The subprime mortgage crisis and its potential impact on US economic growth has raised concerns whether growth in India — which averaged over 9% in the last three years — will be adversely affected. The Indian economy showed signs of overheating in mid-2007, with inflation rising above 6%. Although the central bank has pursued a tight monetary policy, inflation has recently risen above 7%. Buoyant capital flows posed challenges for liquidity and macroeconomic management, and the Reserve Bank of India responded effectively by adopting a mix of policy measures including imposing capital controls, allowing the rupee to appreciate, and liberalising outflows of capital. India is running a current account deficit (CAD) which is likely to increase to 2.6% of GDP in 2009 from the 1.5% in 2008, driven largely by the sharp increase in international prices of oil and food commodities. So far India’s CAD has been comfortably financed through capital inflows and FDI. In this scenario, the question whether a global credit crunch and significant slowdown in the US economy could undermine India’s growth prospects, becomes pertinent. The main channels through which a global credit crunch and a recession in the US can affect India are: (i) a decline in capital inflows and lower corporate access to credit in international markets; (ii) slowdown in exports of goods and services from India to the US; and (iii) remittances. The impact on Indian growth through the first two of these channels is likely to be negative though the structure of India’s trade could mitigate the impact through trade (explained later). The bulk of India’s remittances come from the Gulf and are therefore unlikely to be impacted, significantly. Compensating effects from increasing government expenditure, budget boosts for consumption, infrastructure and investment spending may still keep the aggregate demand side of the story intact, though there are signs even here of credit growth and investment spending slowing down. Capital inflows/Access to credit: India has never raised a sovereign bond in global capital markets, so any effect of a credit shortfall will be on the ability of Indian corporates to access overseas capital and through capital inflows. India received $99 billion (approximately 10% of GDP) in net foreign exchange flows in 2007-08 including net FDI ($11 billion), portfolio flows ($41 billion), ECBs and overseas borrowings by Indian corporates ($33 billion), banking capital ($7.5 billion). As the subprime crisis unfolds, counterparty risk aversion has become acute and has led to financial institutions building up significant liquid assets as precautionary measures, sometimes equivalent to 20-25% of their balance sheets. This has resulted in banks cutting lending and shifting out of exposures to corporates, a reversal of portfolio flows away from emerging markets (including India), and widening spreads on emerging market paper (including Indian paper). These developments will slow down capital inflows into India, with estimates for 2008-09 ranging between $40 and $50 billion. The recent drop in the Indian equity markets, also a reflection of the global rise in risk aversion and reduction in liquidity, will have a negative impact on investment and consumption. According to market estimates reported by the BIS, outstanding asset-backed commercial paper reached $1.5 trillion in March 2007, of which $300 billion was based on mortgage-backed assets. So far, the total of all write-downs and credit loss for major banks and brokerages is approximately $200 billion but far more is expected as other asset classes (such as Liquidity Puts, Credit Default Swaps and Leveraged Loans) get impaired.
The total global write-downs are expected to be around $1 trillion (IMF estimates) of which the banks have so far written down around $200 billion. The prospect of further losses and the need for greater reserve provisioning suggests that the supply of new credit is likely to become increasingly restricted — with tighter credit standards, and higher spreads. Tight market liquidity has been further exacerbated by fears of a US recession. Issuance by Indian companies had increased rapidly in recent years (albeit from a small base) driven by robust domestic economic growth and the need to fund rapid overseas expansions by corporate India. Indian companies were active in the foreign debt markets (both primary and syndications) for financing overseas expenditures denominated in foreign currency, mergers and acquisitions, and the overseas needs of their clients (banks/financial institutions). However, given the tight liquidity in the foreign debt market and loss of risk appetite on the part of banks, it is becoming increasingly difficult for Indian corporates and banks to raise foreign loans. Pricing for foreign borrowing by even top-tier Indian borrowers (e.g., Tata Motors, Reliance, ICICI, Exim) has increased significantly since the beginning of January 2008. Very little foreign borrowing by Indian companies has been done in the last few months because of ECB restrictions (the interest rate cap in some cases is lower than the applicable market spread), other than offshore M&A transactions. A prolonged period of inability to access international bond markets for private Indian companies, coupled with increasing spreads in the domestic market is likely to lower investment and growth. The big question that arises is how a major correction in the international capital markets, the “flight to quality,” and lower risk appetite of financial institutions and international institutional investors will impact India’s ability to finance its large infrastructure needs. Given that credit growth has not been responsive to liquidity injecting measures by central banks (the Fed has cut rates by 225 bps since January 22 2008), it would be reasonable to assume that the supply of long-term financing for infrastructure projects world-wide will reduce over the next 12-24 months, while spreads will increase. The need, therefore, for developing the local long-term debt market has assumed even higher urgency. Trade: On the trade front, the impact of a slowdown in US economic growth is likely to be less significant because of the structure of India’s trade and the declining importance of the US as a trading partner. A possible favourable consequence of lower US demand for commodities such as oil and food grains could be a lowering of their prices, which have been surging lately (India is a net importer of these commodities). The downside will come from a decline in demand for Indian exports, mainly IT (the US accounts for nearly 65% of the revenues of IT vendors) and BPO services. However, the bigger picture shows that India’s overall exposure to the US market is limited and declining. However, the impact of the US slowdown could be felt through Europe, which is also likely to slowdown. In sum, the expected impact of a global credit crunch and slowdown in the US economy on India appears to be relatively small through the trade channel, as exports are diversified; the financial channel effects are likely to be more significant through a reduction in capital inflows — in the event that lower global interest rates do not lead to more credit becoming available and banks continue to pull back lending (to counter illiquidity) and shift out of exposures to corporates — globally and in India — to safer assets.
Monday, May 05, 2008
India's Edelweiss to launch first fund by July
The fund unit of Indian financial services firm Edelweiss Capital expects to launch its first product in July and aims to break into the top 10 firms by assets in three to five years, a top executive said on Monday.
"We are looking at a few fixed-income funds to start with," Rujan Panjwani, director of Edelweiss Asset Management, told Reuters in a telephone interview.
The firm, he said, had put in place a team of 90 people, including 12 on the investment management side, spread across 14 locations and would expand the product basket to about 10 funds in the first year of operation.
"For the first 12 months we don't necessarily have an AUM target... in the longer term, we should aim to be in the top-10," said Panjwani.
The firm said earlier on Monday it has received regulatory approval to launch mutual funds, marking its entry in an industry that has seen assets more than triple to 5.7 trillion rupees in the last three years, attracting global players.
While Morgan Stanley launched a fund after a gap of nearly 14 years in February, the fund arm of the world's top insurer American International Group Inc and JPMorgan launched their Indian fund operations last year.
At least six brokerages, including Edelweiss, are among the more than 20 players looking to break into the 33-member Indian fund industry, whose assets will more than triple to $520 billion by 2015, according to the Boston Consulting Group.
Players are tapping into rising savings as the economy booms and where double-digit salary hikes are common in sectors such as real estate, information technology and financial services.
"It's an extremely large opportunity given the current penetration levels of asset management products in India and we think that it has space for lots of people," Panjwani said.
McKinsey estimates top eight Indian cities account for three-quarters of the retail mutual fund assets, and local brokerages with a greater reach could bring in more investors.
"The retail segment will be the largest contributor to the growth of the asset management industry in India," it said, adding it expected 35-42 percent compounded annual growth over the next five years.
For many local brokerages which already offer portfolio management to wealthy clients, and have nation-wide networks, diversifying into the funds business is a natural move.
"It's a hugely untapped market and given the demographic profile in India, given the growth that we are witnessing in the country, it's a space likely to explode," Panjwani added.
Celent, a financial services consulting firm, expects 42 million households will become consumers of wealth management products in the next five years from 13 million now if the country maintains economic growth of 8 percent.
In a report released in December, Celent said India's wealth management space would see assets quadruple to about $1 trillion by 2012, channelling huge amount of money into financial sector and spurting demand for products giving access to the segment.
Shares in Edelweiss Capital rose 3.7 percent on Monday in a weak Mumbai stock market that shed 0.62 percent.
"We are looking at a few fixed-income funds to start with," Rujan Panjwani, director of Edelweiss Asset Management, told Reuters in a telephone interview.
The firm, he said, had put in place a team of 90 people, including 12 on the investment management side, spread across 14 locations and would expand the product basket to about 10 funds in the first year of operation.
"For the first 12 months we don't necessarily have an AUM target... in the longer term, we should aim to be in the top-10," said Panjwani.
The firm said earlier on Monday it has received regulatory approval to launch mutual funds, marking its entry in an industry that has seen assets more than triple to 5.7 trillion rupees in the last three years, attracting global players.
While Morgan Stanley launched a fund after a gap of nearly 14 years in February, the fund arm of the world's top insurer American International Group Inc and JPMorgan launched their Indian fund operations last year.
At least six brokerages, including Edelweiss, are among the more than 20 players looking to break into the 33-member Indian fund industry, whose assets will more than triple to $520 billion by 2015, according to the Boston Consulting Group.
Players are tapping into rising savings as the economy booms and where double-digit salary hikes are common in sectors such as real estate, information technology and financial services.
"It's an extremely large opportunity given the current penetration levels of asset management products in India and we think that it has space for lots of people," Panjwani said.
McKinsey estimates top eight Indian cities account for three-quarters of the retail mutual fund assets, and local brokerages with a greater reach could bring in more investors.
"The retail segment will be the largest contributor to the growth of the asset management industry in India," it said, adding it expected 35-42 percent compounded annual growth over the next five years.
For many local brokerages which already offer portfolio management to wealthy clients, and have nation-wide networks, diversifying into the funds business is a natural move.
"It's a hugely untapped market and given the demographic profile in India, given the growth that we are witnessing in the country, it's a space likely to explode," Panjwani added.
Celent, a financial services consulting firm, expects 42 million households will become consumers of wealth management products in the next five years from 13 million now if the country maintains economic growth of 8 percent.
In a report released in December, Celent said India's wealth management space would see assets quadruple to about $1 trillion by 2012, channelling huge amount of money into financial sector and spurting demand for products giving access to the segment.
Shares in Edelweiss Capital rose 3.7 percent on Monday in a weak Mumbai stock market that shed 0.62 percent.
U.S. Stock Futures Drop; Yahoo Tumbles as Microsoft Scraps Bid
U.S. stock-index futures dropped after Microsoft Corp. abandoned its $50 billion bid for Yahoo! Inc. and an analyst said Bank of America Corp. should walk away from its takeover of the nation's largest mortgage company.
Yahoo, the second most popular Internet search engine, sank after Microsoft scrapped its offer because executives failed to agree on the price. Countrywide Financial Corp., the mortgage lender whose debt was cut to junk by Standard & Poor's last week, declined after Friedman Billings Ramsey & Co. said Bank of America should drop or reduce its takeover bid. Berkshire Hathaway Inc. may be active after Warren Buffett's investment company said first-quarter profit plunged 64 percent on falling insurance rates.
Standard & Poor's 500 Index futures expiring in June fell 6.2, or 0.4 percent, to 1,409.6 at 9:13 a.m. in New York. Dow Jones Industrial Average futures decreased 54 to 13,006. Nasdaq- 100 Index futures retreated 5.5 to 1,984.75. Technology companies dragged European shares lower, while rising commodity prices boosted Asian stocks to the highest level in almost four months.
``We'll see further conservatism on the part of buyers in the acquisition market,'' John Carey, who helps oversee about $13 billion as a portfolio manager at Pioneer Investment Management in Boston, said in an interview on Bloomberg Television. ``Investors are going to be more demanding'' on earnings, he said.
Options Bets
The S&P 500 has rallied 11 percent from a 19-month low in March as profits topped analysts' estimates at 69 percent of the 365 companies in the index that reported first-quarter results so far, according to data compiled by Bloomberg. The advance has pushed the S&P 500's price-to-earnings ratio to 22.7, the highest in four years, and prompted some options traders to bet the benchmark will retreat.
Options traders are paying 63 percent more to protect against a drop in the S&P 500 than to bet on a gain, the widest difference since at least 2005, according to Bloomberg data.
Yahoo, the Web company that spent three months fighting a takeover by Microsoft, tumbled $6.11 to $22.56. The world's largest software maker said this weekend it walked away when Yahoo demanded $37 a share. Microsoft had increased its $44.6 billion bid by about $5 billion to $33 a share. Microsoft shares added $1.27 to $30.51. Google, owner of the most-used Internet search engine, climbed $18.01 to $599.30.
Berkshire Hathaway said profit declined as falling rates cut returns from insurance operations and the company marked down the value of derivative contracts. Operating earnings, which exclude investment losses, were $1,247 a share, lagging behind the $1,430 average analyst estimate compiled by Bloomberg. The stock didn't trade in Europe.
Countrywide Drops
Countrywide lost 58 cents to $5.40. Bank of America will probably reduce its per-share offer to the ``$0 to $2 level'' from about $7, Friedman Billings Ramsey analyst Paul Miller wrote in a research note. The second-biggest U.S. bank by assets may have to write down the value of Countrywide's loans by $20 billion to $30 billion when it closes the takeover deal, Miller wrote. Bank of America shares declined 39 cents to $39.40.
Ingersoll-Rand Co. fell $1.21 to $43.78 after Morgan Stanley downgraded the refrigeration-equipment company to ``underweight'' from ``equal-weight.'' Analysts Robert Wertheimer and Mathew Schneider said in a note to clients that earnings may be at risk at Trane Inc., the air-conditioner maker being bought by Ingersoll-Rand, because of rising commodity prices and a weakening economy.
Sprint Nextel Corp., the third-biggest U.S. mobile-telephone carrier, climbed 51 cents to $8.40 amid reports that Deutsche Telekom AG is analyzing a possible takeover offer.
Sprint Speculation
A combination could make the German company's T-Mobile USA unit the biggest wireless company in the U.S., the Wall Street Journal said yesterday. Sprint's share-price drop and the strong euro make the transaction a bargain, Der Spiegel reported over the weekend, without saying how it got the information.
Deutsche Telekom spokesman Andreas Leigers and Sprint spokesman James Fisher both declined to comment on ``rumors.''
Wal-Mart Stores Inc. added 5 cents to $57.55. The world's largest retailer expanded its drug program with $4 over-the- counter medicines and 90-day prescriptions for generic drugs for $10 each.
U.S. service industries probably contracted for a fourth month in April, reflecting the damage from the housing slump and credit crisis that are depressing growth, economists said before a report due at 10 a.m. Washington time.
The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, dropped to 49.1 from 49.6 the prior month, according to the median forecast in a Bloomberg News survey. A reading of 50 is the dividing line between growth and contraction.
Greenspan Speaks
Former Federal Reserve Chairman Alan Greenspan said the U.S. has slipped into an ``awfully pale recession'' and may continue to languish for the rest of the year. Greenspan spoke in an interview with Bloomberg News the day before the Federal Open Market Committee's April 30 statement, where it dropped a previous reference to ``downside'' risks to growth and noted ``uncertainty'' about the outlook for inflation.
U.S. stocks rose last week as a better-than-forecast jobs report and the $23 billion takeover of Wm. Wrigley Jr. Co. pushed the S&P 500 to a four-month high.
Yahoo, the second most popular Internet search engine, sank after Microsoft scrapped its offer because executives failed to agree on the price. Countrywide Financial Corp., the mortgage lender whose debt was cut to junk by Standard & Poor's last week, declined after Friedman Billings Ramsey & Co. said Bank of America should drop or reduce its takeover bid. Berkshire Hathaway Inc. may be active after Warren Buffett's investment company said first-quarter profit plunged 64 percent on falling insurance rates.
Standard & Poor's 500 Index futures expiring in June fell 6.2, or 0.4 percent, to 1,409.6 at 9:13 a.m. in New York. Dow Jones Industrial Average futures decreased 54 to 13,006. Nasdaq- 100 Index futures retreated 5.5 to 1,984.75. Technology companies dragged European shares lower, while rising commodity prices boosted Asian stocks to the highest level in almost four months.
``We'll see further conservatism on the part of buyers in the acquisition market,'' John Carey, who helps oversee about $13 billion as a portfolio manager at Pioneer Investment Management in Boston, said in an interview on Bloomberg Television. ``Investors are going to be more demanding'' on earnings, he said.
Options Bets
The S&P 500 has rallied 11 percent from a 19-month low in March as profits topped analysts' estimates at 69 percent of the 365 companies in the index that reported first-quarter results so far, according to data compiled by Bloomberg. The advance has pushed the S&P 500's price-to-earnings ratio to 22.7, the highest in four years, and prompted some options traders to bet the benchmark will retreat.
Options traders are paying 63 percent more to protect against a drop in the S&P 500 than to bet on a gain, the widest difference since at least 2005, according to Bloomberg data.
Yahoo, the Web company that spent three months fighting a takeover by Microsoft, tumbled $6.11 to $22.56. The world's largest software maker said this weekend it walked away when Yahoo demanded $37 a share. Microsoft had increased its $44.6 billion bid by about $5 billion to $33 a share. Microsoft shares added $1.27 to $30.51. Google, owner of the most-used Internet search engine, climbed $18.01 to $599.30.
Berkshire Hathaway said profit declined as falling rates cut returns from insurance operations and the company marked down the value of derivative contracts. Operating earnings, which exclude investment losses, were $1,247 a share, lagging behind the $1,430 average analyst estimate compiled by Bloomberg. The stock didn't trade in Europe.
Countrywide Drops
Countrywide lost 58 cents to $5.40. Bank of America will probably reduce its per-share offer to the ``$0 to $2 level'' from about $7, Friedman Billings Ramsey analyst Paul Miller wrote in a research note. The second-biggest U.S. bank by assets may have to write down the value of Countrywide's loans by $20 billion to $30 billion when it closes the takeover deal, Miller wrote. Bank of America shares declined 39 cents to $39.40.
Ingersoll-Rand Co. fell $1.21 to $43.78 after Morgan Stanley downgraded the refrigeration-equipment company to ``underweight'' from ``equal-weight.'' Analysts Robert Wertheimer and Mathew Schneider said in a note to clients that earnings may be at risk at Trane Inc., the air-conditioner maker being bought by Ingersoll-Rand, because of rising commodity prices and a weakening economy.
Sprint Nextel Corp., the third-biggest U.S. mobile-telephone carrier, climbed 51 cents to $8.40 amid reports that Deutsche Telekom AG is analyzing a possible takeover offer.
Sprint Speculation
A combination could make the German company's T-Mobile USA unit the biggest wireless company in the U.S., the Wall Street Journal said yesterday. Sprint's share-price drop and the strong euro make the transaction a bargain, Der Spiegel reported over the weekend, without saying how it got the information.
Deutsche Telekom spokesman Andreas Leigers and Sprint spokesman James Fisher both declined to comment on ``rumors.''
Wal-Mart Stores Inc. added 5 cents to $57.55. The world's largest retailer expanded its drug program with $4 over-the- counter medicines and 90-day prescriptions for generic drugs for $10 each.
U.S. service industries probably contracted for a fourth month in April, reflecting the damage from the housing slump and credit crisis that are depressing growth, economists said before a report due at 10 a.m. Washington time.
The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, dropped to 49.1 from 49.6 the prior month, according to the median forecast in a Bloomberg News survey. A reading of 50 is the dividing line between growth and contraction.
Greenspan Speaks
Former Federal Reserve Chairman Alan Greenspan said the U.S. has slipped into an ``awfully pale recession'' and may continue to languish for the rest of the year. Greenspan spoke in an interview with Bloomberg News the day before the Federal Open Market Committee's April 30 statement, where it dropped a previous reference to ``downside'' risks to growth and noted ``uncertainty'' about the outlook for inflation.
U.S. stocks rose last week as a better-than-forecast jobs report and the $23 billion takeover of Wm. Wrigley Jr. Co. pushed the S&P 500 to a four-month high.
Yahoo Shares Tumble After Microsoft Abandons Bid
Yahoo! Inc., the Web company that spent three months fighting a takeover by Microsoft Corp., fell 21 percent in early trading after the software maker scrapped the bid because executives failed to agree on the price.
Citigroup Inc. and ThinkPanmure LLC analysts cut their ratings on Yahoo's stock to ``sell'' after Microsoft withdrew its offer. Microsoft said this weekend it walked away when Yahoo demanded $37 a share after the $44.6 billion bid was raised by about $5 billion to $33 a share.
The move leaves Yahoo Chief Executive Officer Jerry Yang to prove he can revive sales and the share price by keeping the company independent. Sunnyvale, California-based Yahoo, owner of the No. 2 search engine, fell 32 percent on the Nasdaq in the year before Microsoft's offer. Bigger rival Google Inc. expanded revenue more than three times faster than Yahoo last quarter.
``Yahoo's stock is going to crater, and Yahoo shareholders are going to go bang on everyone's head and say, `How does this benefit me?''' said Richard Williams, an analyst in Short Hills, New Jersey, at Cross Research who advises investors to hold on to Microsoft shares and doesn't own any.
Yahoo fell $5.96 to $22.71 in trading before exchanges opened after closing at $28.67 on the Nasdaq Stock Market on May 2. Redmond, Washington-based Microsoft, the world's biggest software company, rose $1.66, or 5.7 percent, to $30.90, while Google advanced $18.71 to $600.
Pressure
``Yahoo is going to be under a lot of pressure,'' said Peter Falvey, managing director at Boston-based technology-merger adviser Revolution Partners. ``A lot of shareholders are going to say, `Hmm, maybe we overreached.'''
Microsoft CEO Steve Ballmer and deputy Kevin Johnson met May 3 in Seattle with Yahoo co-founders Yang and David Filo, two people familiar with the talks said. Yang and Filo refused to accept less than $37 a share and flew back to California. Ballmer called Yang to inform him of the decision just before it was announced, the people said.
Yahoo Chairman Roy Bostock reiterated over the weekend in a statement that Microsoft's offer wasn't enough. The company will continue to expand search advertising sales while improving its display advertising business, he said.
``With Microsoft's withdrawal, we'll be better able to focus our energy on growing our industry leadership and maximizing value for stockholders,'' Yang, 39, said yesterday in a blog post. ``We'll continue to execute on our plan.'' He also said the company will keep exploring options to increase its value.
Yang's Stance
Yang had argued the company's rank in the U.S. search market and its Asian operations warranted a higher bid. He considered a combination with Time Warner Inc.'s AOL and tested advertising software from Google. Last week, a person familiar with the matter said Yang might agree to a broader deal with Google.
``Both sides reported that the trial went very well,'' Jeffrey Lindsay, an analyst at Sanford C. Bernstein in New York, said yesterday in a Bloomberg Television interview. ``It would strongly suggest to us that they do have something in the works with Google.'' Bernstein rates Yahoo shares ``market perform.''
Ballmer, 52, had set an April 26 deadline for Yahoo to come to terms and as the days passed, it seemed possible he would take the offer straight to Yahoo investors. Over the weekend, Ballmer said he won't do that. That would result in a ``protracted proxy contest,'' and Yahoo indicated it would make decisions that Microsoft would find ``undesirable,'' Ballmer said.
Falling Behind
If Yahoo agrees to use Google's search advertising, it would lose its own ad customers and engineers who work in that field, Ballmer said.
Yahoo already had a ``poison pill'' anti-takeover defense and a severance plan that would compensate any employee displaced by an acquirer.
Yahoo has failed to keep pace with Google. While Yahoo's sales climbed 14 percent last quarter, Google posted growth of 46 percent. Yahoo and Microsoft remain a distant second and third behind Mountain View, California-based Google in Web searches.
UBS AG's Heather Bellini, the top-ranked software analyst by Institutional Investor magazine, has said that Microsoft could come back and buy Yahoo later on if it walked away this time. Microsoft may approach Yahoo again in three to six months, said Robert Breza, an RBC Capital Markets analyst in Minneapolis.
Oracle Corp., the third-biggest software maker, initially abandoned its bid for BEA Systems Inc. after BEA asked for 24 percent more than Oracle's $17-a-share bid. The two companies agreed to the buyout three months later at $19.38 a share.
``To say we are disappointed is an understatement,'' William Morrison and Robert Coolbrith at New York-based ThinkPanmure wrote in a report yesterday. Rejecting Microsoft's offer is ``likely to go down as one of the more destructive decisions for shareholder value in the history of Internet stocks.''
Citigroup Inc. and ThinkPanmure LLC analysts cut their ratings on Yahoo's stock to ``sell'' after Microsoft withdrew its offer. Microsoft said this weekend it walked away when Yahoo demanded $37 a share after the $44.6 billion bid was raised by about $5 billion to $33 a share.
The move leaves Yahoo Chief Executive Officer Jerry Yang to prove he can revive sales and the share price by keeping the company independent. Sunnyvale, California-based Yahoo, owner of the No. 2 search engine, fell 32 percent on the Nasdaq in the year before Microsoft's offer. Bigger rival Google Inc. expanded revenue more than three times faster than Yahoo last quarter.
``Yahoo's stock is going to crater, and Yahoo shareholders are going to go bang on everyone's head and say, `How does this benefit me?''' said Richard Williams, an analyst in Short Hills, New Jersey, at Cross Research who advises investors to hold on to Microsoft shares and doesn't own any.
Yahoo fell $5.96 to $22.71 in trading before exchanges opened after closing at $28.67 on the Nasdaq Stock Market on May 2. Redmond, Washington-based Microsoft, the world's biggest software company, rose $1.66, or 5.7 percent, to $30.90, while Google advanced $18.71 to $600.
Pressure
``Yahoo is going to be under a lot of pressure,'' said Peter Falvey, managing director at Boston-based technology-merger adviser Revolution Partners. ``A lot of shareholders are going to say, `Hmm, maybe we overreached.'''
Microsoft CEO Steve Ballmer and deputy Kevin Johnson met May 3 in Seattle with Yahoo co-founders Yang and David Filo, two people familiar with the talks said. Yang and Filo refused to accept less than $37 a share and flew back to California. Ballmer called Yang to inform him of the decision just before it was announced, the people said.
Yahoo Chairman Roy Bostock reiterated over the weekend in a statement that Microsoft's offer wasn't enough. The company will continue to expand search advertising sales while improving its display advertising business, he said.
``With Microsoft's withdrawal, we'll be better able to focus our energy on growing our industry leadership and maximizing value for stockholders,'' Yang, 39, said yesterday in a blog post. ``We'll continue to execute on our plan.'' He also said the company will keep exploring options to increase its value.
Yang's Stance
Yang had argued the company's rank in the U.S. search market and its Asian operations warranted a higher bid. He considered a combination with Time Warner Inc.'s AOL and tested advertising software from Google. Last week, a person familiar with the matter said Yang might agree to a broader deal with Google.
``Both sides reported that the trial went very well,'' Jeffrey Lindsay, an analyst at Sanford C. Bernstein in New York, said yesterday in a Bloomberg Television interview. ``It would strongly suggest to us that they do have something in the works with Google.'' Bernstein rates Yahoo shares ``market perform.''
Ballmer, 52, had set an April 26 deadline for Yahoo to come to terms and as the days passed, it seemed possible he would take the offer straight to Yahoo investors. Over the weekend, Ballmer said he won't do that. That would result in a ``protracted proxy contest,'' and Yahoo indicated it would make decisions that Microsoft would find ``undesirable,'' Ballmer said.
Falling Behind
If Yahoo agrees to use Google's search advertising, it would lose its own ad customers and engineers who work in that field, Ballmer said.
Yahoo already had a ``poison pill'' anti-takeover defense and a severance plan that would compensate any employee displaced by an acquirer.
Yahoo has failed to keep pace with Google. While Yahoo's sales climbed 14 percent last quarter, Google posted growth of 46 percent. Yahoo and Microsoft remain a distant second and third behind Mountain View, California-based Google in Web searches.
UBS AG's Heather Bellini, the top-ranked software analyst by Institutional Investor magazine, has said that Microsoft could come back and buy Yahoo later on if it walked away this time. Microsoft may approach Yahoo again in three to six months, said Robert Breza, an RBC Capital Markets analyst in Minneapolis.
Oracle Corp., the third-biggest software maker, initially abandoned its bid for BEA Systems Inc. after BEA asked for 24 percent more than Oracle's $17-a-share bid. The two companies agreed to the buyout three months later at $19.38 a share.
``To say we are disappointed is an understatement,'' William Morrison and Robert Coolbrith at New York-based ThinkPanmure wrote in a report yesterday. Rejecting Microsoft's offer is ``likely to go down as one of the more destructive decisions for shareholder value in the history of Internet stocks.''
MARKET PREDICTION
Global cues are positive and there is no big news which have direct impact on the market..
From indian prospective good news is that Nifty May future is in premium and 1.6lakhs shares are added in June contract.
Put call ratio is around 1.35 level.
Market will be in a range.
Today's view:
If Nifty holds 5200 then one can go for long from that level with SL of 5170.
One can go for short if Nifty break the level of 5165.
Sectors to be watch:
BUY: Auto & Construction
SHORT: Cement @5165
Stocks :
GMR Infra, LT, Sobha developers...Rel Industries
Have a nice Trading Day...
-Mr. Sam
From indian prospective good news is that Nifty May future is in premium and 1.6lakhs shares are added in June contract.
Put call ratio is around 1.35 level.
Market will be in a range.
Today's view:
If Nifty holds 5200 then one can go for long from that level with SL of 5170.
One can go for short if Nifty break the level of 5165.
Sectors to be watch:
BUY: Auto & Construction
SHORT: Cement @5165
Stocks :
GMR Infra, LT, Sobha developers...Rel Industries
Have a nice Trading Day...
-Mr. Sam
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