Wednesday, March 12, 2008
Industrial growth drops to 5.3% in Jan
Growth in index of industrial production (IIP) slipped to 5.3% in January 2008 when compared with 11.6% in January 2007.The industrial growth in January is also lower than the previous month's upwardly revised 7.7%, according to data released by Central Statistical Organisation (CSO) today.Industrial production growth in January is the lowest since October 2006, when it stood at 4.51%.Growth in industrial production slipped to 8.7% between April-January 2007-08 when compared with 11.2% in the corresponding period of the previous fiscal.The slower rate of growth has been attributed to a sluggish performance by manufacturing and mining sectors during the month. A strong rupee as well as tight monetary measures have cut demand resulting in lower growth rate of industrial production.Growth in the manufacturing sector declined to 5.9% in January as against 12.3% in January 2007. Electricity generation growth in January fell to 3.3% as against 8.3% in the year-ago period, and mining output growth moderated to 1.8% as against 7.7% in January 2007.
Worse is yet to come in forex derivative losses
The crisis is also expected to trigger plenty of litigation.The $50 million hit L&T took due to hedging losses in a subsidiary may just be the tip of the iceberg.
Losses by Indian companies as a result of their exposure to the foreign exchange derivatives market may hog the headlines for next few quarters since many of the currency swaps are likely to mature after March, said foreign exchange experts.
"This is a big thing brewing. The losses in some cases may be equal to a company’s profit for the whole year," said a senior executive with a Mumbai-based foreign exchange consultant, who did not want to be identified.
For example, Hexaware reported a Rs 81-crore loss for the quarter ended December 2007 after the company took a hit of about Rs 103 crore on account of unauthorised forex derivative deals struck by a company official.
The company had posted a net profit of Rs 110.07 crore in 2007 (the company follows a January to December financial year).
"Corporate India’s exposure is large. Banks have sold these derivatives to both small and big companies. However, many of these positions are maturing after March, and so companies are not required to reveal their losses this fiscal. The losses will be reflected in Q1 and Q2 of next fiscal,’’ added the expert.
Jamal Mecklai, CEO of Mecklai Financial, said he had estimated the losses to be $1billion (Rs 4,000 crore) though some others estimate it at $3 billion. "That is quite large. Today, I heard of a company that has an exposure of Rs 50 crore in forex derivatives on a topline of Rs 150 crore," he said
The crisis is also expected to trigger plenty of litigation since corporations think banks have mis-sold them all kinds of derivatives. In one such case, a paper and stationary manufacturer Sundaram Multipaper has sued ICICI Bank for its losses on forex derivative products.
"Many corporations have complained to the Reserve Bank of India, and you will have a lot of litigation. These are not just currency swaps. Banks have sold more exotic and complex structures to people who have not understood these trades," said another forex consultant who also requested anonymity.
A V Rajwade, a Mumbai-based consultant on risk management, said margins in plain vanilla trading are nominal where prices are readily available on screen.
"This is perhaps why banks have sold complex derivative products to companies. Some companies don't understand them; some are greedy," he said
Many companies don't have the discipline in marking their assets to market or imposing a stop-loss on their trades.
"Many of them do not understand the difference between hedging and reduction in cost or risk. This has led to a lot of problems in the market," Rajwade added.
Mecklai said the problem lies India's "slow and backward" accounting standards. "In other countries, you have to provide mark-to-market losses. Here, you can carry them forward till 2011. The accounting standards have to be tightened. Today, a lot of companies and banks are in battle but you need two hands to clap."
Almost all private banks—Yes Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank— and even State Bank of India have sold these derivative structures, and can potentially be hit if companies do not pay.
"Banks are worried that they may have to pay upfront if these cases get into litigation," said a forex consultant.
The stock market may not be aware of the impending crisis and yet, banking stocks have come under selling pressure when everyone was hoping they would provide succour in a falling market.
The BSE Bankex has shrunk 30 per cent from January 8, 2008, when the benchmark BSE Sensex touched a high 20,873.33, faster than the market that has lost 23 per cent of its market cap since then.
Losses by Indian companies as a result of their exposure to the foreign exchange derivatives market may hog the headlines for next few quarters since many of the currency swaps are likely to mature after March, said foreign exchange experts.
"This is a big thing brewing. The losses in some cases may be equal to a company’s profit for the whole year," said a senior executive with a Mumbai-based foreign exchange consultant, who did not want to be identified.
For example, Hexaware reported a Rs 81-crore loss for the quarter ended December 2007 after the company took a hit of about Rs 103 crore on account of unauthorised forex derivative deals struck by a company official.
The company had posted a net profit of Rs 110.07 crore in 2007 (the company follows a January to December financial year).
"Corporate India’s exposure is large. Banks have sold these derivatives to both small and big companies. However, many of these positions are maturing after March, and so companies are not required to reveal their losses this fiscal. The losses will be reflected in Q1 and Q2 of next fiscal,’’ added the expert.
Jamal Mecklai, CEO of Mecklai Financial, said he had estimated the losses to be $1billion (Rs 4,000 crore) though some others estimate it at $3 billion. "That is quite large. Today, I heard of a company that has an exposure of Rs 50 crore in forex derivatives on a topline of Rs 150 crore," he said
The crisis is also expected to trigger plenty of litigation since corporations think banks have mis-sold them all kinds of derivatives. In one such case, a paper and stationary manufacturer Sundaram Multipaper has sued ICICI Bank for its losses on forex derivative products.
"Many corporations have complained to the Reserve Bank of India, and you will have a lot of litigation. These are not just currency swaps. Banks have sold more exotic and complex structures to people who have not understood these trades," said another forex consultant who also requested anonymity.
A V Rajwade, a Mumbai-based consultant on risk management, said margins in plain vanilla trading are nominal where prices are readily available on screen.
"This is perhaps why banks have sold complex derivative products to companies. Some companies don't understand them; some are greedy," he said
Many companies don't have the discipline in marking their assets to market or imposing a stop-loss on their trades.
"Many of them do not understand the difference between hedging and reduction in cost or risk. This has led to a lot of problems in the market," Rajwade added.
Mecklai said the problem lies India's "slow and backward" accounting standards. "In other countries, you have to provide mark-to-market losses. Here, you can carry them forward till 2011. The accounting standards have to be tightened. Today, a lot of companies and banks are in battle but you need two hands to clap."
Almost all private banks—Yes Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank— and even State Bank of India have sold these derivative structures, and can potentially be hit if companies do not pay.
"Banks are worried that they may have to pay upfront if these cases get into litigation," said a forex consultant.
The stock market may not be aware of the impending crisis and yet, banking stocks have come under selling pressure when everyone was hoping they would provide succour in a falling market.
The BSE Bankex has shrunk 30 per cent from January 8, 2008, when the benchmark BSE Sensex touched a high 20,873.33, faster than the market that has lost 23 per cent of its market cap since then.
CORPORATE ANNOUNCEMENTS
Suven Life Establishes Second CNS Drug Discovery Collaboration with Lilly
Suven Life Sciences Ltd, on March 12, 2008 has announced that the Company has signed a second agreement with Eli Lilly and company, a US based global pharmaceutical company to collaborate on the pre-clinical research of molecules in the therapeutic area of central nervous system disorders (CNS).
Under the terms of the collaboration agreement, Suven will receive research funding and as well as potential discovery and development milestone payments in the range of $ 19 million to $ 23 million per candidate and potential royalties on net sales of any products that may be successfully commercialized from the collaboration.
Voltas launches elegant, new range of Room Air Conditioners in 2008
Voltas Ltd has announced that the Company has launched a whole new range of sleek-looking Room ACs in India for the premium and luxury segments. Functional as well as elegant, the new models are bound to heat up the AC market in the summer of 2008.Among the new models the first Corner AC to be introduced in India, the Vertis 'Pristine'. With a unique, triangular shape, the Pristine has been designed to fit discreetly on the wall in the corner of a room. It is therefore expected to be an instant hit with discerning consumers in upper end homes.
Suven Life Sciences Ltd, on March 12, 2008 has announced that the Company has signed a second agreement with Eli Lilly and company, a US based global pharmaceutical company to collaborate on the pre-clinical research of molecules in the therapeutic area of central nervous system disorders (CNS).
Under the terms of the collaboration agreement, Suven will receive research funding and as well as potential discovery and development milestone payments in the range of $ 19 million to $ 23 million per candidate and potential royalties on net sales of any products that may be successfully commercialized from the collaboration.
Voltas launches elegant, new range of Room Air Conditioners in 2008
Voltas Ltd has announced that the Company has launched a whole new range of sleek-looking Room ACs in India for the premium and luxury segments. Functional as well as elegant, the new models are bound to heat up the AC market in the summer of 2008.Among the new models the first Corner AC to be introduced in India, the Vertis 'Pristine'. With a unique, triangular shape, the Pristine has been designed to fit discreetly on the wall in the corner of a room. It is therefore expected to be an instant hit with discerning consumers in upper end homes.
MARKET ALERTS
Reliance Entertainment Pvt. Ltd, the media and entertainment arm of the Reliance Anil Dhirubhai Ambani Group (R-Adag) that has interests in film production, distribution and exhibition, FM radio, Internet businesses and television content is set to enter the broadcasting space, a company official close to the development and who did not wish to be identified said.The firm will launch two new companies—Reliance Big TV Entertainment Pvt. Ltd and Reliance Big TV News Pvt. Ltd—to launch and operate a bouquet of about 20 channels. The news broadcasting company will launch four channels: two general news channels and two business news channels, one each in Hindi and English in both genres.
The total number of M&A deals announced in February 2008 stands at 36 with a total announced value of $2.95 billion, according to global consulting firm Grant Thornton’s Dealtracker report for that month.
Apollo LogiSolutions Limited, (ALL) a subsidiary of Apollo International and Spire Group, Canada, executed a joint venture (JV) agreement for $250 million to construct and operate temperature controlled warehouses in India. The JV will operate under the name “Apollo Everest Kool Solutions”.
Indian banks and companies may have become more vulnerable to risks, especially those arising from innovative foreign exchange and interest rate hedges, over the past two years. Banks operating in India had Rs127.86 trillion ($3.16 trillion) of derivatives on their books as on 31 December 2007, according to a statement tabled on Tuesday in the Rajya Sabha by the country’s finance minister P. Chidambaram.
The Fed promised a $200 billion booster shot for ailing markets -- and Wall Street answered with its biggest bounce in more than five years..
Yields in the government bond market have been on the rise in recent times. This, coupled with the rising rupee and lower borrowing rates in overseas markets, makes it lucrative for overseas investors to look at the gilt market.
Jain Irrigation Systems Ltd saw a block deal of 2,286,793 shares, or 3.39 per cent of its equity, at Rs 635 a share on the BSE on Tuesday.
Industrial growth slipped to 5.3% in the month of January, compared to 11.6% in the same month last year as growth in all major sectors comprising manufacturing, electricity and mining declined.Industrial growth, as measured by Index of Industrial Production (IIP), has moderated to 8.7% in the first 10 months of the current fiscal, against 11.2% during the corresponding period of the previous fiscal, according to official figures released today.
The World Gold Council (WGC) will cross list its gold exchange traded fund, StreetTracks Gold Shares on the Tokyo and Hong Kong stock exchanges before September. However, WGC is not planning to launch the product in India.
Kiri Dyes and Chemicals, an Ahmedabad based manufacturer of reactive dyes and dye intermediates, has filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) to enter the capital market on Mar. 25, 2008, with an initial public offering (IPO) of 3.75 million equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process. The company fixed the price band of Rs 125 to Rs 150 a share. The issue will be open for subscription till Apr. 2, 2008.
The board of directors of Rain Commodities, (Q, N,C,F)* at its meeting held on Mar. 11, 2008, allotted 35,00,000 equity shares of face value of Rs 10 each to Focus India Brands (P) at price of Rs 200 each (premium of Rs 190) consequent to the conversion of 35,00,000 equity warrants into equity shares.
Crude prices rose to a record USD 109.72 per barrel. It however eased to the USD 108 mark after the liquidity injection by the Fed. Crude has touched record highs for five straight sessions.
Global conglomerate General Electric has said it will invest USD 5 billion by 2010 to tap opportunities arising out of energy deficiency in emerging markets, including India.
State-run National Mineral Development Corporation (NMDC) on Monday said it will split shares in a ratio of 1:10 and issue two bonus shares for every share held.
The outgoing chairman Mr Lassonde said that gold production has been falling by an average of 2% over the last five years while the demand from Asian countries like India and China is rising. “The rise in jewellery demand is directly proportional to the GDP growth and both India and China are growing at 9% to 10%,” he said. He indicated that these factors along with a weak dollar will determine the price of gold.
The total number of M&A deals announced in February 2008 stands at 36 with a total announced value of $2.95 billion, according to global consulting firm Grant Thornton’s Dealtracker report for that month.
Apollo LogiSolutions Limited, (ALL) a subsidiary of Apollo International and Spire Group, Canada, executed a joint venture (JV) agreement for $250 million to construct and operate temperature controlled warehouses in India. The JV will operate under the name “Apollo Everest Kool Solutions”.
Indian banks and companies may have become more vulnerable to risks, especially those arising from innovative foreign exchange and interest rate hedges, over the past two years. Banks operating in India had Rs127.86 trillion ($3.16 trillion) of derivatives on their books as on 31 December 2007, according to a statement tabled on Tuesday in the Rajya Sabha by the country’s finance minister P. Chidambaram.
The Fed promised a $200 billion booster shot for ailing markets -- and Wall Street answered with its biggest bounce in more than five years..
Yields in the government bond market have been on the rise in recent times. This, coupled with the rising rupee and lower borrowing rates in overseas markets, makes it lucrative for overseas investors to look at the gilt market.
Jain Irrigation Systems Ltd saw a block deal of 2,286,793 shares, or 3.39 per cent of its equity, at Rs 635 a share on the BSE on Tuesday.
Industrial growth slipped to 5.3% in the month of January, compared to 11.6% in the same month last year as growth in all major sectors comprising manufacturing, electricity and mining declined.Industrial growth, as measured by Index of Industrial Production (IIP), has moderated to 8.7% in the first 10 months of the current fiscal, against 11.2% during the corresponding period of the previous fiscal, according to official figures released today.
The World Gold Council (WGC) will cross list its gold exchange traded fund, StreetTracks Gold Shares on the Tokyo and Hong Kong stock exchanges before September. However, WGC is not planning to launch the product in India.
Kiri Dyes and Chemicals, an Ahmedabad based manufacturer of reactive dyes and dye intermediates, has filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) to enter the capital market on Mar. 25, 2008, with an initial public offering (IPO) of 3.75 million equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process. The company fixed the price band of Rs 125 to Rs 150 a share. The issue will be open for subscription till Apr. 2, 2008.
The board of directors of Rain Commodities, (Q, N,C,F)* at its meeting held on Mar. 11, 2008, allotted 35,00,000 equity shares of face value of Rs 10 each to Focus India Brands (P) at price of Rs 200 each (premium of Rs 190) consequent to the conversion of 35,00,000 equity warrants into equity shares.
Crude prices rose to a record USD 109.72 per barrel. It however eased to the USD 108 mark after the liquidity injection by the Fed. Crude has touched record highs for five straight sessions.
Global conglomerate General Electric has said it will invest USD 5 billion by 2010 to tap opportunities arising out of energy deficiency in emerging markets, including India.
State-run National Mineral Development Corporation (NMDC) on Monday said it will split shares in a ratio of 1:10 and issue two bonus shares for every share held.
The outgoing chairman Mr Lassonde said that gold production has been falling by an average of 2% over the last five years while the demand from Asian countries like India and China is rising. “The rise in jewellery demand is directly proportional to the GDP growth and both India and China are growing at 9% to 10%,” he said. He indicated that these factors along with a weak dollar will determine the price of gold.
TODAY'S MARKET
GLOBAL CUES ARE EXTREMELY POSITIVE .
NIFTY WILL OPEN IN GAP UP,
IF NIFTY DOES NOT HOLD 5100 WHAT IS IMMEDIATE RESISTANCE FOR THE MARKET.
IF NITY DOES NOT HOLD 5100 CLOSE LONG POSITIONS AND WAIT TILL 5000 LEVEL TO BUY WITH SL OF 4950.
STOCK TO BE WATCH OUT IS RELIANCE,TATASTEEL,SAIL,STER,ALSO IT STOCK LOOKS POSITIVE IF MARKET SUSTAIN AT HIGHER LEVEL.
NIFTY WILL OPEN IN GAP UP,
IF NIFTY DOES NOT HOLD 5100 WHAT IS IMMEDIATE RESISTANCE FOR THE MARKET.
IF NITY DOES NOT HOLD 5100 CLOSE LONG POSITIONS AND WAIT TILL 5000 LEVEL TO BUY WITH SL OF 4950.
STOCK TO BE WATCH OUT IS RELIANCE,TATASTEEL,SAIL,STER,ALSO IT STOCK LOOKS POSITIVE IF MARKET SUSTAIN AT HIGHER LEVEL.
BY- MR SAM
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