from a short-term horizon. It is apparent from the charts of Tata Chemicals that it has been on a long-term downtrend since its life-time high of Rs 440 touched in May 2008.
In early January 2009, the stock resumed this downtrend, after encountering significant resistance at Rs 180 levels. Since then, the stock has been on a declining. It is trading well below the 21- and 50-day moving averages.
On February 24, the stock breached the support level at Rs 137 by declining 3 per cent. Both daily and weekly relative strength indices are featuring in the bearish zone. The daily moving average convergence and divergence indicator is steadily declining in the negative territory. Considering that the long-term down trendline is intact, we are bearish on the stock. We expect the stock’s decline to prolong until it hits our price target of Rs 116. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 137.
In early January 2009, the stock resumed this downtrend, after encountering significant resistance at Rs 180 levels. Since then, the stock has been on a declining. It is trading well below the 21- and 50-day moving averages.
On February 24, the stock breached the support level at Rs 137 by declining 3 per cent. Both daily and weekly relative strength indices are featuring in the bearish zone. The daily moving average convergence and divergence indicator is steadily declining in the negative territory. Considering that the long-term down trendline is intact, we are bearish on the stock. We expect the stock’s decline to prolong until it hits our price target of Rs 116. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 137.
No more tax sops for cos outsourcing jobs: Obama
• Rule will hit 1,000 firms that moved jobs to India, elsewhere. Total jobs abroad pegged at 3 million
American firms will no longer get any tax breaks if they move their jobs to India and elsewhere in the world as President Barack Obama has decided to "restore a sense of fairness" to the US Tax Code.
"... We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas," Obama said in his first address to the joint session of the US Congress.
About 1,000 American firms, which have moved their jobs abroad, are expected to be affected by the proposed move to do away with a particular provision of the country's tax code that allows them to pay lower taxes for profits repatriated from foreign shores.
The opponents of the tax code, mostly comprising of Democrats, have been demanding to abolish this provision for a long time, saying it was encouraging the companies to ship jobs aboard and eliminate the local positions.
According to various estimates by economists, corporate tax code may account for up to 3 million jobs abroad.
Back in 2004, the US Congress had allowed a one-year repatriation tax holiday which reduced the 35 per cent tax rate on foreign earnings of American companies to just 5.25 per cent.
Among the major companies which have shipped jobs to foreign countries such as India include General Electric, Microsoft, Hewlett-Packard, Motorola, Pepsico, Honeywell and IBM.
Earlier this month, two senators had expressed concern over lobbying by multinational corporations to allow firms with offshore funds to move their money back to the US at a discounted tax rate.
"In 2005, over $300 billion in offshore funds were brought back and were subject to a 5.25 per cent tax rate instead of the normal 35 per cent rate, which means Uncle Sam missed out on billions in needed tax revenues," the Senators had said in a letter.
They also added that "such tax holidays not only reduce US tax revenue in the long run, but create new incentives for US multinationals to send more jobs, funds and facilities offshore".
In their election campaigns, both Obama and Hillary Clinton, who is now the US Secretary of State, had said that tax break was encouraging companies to outsource American jobs to foreign countries.
A recent analysis by the Congressional Research Service showed that out of the 12 top repatriating companies, 10 cut jobs even before the recent economic downturn, the Senators said.
Going by estimates, foreign affiliates of American firms created nearly 1,00,000 jobs on an average in low-cost developing nations during the period from 1992 to 2005.
In 2004, the then Democratic Presidential candidate John Kerry had rallied against companies which were exploiting the tax system to ship jobs to low-wage countries, including India.
American firms will no longer get any tax breaks if they move their jobs to India and elsewhere in the world as President Barack Obama has decided to "restore a sense of fairness" to the US Tax Code.
"... We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas," Obama said in his first address to the joint session of the US Congress.
About 1,000 American firms, which have moved their jobs abroad, are expected to be affected by the proposed move to do away with a particular provision of the country's tax code that allows them to pay lower taxes for profits repatriated from foreign shores.
The opponents of the tax code, mostly comprising of Democrats, have been demanding to abolish this provision for a long time, saying it was encouraging the companies to ship jobs aboard and eliminate the local positions.
According to various estimates by economists, corporate tax code may account for up to 3 million jobs abroad.
Back in 2004, the US Congress had allowed a one-year repatriation tax holiday which reduced the 35 per cent tax rate on foreign earnings of American companies to just 5.25 per cent.
Among the major companies which have shipped jobs to foreign countries such as India include General Electric, Microsoft, Hewlett-Packard, Motorola, Pepsico, Honeywell and IBM.
Earlier this month, two senators had expressed concern over lobbying by multinational corporations to allow firms with offshore funds to move their money back to the US at a discounted tax rate.
"In 2005, over $300 billion in offshore funds were brought back and were subject to a 5.25 per cent tax rate instead of the normal 35 per cent rate, which means Uncle Sam missed out on billions in needed tax revenues," the Senators had said in a letter.
They also added that "such tax holidays not only reduce US tax revenue in the long run, but create new incentives for US multinationals to send more jobs, funds and facilities offshore".
In their election campaigns, both Obama and Hillary Clinton, who is now the US Secretary of State, had said that tax break was encouraging companies to outsource American jobs to foreign countries.
A recent analysis by the Congressional Research Service showed that out of the 12 top repatriating companies, 10 cut jobs even before the recent economic downturn, the Senators said.
Going by estimates, foreign affiliates of American firms created nearly 1,00,000 jobs on an average in low-cost developing nations during the period from 1992 to 2005.
In 2004, the then Democratic Presidential candidate John Kerry had rallied against companies which were exploiting the tax system to ship jobs to low-wage countries, including India.
'Emerging mkts to recover fast' - JP Morgan
There are tentative signs of economic stabilisation in emerging markets and the monetary cycle looks supportive of equities, says Adrian Mowat, managing director and emerging market equity strategist at JP Morgan.
While emerging markets were the last to slip into recession, they will be the first to bounce back as results of pro-growth monetary policies start kicking in, he says.
In a report titled “The Big Ugly Experiment”, Mowat says that Asian companies and economies are in uncharted waters. “The big ugly experiment is whether aggressive monetary and fiscal stimulus can offset the impact of the deepest consumer recession in developed economies since World War II,” says Mowat.
Among sectors in Asia, JP Morgan prefers financials, domestic consumer discretionary and consumer technology. Notwithstanding the fall in the Sensex and the Nifty during the end of 2008, major emerging market fund managers actually increased their allocation to India in December.
Mowat believes that inflation has peaked in emerging markets. However, the main concerns for investors now are capital market volatility and a lack of confidence in growth. “Our asset allocation favours markets that are ahead in the inflation monetary cycle and provide faster growth,” the report says.
The rout in commodity and energy markets has been the catalyst for the significant redemption-led selling. Redemptions began in June for Latin American funds and in July for emerging market funds with cumulative net redemptions of $4.6 billion and $ 3.3 billion. JP Morgan says that this redemption-led selling is generating distressed valuations. Asian funds saw net redemptions worth $9.2 billion since mid-May.
The report recommends that investors go long on Taiwan and short on Korea. The reasons behind this change in stance for Korea are uncertain macro, downside risk to earnings, politics, China’s stimulus package’s benefit to Taiwan and lower relative cost of funding.
JP Morgan is overweight on China, Mexico, Taiwan, the Philippines, South Africa, Turkey and Thailand. “The number of managers with overweights in China and Hong Kong increased from 13 to 17, while the number of underweights reduced from 12 to 9. Mexico has the least number of managers with an underweight position. No managers in Korea are overweight in their portfolio,” says the report.
While emerging markets were the last to slip into recession, they will be the first to bounce back as results of pro-growth monetary policies start kicking in, he says.
In a report titled “The Big Ugly Experiment”, Mowat says that Asian companies and economies are in uncharted waters. “The big ugly experiment is whether aggressive monetary and fiscal stimulus can offset the impact of the deepest consumer recession in developed economies since World War II,” says Mowat.
Among sectors in Asia, JP Morgan prefers financials, domestic consumer discretionary and consumer technology. Notwithstanding the fall in the Sensex and the Nifty during the end of 2008, major emerging market fund managers actually increased their allocation to India in December.
Mowat believes that inflation has peaked in emerging markets. However, the main concerns for investors now are capital market volatility and a lack of confidence in growth. “Our asset allocation favours markets that are ahead in the inflation monetary cycle and provide faster growth,” the report says.
The rout in commodity and energy markets has been the catalyst for the significant redemption-led selling. Redemptions began in June for Latin American funds and in July for emerging market funds with cumulative net redemptions of $4.6 billion and $ 3.3 billion. JP Morgan says that this redemption-led selling is generating distressed valuations. Asian funds saw net redemptions worth $9.2 billion since mid-May.
The report recommends that investors go long on Taiwan and short on Korea. The reasons behind this change in stance for Korea are uncertain macro, downside risk to earnings, politics, China’s stimulus package’s benefit to Taiwan and lower relative cost of funding.
JP Morgan is overweight on China, Mexico, Taiwan, the Philippines, South Africa, Turkey and Thailand. “The number of managers with overweights in China and Hong Kong increased from 13 to 17, while the number of underweights reduced from 12 to 9. Mexico has the least number of managers with an underweight position. No managers in Korea are overweight in their portfolio,” says the report.
Wednesday, February 25, 2009
DLF slashes rates by up to Rs 13 lakh
In a move that may put pressure on other players to follow suit, DLF, India’s largest property developer, today announced a reduction of up to Rs 13 lakh in the prices of flats at its new residential project in Chennai.
Bangalore and Hyderabad, where residential projects with reduced price tags have been announced in the last few weeks. Gurgaon, Panchkula and Kochin may also see similar project launches from DLF in the coming days, an executive of the company said. The decision is in line with the company’s recent announcement, which said it was strengthening its focus on the “affordable housing” segment in select cities.
Both existing customers as well as new customers will benefit from the price cuts announced in Chennai today.
“We have not waited for the government to provide further stimulus to announce a cut in prices. The prices are 20-30 per cent lower than the earlier announced rates. This was possible after we improved our efficiencies and made some changes in the project specifications,” Rajeev Talwar, group executive director, DLF, said.
According to a DLF spokesperson, the price at the time of the soft-launch of the project in March 2008 was Rs 2,800 per sq ft for flats in the range of 1,200-2,000 sq ft. Once the project was announced, it went up to Rs 3,000 per sq ft. The amount has now been revised to Rs 2,500 per sq ft for the initial customers and Rs 2,550 per sq ft for the subsequent ones.
Overall, there are 3,493 houses, of which almost 1,500 are available under the early bird scheme.
“There would be a benefit of between Rs 3.5 lakh and Rs 13 lakh per unit from the reduction, depending on the size of the apartment,” the spokesperson said.
In the case of Hyderabad and Bangalore, where new projects were announced recently, the company reduced the size of the flats and also the price. The reconfigured prices were Rs 1,850 per sq ft for flats in the range of 1,088 to 1,500 sq ft.
The DLF move is expected to compel other players also to revise their prices for existing and new projects.
DLF Vice-Chairman Rajiv Singh had said last month that the company will reconfigure its residential projects to reduce the prices 15-20 per cent.
Bangalore and Hyderabad, where residential projects with reduced price tags have been announced in the last few weeks. Gurgaon, Panchkula and Kochin may also see similar project launches from DLF in the coming days, an executive of the company said. The decision is in line with the company’s recent announcement, which said it was strengthening its focus on the “affordable housing” segment in select cities.
Both existing customers as well as new customers will benefit from the price cuts announced in Chennai today.
“We have not waited for the government to provide further stimulus to announce a cut in prices. The prices are 20-30 per cent lower than the earlier announced rates. This was possible after we improved our efficiencies and made some changes in the project specifications,” Rajeev Talwar, group executive director, DLF, said.
According to a DLF spokesperson, the price at the time of the soft-launch of the project in March 2008 was Rs 2,800 per sq ft for flats in the range of 1,200-2,000 sq ft. Once the project was announced, it went up to Rs 3,000 per sq ft. The amount has now been revised to Rs 2,500 per sq ft for the initial customers and Rs 2,550 per sq ft for the subsequent ones.
Overall, there are 3,493 houses, of which almost 1,500 are available under the early bird scheme.
“There would be a benefit of between Rs 3.5 lakh and Rs 13 lakh per unit from the reduction, depending on the size of the apartment,” the spokesperson said.
In the case of Hyderabad and Bangalore, where new projects were announced recently, the company reduced the size of the flats and also the price. The reconfigured prices were Rs 1,850 per sq ft for flats in the range of 1,088 to 1,500 sq ft.
The DLF move is expected to compel other players also to revise their prices for existing and new projects.
DLF Vice-Chairman Rajiv Singh had said last month that the company will reconfigure its residential projects to reduce the prices 15-20 per cent.
Stocks seen sharply higher on global cues, stimulus boost
MUMBAI: Stocks are likely to begin trade on an optimistic note on Wednesday tracking the recovery across global markets. On the domestic front, the government unveiled its third stimulus package after market hours Tuesday which will further boost sentiment. The government cut factory gate duties and service taxes in an effort to boost demand and revive growth in economy as it reels under the impact of the global economic crisis. Stand-in finance minister Pranab Mukherjee announced a cut in excise duty and service tax by 2 per cent each and extended a 4 per cent reduction in excise duty, provided in the first stimulus package, beyond this fiscal-end. He also announced excise duty cut on bulk cement by 2 per cent or Rs 60 per metric tonne, whichever is higher. Mukherjee said government was confident to overcome the impact of the global economic crisis on the domestic economy. The Indian economy is estimated to grow 7.1 percent in the current fiscal year, which ends in March, slower than the 9 percent in the previous year and some economists say expansion could slow to below six percent in 2009-10. Meanwhile, US stocks rose more than 3 per cent on Tuesday to snap back from 12-year lows, after Federal Reserve Chairman Ben Bernanke delivered a dose of relief when he signalled that nationalisation of big banks was not on the cards. The Fed chairman’s remarks eased frayed nerves that the Treasury’s capital-injection plan would hurt banks’ shareholders and lead to nationalisation. The Dow Jones Industrial Average rose 236.16 points, or 3.32 per cent, to 7,350.94. The Standard & Poor's 500 Index gained 29.81 points, or 4.01 per cent, to 773.14. The Nasdaq Composite Index added 54.11 points, or 3.90 per cent, to 1,441.83. Asian stocks kicked off trade on a firm note taking relief from Bernanke’s statements against nationalisation of banks. The Nikkei climbed 1.6 per cent, Topix rose 1.04 per cent, Hang Seng surged 2.08 per cent while Straits Times advanced 0.99 per cent. Back home, equity benchmarks ended flat Tuesday ahead of F&O February series expiry. The market discounted Standard & Poor’s negative credit rating on India and tax cuts by the Indian government. Bombay Stock Exchange’s Sensex ended at 8,822.06, down 21.15 points or 0.24 per cent. The 30-share index slipped after touching an intra-day high of 8856.52. It touched an intra-day low of 8619.22. National Stock Exchange’s Nifty closed at 2733.90, down 2.55 points or 0.09 per cent. The broader index touched a high of 2746.20 and low of 2677.55.
IL&FS Investsmart puts 'buy' on Hindustan Dorr-Oliver
Research: IL&FS Investsmart
Rating: Buy
CMP: RS 26
IL&FS Investsmart initiates coverage on Hindustan Dorr-Oliver with a ‘Buy’ rating, with a 15-month price target of Rs 55, providing an upside of 104%. HDO has made rapid strides in its core EPC business, engineering a ~5.4x growth in less then four years with significant contribution from the mineral beneficiation and environmental infrastructure business. However, the best is yet to come for HDO as the company is well positioned and has expertise to get into the bigger league with higher ticket contracts. The current order backlog of Rs 700 crore is 2.3xFY08 billings. Based on the pipeline bids, enquiries, and the capex cycle, order accretion is to gain momentum in the next few quarters and grow at 17% CAGR for the next two years. Traction is expected in the award of big ticket contracts in the next few quarters . IL&FS expects higher demand for its proprietary industrial products which is likely to prop the blended margin going forward with ~14% revenue contribution by FY10. HDO has all the characteristics to graduate to the next league and therefore the concerns reflected in the stock price are unwarranted; hence there is a good investment opportunity.
Rating: Buy
CMP: RS 26
IL&FS Investsmart initiates coverage on Hindustan Dorr-Oliver with a ‘Buy’ rating, with a 15-month price target of Rs 55, providing an upside of 104%. HDO has made rapid strides in its core EPC business, engineering a ~5.4x growth in less then four years with significant contribution from the mineral beneficiation and environmental infrastructure business. However, the best is yet to come for HDO as the company is well positioned and has expertise to get into the bigger league with higher ticket contracts. The current order backlog of Rs 700 crore is 2.3xFY08 billings. Based on the pipeline bids, enquiries, and the capex cycle, order accretion is to gain momentum in the next few quarters and grow at 17% CAGR for the next two years. Traction is expected in the award of big ticket contracts in the next few quarters . IL&FS expects higher demand for its proprietary industrial products which is likely to prop the blended margin going forward with ~14% revenue contribution by FY10. HDO has all the characteristics to graduate to the next league and therefore the concerns reflected in the stock price are unwarranted; hence there is a good investment opportunity.
HSBC maintains its `Neutral’ rating on ITC
Research: HSBC
Rating: Neutral
CMP: RS 180
HSBC maintains its `Neutral’ rating on ITC with a price target of Rs. 172 per share. Considering the staggered price increase that ITC has been taking this year and that the budget has been delayed from February to June, questions are being raised whether there is one more price increase in the offing. While HSBC estimates a weighted average price increase, including mix effect, 14% has been implemented so far, and the probability of a further increase is small as ITC can manage decent growth in Q1FY10E without price increase, and ITC may not wish to jeopardise volume growth further when it is currently negative. If ITC decides to hike prices it could be implemented in the following order of priority: (1) Goldflake Kings is likely to be the first option due to the price inelasticity in this segment. (2) Bristol and Flake with price point of Rs 1.9 per stick; since loose buyers already pay Rs 2, trade margins can be cut; (3) Goldflake regular though has had high price increases and has strong brand loyalty (4) Scissors Regular is a less probable option since plains migration needs to take hold. HSBC derives a fair value of Rs 154 for the high tax and Rs 201 for the low tax scenario. At the target price, the stock will trade at 16.8x FY10E EPS.
Rating: Neutral
CMP: RS 180
HSBC maintains its `Neutral’ rating on ITC with a price target of Rs. 172 per share. Considering the staggered price increase that ITC has been taking this year and that the budget has been delayed from February to June, questions are being raised whether there is one more price increase in the offing. While HSBC estimates a weighted average price increase, including mix effect, 14% has been implemented so far, and the probability of a further increase is small as ITC can manage decent growth in Q1FY10E without price increase, and ITC may not wish to jeopardise volume growth further when it is currently negative. If ITC decides to hike prices it could be implemented in the following order of priority: (1) Goldflake Kings is likely to be the first option due to the price inelasticity in this segment. (2) Bristol and Flake with price point of Rs 1.9 per stick; since loose buyers already pay Rs 2, trade margins can be cut; (3) Goldflake regular though has had high price increases and has strong brand loyalty (4) Scissors Regular is a less probable option since plains migration needs to take hold. HSBC derives a fair value of Rs 154 for the high tax and Rs 201 for the low tax scenario. At the target price, the stock will trade at 16.8x FY10E EPS.
Macquarie maintains ‘Outperform’ rating on Pantaloon Retail
Research: Macquarie
Rating: Outperform \CMP: RS 145
Macquarie maintains its ‘Outperform’ rating on Pantaloon Retail. However, it has cut the earnings estimates and target price to reflect the expectations of slowing same-store sales growth and the credit crunch. Same-store sales (SSS) growth for Indian retailers turned negative for the first time in 4Q08. Slowing growth, the spectre of job losses and the high base effect (from the good old days of 2007) impacted sales. The problem was sharper in the high-end product segment versus items for daily consumption. Pantaloon saw its SSS growth improve from -3 .6% and -14 % in December 2008 to 4% and 12% in January 2009 for value retail and lifestyle retail respectively. Based on the estimates, Pantaloon’s operations can support growth of around 1-2 million sq feet per year with limited external funding. The supply-demand dynamics have led to a rise in retail rents in the last three years. Macquarie expects this to continue and average rents to fall at least another 25% over the next 12 months. We expect Pantaloon to be able to ride this tough period given its high exposure to value retail and planned capital raising by equity dilution or preferential share allotment.
Rating: Outperform \CMP: RS 145
Macquarie maintains its ‘Outperform’ rating on Pantaloon Retail. However, it has cut the earnings estimates and target price to reflect the expectations of slowing same-store sales growth and the credit crunch. Same-store sales (SSS) growth for Indian retailers turned negative for the first time in 4Q08. Slowing growth, the spectre of job losses and the high base effect (from the good old days of 2007) impacted sales. The problem was sharper in the high-end product segment versus items for daily consumption. Pantaloon saw its SSS growth improve from -3 .6% and -14 % in December 2008 to 4% and 12% in January 2009 for value retail and lifestyle retail respectively. Based on the estimates, Pantaloon’s operations can support growth of around 1-2 million sq feet per year with limited external funding. The supply-demand dynamics have led to a rise in retail rents in the last three years. Macquarie expects this to continue and average rents to fall at least another 25% over the next 12 months. We expect Pantaloon to be able to ride this tough period given its high exposure to value retail and planned capital raising by equity dilution or preferential share allotment.
Expect 76% upside in Sunil Hitech: Angel Broking
Angel Broking has initiated coverage on Sunil Hitech Engineers with a Buy recommendation and expect the stock to hit a target price of Rs 111, an upside of 76 per cent. According to the report, Sunil Hitech Engineers, an established player in the Balance of Plant space, is involved in Fabrication, Erection, Testing & Commissioning and Maintenance of Power Plants. The company is also equipped to perform civil work for thermal power stations up to 500MW as well as erect boilers and auxiliaries up to 660MW. SHEL, which has been primarily focusing on constructing steel structures and fabrication, now plans to move up the value chain by undertaking small EPC contracts. The company, with its two-decade long presence in the BOP space, is set to benefit from the potential arising from the massive power capacity additions in the country over the next few years. “SHEL enjoys a strong order book position of Rs 1,298 crore or 4x its FY2008 revenue. This strong order book position provides high revenue visibility for the company over the next two years. Over FY2008-10E, we expect SHEL's net revenue to clock a CAGR of 45% on a robust order book size of Rs1,298 crore. We expect the company's operating profits to post a CAGR of 37% to Rs 92.4 crore during the mentioned period. Going ahead, we expect the company to post 23% CAGR in Net Profit on the back of better operational performance and decline in Interest rates. At Rs 63, the stock is trading at attractive valuations of 4.8x FY2009E and 2.3x FY2010E. We initiate coverage on the stock, with a Buy recommendation and target Price of Rs 111, implying an upside of around 76 per cent from current levels,” the report added.
Larsen & Toubro gets three new orders worth Rs 1,438 crore
MUMBAI: Larsen & Toubro, India’s largest engineering company, on Tuesday said it has got three new orders worth Rs 1,438 crore. Two orders worth Rs 1,130 crore were booked in the Gulf region and a third, worth Rs 308 crore, was from the West Bengal State Electricity Distribution Company, L&T said in a statement. Shares of L&T were up 0.7% at Rs 627 in intra day trading on the BSE. Giving details about one order, the Mumbai-based L&T said an EPC contract (engineering, procurement & construction) worth Rs 800 crore was from the Al Ain Distribution Company for constructing seven electrical substations, cabling and building overhead transmission lines in the Al Ain city of Abu Dhabi. This is one of the single largest value orders received by L&T in the UAE, for the power transmission and distribution sector, the L&T statement added.
Heard on the Street (Source: ET)
Idea Cellular counter hums with activity
Shares of telecom player Idea Cellular have been steadily inching up in a sluggish market. Dealers tracking the counter say institutional investors have been regular buyers in the stock of late. These include a couple of leading domestic fund houses and a private sector insurance firm affiliated to a leading domestic bank. Talk is that the bulls at the counter are expecting some positive development shortly. But analysts say the purchases could have to do with the stock being reasonable valued compared to its peers. They add that company’s stronger balance sheet would support valuations, which have improved after Telekom Malaysia infused Rs 730 crore for a 15% stake through preferential allotment, and receipt of another Rs 210 crore from its stake sale in Aditya Birla Telecom. The stock closed at Rs 48 on Tuesday, and has gained around 12% over the past one month.
Dubai infusion lands Indian bank in trouble
Ambitious investment in a prized overseas real estate project has landed a mid-sized Indian bank in soup. If market sources are to be believed, the international branch of the bank had helped a cash-strapped Dubai-based real estate company by crediting a few hundred crore, about Rs 700 crore, according to brokers, to meet working capital needs. Equity analysts tracking banking sectors are not very happy by the magnanimous gesture of the Indian bank. “The real estate sector in the Gulf has been badly hit, like in many other markets . Almost all companies were constructing high-end flats, which rarely find takers during recession; the slide in crude prices will aggravate the pressure on real estate companies to find buyers,” said a Mumbai-based broker. According to analysts, real estate in the Gulf is expecting a near-25% price decline over the next three months. “It will be interesting to see when the Dubai-based property company will be able to repay the money it owes to the Indian bank. In all probability, it will ask for a term extension; that is, assuming, Gulf-based companies are not allowed to go bankrupt by authorities,” the broker added.
Shares of telecom player Idea Cellular have been steadily inching up in a sluggish market. Dealers tracking the counter say institutional investors have been regular buyers in the stock of late. These include a couple of leading domestic fund houses and a private sector insurance firm affiliated to a leading domestic bank. Talk is that the bulls at the counter are expecting some positive development shortly. But analysts say the purchases could have to do with the stock being reasonable valued compared to its peers. They add that company’s stronger balance sheet would support valuations, which have improved after Telekom Malaysia infused Rs 730 crore for a 15% stake through preferential allotment, and receipt of another Rs 210 crore from its stake sale in Aditya Birla Telecom. The stock closed at Rs 48 on Tuesday, and has gained around 12% over the past one month.
Dubai infusion lands Indian bank in trouble
Ambitious investment in a prized overseas real estate project has landed a mid-sized Indian bank in soup. If market sources are to be believed, the international branch of the bank had helped a cash-strapped Dubai-based real estate company by crediting a few hundred crore, about Rs 700 crore, according to brokers, to meet working capital needs. Equity analysts tracking banking sectors are not very happy by the magnanimous gesture of the Indian bank. “The real estate sector in the Gulf has been badly hit, like in many other markets . Almost all companies were constructing high-end flats, which rarely find takers during recession; the slide in crude prices will aggravate the pressure on real estate companies to find buyers,” said a Mumbai-based broker. According to analysts, real estate in the Gulf is expecting a near-25% price decline over the next three months. “It will be interesting to see when the Dubai-based property company will be able to repay the money it owes to the Indian bank. In all probability, it will ask for a term extension; that is, assuming, Gulf-based companies are not allowed to go bankrupt by authorities,” the broker added.
SAIL (Rs 76.05): Sell (Source: HBL)
We recommend a sell in Steel Authority of India Ltd stock from a short-term trading perspective. It is clearly visible from the charts of SAIL that it was on an intermediate-term uptrend from its 52-week low of Rs 55 recorded in late November till it encountered resistance in the band between Rs 92 and Rs 97 in mid-February. The stock reversed direction at this resistance level, with the formation of a bearish engulfing candlestick pattern.
The stock has been on a short-term down trend from this resistance level. While declining, the stock conclusively breached its 21- and 50-day moving averages which are positioned at Rs 81. Moreover on February 24, the stock penetrated its intermediate-term down trend-line by tumbling 4 per cent, accompanied with above average volume. Both daily and weekly relative strength indices (RSI) are on the brink of entering the bearish zone from the neutral region.
The daily moving average convergence and divergence indicator is signalling a sell. We are bearish on this stock from a short-term perspective. We expect the stock’s decline to continue until it hits our price target of Rs 68 in the forthcoming trading sessions. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 80.
The stock has been on a short-term down trend from this resistance level. While declining, the stock conclusively breached its 21- and 50-day moving averages which are positioned at Rs 81. Moreover on February 24, the stock penetrated its intermediate-term down trend-line by tumbling 4 per cent, accompanied with above average volume. Both daily and weekly relative strength indices (RSI) are on the brink of entering the bearish zone from the neutral region.
The daily moving average convergence and divergence indicator is signalling a sell. We are bearish on this stock from a short-term perspective. We expect the stock’s decline to continue until it hits our price target of Rs 68 in the forthcoming trading sessions. Traders with short-term perspective can sell the stock while maintaining a stop-loss at Rs 80.
Tuesday, February 24, 2009
Australia likely to cut skilled immigrants' number
MELBOURNE: In what could be more bad news for Indian job-seekers, Australia has indicated that the global economic downturn may prompt it to cut the number of skilled immigrants to be allowed into the country next year, after similar measures by the US and Britain. "I expect the numbers of our programme to drop next year ... as a reaction to the economic circumstances," Australian Immigration Minister Chris Evans told reporters. Evans said the size of the cut would be a matter for cabinet, the Australian Associated Press reported today. The government was very aware that labour demand would differ across regions and economic sectors, he said adding, "It's not a one size fits all."
In Britain too, the government is hardening immigration laws
as unemployment rises amid the financial meltdown. Non-European Union workers including Indians migrating to Britain will, from April, have to hold a masters degree and will have to show they earned a salary of at least $44,000 before moving to the UK.
In Britain too, the government is hardening immigration laws
as unemployment rises amid the financial meltdown. Non-European Union workers including Indians migrating to Britain will, from April, have to hold a masters degree and will have to show they earned a salary of at least $44,000 before moving to the UK.
Now, SBI more valuable than Citibank in m-cap
The US financial crisis has hit the valuation of its banks. Citigroup, one of the largest banks in the world, with assets worth $1.95 trillion or Rs 9,72,075 crore, now values less than the State Bank of India (SBI), India's largest bank.
On Monday, at the time this newspaper was going to press, the market capitalisation of Citigroup was Rs 57,328 crore as against Rs 66,449 crore of SBI (based on closing share price on Friday). The Indian stock market was closed on Monday. Citigroup is facing one of the worst crisis in its recent history. Its share price on Friday fell by 93% to $1.95 from a 52-week high of $27.35 on April 28, 2008. In 2007, the company's share price had gone up to around $65. On Monday, it recovered marginally to quote at around $2.1 per share. Share prices of other banks like Bank of America fell 94% to $2.53 on Friday, JP Morgan Chase by 65% to $17.70 and Goldman Sachs by 58% to $84.59% from their respective 52-week highs. In 2008, Citigroup suffered a loss of over Rs 80,000 crore. Against this, SBI earned a net profit of Rs 4,700 crore in April-December 2008 - first nine months of the current financial year. Despite the fact that Citigroup's tier-I capital adequacy ratio is at 11.9% of total performing assets, which is one of the best in the world, the bank is facing tough times due to its exposure to doubtful assets.
US government is planning to hike stake in the bank to regain confidence of investors and customers. There are speculation that the bank might get nationalized. US government had infused $45 billion in Citigroup under the troubled asset relief programme, besides extending $300 billion guarantee for assets. Against this, in the present financial crisis, SBI has emerged even stronger than earlier. Its deposits and assets base increased faster than that of the Indian banking industry.
On Monday, at the time this newspaper was going to press, the market capitalisation of Citigroup was Rs 57,328 crore as against Rs 66,449 crore of SBI (based on closing share price on Friday). The Indian stock market was closed on Monday. Citigroup is facing one of the worst crisis in its recent history. Its share price on Friday fell by 93% to $1.95 from a 52-week high of $27.35 on April 28, 2008. In 2007, the company's share price had gone up to around $65. On Monday, it recovered marginally to quote at around $2.1 per share. Share prices of other banks like Bank of America fell 94% to $2.53 on Friday, JP Morgan Chase by 65% to $17.70 and Goldman Sachs by 58% to $84.59% from their respective 52-week highs. In 2008, Citigroup suffered a loss of over Rs 80,000 crore. Against this, SBI earned a net profit of Rs 4,700 crore in April-December 2008 - first nine months of the current financial year. Despite the fact that Citigroup's tier-I capital adequacy ratio is at 11.9% of total performing assets, which is one of the best in the world, the bank is facing tough times due to its exposure to doubtful assets.
US government is planning to hike stake in the bank to regain confidence of investors and customers. There are speculation that the bank might get nationalized. US government had infused $45 billion in Citigroup under the troubled asset relief programme, besides extending $300 billion guarantee for assets. Against this, in the present financial crisis, SBI has emerged even stronger than earlier. Its deposits and assets base increased faster than that of the Indian banking industry.
Britannia: Creaming the market
The good news about biscuit maker Britannia’s December 2008 quarter numbers is that volumes are higher by about 13 per cent despite the company having upped prices of most of its products a few months back.
That has driven up sales by a strong 25 per cent and with this, the increase in the top line for the nine months this year is a good 24 per cent. This suggests that the Bangalore-based firm is doing well despite the keen competition from newer players such as ITC and incumbents such as Parle.
For some time now, it has been able to hang on to its market share of around 33-34 per cent probably because Britannia’s strategy of selling products across price points is paying off. Both premium brands such as Bourbon and Good Day have done well as have lower- end brands such as Tiger. The products such as Nutrichoice and its variants positioned in the health segment too are gaining share.
If the strong market presence isn’t quite showing up in its profit numbers it’s because high input costs have been hurting the firm’s operating margins for some time now --- in the September 2008 quarter they came off by 240 basis points.
By trimming costs on advertising, people and other items, the Rs 2,585 crore company was able to offset, to a great extent, the sharp increase in raw material prices in the December quarter and as a result, margins were lower by about 70 basis points at 8 per cent. With prices of agri-inputs such as wheat, vegetable oil and milk expected to ease, that should change.
Also, in the December quarter the growth in the bottom line (before exceptionals) grew at just 8 per cent y-oy because the company paid out more on account of interest and taxes. Britannia reported a profit of Rs 191 crore in 2007-08; in the current year analysts expect net profits to be in the region of Rs 220 crore on revenues close to Rs 3,250 crore.
That has driven up sales by a strong 25 per cent and with this, the increase in the top line for the nine months this year is a good 24 per cent. This suggests that the Bangalore-based firm is doing well despite the keen competition from newer players such as ITC and incumbents such as Parle.
For some time now, it has been able to hang on to its market share of around 33-34 per cent probably because Britannia’s strategy of selling products across price points is paying off. Both premium brands such as Bourbon and Good Day have done well as have lower- end brands such as Tiger. The products such as Nutrichoice and its variants positioned in the health segment too are gaining share.
If the strong market presence isn’t quite showing up in its profit numbers it’s because high input costs have been hurting the firm’s operating margins for some time now --- in the September 2008 quarter they came off by 240 basis points.
By trimming costs on advertising, people and other items, the Rs 2,585 crore company was able to offset, to a great extent, the sharp increase in raw material prices in the December quarter and as a result, margins were lower by about 70 basis points at 8 per cent. With prices of agri-inputs such as wheat, vegetable oil and milk expected to ease, that should change.
Also, in the December quarter the growth in the bottom line (before exceptionals) grew at just 8 per cent y-oy because the company paid out more on account of interest and taxes. Britannia reported a profit of Rs 191 crore in 2007-08; in the current year analysts expect net profits to be in the region of Rs 220 crore on revenues close to Rs 3,250 crore.
Thermax: Difficult times
Orders are flowing in but customers are going slow on projects and that’s hurting the firm.
It might not be the best of times for the industry but orders continue to flow in at the Rs 3,204 crore Thermax. The Pune-based firm saw oders increase 26 per cent y-o-y during the December 2008 quarter compared with an increase of just 3.5 per cent for Siemens and a fall of 37 per cent y-o-y for ABB. In fact,despite the challenging environment for makers of capital goods, Thermax was able to expand its operating profit margin(opm), adjusting for a notional foreign exchange loss of Rs 10 crore, by 100 basis points, to 13.3 per cent.
The company had fortunately used up most of its inventory of high-cost raw materials and having renegotiated fresh terms for its new contracts, should be able to sustain margins at these levels. Bigger players like ABB posted an opm of 12.3 per cent in the December 2008 quarter while Siemens turned in an opm of 9.8 per cent. Crompton Greaves’s margin was 10.5 per cent.
Thermax’s sales were lower by about 6 per cent during the December 2008 quarter despite revenues from the international market, which fetch it a third of its sales, having risen by 40 per cent.
The environment segment did particularly well, growing 14 per cent and contributing around 23 per cent to the firm’s revenues much more that the 19 per cent in the corresponding period of 2007-08. It’s the key energy segment that has lost momentum — sales down about 9 per cent —with customers not really moving ahead on their projects and taking time to finalise orders.
The sectors that appear to be seeing a slowdown are cement and metals;however, the power sector is expected to see investments though at a slower pace. In the nine months to December 2008 Thermax’s net sales stayed pretty much flat at Rs 2,316 crore. Despite this, better operating efficiencies have resulted in the profit before tax increasing by 22 per cent y-o-y, after adjusting for around Rs 65 crore of forex losses.
It might not be the best of times for the industry but orders continue to flow in at the Rs 3,204 crore Thermax. The Pune-based firm saw oders increase 26 per cent y-o-y during the December 2008 quarter compared with an increase of just 3.5 per cent for Siemens and a fall of 37 per cent y-o-y for ABB. In fact,despite the challenging environment for makers of capital goods, Thermax was able to expand its operating profit margin(opm), adjusting for a notional foreign exchange loss of Rs 10 crore, by 100 basis points, to 13.3 per cent.
The company had fortunately used up most of its inventory of high-cost raw materials and having renegotiated fresh terms for its new contracts, should be able to sustain margins at these levels. Bigger players like ABB posted an opm of 12.3 per cent in the December 2008 quarter while Siemens turned in an opm of 9.8 per cent. Crompton Greaves’s margin was 10.5 per cent.
Thermax’s sales were lower by about 6 per cent during the December 2008 quarter despite revenues from the international market, which fetch it a third of its sales, having risen by 40 per cent.
The environment segment did particularly well, growing 14 per cent and contributing around 23 per cent to the firm’s revenues much more that the 19 per cent in the corresponding period of 2007-08. It’s the key energy segment that has lost momentum — sales down about 9 per cent —with customers not really moving ahead on their projects and taking time to finalise orders.
The sectors that appear to be seeing a slowdown are cement and metals;however, the power sector is expected to see investments though at a slower pace. In the nine months to December 2008 Thermax’s net sales stayed pretty much flat at Rs 2,316 crore. Despite this, better operating efficiencies have resulted in the profit before tax increasing by 22 per cent y-o-y, after adjusting for around Rs 65 crore of forex losses.
Hindustan Oil Exploration (Rs 57.25): Buy
We recommend a buy in Hindustan Oil Exploration Company stock from a short-term trading perspective. It is apparent from the charts of the company that it was on an intermediate-term downtrend from its August 2008 peak of Rs 144 to its February 2009 low of Rs 50.
However, the stock found support around Rs 50, and bounced by almost 9 per cent on February 20. Accompanied with high volume, this up-move of the stock conclusively broke through the 21-day moving average as well as intermediate-term down trendline. The stock has a significant long-term support at Rs 50. The daily relative strength index (RSI) is rising in the neutral region towards the bullish zone and weekly RSI has recovered from the oversold territory.
The price rate of change indicator has entered the positive territory that indicates increase in buying pressure. Considering the recent break-through and the presence of significant support at Rs 50, we are bullish on the stock from a short-term horizon. We expect the stock to rally until it hits our price target of Rs 64 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 54.
However, the stock found support around Rs 50, and bounced by almost 9 per cent on February 20. Accompanied with high volume, this up-move of the stock conclusively broke through the 21-day moving average as well as intermediate-term down trendline. The stock has a significant long-term support at Rs 50. The daily relative strength index (RSI) is rising in the neutral region towards the bullish zone and weekly RSI has recovered from the oversold territory.
The price rate of change indicator has entered the positive territory that indicates increase in buying pressure. Considering the recent break-through and the presence of significant support at Rs 50, we are bullish on the stock from a short-term horizon. We expect the stock to rally until it hits our price target of Rs 64 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 54.
Monday, February 23, 2009
IPIC, wholly owned by the government of the Emirate of Abu Dhabi offers to buy Nova Chemicals
TORONTO, Feb 23 (Reuters) - Nova Chemicals Corp said on Monday that it agreed to be bought by International Petroleum Investment Company in a deal which valued it at about $2.3 billion including debt. The deal sees IPIC, wholly owned by the government of the Emirate of Abu Dhabi, paying $6.00 a share for all of the outstanding shares of Nova Chemicals.Nova currently has 82.3 million shares outstanding, according to Reuters.Nova closed on Friday at $1.34 a share in New York.
($1=$1.25 Canadian)
($1=$1.25 Canadian)
Stocks Recos (Source; NDTV Profit)
DIVIS LABORATORIES LTD : The investors can hold the stock and exit at Rs 1100 levels. The stock has a downside support at Rs 700 and finds resistance at Rs 900.: Ashu Bagri: Manager, Technical Analyst: SBI Caps Securities: (2/20/2009 1:14:44 PM).
ABB : The investors can hold the stock for now. Though the company has a decent order book position, the bottom-line may take some hit.: VVLN Sastry: Country Head: Firstcall India Equity Advisors: (2/20/2009 1:11:55 PM).
VOLTAS LTD : The investors can invest in the counter with a minimum 3-year perspective. The order book of the company is likely to be affected as a major bulk of its orders comes from the slowdown-hit Middle East. : Phani Shekhar: Fund Manager PMS: Angel Broking: (2/18/2009 1:16:19 PM).
RADICO KHAITAN LTD : The counter is technically weak. If the stock falls below Rs 65 then the investors can exit it.: V Sundar Raja: Vice president (Research): Northeast Stock Broking: (2/18/2009 1:12:03 PM).
HINDALCO INDUSTRIES LTD : The investors can avoid the stock. Aluminum prices are likely to correct further. Metals, as a sector, will take some more time to recover.: Sharmila Joshi: VP, Institutional Sales: Systematix Shares: (2/17/2009 1:08:35 PM).
SATYAM COMPUTER SERVICES LTD : I suggest the investors to exit the stock on rallies. They can switch to more fundamentally sound stocks.: Ashu Kakkar: Tech Analyst: skypowerfinancialservices.com: (2/17/2009 12:58:26 PM).
JAIPRAKASH ASSOCIATES : The investors can buy the stock. The company has good capex plans and it recently bagged the Ganga Expressway Project also.: Sharmila Joshi: VP, Institutional Sales: Systematix Shares: (2/17/2009 12:54:09 PM).
ISPAT INDUSTRIES LTD : I recommend the investors to sell the stock. There are other good stocks to hold in the same space and so the investors should take an exit. It has support at Rs 28 and resistance at Rs 82 levels.: Ashu Kakkar: Tech Analyst: skypowerfinancialservices.com: (2/22/2008 8:23:22 PM).
GUJARAT NRE COKE LTD : I wont advice the investors to buy the stock at the current levels. The investors should wait for lower levels to enter the counter. : Ashu Kakkar: Tech Analyst: skypowerfinancialservices.com: (2/22/2008 8:18:50 PM).
BALLARPUR INDUSTRIES LTD : I would recommend the investors to wait for sometime before entering the counter. The counter has resistance at around Rs 155 levels and it is struggling to meet these levels. : MB Singh: Technical Analyst: technicaltradersofindia.com: (2/20/2008 3:35:44 PM).
RELIANCE INDUSTRIES LTD : I would recommend the investors to hold the stock. The counter looks good on the charts but fresh buying should be done at lower levels.: Hemen Kapadia: CEO: chartpundit.com: (2/18/2008 3:44:08 PM).
ABB : The investors can hold the stock for now. Though the company has a decent order book position, the bottom-line may take some hit.: VVLN Sastry: Country Head: Firstcall India Equity Advisors: (2/20/2009 1:11:55 PM).
VOLTAS LTD : The investors can invest in the counter with a minimum 3-year perspective. The order book of the company is likely to be affected as a major bulk of its orders comes from the slowdown-hit Middle East. : Phani Shekhar: Fund Manager PMS: Angel Broking: (2/18/2009 1:16:19 PM).
RADICO KHAITAN LTD : The counter is technically weak. If the stock falls below Rs 65 then the investors can exit it.: V Sundar Raja: Vice president (Research): Northeast Stock Broking: (2/18/2009 1:12:03 PM).
HINDALCO INDUSTRIES LTD : The investors can avoid the stock. Aluminum prices are likely to correct further. Metals, as a sector, will take some more time to recover.: Sharmila Joshi: VP, Institutional Sales: Systematix Shares: (2/17/2009 1:08:35 PM).
SATYAM COMPUTER SERVICES LTD : I suggest the investors to exit the stock on rallies. They can switch to more fundamentally sound stocks.: Ashu Kakkar: Tech Analyst: skypowerfinancialservices.com: (2/17/2009 12:58:26 PM).
JAIPRAKASH ASSOCIATES : The investors can buy the stock. The company has good capex plans and it recently bagged the Ganga Expressway Project also.: Sharmila Joshi: VP, Institutional Sales: Systematix Shares: (2/17/2009 12:54:09 PM).
ISPAT INDUSTRIES LTD : I recommend the investors to sell the stock. There are other good stocks to hold in the same space and so the investors should take an exit. It has support at Rs 28 and resistance at Rs 82 levels.: Ashu Kakkar: Tech Analyst: skypowerfinancialservices.com: (2/22/2008 8:23:22 PM).
GUJARAT NRE COKE LTD : I wont advice the investors to buy the stock at the current levels. The investors should wait for lower levels to enter the counter. : Ashu Kakkar: Tech Analyst: skypowerfinancialservices.com: (2/22/2008 8:18:50 PM).
BALLARPUR INDUSTRIES LTD : I would recommend the investors to wait for sometime before entering the counter. The counter has resistance at around Rs 155 levels and it is struggling to meet these levels. : MB Singh: Technical Analyst: technicaltradersofindia.com: (2/20/2008 3:35:44 PM).
RELIANCE INDUSTRIES LTD : I would recommend the investors to hold the stock. The counter looks good on the charts but fresh buying should be done at lower levels.: Hemen Kapadia: CEO: chartpundit.com: (2/18/2008 3:44:08 PM).
Smile Pinky wins an Oscar
The made in India documentary Smile Pinky won an Oscar in the Best Short Documentary category at the 81st Academy Awards declared in Los Angeles on February 22. Smile Pinky is the story of a child with a lip deformity. The film had been nominated along with four other documentaries at the famed Academy Awards. Residents of Dabai village in Uttar Pradesh s Ahura district have been praying for the success of the documentary Smile Pinky at the Oscars, since it is based on the life of a girl belonging to their village. The film by Megan Mylan depicts the saga of six-year-old Pinky who becomes a social outcast because of a cleft lip. In the 39-minute documentary, the girl from this obscure village of Uttar Pradesh, undergoes corrective surgery.
Slumdog is king with 7 Oscars
Slumdog Millionaire is on its way to sweeping the Oscars as it has already won two awards. The first award for the film was for Simon Beaufoy for Best Adapted Screenplay. Anthony Dod Mantle won the second award for Slumdog Millionaire in the Best Cinematography category.Mantle recently won the American Society of Cinematographers Award for feature film for this film.So far Slumdog Millionaire has managed a perfect score of two out of two. There are eight more categories in which it is nominated including Best Picture, Best Director and Best Original Score for A. R Rahman.
PM declared fit to resume work
Almost a month after his heart bypass surgery, Prime Minister Manmohan Singh may soon be back to work with doctors attending on him today declaring him fit.
Even while he was in hospital, the prime minister had expressed his desire to return to office as early as possible.
“The prime minister’s four weeks’ recovery time is over. Four weeks mean there is a good amount of healing. He is now more or less independent and he can resume work,” Dr Vijay D’silva, ICU specialist and one of the doctors from Mumbai’s Asian Heart Institute (AHI) attending on the PM, said today.
Government sources revealed, during the past two weeks, Singh had started signing important files and meeting senior ministers.
On January 24, Singh had to undergo a ‘redo’ coronary artery bypass surgery at the capital’s All India Institute of Medical Sciences to remove five blockages in his heart. Doctors from AHI had led the operation, which ran for about 14 hours.
While he has been declared fit to resume work, the prime minister will now be on diet restrictions and will have to undergo physiotherapy and exercises for at least one more week.
“He is already a vegetarian and initially he was put on diet that would give him strength to recover from the strain of the surgery. Now, he will have restrictions in diet and avoid things high on cholesterol. However, this is not needed because he is always diet conscious,” D’silva said.
“In another one month, he will be completely independent,” the doctor added.
D’Silva also informed that the sternum bone (chest or breastbone) which helps to protect lungs, heart and major blood vessels from physical trauma, was cut open to gain access to the thoracic contents, has also been “fixed”.
External Affairs Minister Pranab Mukherjee was given additional responsibility of the finance ministry in PM’s absence. He may give up the portfolio once Singh resumes work.
Even while he was in hospital, the prime minister had expressed his desire to return to office as early as possible.
“The prime minister’s four weeks’ recovery time is over. Four weeks mean there is a good amount of healing. He is now more or less independent and he can resume work,” Dr Vijay D’silva, ICU specialist and one of the doctors from Mumbai’s Asian Heart Institute (AHI) attending on the PM, said today.
Government sources revealed, during the past two weeks, Singh had started signing important files and meeting senior ministers.
On January 24, Singh had to undergo a ‘redo’ coronary artery bypass surgery at the capital’s All India Institute of Medical Sciences to remove five blockages in his heart. Doctors from AHI had led the operation, which ran for about 14 hours.
While he has been declared fit to resume work, the prime minister will now be on diet restrictions and will have to undergo physiotherapy and exercises for at least one more week.
“He is already a vegetarian and initially he was put on diet that would give him strength to recover from the strain of the surgery. Now, he will have restrictions in diet and avoid things high on cholesterol. However, this is not needed because he is always diet conscious,” D’silva said.
“In another one month, he will be completely independent,” the doctor added.
D’Silva also informed that the sternum bone (chest or breastbone) which helps to protect lungs, heart and major blood vessels from physical trauma, was cut open to gain access to the thoracic contents, has also been “fixed”.
External Affairs Minister Pranab Mukherjee was given additional responsibility of the finance ministry in PM’s absence. He may give up the portfolio once Singh resumes work.
MFs' cash holding doubles in a month
It’s not just investors, even fund managers believe that ‘cash is king’. Equity and hybrid funds’ cash holdings hit Rs 9,729 crore, or 11.46 per cent of their average assets under management (AAUM) of Rs 84,908 crore, at the end of January. This is the highest in the last one year.
As per data compiled by Mumbai-based Networth Capital, the total cash level of mutual funds (debt and equity) rose by 110 per cent to Rs 42, 930 crore in January 2009 from Rs 20,415 crore in December 2008. And the cash holding, especially of equity funds, has been steadily rising.
Just a year ago, cash holding of equity mutual funds was a mere 3.72 per cent, or Rs 5,796 crore. However, the AAUM of equity and hybrid funds at the end of January 2007 was much higher at Rs 1.56 lakh crore.
Jayesh Shroff, fund manager, SBI Mutual Fund, said that institutional players were wary and did not want to be caught on the wrong foot as the entire world economy was going through a recession. “When there is so much uncertainty in the market, cash is the best option,” he said.
Reliance Mutual Fund tops the chart in cash level with Rs 6,150 crore. Its AAUM in equity and hybrid funds is Rs 18,511 crore. However, this is because one of its schemes, Reliance Power Diversified Fund, has the mandate to hold 100 per cent of its assets in cash. There are some other schemes as well that can hold up to 30 per cent in cash.
Other fund houses that have high cash levels in their equity and hybrid funds include UTI Mutual Fund (Rs 4,633 crore), SBI Mutual Fund (Rs 2,162 crore), Franklin Templeton Mutual Fund (Rs 868 crore) and HDFC Mutual Fund (Rs 764 crore).
“At present, mutual funds have tremendous potential to support the market in case of a big fall. In fact, while the US markets are back at their October lows, the domestic market has shown good resilience. Funds managers are displaying commendable maturity by not getting carried away,” said Deepak Sawhney, head (research), Networth Capital.
Fund managers are optimistic that things will improve soon.
As per data compiled by Mumbai-based Networth Capital, the total cash level of mutual funds (debt and equity) rose by 110 per cent to Rs 42, 930 crore in January 2009 from Rs 20,415 crore in December 2008. And the cash holding, especially of equity funds, has been steadily rising.
Just a year ago, cash holding of equity mutual funds was a mere 3.72 per cent, or Rs 5,796 crore. However, the AAUM of equity and hybrid funds at the end of January 2007 was much higher at Rs 1.56 lakh crore.
Jayesh Shroff, fund manager, SBI Mutual Fund, said that institutional players were wary and did not want to be caught on the wrong foot as the entire world economy was going through a recession. “When there is so much uncertainty in the market, cash is the best option,” he said.
Reliance Mutual Fund tops the chart in cash level with Rs 6,150 crore. Its AAUM in equity and hybrid funds is Rs 18,511 crore. However, this is because one of its schemes, Reliance Power Diversified Fund, has the mandate to hold 100 per cent of its assets in cash. There are some other schemes as well that can hold up to 30 per cent in cash.
Other fund houses that have high cash levels in their equity and hybrid funds include UTI Mutual Fund (Rs 4,633 crore), SBI Mutual Fund (Rs 2,162 crore), Franklin Templeton Mutual Fund (Rs 868 crore) and HDFC Mutual Fund (Rs 764 crore).
“At present, mutual funds have tremendous potential to support the market in case of a big fall. In fact, while the US markets are back at their October lows, the domestic market has shown good resilience. Funds managers are displaying commendable maturity by not getting carried away,” said Deepak Sawhney, head (research), Networth Capital.
Fund managers are optimistic that things will improve soon.
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