U.S. stock-index futures advanced, signaling the market may extend its biggest two-day rally since 1987, after the Federal Reserve committed as much as $800 billion to help resuscitate lending.
SLM Corp., the student lender known as Sallie Mae, rallied 14 percent, while CIT Group Inc., a commercial-finance company, jumped 11 percent after the Fed said the funds will be used to purchase mortgage-related debt and support loans to consumers and small businesses. Citigroup Inc. advanced 7.1 percent after its chief financial officer said the bank has no need to sell assets in order to conserve capital.
Futures on the Standard & Poor’s 500 Index expiring in December gained 2.5 percent to 869.1 at 9:11 a.m. in New York. Dow Jones Industrial Average futures rose 162, or 1.9 percent, to 8,547 and Nasdaq-100 Index futures jumped 1.6 percent to 1,164.75.
“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” said Erick Maronak, the New York-based chief investment officer at Victory Capital Management, which oversees $61 billion. “Hopefully that alone will restore confidence and get things moving again.”
The S&P 500 has rallied 13 percent from an 11-year low on Nov. 20 after the government guaranteed troubled assets at Citigroup and President-elect Barack Obama picked Fed Bank of New York chief Tim Geithner as his Treasury secretary.
JPMorgan climbed 5.2 percent to $29 in trading before the official open of U.S. exchanges, while Bank of America Corp. added 2.9 percent to $15.01.
General Electric, the economic bellwether whose products range from lightbulbs to power-plant turbines, rose 1.3 percent to $15.46. Intel Corp., the world’s biggest maker of semiconductors, added 10 cents to $13.66.
Citigroup Gains
Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, advanced 42 cents to $6.37. CFO Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”
Futures maintained gains even after the Commerce Department said the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised. The government’s advance estimate issued last month showed a 0.3 percent decline.
Tuesday, November 25, 2008
Friday, November 21, 2008
November may be worse, say car firms
Sales expected to dip 15% - one of the worst monthly falls.
With banks refusing to reduce interest rate on auto loans, car sales are expected to fall by 15 per cent in November — one of the worst monthly falls, at least in the last four years.
Reluctance on the part of leading private banks to either soften interest rates on car loans or ease the stringent lending criteria even after RBI aggressively pruned its key lending rates in the last two months, has led to a major slump in demand for automobiles.
Car makers say the situation has worsened of late with the consumers postponing purchases on the expectation that prices will come down over Finance minister P Chidambaram's recent appeal to the automobile industry to slash vehicle prices.
Last month, the car sales recorded a fall of nearly 10 per cent when compared to the same month of the previous year. "The going has become extremely tough, we do not expect the industry to record any growth this month. We are trying to avoid being in the red too. However, I expect the rest of the car industry to be in the negative in the current month," said Arvind Saxena, senior V-P (marketing and sales), Hyundai Motor India.
Recently, some of the leading auto makers, including Maruti Suzuki, had announced production cuts at its plants. Auto dealers are also at the receiving end of the slowdown. In many parts of the country, dealers, saddled with a huge inventory of unsold cars, are forced to shell out huge discounts, generally from their own account, in order to clear stocks.
"Things have surely started to take an ugly turn. Not only bookings have fallen dramatically, but in some markets they are facing cancellations also. There should be a fall of 15 per cent in overall sales this month. We fear that customers will hold back their purchases to March next year with a hope of an excise duty reduction in the upcoming budget," said S P Shah, president of Federation of Automobile Dealers Association, which is the apex body of dealers in the country.
The car segment posted growth of 3.5 per cent from April to October this financial year as against 13.4 per cent recorded during the seven-month period last year. Apart from October, the segment recorded fall in August and July. Jnaneswar Sen, vice-president of Honda Siel Cars India, said, "All our models, except the new City, are not doing well. Sales have been down drastically, well-to-do consumers are coming into showrooms but are disappointed due to lack of adequate financial provision. We do not foresee a helpful period."
The recent announcements about price hikes by two of the leading car-makers — Maruti Suzuki and Hyundai — have only deterred prospective buyers, believe analysts. Maruti had hiked prices by 1 per cent, while Hyundai had said it will look at a 2- per cent hike, although there has not been any upward revision yet.
The monthly sales numbers, which are handed out by auto companies, display wholesale dispatches from their factories and not the actual retail numbers. Manufacturers have been pushing inventory till the end of last month. Many analysts feel that the current month will pull out a much clearer picture of the turmoil.
"Baring two-wheelers, which may report healthy sales in the northern market, the four-wheeler industry will report flattish to negative growth this month. Last year in the same month, the segment reported good sales, which means that there will be high base to match with," said S Ramnath, auto analyst, SSKI Securities.
With banks refusing to reduce interest rate on auto loans, car sales are expected to fall by 15 per cent in November — one of the worst monthly falls, at least in the last four years.
Reluctance on the part of leading private banks to either soften interest rates on car loans or ease the stringent lending criteria even after RBI aggressively pruned its key lending rates in the last two months, has led to a major slump in demand for automobiles.
Car makers say the situation has worsened of late with the consumers postponing purchases on the expectation that prices will come down over Finance minister P Chidambaram's recent appeal to the automobile industry to slash vehicle prices.
Last month, the car sales recorded a fall of nearly 10 per cent when compared to the same month of the previous year. "The going has become extremely tough, we do not expect the industry to record any growth this month. We are trying to avoid being in the red too. However, I expect the rest of the car industry to be in the negative in the current month," said Arvind Saxena, senior V-P (marketing and sales), Hyundai Motor India.
Recently, some of the leading auto makers, including Maruti Suzuki, had announced production cuts at its plants. Auto dealers are also at the receiving end of the slowdown. In many parts of the country, dealers, saddled with a huge inventory of unsold cars, are forced to shell out huge discounts, generally from their own account, in order to clear stocks.
"Things have surely started to take an ugly turn. Not only bookings have fallen dramatically, but in some markets they are facing cancellations also. There should be a fall of 15 per cent in overall sales this month. We fear that customers will hold back their purchases to March next year with a hope of an excise duty reduction in the upcoming budget," said S P Shah, president of Federation of Automobile Dealers Association, which is the apex body of dealers in the country.
The car segment posted growth of 3.5 per cent from April to October this financial year as against 13.4 per cent recorded during the seven-month period last year. Apart from October, the segment recorded fall in August and July. Jnaneswar Sen, vice-president of Honda Siel Cars India, said, "All our models, except the new City, are not doing well. Sales have been down drastically, well-to-do consumers are coming into showrooms but are disappointed due to lack of adequate financial provision. We do not foresee a helpful period."
The recent announcements about price hikes by two of the leading car-makers — Maruti Suzuki and Hyundai — have only deterred prospective buyers, believe analysts. Maruti had hiked prices by 1 per cent, while Hyundai had said it will look at a 2- per cent hike, although there has not been any upward revision yet.
The monthly sales numbers, which are handed out by auto companies, display wholesale dispatches from their factories and not the actual retail numbers. Manufacturers have been pushing inventory till the end of last month. Many analysts feel that the current month will pull out a much clearer picture of the turmoil.
"Baring two-wheelers, which may report healthy sales in the northern market, the four-wheeler industry will report flattish to negative growth this month. Last year in the same month, the segment reported good sales, which means that there will be high base to match with," said S Ramnath, auto analyst, SSKI Securities.
Growth target of 8% possible: PM
Prime Minister Manmohan Singh today assured that industrialists that notwithstanding the global economic crisis India would be able to achieve a growth target of 8 per cent.
Speaking at the two-day Hindustan Times leadership summit, Singh said: "I give you my assurance that despite an adverse international environment, India has the ability and capacity to achieve about 8 per cent growth target."
He, however, said that amidst a deep global crisis we can not pretend that we are not effected. Looking back, Singh said his government had anticipated the slowdown and made provisions for coping with it in the last union budget.
He said the provisions for decent agriculture prices, social safety network like the national rural employment guarantee scheme and implementation of the pay commission report had been some of the farsighted moves of his government.
Holding out assurances, Singh said that his government would mobilize all instruments of policy be it fiscal policy, exchange rate, monetary policy or public investment policy to "see that shortage of demand is neutralized to the maximum".
He asked the industries to have confidence in the system and opt for working with the government in coping with the current situation. "No instrument would be spared to support the growth of enterprise,’’ he said.
The PM promised "liberal credits and bringing down the cost of credit" to help the small and medium enterprises (SME), exporters and labour intensive enterprises, which, he said, "often get neglected" during the policymaking.
Singh, however, said that government was worried that large scale layoffs should not become the order of the day in the industry. "I assure you that the government is committed to see that the ship of Indian industry is not left in the choppy waters but sails with dignity."
On the global financial crisis, Manmohan Singh said that recent G-20 summit in New York had paved way for larger role of India and other developing countries in the Global Financial Stability Forum.
The PM said that he was reluctant to attend the summit as all previous such meets had merely proved to be "breakfast and dinner-eating occasions". He, however, attended it after getting assurances of a meaningful meeting with the US President George Bush.
However, he said this time, at G-20, for the first time the developing nation’s voice was heard with respect.
Speaking at the two-day Hindustan Times leadership summit, Singh said: "I give you my assurance that despite an adverse international environment, India has the ability and capacity to achieve about 8 per cent growth target."
He, however, said that amidst a deep global crisis we can not pretend that we are not effected. Looking back, Singh said his government had anticipated the slowdown and made provisions for coping with it in the last union budget.
He said the provisions for decent agriculture prices, social safety network like the national rural employment guarantee scheme and implementation of the pay commission report had been some of the farsighted moves of his government.
Holding out assurances, Singh said that his government would mobilize all instruments of policy be it fiscal policy, exchange rate, monetary policy or public investment policy to "see that shortage of demand is neutralized to the maximum".
He asked the industries to have confidence in the system and opt for working with the government in coping with the current situation. "No instrument would be spared to support the growth of enterprise,’’ he said.
The PM promised "liberal credits and bringing down the cost of credit" to help the small and medium enterprises (SME), exporters and labour intensive enterprises, which, he said, "often get neglected" during the policymaking.
Singh, however, said that government was worried that large scale layoffs should not become the order of the day in the industry. "I assure you that the government is committed to see that the ship of Indian industry is not left in the choppy waters but sails with dignity."
On the global financial crisis, Manmohan Singh said that recent G-20 summit in New York had paved way for larger role of India and other developing countries in the Global Financial Stability Forum.
The PM said that he was reluctant to attend the summit as all previous such meets had merely proved to be "breakfast and dinner-eating occasions". He, however, attended it after getting assurances of a meaningful meeting with the US President George Bush.
However, he said this time, at G-20, for the first time the developing nation’s voice was heard with respect.
Govt mulls Rs 75,000 cr refinance window
The government and Reserve Bank of India (RBI) are working on opening a massive Rs 75,000 crore refinance window to provide concessional funds for infrastructure, housing and small and medium enterprises (SMEs) by partly leveraging the country’s foreign exchange reserves.
The broad plan is to provide refinancing through India Infrastructure Finance Company Ltd (IIFCL), the government-owned special purpose vehicle set up in 2006, National Housing Bank (NHB) and Small Industrial Development Board of India (Sidbi), a senior government official said.
Funds to these institutions will be available at 7 to 9 per cent to enable banks to earn a decent spread but cap lending between 10 and 11 per cent (see table), significantly lower than current prime lending rates of 13 to 17 per cent.
The announcement of this special financial window, which is expected at the end of this month, is designed to send a powerful signal to banks to lend to sectors that are considered key to economic growth. “In my view, they need such institutionalised signalling,” a senior government official said.
India is expected to grow at 7 to 7.8 per cent this year against two consecutive years of expansion at 9 per cent.
The largest chunk of the refinancing — Rs 50,000 crore or $10 billion — is being earmarked for infrastructure by leveraging India’s forex reserves. “Allocating $10 billion for infrastructure will do more to increase our credibility than the implicit reduction of usable reserves by that amount would do to reduce our protection from external shocks,” a government official commented.
Under the plan, RBI will buy bonds worth up to $10 billion from IIFCL’s London subsidiary at a coupon of 2.5 per cent, the same rate it earns on its reserves. India’s reserves currently stand at $251.4 billion.
Since IIFCL will provide banks with refinance at 9 per cent, the 6.5 per cent spread it earns by doing so is expected to cover possible exchange losses. Critically, the government, however, will bear any exchange loss beyond this percentage.
“We should agree to this arrangement in view of exceptional circumstances,” a bureaucrat said. “It may be noted that in circumstances where there is an exchange loss on this transaction, it will be more than made up by valuation gains in rupees on any reserve use,” he added.
The Planning Commission has suggested IIFCL should provide re-finance to banks for up to 75 per cent of the cost of an infrastructure project. This is expected to be a temporary measure, for two years.
The broad plan is to provide refinancing through India Infrastructure Finance Company Ltd (IIFCL), the government-owned special purpose vehicle set up in 2006, National Housing Bank (NHB) and Small Industrial Development Board of India (Sidbi), a senior government official said.
Funds to these institutions will be available at 7 to 9 per cent to enable banks to earn a decent spread but cap lending between 10 and 11 per cent (see table), significantly lower than current prime lending rates of 13 to 17 per cent.
The announcement of this special financial window, which is expected at the end of this month, is designed to send a powerful signal to banks to lend to sectors that are considered key to economic growth. “In my view, they need such institutionalised signalling,” a senior government official said.
India is expected to grow at 7 to 7.8 per cent this year against two consecutive years of expansion at 9 per cent.
The largest chunk of the refinancing — Rs 50,000 crore or $10 billion — is being earmarked for infrastructure by leveraging India’s forex reserves. “Allocating $10 billion for infrastructure will do more to increase our credibility than the implicit reduction of usable reserves by that amount would do to reduce our protection from external shocks,” a government official commented.
Under the plan, RBI will buy bonds worth up to $10 billion from IIFCL’s London subsidiary at a coupon of 2.5 per cent, the same rate it earns on its reserves. India’s reserves currently stand at $251.4 billion.
Since IIFCL will provide banks with refinance at 9 per cent, the 6.5 per cent spread it earns by doing so is expected to cover possible exchange losses. Critically, the government, however, will bear any exchange loss beyond this percentage.
“We should agree to this arrangement in view of exceptional circumstances,” a bureaucrat said. “It may be noted that in circumstances where there is an exchange loss on this transaction, it will be more than made up by valuation gains in rupees on any reserve use,” he added.
The Planning Commission has suggested IIFCL should provide re-finance to banks for up to 75 per cent of the cost of an infrastructure project. This is expected to be a temporary measure, for two years.
Monday, November 17, 2008
11 economies in decline
Brazil
Partial view of a Petrobras off-shore oil platform in Angra dos Reis, 180 km south of Rio de Janeiro.GDP: 5.23%
Inflation: 5.74%
Unemployment: 7.7%
Markets: -44.16%
Gallon of gas: $5.83
Interest Rates: 13.75%
Sinking crude prices are a tremendous blow to this oil-driven economy. The stock market is also suffering huge losses, dragged down by the country's oil giant Petrobras. Meanwhile, Brazil's real is down 35% against the dollar, since oil set a record high in July.
China
GDP: 9.74%
Inflation: 6.43%
Unemployment: 4%*
Markets: -64.92%
Gallon of gas: $3.48
Interest Rates: 6.66%
The country's GDP sinks to a 5-year low as manufacturing exports slow amid weak global demand. And mass layoffs at factories are worse than the official 4% unemployment rate suggests, since China does not track employment outside of major cities. A $586 billion government stimulus package aims to boost housing, health care and infrastructure, and includes tax breaks for struggling exporters.
Germany
GDP: 1.85%
Inflation: 2.94%
Unemployment: 7.43%
Markets: -41.12%
Gallon of gas: $8.58
Interest Rates: 3.25%
The German economy, which is Europe's biggest, slid into recession in the third quarter when its GDP contracted by 0.5%. And officials say that they don't expect to see any economic growth in 2009. Consumer confidence index is actually in negative territory, at -53.5, compared with an historical average of 27.1. The government hopes a $642 billion bailout will support the nation's banking system.
Iceland
GDP: 0.3%
Inflation: 7.93%
Unemployment: 2.2%
Markets: -45.81%
Gallon of gas: $7.54
Interest Rates: 18%
This tiny country is suffering near total economic collapse in the wake of the global crisis; in October its stock market crashed and its central bank went bankrupt. The Krona is down nearly 50% against dollar in past 6 months. Iceland receives $2.1 billion from International Monetary Fund, but says it will need $4 billion more.
India
GDP: 7.93%
Inflation: 7.93%
Unemployment: 7.8%
Markets: -51.48%
Gallon of gas: $4.95
Interest Rates: 7.5%
Consumer demand for gold, which typically soars during the Diwali wedding festival, sinks by roughly 20%, signaling trouble. The country's foreign debt expanded to 3.6% of its GDP in 2008, and in October the central bank lends $37.4 billion to financial institutions in October in an effort to boost credit.
Japan
GDP: 0.69%
Inflation: 1.57%
Unemployment: 4.05%
Markets: -42.45%
Gallon of gas: $5.78
Interest Rates: 0.3%
The sock market hits a 26-year low in October, and the government cuts interest rates for first time in more than seven years. It also unveils a $275 billion stimulus package, including loans for small and medium-sized businesses, as well as tax rebate checks to households.
Russia
GDP: 7%
Inflation: 14.03%
Unemployment: 5.9%
Markets: -65.53%
Gallon of gas: $3.93
Interest Rates: 11%
Sinking natural gas and oil prices shrink exports, and investor jitters over Russia's military takeover of Georgia crush the stock market. Russian banks are hit particularly hard by the credit crisis because they hold significantly more in foreign debt than national assets. The central bank sets up a $50 billion lending facility for financial institutions, and the finance minister indicates there is more money coming.
Saudi Arabia
GDP: 5.85
Inflation: 11.45%
Unemployment: 13%†
Markets: -50.5%
Gallon of gas: $0.45
Interest Rates: 4%
OPEC production cuts in October hit this country the hardest -- it signals that it can't afford to cut back any more. Falling oil prices are hampering the economy and holding up much-needed public construction projects. Meanwhile, the cost of living here is soaring on escalating food and housing costs.
South Africa
GDP: 3.83%
Inflation: 11.78%
Unemployment: 23.2%
Markets: -30.64%
Gallon of gas: $4.64
Interest Rates: 12%
Metals exports such as gold and platinum are hurt by falling precious metals prices, and soaring food and electricity prices are driving a steep increase in inflation. Unemployment had hit a seven-year low in March, but is rising as the economy slows.
United Kingdom
GDP: 0.99%
Inflation: 3.78%
Unemployment: 5.4%
Markets: -34.2%
Gallon of gas: $8.09
Interest Rates: 3%
Both the Prime Minister and the Treasury chief say the British economy is likely in a recession. The pound is at a 6-year low against the dollar, and retail sales are down for first time in nearly 4 years. A $63 billion bailout for the banking sector offers some relief.
United States
GDP: 1.57%
Inflation: 4.22%
Unemployment: 5.62%
Markets: -33.10%
Gallon of gas: $3.8
Interest Rates: 1%
Home prices plummet by as much as 40% in some parts of the country, and nearly one million homes have been lost to foreclosure since the mortgage crisis began in August 2007. The government is flooding the frozen financial system with nearly $3 trillion to restore liquidity, and, despite a $168 billion stimulus package that was unveiled last spring, political support for a second stimulus package is gaining momentum.
Partial view of a Petrobras off-shore oil platform in Angra dos Reis, 180 km south of Rio de Janeiro.GDP: 5.23%
Inflation: 5.74%
Unemployment: 7.7%
Markets: -44.16%
Gallon of gas: $5.83
Interest Rates: 13.75%
Sinking crude prices are a tremendous blow to this oil-driven economy. The stock market is also suffering huge losses, dragged down by the country's oil giant Petrobras. Meanwhile, Brazil's real is down 35% against the dollar, since oil set a record high in July.
China
GDP: 9.74%
Inflation: 6.43%
Unemployment: 4%*
Markets: -64.92%
Gallon of gas: $3.48
Interest Rates: 6.66%
The country's GDP sinks to a 5-year low as manufacturing exports slow amid weak global demand. And mass layoffs at factories are worse than the official 4% unemployment rate suggests, since China does not track employment outside of major cities. A $586 billion government stimulus package aims to boost housing, health care and infrastructure, and includes tax breaks for struggling exporters.
Germany
GDP: 1.85%
Inflation: 2.94%
Unemployment: 7.43%
Markets: -41.12%
Gallon of gas: $8.58
Interest Rates: 3.25%
The German economy, which is Europe's biggest, slid into recession in the third quarter when its GDP contracted by 0.5%. And officials say that they don't expect to see any economic growth in 2009. Consumer confidence index is actually in negative territory, at -53.5, compared with an historical average of 27.1. The government hopes a $642 billion bailout will support the nation's banking system.
Iceland
GDP: 0.3%
Inflation: 7.93%
Unemployment: 2.2%
Markets: -45.81%
Gallon of gas: $7.54
Interest Rates: 18%
This tiny country is suffering near total economic collapse in the wake of the global crisis; in October its stock market crashed and its central bank went bankrupt. The Krona is down nearly 50% against dollar in past 6 months. Iceland receives $2.1 billion from International Monetary Fund, but says it will need $4 billion more.
India
GDP: 7.93%
Inflation: 7.93%
Unemployment: 7.8%
Markets: -51.48%
Gallon of gas: $4.95
Interest Rates: 7.5%
Consumer demand for gold, which typically soars during the Diwali wedding festival, sinks by roughly 20%, signaling trouble. The country's foreign debt expanded to 3.6% of its GDP in 2008, and in October the central bank lends $37.4 billion to financial institutions in October in an effort to boost credit.
Japan
GDP: 0.69%
Inflation: 1.57%
Unemployment: 4.05%
Markets: -42.45%
Gallon of gas: $5.78
Interest Rates: 0.3%
The sock market hits a 26-year low in October, and the government cuts interest rates for first time in more than seven years. It also unveils a $275 billion stimulus package, including loans for small and medium-sized businesses, as well as tax rebate checks to households.
Russia
GDP: 7%
Inflation: 14.03%
Unemployment: 5.9%
Markets: -65.53%
Gallon of gas: $3.93
Interest Rates: 11%
Sinking natural gas and oil prices shrink exports, and investor jitters over Russia's military takeover of Georgia crush the stock market. Russian banks are hit particularly hard by the credit crisis because they hold significantly more in foreign debt than national assets. The central bank sets up a $50 billion lending facility for financial institutions, and the finance minister indicates there is more money coming.
Saudi Arabia
GDP: 5.85
Inflation: 11.45%
Unemployment: 13%†
Markets: -50.5%
Gallon of gas: $0.45
Interest Rates: 4%
OPEC production cuts in October hit this country the hardest -- it signals that it can't afford to cut back any more. Falling oil prices are hampering the economy and holding up much-needed public construction projects. Meanwhile, the cost of living here is soaring on escalating food and housing costs.
South Africa
GDP: 3.83%
Inflation: 11.78%
Unemployment: 23.2%
Markets: -30.64%
Gallon of gas: $4.64
Interest Rates: 12%
Metals exports such as gold and platinum are hurt by falling precious metals prices, and soaring food and electricity prices are driving a steep increase in inflation. Unemployment had hit a seven-year low in March, but is rising as the economy slows.
United Kingdom
GDP: 0.99%
Inflation: 3.78%
Unemployment: 5.4%
Markets: -34.2%
Gallon of gas: $8.09
Interest Rates: 3%
Both the Prime Minister and the Treasury chief say the British economy is likely in a recession. The pound is at a 6-year low against the dollar, and retail sales are down for first time in nearly 4 years. A $63 billion bailout for the banking sector offers some relief.
United States
GDP: 1.57%
Inflation: 4.22%
Unemployment: 5.62%
Markets: -33.10%
Gallon of gas: $3.8
Interest Rates: 1%
Home prices plummet by as much as 40% in some parts of the country, and nearly one million homes have been lost to foreclosure since the mortgage crisis began in August 2007. The government is flooding the frozen financial system with nearly $3 trillion to restore liquidity, and, despite a $168 billion stimulus package that was unveiled last spring, political support for a second stimulus package is gaining momentum.
Japan's Economy Shrinks 0.4%, Confirming Recession
Japan's economy, the world's second largest, unexpectedly shrank in the third quarter, entering the first recession since 2001 as companies cut spending.
Gross domestic product fell an annualized 0.4 percent in the three months ended Sept. 30, the Cabinet Office said today in Tokyo. Economists predicted the economy would grow 0.1 percent after contracting a revised 3.7 percent in the previous period.
The slowdown may deepen as the global financial crisis hurts exports, prompting companies from Toyota Motor Corp. to Canon Inc. to slash profit forecasts and cut investments. Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180 percent of GDP, limiting the government's ability to stimulate growth.
``It's only going to get worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.''
The yen fell to 97.49 per dollar as of 12:57 p.m. in Tokyo from 96.09 before the report. Japan's currency has gained 8.9 percent since the end of September, compounding exporters' woes.
The Nikkei 225 Stock Average rose 2.7 percent, reversing declines of as much as 2.9 percent, as investors bought shares of drug and utilities companies, whose earnings are less vulnerable to a slowdown. The gauge has lost 43 percent this year. The yield on Japan's 10-year bond was unchanged at 1.5 percent.
G-20 Summit
The economy last contracted over two consecutive quarters -- the technical definition of a recession -- in 2001. Europe also entered a recession last quarter, a report showed last week.
Leaders from the Group of 20 nations this weekend agreed to take a ``broader policy response'' by using interest-rate cuts and fiscal stimulus to shore up the weakening global economy. The Bank of Japan has little scope to contribute further after lowering the benchmark rate to 0.3 percent last month, and a 5 trillion yen ($52 billion) stimulus plan announced by Prime Minister Taro Aso last month risks worsening the public debt.
Quarter-on-quarter, Japan's economy shrank 0.1 percent, today's report showed. Capital spending fell 1.7 percent from the previous three months, compared with economists' expectations of a 2 percent drop.
Toyota, which makes more than three-quarters of its sales abroad, forecast profit will fall this fiscal year by almost 70 percent. The carmaker will fire 3,000 workers by March, and the Nikkei newspaper reported this month that it will delay adding capacity at a domestic plant that makes Lexus sedans.
Canon Cuts
Canon, the world's largest camera maker, last month forecast profit growth would fall for the first time in nine years and said it will cut capital spending 4.7 percent in 2008 to 410 billion yen.
``The economy is still so sensitive to the global business cycle,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. ``A long as the global economy keeps sinking, Japan will probably experience a deep recession.''
Net exports subtracted 0.2 percentage point from growth after imports outweighed an increase in shipments abroad. Exports rose 0.7 percent, less than the 1.2 percent expected. Imports climbed 1.9 percent as oil surged to a record in the quarter. Economists predicted a 1.5 percent gain.
``Given that the global economy is decelerating, Japan's downturn will continue,'' Economic and Fiscal Policy Minister Kaoru Yosano said after the report. He said there's a risk that that the slump will become ``more severe'' because the global financial crisis is spreading to emerging economies.
Economic growth in China, which became Japan's biggest customer in July, slowed to 9 percent last quarter, the weakest since 2003.
May Suffer Less
Still, Japan will probably suffer less than its biggest counterparts after companies shed debt and streamlined labor forces following the bursting of the property and asset bubble in the early 1990s. Asia's biggest economy will shrink 0.1 percent next year, according to the Organization for Economic Cooperation and Development, less than the 0.9 percent and 0.5 percent contractions in the U.S. and Europe.
Consumers are getting some relief as inflation abates and the government prepares to provide households with at least 12,000 yen ($125) each as part of the stimulus plan. Consumer spending increased 0.3 percent last quarter, more than the 0.1 percent economists expected, today's report showed.
``Though consumer spending was a positive figure, it's difficult to take it as a good sign because the figure was boosted by seasonal factors such as the hot summer and the Olympics,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Consumption will probably turn negative in the fourth quarter'' and the economy won't recover until 2010, she said.
The ratio of jobs to applicants has fallen for eight months and the deteriorating profit outlook for companies is also putting pressure on wages. Winter bonuses, which typically account for about 10 percent of a fulltime worker's annual pay, will fall 2.9 percent this year, the Nikkei reported last week.
Gross domestic product fell an annualized 0.4 percent in the three months ended Sept. 30, the Cabinet Office said today in Tokyo. Economists predicted the economy would grow 0.1 percent after contracting a revised 3.7 percent in the previous period.
The slowdown may deepen as the global financial crisis hurts exports, prompting companies from Toyota Motor Corp. to Canon Inc. to slash profit forecasts and cut investments. Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180 percent of GDP, limiting the government's ability to stimulate growth.
``It's only going to get worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.''
The yen fell to 97.49 per dollar as of 12:57 p.m. in Tokyo from 96.09 before the report. Japan's currency has gained 8.9 percent since the end of September, compounding exporters' woes.
The Nikkei 225 Stock Average rose 2.7 percent, reversing declines of as much as 2.9 percent, as investors bought shares of drug and utilities companies, whose earnings are less vulnerable to a slowdown. The gauge has lost 43 percent this year. The yield on Japan's 10-year bond was unchanged at 1.5 percent.
G-20 Summit
The economy last contracted over two consecutive quarters -- the technical definition of a recession -- in 2001. Europe also entered a recession last quarter, a report showed last week.
Leaders from the Group of 20 nations this weekend agreed to take a ``broader policy response'' by using interest-rate cuts and fiscal stimulus to shore up the weakening global economy. The Bank of Japan has little scope to contribute further after lowering the benchmark rate to 0.3 percent last month, and a 5 trillion yen ($52 billion) stimulus plan announced by Prime Minister Taro Aso last month risks worsening the public debt.
Quarter-on-quarter, Japan's economy shrank 0.1 percent, today's report showed. Capital spending fell 1.7 percent from the previous three months, compared with economists' expectations of a 2 percent drop.
Toyota, which makes more than three-quarters of its sales abroad, forecast profit will fall this fiscal year by almost 70 percent. The carmaker will fire 3,000 workers by March, and the Nikkei newspaper reported this month that it will delay adding capacity at a domestic plant that makes Lexus sedans.
Canon Cuts
Canon, the world's largest camera maker, last month forecast profit growth would fall for the first time in nine years and said it will cut capital spending 4.7 percent in 2008 to 410 billion yen.
``The economy is still so sensitive to the global business cycle,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. ``A long as the global economy keeps sinking, Japan will probably experience a deep recession.''
Net exports subtracted 0.2 percentage point from growth after imports outweighed an increase in shipments abroad. Exports rose 0.7 percent, less than the 1.2 percent expected. Imports climbed 1.9 percent as oil surged to a record in the quarter. Economists predicted a 1.5 percent gain.
``Given that the global economy is decelerating, Japan's downturn will continue,'' Economic and Fiscal Policy Minister Kaoru Yosano said after the report. He said there's a risk that that the slump will become ``more severe'' because the global financial crisis is spreading to emerging economies.
Economic growth in China, which became Japan's biggest customer in July, slowed to 9 percent last quarter, the weakest since 2003.
May Suffer Less
Still, Japan will probably suffer less than its biggest counterparts after companies shed debt and streamlined labor forces following the bursting of the property and asset bubble in the early 1990s. Asia's biggest economy will shrink 0.1 percent next year, according to the Organization for Economic Cooperation and Development, less than the 0.9 percent and 0.5 percent contractions in the U.S. and Europe.
Consumers are getting some relief as inflation abates and the government prepares to provide households with at least 12,000 yen ($125) each as part of the stimulus plan. Consumer spending increased 0.3 percent last quarter, more than the 0.1 percent economists expected, today's report showed.
``Though consumer spending was a positive figure, it's difficult to take it as a good sign because the figure was boosted by seasonal factors such as the hot summer and the Olympics,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Consumption will probably turn negative in the fourth quarter'' and the economy won't recover until 2010, she said.
The ratio of jobs to applicants has fallen for eight months and the deteriorating profit outlook for companies is also putting pressure on wages. Winter bonuses, which typically account for about 10 percent of a fulltime worker's annual pay, will fall 2.9 percent this year, the Nikkei reported last week.
Friday, November 14, 2008
Great Indian Takeaway’ may come at a high price
The Indian media gleefully called last year the “Great Indian Takeaway”.
Starting with Tata Steel’s US$11 billion (Dh40.37bn) buyout of Corus, the Anglo-Dutch steel maker, in January of that year, Indian companies went on to snap up international firms worth more than $31.4bn. That was four times higher than the 2006 figure.
This year, the acquisition spree has continued, but now that recession is starting to sweep through the US and UK markets, the wisdom of these deals is likely to be put to the test.
Back in March, when the Indian car manufacturer Tata Motors bought the iconic British brands Jaguar and Land Rover, there were already questioning voices. In the weeks leading up to the $2.3bn deal, the Wall Street investment bank Bear Stearns had collapsed and been bought out by JPMorgan Chase.
“There may be some pressures in some geographies today,” said Ravi Kant, the Tata Motors chairman, when announcing the deal. “[But] we feel that we have done a wise thing by going in for these two brands.”
Six months later, Mr Kant cannot afford to be so sanguine. “At the time that we did the deal, none of these things were foreseen,” he said as Tata Motors’s results were announced recently. “It’s unfortunate that today all of us, not just Jaguar and Land Rover, are in this situation of economic turmoil.”
Others are certainly in the same boat. Most of the international firms that Indian companies have bought in the past two years have had long histories of loss-making. They were often larger than the Indian companies buying them, and the international expansion was often made possible by easy borrowing.
That cheap and easy money is now gone. The Indian wind turbine maker Suzlon last week dropped the $360 million rights issue it needed to buy an additional stake in the German wind power company REpower Systems.
Tata Motors has abandoned its plan to raise $500m to pay off the bridge loan for its Jaguar-Land Rover deal through an issue of international equity, citing “the unprecedented and challenging times”. It only managed to raise the $840m domestic portion of its rights issue because its parent group bought $608m of the shares.
The refinancing for Hindalco’s acquisition of the Canadian aluminium roller Novelis has also run into problems. Investors only bought 17 per cent of Hindalco Industries’s $1bn rights issue, again leaving the controlling Birla family and the underwriting banks to pick up the slack. Last week, Hindalco – a maker of aluminium and copper products – succeeded in raising a $1bn loan from a consortium of 11 international banks. But it still needs to find a further $1bn internally to repay the $3.03bn loan.
It only takes a cursory look at the financial histories of most of the companies that Indian firms have acquired to see the scale of the risk.
Novelis, the world’s largest flat-rolled aluminium maker, was already haemorrhaging cash when India’s Hindalco bought it in February last year.
At the heart of Corus, which Tata Steel bought for £6.2bn (Dh33.9bn) at the end of January last year, is British Steel. The company only turned a profit in two of its 10 years of independent life, and then continued to make heavy losses after it merged with the Dutch steel maker Koninklijke Hoogovens to form Corus in 1999.
Ford is thought to have absorbed losses of more than $10bn in the years that it owned Jaguar and Land Rover.
And the list goes on. REpower, which Suzlon bought a major stake in last year, made heavy losses in 2004 and 2005. The international power company Intergen, which India’s GMR Infrastructure took a 50 per cent stake in for $1.1bn in July, made heavy losses in 2002.
The story is broadly the same for most of the smaller car parts manufacturers or pharmaceuticals groups that Indian companies have bought.
And this vulnerability to losses has been made still worse by the debt that Indian companies have tended to load onto their balance sheets.
Tata Tea set the trend for India’s international acquisitions when it bought Tetley Tea in 2000. The leveraged buyout-type structure it used – with most of the debt loaded on to a UK-based acquisition vehicle – has been copied, not least by Tata Steel with its Corus acquisition.
Tata Steel paid for almost half of the Corus deal by loading $6.14bn of bank debt onto the acquisition vehicle, Tata Steel UK. Hindalco did something similar with Novelis.
TV Raghunath, the head of mergers and acquisitions at Kotak Mahindra Capital, said: “Not many of them have recourse to the parent, or not a big portion, so consequently the Indian acquirer is pretty much insulated.”
But their new subsidiaries are, as a consequence, exposed. Last month, ratings agencies Moody’s and Standard & Poor’s both downgraded the outlooks on Tata Steel UK. Moody’s said it feared that Tata Steel UK could end up holding debt worth more than four times its underlying earnings if the slump in the steel price continued.
Fitch has also put Tata Steel on watch for a downgrade, saying it was now less certain of parent Tata Group’s ability to support its companies.
Other companies have funded their deals at the parent level with foreign currency convertible bonds (FCCBs), which now look vulnerable to currency fluctuations.
The $500m worth of FCCBs that Suzlon issued to fund the REpower acquisition led it to post losses of $26m as it adjusted the liability to reflect the rupee’s fall to a record low against the dollar.
.
The recession has begun to show its effects on the companies acquired by Indian firms. Tata Motors announced recently that the number of cars the two brands sold between July and September had slumped by more than 11 per cent compared to the same period last year. Sales of Land Rover, traditionally seen as the strongest brand of the two, dropped nearly 20 per cent.
Corus is also starting to put Tata Steel under pressure. The first year of Corus ownership was better than Tata Steel could possibly have hoped for.
“There was a huge margin expansion because raw materials prices did not got as high as the steel price,” said Rakesh Arora, a steel analyst at Macquarie Bank.
When steel prices were at their peak earlier this year, Corus was making $120 for every tonne it produced. In the first six months of this year, Corus would have earned about $2bn. This is much more than Tata Steel could have expected at the time of the acquisition, said Mr Arora.
But now the slump in steel demand and prices could easily push Corus back into making losses. Merrill Lynch estimates that Tata Steel is more sensitive to a fall in the steel price than its Indian peers – for every 1 per cent change in the steel price, the company’s earnings per share for next year fall 15 per cent.
Tata has already been taking bold short-term measures to keep its new acquisitions in the black. Ratan Tata, the chairman of Tata Group, has issued a directive to all of the chief executives of Tata companies, putting a moratorium on further acquisitions and asking them to cut back on acquisition plans.
Last Friday, Tata Steel moved to cut production from 20 per cent to 30 per cent, and said it would lay off 400 workers at Corus plants in Europe. Tata Motors is planning to cut 600 jobs from Jaguar and Land Rover’s UK manufacturing plants, and is offering workers three-month sabbaticals on 80 per cent of their pay. Some plants are only working four days a week.
Aditya Sanghi, the head of investment banking at Yes Bank, which advised Suzlon on its REpower deal, said it would take the next few years to reveal which acquisitions were well judged and which were not.
“There is no broad-brush answer. It all depends on individual synergies,” he said. “You need to look at what the rationale of the acquisition was. I don’t think if a deal is strategic, a short-term downturn should take away the strategic merits of it.”
Starting with Tata Steel’s US$11 billion (Dh40.37bn) buyout of Corus, the Anglo-Dutch steel maker, in January of that year, Indian companies went on to snap up international firms worth more than $31.4bn. That was four times higher than the 2006 figure.
This year, the acquisition spree has continued, but now that recession is starting to sweep through the US and UK markets, the wisdom of these deals is likely to be put to the test.
Back in March, when the Indian car manufacturer Tata Motors bought the iconic British brands Jaguar and Land Rover, there were already questioning voices. In the weeks leading up to the $2.3bn deal, the Wall Street investment bank Bear Stearns had collapsed and been bought out by JPMorgan Chase.
“There may be some pressures in some geographies today,” said Ravi Kant, the Tata Motors chairman, when announcing the deal. “[But] we feel that we have done a wise thing by going in for these two brands.”
Six months later, Mr Kant cannot afford to be so sanguine. “At the time that we did the deal, none of these things were foreseen,” he said as Tata Motors’s results were announced recently. “It’s unfortunate that today all of us, not just Jaguar and Land Rover, are in this situation of economic turmoil.”
Others are certainly in the same boat. Most of the international firms that Indian companies have bought in the past two years have had long histories of loss-making. They were often larger than the Indian companies buying them, and the international expansion was often made possible by easy borrowing.
That cheap and easy money is now gone. The Indian wind turbine maker Suzlon last week dropped the $360 million rights issue it needed to buy an additional stake in the German wind power company REpower Systems.
Tata Motors has abandoned its plan to raise $500m to pay off the bridge loan for its Jaguar-Land Rover deal through an issue of international equity, citing “the unprecedented and challenging times”. It only managed to raise the $840m domestic portion of its rights issue because its parent group bought $608m of the shares.
The refinancing for Hindalco’s acquisition of the Canadian aluminium roller Novelis has also run into problems. Investors only bought 17 per cent of Hindalco Industries’s $1bn rights issue, again leaving the controlling Birla family and the underwriting banks to pick up the slack. Last week, Hindalco – a maker of aluminium and copper products – succeeded in raising a $1bn loan from a consortium of 11 international banks. But it still needs to find a further $1bn internally to repay the $3.03bn loan.
It only takes a cursory look at the financial histories of most of the companies that Indian firms have acquired to see the scale of the risk.
Novelis, the world’s largest flat-rolled aluminium maker, was already haemorrhaging cash when India’s Hindalco bought it in February last year.
At the heart of Corus, which Tata Steel bought for £6.2bn (Dh33.9bn) at the end of January last year, is British Steel. The company only turned a profit in two of its 10 years of independent life, and then continued to make heavy losses after it merged with the Dutch steel maker Koninklijke Hoogovens to form Corus in 1999.
Ford is thought to have absorbed losses of more than $10bn in the years that it owned Jaguar and Land Rover.
And the list goes on. REpower, which Suzlon bought a major stake in last year, made heavy losses in 2004 and 2005. The international power company Intergen, which India’s GMR Infrastructure took a 50 per cent stake in for $1.1bn in July, made heavy losses in 2002.
The story is broadly the same for most of the smaller car parts manufacturers or pharmaceuticals groups that Indian companies have bought.
And this vulnerability to losses has been made still worse by the debt that Indian companies have tended to load onto their balance sheets.
Tata Tea set the trend for India’s international acquisitions when it bought Tetley Tea in 2000. The leveraged buyout-type structure it used – with most of the debt loaded on to a UK-based acquisition vehicle – has been copied, not least by Tata Steel with its Corus acquisition.
Tata Steel paid for almost half of the Corus deal by loading $6.14bn of bank debt onto the acquisition vehicle, Tata Steel UK. Hindalco did something similar with Novelis.
TV Raghunath, the head of mergers and acquisitions at Kotak Mahindra Capital, said: “Not many of them have recourse to the parent, or not a big portion, so consequently the Indian acquirer is pretty much insulated.”
But their new subsidiaries are, as a consequence, exposed. Last month, ratings agencies Moody’s and Standard & Poor’s both downgraded the outlooks on Tata Steel UK. Moody’s said it feared that Tata Steel UK could end up holding debt worth more than four times its underlying earnings if the slump in the steel price continued.
Fitch has also put Tata Steel on watch for a downgrade, saying it was now less certain of parent Tata Group’s ability to support its companies.
Other companies have funded their deals at the parent level with foreign currency convertible bonds (FCCBs), which now look vulnerable to currency fluctuations.
The $500m worth of FCCBs that Suzlon issued to fund the REpower acquisition led it to post losses of $26m as it adjusted the liability to reflect the rupee’s fall to a record low against the dollar.
.
The recession has begun to show its effects on the companies acquired by Indian firms. Tata Motors announced recently that the number of cars the two brands sold between July and September had slumped by more than 11 per cent compared to the same period last year. Sales of Land Rover, traditionally seen as the strongest brand of the two, dropped nearly 20 per cent.
Corus is also starting to put Tata Steel under pressure. The first year of Corus ownership was better than Tata Steel could possibly have hoped for.
“There was a huge margin expansion because raw materials prices did not got as high as the steel price,” said Rakesh Arora, a steel analyst at Macquarie Bank.
When steel prices were at their peak earlier this year, Corus was making $120 for every tonne it produced. In the first six months of this year, Corus would have earned about $2bn. This is much more than Tata Steel could have expected at the time of the acquisition, said Mr Arora.
But now the slump in steel demand and prices could easily push Corus back into making losses. Merrill Lynch estimates that Tata Steel is more sensitive to a fall in the steel price than its Indian peers – for every 1 per cent change in the steel price, the company’s earnings per share for next year fall 15 per cent.
Tata has already been taking bold short-term measures to keep its new acquisitions in the black. Ratan Tata, the chairman of Tata Group, has issued a directive to all of the chief executives of Tata companies, putting a moratorium on further acquisitions and asking them to cut back on acquisition plans.
Last Friday, Tata Steel moved to cut production from 20 per cent to 30 per cent, and said it would lay off 400 workers at Corus plants in Europe. Tata Motors is planning to cut 600 jobs from Jaguar and Land Rover’s UK manufacturing plants, and is offering workers three-month sabbaticals on 80 per cent of their pay. Some plants are only working four days a week.
Aditya Sanghi, the head of investment banking at Yes Bank, which advised Suzlon on its REpower deal, said it would take the next few years to reveal which acquisitions were well judged and which were not.
“There is no broad-brush answer. It all depends on individual synergies,” he said. “You need to look at what the rationale of the acquisition was. I don’t think if a deal is strategic, a short-term downturn should take away the strategic merits of it.”
Yen Rises on Speculation G-20 Will Fail to Agree on Rescue Plan
Nov. 14 (Bloomberg) -- The yen rose against the dollar and the euro on speculation a Group of 20 nations summit will fail to reach a consensus on how to kick-start the global economy.
The Japanese currency advanced against the Australian and New Zealand dollars as investors pared higher-yielding assets before heads of state from the G-20 nations gather in Washington today for two days of talks on the credit crisis. The yen was also buoyed on speculation its 2.7 percent slide against the dollar and 4.8 percent tumble against the euro yesterday was excessive.
``I'm looking for the yen to strengthen against the dollar,'' said Takeshi Tokita, vice president of foreign- exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan's second-largest publicly traded lender. ``No one is sure what will come out of the G-20. It's likely that the U.S. and Europe won't see eye to eye on many of the problems the global economy is facing.''
The yen rose to 97.16 per dollar as of 10:42 a.m. in Tokyo from 97.68 late yesterday in New York. Against the euro, it was at 123.82 from 124.78. The euro fell to $1.2746 from $1.2769. The pound bought $1.4826 from $1.4841. The yen may rise to 95.50 today, Tokita said.
Japan's currency gained to 64.44 yen per Australian dollar from 65.07 late yesterday in New York. It also advanced to 55.22 yen versus the New Zealand dollar from 55.81.
Against the dollar, the yen rose 1.2 percent this week, its biggest gain since Oct. 24, on speculation investors reduced carry trade purchases of higher-yielding assets funded with currencies with lower rates. The yen rose 1 percent against the euro, 3.2 percent against the Australian dollar and 5.9 percent versus the New Zealand dollar this week.
Benchmark interest rates are 0.3 percent in Japan, 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia and 6.5 percent in New Zealand.
G-20
U.S. President George W. Bush yesterday urged leaders of the world's biggest economies not to abandon free-market capitalism following the seizure in credit markets. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators.
Under debate are proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit-rating companies to stiffer oversight.
U.S. stocks rallied the most in two weeks and crude oil rebounded from a 21-month low yesterday, sparking the yen's decline.
``We had such a big move yesterday, Japanese exporters are likely to buy the yen on the cheap,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``People are also eyeing the G-20 meeting.''
The Japanese currency advanced against the Australian and New Zealand dollars as investors pared higher-yielding assets before heads of state from the G-20 nations gather in Washington today for two days of talks on the credit crisis. The yen was also buoyed on speculation its 2.7 percent slide against the dollar and 4.8 percent tumble against the euro yesterday was excessive.
``I'm looking for the yen to strengthen against the dollar,'' said Takeshi Tokita, vice president of foreign- exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan's second-largest publicly traded lender. ``No one is sure what will come out of the G-20. It's likely that the U.S. and Europe won't see eye to eye on many of the problems the global economy is facing.''
The yen rose to 97.16 per dollar as of 10:42 a.m. in Tokyo from 97.68 late yesterday in New York. Against the euro, it was at 123.82 from 124.78. The euro fell to $1.2746 from $1.2769. The pound bought $1.4826 from $1.4841. The yen may rise to 95.50 today, Tokita said.
Japan's currency gained to 64.44 yen per Australian dollar from 65.07 late yesterday in New York. It also advanced to 55.22 yen versus the New Zealand dollar from 55.81.
Against the dollar, the yen rose 1.2 percent this week, its biggest gain since Oct. 24, on speculation investors reduced carry trade purchases of higher-yielding assets funded with currencies with lower rates. The yen rose 1 percent against the euro, 3.2 percent against the Australian dollar and 5.9 percent versus the New Zealand dollar this week.
Benchmark interest rates are 0.3 percent in Japan, 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia and 6.5 percent in New Zealand.
G-20
U.S. President George W. Bush yesterday urged leaders of the world's biggest economies not to abandon free-market capitalism following the seizure in credit markets. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators.
Under debate are proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit-rating companies to stiffer oversight.
U.S. stocks rallied the most in two weeks and crude oil rebounded from a 21-month low yesterday, sparking the yen's decline.
``We had such a big move yesterday, Japanese exporters are likely to buy the yen on the cheap,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``People are also eyeing the G-20 meeting.''
Thursday, November 13, 2008
Per-capita income growth to fall Rs 658 on 2% GDP drop
There’s now a broad consensus that the country’s GDP growth rate will fall at least 2 percentage points by 2009.
How does a 2% drop in GDP growth translate in terms of lower household and per-capita incomes would be the most critical parameter going forward for a host of businesses that sell directly to households: everything from homes, cars, consumer electronics, daily expendables to financial services like insurance and loans.
Our analysis shows that a 2% drop in GDP growth shaves away Rs 3,290 in 2008-09 and Rs 7,820 in 2009-10, both at current prices, from annual household income growth.
On a per-capita income basis — taking a five-member average household — the loss is Rs 658 and Rs 1,564 respectively.
To be sure, the figures are just the drop in relative incomes between the most pessimistic and most optimistic GDP growth projections going around. In absolute terms, GDP and per-capita income will expand this fiscal and next.
We have assumed a 2% drop in GDP growth simply by taking the best-case and worst-case scenarios painted by reputed research organisations.
The best-case projection, by New Delhi-based Centre for Monitoring Indian Economy (CMIE) is a GDP growth of 8.7% in 2008-09. We have assumed a best-case as 8% for 2009-10. And the worst case, by Goldman Sachs, is 6.7% GDP growth this fiscal and 5.8% for 2009-10.
The analysis — done for ET by New Delhi-based analytics firm Indicus Analytics — assumes average inflation at 9% for 2008-09 and 6% for 2009-10. Figures from the Central Statistical Organisation’s end-May 2008
Revised estimates of annual national income, 2007-08, and census projections for population were used to arrive at estimated numbers for GDP and per-capital income for 2008-09 and 2009-10.
At the macro level, for the fiscal ending March 2009, the absolute difference in GDP (at current prices) between best and worst growth projections will be Rs 12,037 crore.
However, the gap widens to a sizeable Rs 2,07,669 crore for 2009-10.
This Rs 2 lakh crore-odd figure is about 8% of private final consumption expenditure (PFCE) for 2007-08. PFCE is the total consumer spend on all products & services.
Investment-led growth, which accounted for over 55% of GDP increase in 2007-08, is perceptibly slowing down on the back of expensive and hard-to-get credit.
Domestic consumer demand (as reflected by PFCE), which accounted for 46% of GDP growth last fiscal, was widely expected to shoulder the burden of economic growth for two-three years.
However, with consumer demand faltering across sectors — from cars, two-wheelers, airline seats, houses to consumer loans — the impending squeeze on household income growth will only aggravate pain across the economy.
How does a 2% drop in GDP growth translate in terms of lower household and per-capita incomes would be the most critical parameter going forward for a host of businesses that sell directly to households: everything from homes, cars, consumer electronics, daily expendables to financial services like insurance and loans.
Our analysis shows that a 2% drop in GDP growth shaves away Rs 3,290 in 2008-09 and Rs 7,820 in 2009-10, both at current prices, from annual household income growth.
On a per-capita income basis — taking a five-member average household — the loss is Rs 658 and Rs 1,564 respectively.
To be sure, the figures are just the drop in relative incomes between the most pessimistic and most optimistic GDP growth projections going around. In absolute terms, GDP and per-capita income will expand this fiscal and next.
We have assumed a 2% drop in GDP growth simply by taking the best-case and worst-case scenarios painted by reputed research organisations.
The best-case projection, by New Delhi-based Centre for Monitoring Indian Economy (CMIE) is a GDP growth of 8.7% in 2008-09. We have assumed a best-case as 8% for 2009-10. And the worst case, by Goldman Sachs, is 6.7% GDP growth this fiscal and 5.8% for 2009-10.
The analysis — done for ET by New Delhi-based analytics firm Indicus Analytics — assumes average inflation at 9% for 2008-09 and 6% for 2009-10. Figures from the Central Statistical Organisation’s end-May 2008
Revised estimates of annual national income, 2007-08, and census projections for population were used to arrive at estimated numbers for GDP and per-capital income for 2008-09 and 2009-10.
At the macro level, for the fiscal ending March 2009, the absolute difference in GDP (at current prices) between best and worst growth projections will be Rs 12,037 crore.
However, the gap widens to a sizeable Rs 2,07,669 crore for 2009-10.
This Rs 2 lakh crore-odd figure is about 8% of private final consumption expenditure (PFCE) for 2007-08. PFCE is the total consumer spend on all products & services.
Investment-led growth, which accounted for over 55% of GDP increase in 2007-08, is perceptibly slowing down on the back of expensive and hard-to-get credit.
Domestic consumer demand (as reflected by PFCE), which accounted for 46% of GDP growth last fiscal, was widely expected to shoulder the burden of economic growth for two-three years.
However, with consumer demand faltering across sectors — from cars, two-wheelers, airline seats, houses to consumer loans — the impending squeeze on household income growth will only aggravate pain across the economy.
Industrial growth slips in Sept; but ‘encouraging’
New Delhi, Nov. 12
A negative growth of 3.3 per cent in intermediate goods in September compared with 10 per cent in the corresponding period last year pulled down growth in the Index of Industrial Production (IIP) to 4.8 per cent in September 2008 as against 7 per cent in the same month last year.
In contrast, the capital goods sector grew by 18.8 per cent and the consumer durables increased by 13.1 per cent.
The Chief Statistician, Dr Pronab Sen, told Business Line that the negative growth in intermediate goods could be on account of manufacturers of final goods expecting a slowdown in the coming months, and running down their inventories of intermediates.
MANUFACTURING GROWS
The manufacturing sector grew by 4.8 per cent during the month marking a substantial fall compared to 7.4 per cent registered in September last year.
Simultaneously, the growth in the electricity sector also decelerated marginally to 4.4 per cent as against 4.5 per cent recorded in the same month last year.
Mining output increased by 5.7 per cent in September 2008 as against 4.9 per cent in September 2007.
The overall growth in the IIP for the April-September period stood at 4.9 per cent, almost half compared to 9.5 per cent growth recorded in the first half of last fiscal.
Describing the 4.8 per cent growth as encouraging, the Finance Minister, Mr P. Chidambaram, said in a statement that “after the poor results reported for the month of August 2008, the IIP for September 2008 is more encouraging.”
He, however, pointed out that “data collection must be improved and made more relevant, contemporary and universal.” In particular, the Minister pointed out that “the growth in the capital goods sector has been an impressive 18.8 per cent as against 20.9 per cent in September 2007.”
Similarly in September “the growth in consumer goods has been a satisfactory 5.6 per cent as against negative growth of 0.2 per cent in the same month last year”, he said.
Consumer non-durables grew marginally by 2.8 per cent against 2.6 per cent a year ago.
The growth in basic goods sector came down to 4.6 per cent as against 6.5 per cent during the same period last year.
Of the 17 industries, nine posted a positive growth with transport equipment and parts showing the highest growth if 16.8 per cent followed by machinery and equipment other than transport equipment at 16.1 per cent.
Beverages, tobacco and related products grew by 1.7 per cent while paper and paper products and printing grew by 8.3 per cent.
TEXTILES NEGATIVE
However, cotton textiles (-9.3), wood and wood products, furniture and fixtures (-9.7), leather and leather products (-8.6 per cent) registered a negative growth.
Apart from these, jute and other vegetable fibre textiles, textile products (including wearing apparel), basic chemicals and chemical products (except petroleum), rubber, plastic, petroleum and coal products also registered negative growth rates.
A negative growth of 3.3 per cent in intermediate goods in September compared with 10 per cent in the corresponding period last year pulled down growth in the Index of Industrial Production (IIP) to 4.8 per cent in September 2008 as against 7 per cent in the same month last year.
In contrast, the capital goods sector grew by 18.8 per cent and the consumer durables increased by 13.1 per cent.
The Chief Statistician, Dr Pronab Sen, told Business Line that the negative growth in intermediate goods could be on account of manufacturers of final goods expecting a slowdown in the coming months, and running down their inventories of intermediates.
MANUFACTURING GROWS
The manufacturing sector grew by 4.8 per cent during the month marking a substantial fall compared to 7.4 per cent registered in September last year.
Simultaneously, the growth in the electricity sector also decelerated marginally to 4.4 per cent as against 4.5 per cent recorded in the same month last year.
Mining output increased by 5.7 per cent in September 2008 as against 4.9 per cent in September 2007.
The overall growth in the IIP for the April-September period stood at 4.9 per cent, almost half compared to 9.5 per cent growth recorded in the first half of last fiscal.
Describing the 4.8 per cent growth as encouraging, the Finance Minister, Mr P. Chidambaram, said in a statement that “after the poor results reported for the month of August 2008, the IIP for September 2008 is more encouraging.”
He, however, pointed out that “data collection must be improved and made more relevant, contemporary and universal.” In particular, the Minister pointed out that “the growth in the capital goods sector has been an impressive 18.8 per cent as against 20.9 per cent in September 2007.”
Similarly in September “the growth in consumer goods has been a satisfactory 5.6 per cent as against negative growth of 0.2 per cent in the same month last year”, he said.
Consumer non-durables grew marginally by 2.8 per cent against 2.6 per cent a year ago.
The growth in basic goods sector came down to 4.6 per cent as against 6.5 per cent during the same period last year.
Of the 17 industries, nine posted a positive growth with transport equipment and parts showing the highest growth if 16.8 per cent followed by machinery and equipment other than transport equipment at 16.1 per cent.
Beverages, tobacco and related products grew by 1.7 per cent while paper and paper products and printing grew by 8.3 per cent.
TEXTILES NEGATIVE
However, cotton textiles (-9.3), wood and wood products, furniture and fixtures (-9.7), leather and leather products (-8.6 per cent) registered a negative growth.
Apart from these, jute and other vegetable fibre textiles, textile products (including wearing apparel), basic chemicals and chemical products (except petroleum), rubber, plastic, petroleum and coal products also registered negative growth rates.
Wednesday, November 12, 2008
IIP in September at 4.8% against 1.4% in Aug
The industrial growth in September was at 4.8% against the 13-year low of 1.4% in August 2008.
The index of six infrastructure industries, that have a combined weight of 26.7% in the IIP, posted a growth of 5.1% for September. Electricity, which has a weight of 10.17% in the IIP, recorded 4.4% growth rate for September, up sharply from 0.8% in August.
“Although substantial addition to the generation capacity may not be in the offing, I expect growth rate for electricity generation to remain 4-6% for the rest of the year,” Reliance Energy Trading CEO Mahendra Kumar Garg said.
Central excise collection for September registered a 3.8% drop from the corresponding month last year. The direct tax numbers for October also shows that real estate, infrastructure, cement, automobiles, power, textiles and downstream oil companies are witnessing moderation in growth in comparison to corresponding period last year.
The only consolation for the revenue department has been a good growth in service tax collections. The service tax collected in the first seven months of this fiscal has been Rs 29,867 crore in comparison to Rs 23,204 crore in the same period last year
Industrial production, which accounts for about a fifth of gross domestic product and is mostly geared to meet domestic demand, rose 8.1 per cent in 2007/08.
The index of six infrastructure industries, that have a combined weight of 26.7% in the IIP, posted a growth of 5.1% for September. Electricity, which has a weight of 10.17% in the IIP, recorded 4.4% growth rate for September, up sharply from 0.8% in August.
“Although substantial addition to the generation capacity may not be in the offing, I expect growth rate for electricity generation to remain 4-6% for the rest of the year,” Reliance Energy Trading CEO Mahendra Kumar Garg said.
Central excise collection for September registered a 3.8% drop from the corresponding month last year. The direct tax numbers for October also shows that real estate, infrastructure, cement, automobiles, power, textiles and downstream oil companies are witnessing moderation in growth in comparison to corresponding period last year.
The only consolation for the revenue department has been a good growth in service tax collections. The service tax collected in the first seven months of this fiscal has been Rs 29,867 crore in comparison to Rs 23,204 crore in the same period last year
Industrial production, which accounts for about a fifth of gross domestic product and is mostly geared to meet domestic demand, rose 8.1 per cent in 2007/08.
Tuesday, November 11, 2008
Slowdown to keep India's exports 20 pc below target: Study
NEW DELHI: Indian exports are likely to miss the target of $ 200 bn by 20 per cent this fiscal, as prevailing domestic and global economic conditions have severely affected shipments, a study said.
Besides the slowdown syndrome, other reasons which would affect exports include rising ocean freight rates and certain export restrictions imposed by the government, industry body Assocham said in its study on "Realistic Exports Vs The Targeted One".
"Seven key export segments such as textiles, apparel, gems and jewellery, diamonds, brass-ware, handicrafts and leather are already reeling under recessionary trends," it said.
The chamber anticipates a shortfall of about USD 40 bn in exports this current fiscal.
"Indian exports are likely to witness a shortfall of about 20 per cent against their target as prevailing domestic economic conditions have caused a severe dampening effect on potential export segments of the Indian economy," it said.
In the first two months of this fiscal, merchandise exports do not bring in as much foreign exchange as those brought in by high-value added products such as ready-made garments, diamonds, jewellery, gems, carpets, handicrafts and brass-ware, an Assocham spokesman said.
In September, India's exports registered a growth of mere 10.4 per cent against 26.9 per cent in August.
Other factors that have eroded costs and competitiveness of Indian exports include rising input costs, which are not falling, and power and infrastructure remain a problem for the manufacturing sector.
As a result, India is still far behind on logistics and the transaction cost of exports have already risen around 20 per cent, Assocham said.
The country is facing stiff competition on the exports front from neighbouring China as well as from Bangladesh, Sri Lanka, Pakistan and Bhutan.
As a result, its traditional exports have suffered in the past, which will continue to suffer even in the future until exporters make amends to their products by technology infusion.
Besides the slowdown syndrome, other reasons which would affect exports include rising ocean freight rates and certain export restrictions imposed by the government, industry body Assocham said in its study on "Realistic Exports Vs The Targeted One".
"Seven key export segments such as textiles, apparel, gems and jewellery, diamonds, brass-ware, handicrafts and leather are already reeling under recessionary trends," it said.
The chamber anticipates a shortfall of about USD 40 bn in exports this current fiscal.
"Indian exports are likely to witness a shortfall of about 20 per cent against their target as prevailing domestic economic conditions have caused a severe dampening effect on potential export segments of the Indian economy," it said.
In the first two months of this fiscal, merchandise exports do not bring in as much foreign exchange as those brought in by high-value added products such as ready-made garments, diamonds, jewellery, gems, carpets, handicrafts and brass-ware, an Assocham spokesman said.
In September, India's exports registered a growth of mere 10.4 per cent against 26.9 per cent in August.
Other factors that have eroded costs and competitiveness of Indian exports include rising input costs, which are not falling, and power and infrastructure remain a problem for the manufacturing sector.
As a result, India is still far behind on logistics and the transaction cost of exports have already risen around 20 per cent, Assocham said.
The country is facing stiff competition on the exports front from neighbouring China as well as from Bangladesh, Sri Lanka, Pakistan and Bhutan.
As a result, its traditional exports have suffered in the past, which will continue to suffer even in the future until exporters make amends to their products by technology infusion.
Exports plunge to five-year low in October
NEW DELHI: In a clear signal of the debilitating impact of the global economic crisis on India’s trade and employment prospects, merchandise exports dipped 15% and slipped into negative territory during October 2008 compared to the same month in 2007. The government expects the situation to continue or even deteriorate in the coming months. This is the first time in five years that India’s exports have witnessed a decline.
According to preliminary estimates by the commerce department, the decline in exports in October is sharper at 20% if petroleum — the only major sector registering an increase in exports during the month — is excluded from the calculation.
Director general of foreign trade RS Gujral said the export figures in September and October point to the difficult times ahead for exporters over the next year. Reduction of demand in the US and western Europe, pressure on prices and problems of credit and credibility will plague exporters in the months to come, he said. The DGFT admitted that the export target of $200 billion was unlikely to be met. “I personally believe that it is unlikely that the export target will be met,” he said.
Labour-intensive sectors like textiles, garments, handicrafts, certain segments of leather and gems & jewellery are the ones which have been hit the most by the slowdown in the West, he said. “Exports from all sectors, except petroleum and two minor sectors, declined in October. The employment-generating sectors have been hit the most,” Mr Gujaral said, adding that there could be job-cuts in such sectors.
When asked about the measures the government was contemplating to help exporters tide over the crisis, the DGFT said the high-level committee set up by the prime minister was closely monitoring the situation and would recommend suitable measures. “Specific areas, like labour-intensive export sectors, are likely to be identified and measures to address the credit problems of such sectors could be taken,” he said. According to Mr Gujral, the government has realised that measures taken by RBI to address the credit crunch, like reducing the cash reserve ratio (CRR) of banks, has not percolated down to exporters.
While the DGFT did not disclose the actual export figures, a 15% decline over $14.53 billion of exports in October 2007 would mean exports of around $ 12 billion in October 2008.
Average export growth in April-October 2008 is estimated to decelerate to 21.5% from a robust 30.8% in the first six months of the fiscal.
According to preliminary estimates by the commerce department, the decline in exports in October is sharper at 20% if petroleum — the only major sector registering an increase in exports during the month — is excluded from the calculation.
Director general of foreign trade RS Gujral said the export figures in September and October point to the difficult times ahead for exporters over the next year. Reduction of demand in the US and western Europe, pressure on prices and problems of credit and credibility will plague exporters in the months to come, he said. The DGFT admitted that the export target of $200 billion was unlikely to be met. “I personally believe that it is unlikely that the export target will be met,” he said.
Labour-intensive sectors like textiles, garments, handicrafts, certain segments of leather and gems & jewellery are the ones which have been hit the most by the slowdown in the West, he said. “Exports from all sectors, except petroleum and two minor sectors, declined in October. The employment-generating sectors have been hit the most,” Mr Gujaral said, adding that there could be job-cuts in such sectors.
When asked about the measures the government was contemplating to help exporters tide over the crisis, the DGFT said the high-level committee set up by the prime minister was closely monitoring the situation and would recommend suitable measures. “Specific areas, like labour-intensive export sectors, are likely to be identified and measures to address the credit problems of such sectors could be taken,” he said. According to Mr Gujral, the government has realised that measures taken by RBI to address the credit crunch, like reducing the cash reserve ratio (CRR) of banks, has not percolated down to exporters.
While the DGFT did not disclose the actual export figures, a 15% decline over $14.53 billion of exports in October 2007 would mean exports of around $ 12 billion in October 2008.
Average export growth in April-October 2008 is estimated to decelerate to 21.5% from a robust 30.8% in the first six months of the fiscal.
After hefty payout, BSE shareholders to get 12:1 bonus
After pocketing a hefty 3000% dividend in 2007-08, shareholders of the Bombay Stock Exchange (BSE) are being treated to some more largesse this time in the form of a bonus issue. According to reliable sources, the BSE board at its meeting on Saturday has decided to offer 12 bonus shares for very share held by shareholders.
Though the bonus issue is in line with brokers’ expectations, the move is seen as the first step towards eventual listing of the exchange’s shares. BSE is required to enhance its capital base significantly from the current level for listing purpose.
Post-bonus, the exchange’s equity capital would increase from the current Rs 78 lakh to Rs 10 crore, which is the limit applicable to companies seeking listing on the National Stock Exchange (NSE). The minimum paid-up capital requirement for BSE listing is Rs 3 crore.
Confirming the bonus issue, a broker shareholder said: “The move is positive in the sense that we are a step closer towards listing. But, we are more concerned about broader issues relating to stock market turmoil and the consequent loss in business, which have badly affected our prospects.”
In the last AGM, shareholders had insisted on speedy listing of BSE’s shares, which has been delayed by several months. The exchange was planning to get its shares listed by the end of the last fiscal. By increasing capital through bonus issue, the corporatised and demutualised exchange would fulfil the listing criteria and would be able to take the process further.
Sources say BSE is looking to list shares with or without initial public offering (IPO). Some brokers feel the cash-rich exchange does not need more funds and so could seek Sebi exemption from floating an IPO. As on March 31 2008, its reserves stood over Rs 1,500 crore, bolstered by equity participation of strategic investors Deutsche Boerse (DB) and Singapore Exchange (SGX) at Rs 5,200 per share. Strengthening its networth was also the exchange’s robust earnings for 2007-08.
The bonus would be offered to broker members and several other non-broker shareholders, which collectively own 51% stake in the BSE. Apart from DB and SGX, the list also includes Indian investors like SBI, LIC, Bajaj Auto and foreigners like Dubai Financial LLC, Atticus Mauritius and Caldwell Asset Management.
Though the bonus issue is in line with brokers’ expectations, the move is seen as the first step towards eventual listing of the exchange’s shares. BSE is required to enhance its capital base significantly from the current level for listing purpose.
Post-bonus, the exchange’s equity capital would increase from the current Rs 78 lakh to Rs 10 crore, which is the limit applicable to companies seeking listing on the National Stock Exchange (NSE). The minimum paid-up capital requirement for BSE listing is Rs 3 crore.
Confirming the bonus issue, a broker shareholder said: “The move is positive in the sense that we are a step closer towards listing. But, we are more concerned about broader issues relating to stock market turmoil and the consequent loss in business, which have badly affected our prospects.”
In the last AGM, shareholders had insisted on speedy listing of BSE’s shares, which has been delayed by several months. The exchange was planning to get its shares listed by the end of the last fiscal. By increasing capital through bonus issue, the corporatised and demutualised exchange would fulfil the listing criteria and would be able to take the process further.
Sources say BSE is looking to list shares with or without initial public offering (IPO). Some brokers feel the cash-rich exchange does not need more funds and so could seek Sebi exemption from floating an IPO. As on March 31 2008, its reserves stood over Rs 1,500 crore, bolstered by equity participation of strategic investors Deutsche Boerse (DB) and Singapore Exchange (SGX) at Rs 5,200 per share. Strengthening its networth was also the exchange’s robust earnings for 2007-08.
The bonus would be offered to broker members and several other non-broker shareholders, which collectively own 51% stake in the BSE. Apart from DB and SGX, the list also includes Indian investors like SBI, LIC, Bajaj Auto and foreigners like Dubai Financial LLC, Atticus Mauritius and Caldwell Asset Management.
Friday, November 07, 2008
IMF slashes India’s 2009 growth to 6.3%
Washington: The International Monetary Fund, or IMF, predicted lower growth in India and economic contractions in the US, Japan and euro region next year, calling for further interest rate cuts and fiscal stimulus.
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago. And its estimate for the country’s growth in 2008 is down 0.1 percentage points to 7.8%.
Also See Losing Steam (PDF)
An economist said India could grow faster than IMF’s estimate. “Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year,” said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd. Joshi’s estimate of growth this year is 7.5%.
“Markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions,” IMF said in an update to its World Economic Outlook report, released in Washington on Thursday. “Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
The revisions reflect a further choking-off of credit to companies and businesses in the past month. The Bank of England on Thursday declared the most serious banking “disruption” in almost a century, cutting its benchmark interest rate to the lowest level since 1955.
Also Read Rapidly weakening prospects call for new policy stimulus (PDF)
US gross domestic product will contract 0.7%, Japan’s will shrink 0.2% and the euro area’s 0.5% in 2009, IMF said on Thursday in Washington. The fund last month foresaw 0.1% US growth, with expansions of 0.5% in Japan and 0.2% in the euro zone.
Global growth will be 2.2% next year, down from 3.7% this year, IMF said. The fund said in its semiannual World Economic Outlook report on 7 October that world GDP would rise 3% in 2009. As recently as July, IMF economists expected a 3.9% expansion.
IMF has said that a growth rate of 3% or less is “equivalent to a global recession”.
Growth in the US “will suffer as households respond to depreciating real and financial assets and tightening financial conditions,” IMF said. In Japan, “growth from net exports is expected to decline”. The 15-nation euro region will be “hard hit” by the slowdown, the fund said.
IMF also warned on Thursday of growing risks of deflationary conditions in advanced economies.
“There is a clear need for additional macroeconomic stimulus relative to what has been announced thus far,” the fund said. “Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated.”
As the credit crunch widens, the reversal in major developed countries is spreading to poorer nations, increasing demand for IMF loans.
In emerging and developing countries, GDP in 2009 will increase 5.1%, less than the 6.1 % expansion the fund predicted in October. China’s growth will measure 8.5% next year, weaker than the 9.3% forecast a month ago.
Since the fund produced its forecast in October, the outlook for developing countries has deteriorated as investors shunned their currencies and bonds, sending borrowing costs climbing.
India’s stock market and currency are both down. The benchmark index of the Bombay Stock Exchange has fallen 52.02% since January and the rupee has lost 17.42% against the dollar in the same period.
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago. And its estimate for the country’s growth in 2008 is down 0.1 percentage points to 7.8%.
Also See Losing Steam (PDF)
An economist said India could grow faster than IMF’s estimate. “Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year,” said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd. Joshi’s estimate of growth this year is 7.5%.
“Markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions,” IMF said in an update to its World Economic Outlook report, released in Washington on Thursday. “Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
The revisions reflect a further choking-off of credit to companies and businesses in the past month. The Bank of England on Thursday declared the most serious banking “disruption” in almost a century, cutting its benchmark interest rate to the lowest level since 1955.
Also Read Rapidly weakening prospects call for new policy stimulus (PDF)
US gross domestic product will contract 0.7%, Japan’s will shrink 0.2% and the euro area’s 0.5% in 2009, IMF said on Thursday in Washington. The fund last month foresaw 0.1% US growth, with expansions of 0.5% in Japan and 0.2% in the euro zone.
Global growth will be 2.2% next year, down from 3.7% this year, IMF said. The fund said in its semiannual World Economic Outlook report on 7 October that world GDP would rise 3% in 2009. As recently as July, IMF economists expected a 3.9% expansion.
IMF has said that a growth rate of 3% or less is “equivalent to a global recession”.
Growth in the US “will suffer as households respond to depreciating real and financial assets and tightening financial conditions,” IMF said. In Japan, “growth from net exports is expected to decline”. The 15-nation euro region will be “hard hit” by the slowdown, the fund said.
IMF also warned on Thursday of growing risks of deflationary conditions in advanced economies.
“There is a clear need for additional macroeconomic stimulus relative to what has been announced thus far,” the fund said. “Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated.”
As the credit crunch widens, the reversal in major developed countries is spreading to poorer nations, increasing demand for IMF loans.
In emerging and developing countries, GDP in 2009 will increase 5.1%, less than the 6.1 % expansion the fund predicted in October. China’s growth will measure 8.5% next year, weaker than the 9.3% forecast a month ago.
Since the fund produced its forecast in October, the outlook for developing countries has deteriorated as investors shunned their currencies and bonds, sending borrowing costs climbing.
India’s stock market and currency are both down. The benchmark index of the Bombay Stock Exchange has fallen 52.02% since January and the rupee has lost 17.42% against the dollar in the same period.
No need to get panicky on slowdown: Nasscom
Hyderabad, Nov. 6 Don’t talk of gloom and doom, Mr Som Mittal, President of Nasscom, asks all those who refers to the slowdown and its impact on the Indian IT, ITES, animation and gaming industries.
Releasing the Nasscom Animation and Gaming Report 2008 here on Thursday, he said the fundamentals of the Indian economy were very strong and that there was no need to get panicky.
Referring to the highlights of the report, he pegged the animation industry at $1.16 billion by 2012 as against an estimated $460 million in 2008. The industry would grow at a compounded annual growth rate of 27 per cent in the next four years.
During the same time, the fledgling gaming industry would grow to $1 billion from $212 million, growing at a CAGR of 50 per cent.
He said the industry needed Government support in the form of reduced taxes and providing infrastructure.
Mr Mittal, who was here in connection with the Nasscom Animation and Gaming India 2008, said the number of H1 visas India received were just 14 per cent of all the visas given by the US. Making light of the reports that the slowdown would spell doom for the Indian industry, he said the country contributed just three per cent of the IT business market globally.
Mr Mittal and other speakers, including Dr Ganesh Natarajan, Chairman of Nasscom and Global Chief Executive Officer of Zensar, bet on the evolving opportunities in the domestic market itself.
Contemporary themes
Though started with mythological themes such as Hanuman and Ramayan, the animation industry had come of age with contemporary themes like Roadside Romeo and Toonpur Ka Superhero was gaining currency.
“Last year itself, we saw announcement of 85 domestic animation movies. Work on 28 of these are in different stages of production,” the Nasscom report, which was jointly produced by Ernst & Young, said.
The report pointed out that the industry faced with lack of original content. “The domestic demand for animation is restricted to select animation movies and advertising. Lack of quality resources, high attrition rates and absence of sufficient bandwidth are some of the issues that need to be addressed,” it said.
Earlier addressing the inaugural of the conference, Dr Ganesh said Mr Obama’s victory would not mean death for outsourcing business. His election, in fact, would result in huge opportunities for India as a strong US would have a cascading impact.
Releasing the Nasscom Animation and Gaming Report 2008 here on Thursday, he said the fundamentals of the Indian economy were very strong and that there was no need to get panicky.
Referring to the highlights of the report, he pegged the animation industry at $1.16 billion by 2012 as against an estimated $460 million in 2008. The industry would grow at a compounded annual growth rate of 27 per cent in the next four years.
During the same time, the fledgling gaming industry would grow to $1 billion from $212 million, growing at a CAGR of 50 per cent.
He said the industry needed Government support in the form of reduced taxes and providing infrastructure.
Mr Mittal, who was here in connection with the Nasscom Animation and Gaming India 2008, said the number of H1 visas India received were just 14 per cent of all the visas given by the US. Making light of the reports that the slowdown would spell doom for the Indian industry, he said the country contributed just three per cent of the IT business market globally.
Mr Mittal and other speakers, including Dr Ganesh Natarajan, Chairman of Nasscom and Global Chief Executive Officer of Zensar, bet on the evolving opportunities in the domestic market itself.
Contemporary themes
Though started with mythological themes such as Hanuman and Ramayan, the animation industry had come of age with contemporary themes like Roadside Romeo and Toonpur Ka Superhero was gaining currency.
“Last year itself, we saw announcement of 85 domestic animation movies. Work on 28 of these are in different stages of production,” the Nasscom report, which was jointly produced by Ernst & Young, said.
The report pointed out that the industry faced with lack of original content. “The domestic demand for animation is restricted to select animation movies and advertising. Lack of quality resources, high attrition rates and absence of sufficient bandwidth are some of the issues that need to be addressed,” it said.
Earlier addressing the inaugural of the conference, Dr Ganesh said Mr Obama’s victory would not mean death for outsourcing business. His election, in fact, would result in huge opportunities for India as a strong US would have a cascading impact.
Monday, November 03, 2008
Global crisis affects Indian economy, but bank deposits safe, assures PM
Prime Minister Manmohan Singh on Monday said the global crisis had impacted corporates, banks and investor sentiment, but assured that the banking system and deposits were safe and the government would take more steps to protect economic growth.
"A crisis of this magnitude was bound to affect our economy and it has. International credit has shrunk with adverse effects on our corporates and banks. Global uncertainty is also tending to dampen investor sentiment," he said during a meeting with India Inc to review the state of the economy in the face of the global meltdown.
He asked industry to refrain from any "knee-jerk" reaction such as large-scale layoffs, which might lead to a negative spiral, and said "industry must bear in mind its societal obligations in coping with the effects of this global crisis", which the Prime Minister felt "is now likely to be more severe and prolonged".
"Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effect ... the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day to day basis and more steps will be taken if required."
The meeting was attended, among others, by Ratan Tata, Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, where finance minister P Chidambaram, RBI covernor D Subbarao and Planning Commission deputy chairman Montek Singh Ahluwalia represented the government.
Singh said additional liquidity and reduction in repo rate will help to "provide credit at reasonable rates".
He said, "The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," adding that India will also seek reform of international financial institutions to prevent recurrence of such crisis.
The Prime Minister said that Indian "banks are well regulated and also well capitalised. I think we have successfully conveyed to our people that our banking system, both in the public and private sector, is safe, and the government stands behind it and that no one should fear for the safety of bank deposits."
Detailing the several measures taken to infuse liquidity into the system to ensure adequate flow of credit, he said, "I believe these steps have made a substantial difference. We recognize that the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day-to-day basis and more steps will be taken if required."
Singh exuded confidence that the country's financial system would be stable and function well following recent measures, while adding that the negative impact on the real economy needs to be minimised.
"The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence," he said.
Singh further told the industry leaders that the government was able to "act more boldly" because its efforts to contain inflation have begun to be effective.
Pointing out that expanding investment in infrastructure can play an important counter cyclical role in the current situation, he said, "We will review projects and programmes in the area of infrastructure development, including both pure public sector projects and public private partnership projects, to ensure that their implementation is expedited and they do not suffer from constraints of funds."
"A crisis of this magnitude was bound to affect our economy and it has. International credit has shrunk with adverse effects on our corporates and banks. Global uncertainty is also tending to dampen investor sentiment," he said during a meeting with India Inc to review the state of the economy in the face of the global meltdown.
He asked industry to refrain from any "knee-jerk" reaction such as large-scale layoffs, which might lead to a negative spiral, and said "industry must bear in mind its societal obligations in coping with the effects of this global crisis", which the Prime Minister felt "is now likely to be more severe and prolonged".
"Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effect ... the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day to day basis and more steps will be taken if required."
The meeting was attended, among others, by Ratan Tata, Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, where finance minister P Chidambaram, RBI covernor D Subbarao and Planning Commission deputy chairman Montek Singh Ahluwalia represented the government.
Singh said additional liquidity and reduction in repo rate will help to "provide credit at reasonable rates".
He said, "The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," adding that India will also seek reform of international financial institutions to prevent recurrence of such crisis.
The Prime Minister said that Indian "banks are well regulated and also well capitalised. I think we have successfully conveyed to our people that our banking system, both in the public and private sector, is safe, and the government stands behind it and that no one should fear for the safety of bank deposits."
Detailing the several measures taken to infuse liquidity into the system to ensure adequate flow of credit, he said, "I believe these steps have made a substantial difference. We recognize that the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day-to-day basis and more steps will be taken if required."
Singh exuded confidence that the country's financial system would be stable and function well following recent measures, while adding that the negative impact on the real economy needs to be minimised.
"The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence," he said.
Singh further told the industry leaders that the government was able to "act more boldly" because its efforts to contain inflation have begun to be effective.
Pointing out that expanding investment in infrastructure can play an important counter cyclical role in the current situation, he said, "We will review projects and programmes in the area of infrastructure development, including both pure public sector projects and public private partnership projects, to ensure that their implementation is expedited and they do not suffer from constraints of funds."
Thursday, October 23, 2008
Sugar Prices & Global Recession
Sugar is affordable this festival season. Marketmen say it will become expensive by next summer when supply could drop.
Sugar companies are certainly betting on it. But given the miasma of global recession, encashing the demand-supply mismatch may not be so easy.
ET helps you join the dots between consumer pessimism and the future of sugar.
Indian sugar prices are steady for now because the government has been pushing mills to sell at least 2 mt each month. With five states going to polls in the next few weeks, the last thing it wants is voters getting ugly on food prices.
Fortuitously for Indian consumers, the collapse in global sugar prices was well-timed with the festival season. The big funds and index traders are rapidly unwinding their long positions, which has led to selling pressure. That has queered the pitch for Indian exports.
All of 2007, sugar was tugged up by the price of ethanol, which itself was linked to crude oil. Now that crude oil is at 2006-levels , the correction in sugar and ethanol prices was inevitable.
At the same time, Brazilians have begun aggressively exporting sugar because their currency—real—has fallen to a three-and-half-year low against the dollar. A weak real has offset the fall in sugar prices. Put together, sugar is bearish for now.
But mills have not lost heart. All forecasts point to a drop in supply in 2009. The world may run short by 5 mt due to a 4% cut in global sugar production in 2009. Bad weather in countries such as Cuba have further put pressure on supply.
In India, the drop in production could be especially dramatic. Farmers have been so upset with tardy payment for cane that they have shifted to other crops. In top producer Maharashtra, sugar production will fall 30% this year. Over all, Indian sugar production could fall 20% in 2008-09 and a further 14% in 2009-10 sugar season. With Indian demand and supply likely to be finely balanced next year and dry trade pipeline, the industry is betting on a price rise.
On the face of it, this decline in production appears to be just what the doctor ordered for sugar mills. But the recovery in bottomlines may not be so quick or so widespread. There are two googlies mills would have to dodge.
One, when farmers grow less cane, mills too crush less.
That strains their capacity utilisation and sales figures. In Uttar Pradesh, where mills have reserved cane area, they can hope to pick up any cane grown within 15-km radius. But in states without cane zoning, the fight for cane could get very bitter indeed next year.
Already mills in Maharashtra are bearing the brunt of decline in cane area. The state government has decided to issue licenses only to factories where sugarcane availability is more than half their crushing capacity for the entire season. Of the 173 mills in the state, at least 20 may have to shut shop this year. Next year this problem could worsen.
The second googly could be dampening consumer demand if the economy slows down. In most middle-class households, the monthly sugar consumption is price insensitive because they rarely buy more than 8-10 kg. So even if prices jump by Rs 5/kg, that means an extra expenditure of Rs 50/month. No one is really bothered.
It is actually the sugar consumed indirectly that could get affected if the world does go into recession. When times get tough, households tend to reduce purchase of expensive processed foods, sauces, icecreams, jams, cold drinks, juices, confectionery and luxury chocolates to offset higher expenses in other areas. Since these are not toppriority foods, their consumption is usually the first to get lopped off.
This in turn could impact the demand for sugar by processed food and beverage companies, who are the single largest purchasers of sugar in India. If sugar becomes more expensive due to a squeeze in supply while demand for end products drops, food companies are likely to rework their sums. Cola companies, where sugar is a significant part of input costs, will be especially keen to negotiate discounts.
The joker in the pack next year would be ethanol. Brazil, the world’s biggest producer, has been scaling up capacity to increase export to the US and EU. In 2009 that could be tough. Exports to the US, Brazil’s main ethanol market abroad, are frozen for now because US ethanol prices have fallen so much that Brazilian ethanol, even with a weaker real, stands no chance.
The slump in US fuel demand means a slump in ethanol demand as well. Brazil’s domestic demand for ethanol was boosted by flex-fuel cars—cars that can run on any mixture of gasoline and ethanol. Brazilian demand for the biofuel rose to 1.6 billion litres per month currently from 550 million litres five years ago. But most flex fuel cars are bought on credit. If there is an economic slowdown , this credit would be affected.
The exchange rate could also impact ethanol output. Some analysts believe that if the real weakens further, it would encourage Brazilian mills to produce sugar for export, rather than ethanol for the domestic market. That could cool global sugar prices.
After years of oversupply, global sugar supply is finally balancing with demand. Any new threat to global production would tilt the balance firmly towards a shortage. That is definitely headline news. However, there is no straight line between high commodity prices and individual corporate profits. As always, the best business strategy will win.
Sugar companies are certainly betting on it. But given the miasma of global recession, encashing the demand-supply mismatch may not be so easy.
ET helps you join the dots between consumer pessimism and the future of sugar.
Indian sugar prices are steady for now because the government has been pushing mills to sell at least 2 mt each month. With five states going to polls in the next few weeks, the last thing it wants is voters getting ugly on food prices.
Fortuitously for Indian consumers, the collapse in global sugar prices was well-timed with the festival season. The big funds and index traders are rapidly unwinding their long positions, which has led to selling pressure. That has queered the pitch for Indian exports.
All of 2007, sugar was tugged up by the price of ethanol, which itself was linked to crude oil. Now that crude oil is at 2006-levels , the correction in sugar and ethanol prices was inevitable.
At the same time, Brazilians have begun aggressively exporting sugar because their currency—real—has fallen to a three-and-half-year low against the dollar. A weak real has offset the fall in sugar prices. Put together, sugar is bearish for now.
But mills have not lost heart. All forecasts point to a drop in supply in 2009. The world may run short by 5 mt due to a 4% cut in global sugar production in 2009. Bad weather in countries such as Cuba have further put pressure on supply.
In India, the drop in production could be especially dramatic. Farmers have been so upset with tardy payment for cane that they have shifted to other crops. In top producer Maharashtra, sugar production will fall 30% this year. Over all, Indian sugar production could fall 20% in 2008-09 and a further 14% in 2009-10 sugar season. With Indian demand and supply likely to be finely balanced next year and dry trade pipeline, the industry is betting on a price rise.
On the face of it, this decline in production appears to be just what the doctor ordered for sugar mills. But the recovery in bottomlines may not be so quick or so widespread. There are two googlies mills would have to dodge.
One, when farmers grow less cane, mills too crush less.
That strains their capacity utilisation and sales figures. In Uttar Pradesh, where mills have reserved cane area, they can hope to pick up any cane grown within 15-km radius. But in states without cane zoning, the fight for cane could get very bitter indeed next year.
Already mills in Maharashtra are bearing the brunt of decline in cane area. The state government has decided to issue licenses only to factories where sugarcane availability is more than half their crushing capacity for the entire season. Of the 173 mills in the state, at least 20 may have to shut shop this year. Next year this problem could worsen.
The second googly could be dampening consumer demand if the economy slows down. In most middle-class households, the monthly sugar consumption is price insensitive because they rarely buy more than 8-10 kg. So even if prices jump by Rs 5/kg, that means an extra expenditure of Rs 50/month. No one is really bothered.
It is actually the sugar consumed indirectly that could get affected if the world does go into recession. When times get tough, households tend to reduce purchase of expensive processed foods, sauces, icecreams, jams, cold drinks, juices, confectionery and luxury chocolates to offset higher expenses in other areas. Since these are not toppriority foods, their consumption is usually the first to get lopped off.
This in turn could impact the demand for sugar by processed food and beverage companies, who are the single largest purchasers of sugar in India. If sugar becomes more expensive due to a squeeze in supply while demand for end products drops, food companies are likely to rework their sums. Cola companies, where sugar is a significant part of input costs, will be especially keen to negotiate discounts.
The joker in the pack next year would be ethanol. Brazil, the world’s biggest producer, has been scaling up capacity to increase export to the US and EU. In 2009 that could be tough. Exports to the US, Brazil’s main ethanol market abroad, are frozen for now because US ethanol prices have fallen so much that Brazilian ethanol, even with a weaker real, stands no chance.
The slump in US fuel demand means a slump in ethanol demand as well. Brazil’s domestic demand for ethanol was boosted by flex-fuel cars—cars that can run on any mixture of gasoline and ethanol. Brazilian demand for the biofuel rose to 1.6 billion litres per month currently from 550 million litres five years ago. But most flex fuel cars are bought on credit. If there is an economic slowdown , this credit would be affected.
The exchange rate could also impact ethanol output. Some analysts believe that if the real weakens further, it would encourage Brazilian mills to produce sugar for export, rather than ethanol for the domestic market. That could cool global sugar prices.
After years of oversupply, global sugar supply is finally balancing with demand. Any new threat to global production would tilt the balance firmly towards a shortage. That is definitely headline news. However, there is no straight line between high commodity prices and individual corporate profits. As always, the best business strategy will win.
RBI eases ECB access for companies
The government and the Reserve Bank of India (RBI) have eased the norms on overseas borrowing for Indian companies to boost inflows and help corporates raise funds for projects.
The revised rules provide for companies to pay a higher interest of upto 500 bps over the six-month libor on external commercial borrowings (ECBs). Companies can bring in the proceeds immediately and can also use dollar borrowings for rupee expenditure.
The easing of norms comes at a time when a number of Indian companies, who are already in the international loan markets, are finding it difficult to raise funds. The turbulence in global financial markets has impacted this market significantly and with banks reluctant to lend to each other, raising foreign currency funds is going to be tough.
Bankers say that liquidity is limited to the shorter end of the borrowing spectrum with global banks loath to lend for the medium and long term. According to the new rules notified by the RBI late on Wednesday, from now on, ECBs up to $500 million per borrower per financial year would be permitted for rupee expenditure or foreign currency expenditure for permissible end-uses under the automatic route.
The norm of a minimum average maturity period of seven years for ECBs of more than $100 million for rupee capital expenditure by borrowers in the infrastructure sector has been dispensed with.
The relaxation may not result in an immediate inflow of funds, given that overseas credit markets are frozen and spreads over libor have been widening. Roiled by the financial turmoil, banks abroad are reluctant to lend to corporates in emerging markets. They are looking at cutting down or are only maintaining their Indian exposure.
However, the new norms could benefit many AAA and AA rated Indian corporates to access the markets as and when the market eases up.
Telecom companies, who had earlier pitched for allowing the proceeds of ECBs for payment of licence/permit for 3G spectrum have been given that facility. At present, ECB proceeds are required to be parked overseas until actual expenditure takes place.
Now, companies can either keep these funds offshore or keep it with the overseas branches or subsidiaries of Indian banks abroad or to remit these funds to India for credit to their rupee accounts with banks in India until it is used.
Given the tight liquidity conditions in the market, RBI has said that banks have been allowed to pay upto 300 bps over six-month libor on ECBS between three and five years as against 200 bps earlier. For longer-term borrowings, corporates have been allowed to pay as much as 500 bps over six-month libor. Given that six-month libor is ruling at 3.7%, lenders will be allowed to pay out up to 8.7% interest on dollar borrowings.
The central bank also said that it will be keeping a close watch on the unhedged foreign exchange exposures of SMEs. A system of monitoring such unhedged exposures by the banks on a regular basis is being put in place.
Other earlier restrictions including the $500-million limit per company per financial year under the automatic route as well as conditions relating to eligible borrower, recognised lender, end-use, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.
Seshagiri Rao, finance director, JSW said: "This will benefit corporates as one layer of approval, from RBI, has now been removed. Top-rated companies should be able to roll-over existing liabilities within the enhanced spreads now allowed by RBI." He added that JSW group companies would definitely look at the option of raising foreign loans in the wake of this relaxation.
According to Hemant Mishra, MD and head global markets (India), StanChart, "this is in line with the ministry and the RBI's proactive approach of managing the dollar liquidity shortage in the local market. This step will make it easier for India Inc to tap into the overseas capital market and also helps domestic liquidity in the process. There would be incremental appetite for quality India paper at the right price, once the international liquidity situation gets better."
Usually, the credit markets slow down towards the end of the calendar year. This might be accentuated this time because of the ongoing credit crunch. For the fiscal ended March 31,2008 Indian corporates had made overseas borrowings of $30.95 billion. This is as against borrowings of $25.35 billion in the previous fiscal. In the current fiscal, between April and August, corporates had borrowed $8.12 billion.
Said Robin Banerjee, director (finance) Essar Steel: "This will encourage flow of foreign exchange debt into India since they are cheaper than Indian debt if you don't consider rupee depreciation, which can be appropriately hedged. This is a positive step to build confidence and ensure flow of funds in tight market conditions.
"We are yet to study the details, but at first brush, they appear to be very positive for the industry," said a top Vodafone-Essar official. Said Idea Cellular MD Sanjeev Aga, "While Idea is not affected, this may be a useful step for the sector. However, there are several loose ends in the preparation for the 3G auctions and it would be desirable that these are meticulously addressed instead of rushing through."
Highlights
" All in cost ceilings (libor plus spread plus issue expenses) have been relaxed by the RBI. More corporates can use the ECB window
" $500 Mn for rupee expenditure
" Telecom companies can use the ECB for raising money for license/permit for 3G Spectrum
" Corporates can remit these funds to India for credit to their rupee accounts in India, pending utilisation for permissible end-use.
" Monitoring of unhedged exposures of SMEs being put in places
* Corporates unlikely to benefit in the short term as global banks are still not comfortable in lending.
The revised rules provide for companies to pay a higher interest of upto 500 bps over the six-month libor on external commercial borrowings (ECBs). Companies can bring in the proceeds immediately and can also use dollar borrowings for rupee expenditure.
The easing of norms comes at a time when a number of Indian companies, who are already in the international loan markets, are finding it difficult to raise funds. The turbulence in global financial markets has impacted this market significantly and with banks reluctant to lend to each other, raising foreign currency funds is going to be tough.
Bankers say that liquidity is limited to the shorter end of the borrowing spectrum with global banks loath to lend for the medium and long term. According to the new rules notified by the RBI late on Wednesday, from now on, ECBs up to $500 million per borrower per financial year would be permitted for rupee expenditure or foreign currency expenditure for permissible end-uses under the automatic route.
The norm of a minimum average maturity period of seven years for ECBs of more than $100 million for rupee capital expenditure by borrowers in the infrastructure sector has been dispensed with.
The relaxation may not result in an immediate inflow of funds, given that overseas credit markets are frozen and spreads over libor have been widening. Roiled by the financial turmoil, banks abroad are reluctant to lend to corporates in emerging markets. They are looking at cutting down or are only maintaining their Indian exposure.
However, the new norms could benefit many AAA and AA rated Indian corporates to access the markets as and when the market eases up.
Telecom companies, who had earlier pitched for allowing the proceeds of ECBs for payment of licence/permit for 3G spectrum have been given that facility. At present, ECB proceeds are required to be parked overseas until actual expenditure takes place.
Now, companies can either keep these funds offshore or keep it with the overseas branches or subsidiaries of Indian banks abroad or to remit these funds to India for credit to their rupee accounts with banks in India until it is used.
Given the tight liquidity conditions in the market, RBI has said that banks have been allowed to pay upto 300 bps over six-month libor on ECBS between three and five years as against 200 bps earlier. For longer-term borrowings, corporates have been allowed to pay as much as 500 bps over six-month libor. Given that six-month libor is ruling at 3.7%, lenders will be allowed to pay out up to 8.7% interest on dollar borrowings.
The central bank also said that it will be keeping a close watch on the unhedged foreign exchange exposures of SMEs. A system of monitoring such unhedged exposures by the banks on a regular basis is being put in place.
Other earlier restrictions including the $500-million limit per company per financial year under the automatic route as well as conditions relating to eligible borrower, recognised lender, end-use, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.
Seshagiri Rao, finance director, JSW said: "This will benefit corporates as one layer of approval, from RBI, has now been removed. Top-rated companies should be able to roll-over existing liabilities within the enhanced spreads now allowed by RBI." He added that JSW group companies would definitely look at the option of raising foreign loans in the wake of this relaxation.
According to Hemant Mishra, MD and head global markets (India), StanChart, "this is in line with the ministry and the RBI's proactive approach of managing the dollar liquidity shortage in the local market. This step will make it easier for India Inc to tap into the overseas capital market and also helps domestic liquidity in the process. There would be incremental appetite for quality India paper at the right price, once the international liquidity situation gets better."
Usually, the credit markets slow down towards the end of the calendar year. This might be accentuated this time because of the ongoing credit crunch. For the fiscal ended March 31,2008 Indian corporates had made overseas borrowings of $30.95 billion. This is as against borrowings of $25.35 billion in the previous fiscal. In the current fiscal, between April and August, corporates had borrowed $8.12 billion.
Said Robin Banerjee, director (finance) Essar Steel: "This will encourage flow of foreign exchange debt into India since they are cheaper than Indian debt if you don't consider rupee depreciation, which can be appropriately hedged. This is a positive step to build confidence and ensure flow of funds in tight market conditions.
"We are yet to study the details, but at first brush, they appear to be very positive for the industry," said a top Vodafone-Essar official. Said Idea Cellular MD Sanjeev Aga, "While Idea is not affected, this may be a useful step for the sector. However, there are several loose ends in the preparation for the 3G auctions and it would be desirable that these are meticulously addressed instead of rushing through."
Highlights
" All in cost ceilings (libor plus spread plus issue expenses) have been relaxed by the RBI. More corporates can use the ECB window
" $500 Mn for rupee expenditure
" Telecom companies can use the ECB for raising money for license/permit for 3G Spectrum
" Corporates can remit these funds to India for credit to their rupee accounts in India, pending utilisation for permissible end-use.
" Monitoring of unhedged exposures of SMEs being put in places
* Corporates unlikely to benefit in the short term as global banks are still not comfortable in lending.
Q2 Results
Voltamp Transformers has posted a net profit of Rs 27.33 crore for the second quarter ended September 30, a 47.64 per cent rise over the year-ago period.
The firm had clocked a net profit of Rs 18.51 crore in the same quarter last fiscal, Voltamp Transformers said in a filing with the Bombay Stock Exchange.
Net sales rose by 14.78 per cent at Rs 169.96 crore for the quarter under review from Rs 148.07 crore a year ago.
For six months ended September 30, the company reported a net profit of Rs 50.50 crore, a growth of 42.09 per cent over the corresponding year-ago period. It had a net profit of Rs 35.54 crore in the same period last fiscal.
The company's net sales rose to Rs 340.11 crore during six months from Rs 277.34 crore in the year-ago period.
Shares of the company were trading at Rs 405.05, down 3.24 per cent on the BSE.
**** Coromandel Fertilisers Q2 net up 71 pc at Rs 181 cr * Fertiliser and chemical manufacturer Coromandel Fertilisers Ltd today said its consolidated net profit for the its September quarter stood at Rs 181 crore, up by 71.56 per cent over the corresponding period a year ago.
The company had a consolidated net profit of Rs 105.5 crore in the same quarter last fiscal, Coromandel Fertilisers Ltd said in a filing to the Bombay Stock Exchange.
Its consolidated total income for the quarter rose to Rs 3,404.7 crore from Rs 1,802.7 crore for the year-ago period.
While net profit for the six months ended September 30, 2008 stood at Rs 374.8 crore, against Rs 131.2 crore for the same period last fiscal.
Shares of the company were trading at Rs 132.20, up 5.30 per cent in afternoon trade on the BSE.
Yes Bank Q2 net up 40 pc at Rs 64 cr * Private sector lender Yes Bank today said its net profit for the second quarter ended September 30 grew by 40.50 per cent at Rs 63.62 crore over the corresponding quarter last fiscal.
The bank registered a net profit of Rs 45.28 crore in the second quarter of FY'08, Yes Bank said in a filing with the Bombay Stock Exchange.
Total income for the quarter under review rose to Rs 569.93 crore from Rs 379.38 crore in the year-ago period.
"In the recent market environment, Yes Bank has preserved to ensure highest credit quality of assets while sustaining income and growth objectives," Yes Bank Managing Director and CEO Rana Kapoor said.
Shares of the company were trading at Rs 80.05, 0.44 per cent in afternoon trade on the BSE.
*** Blue Dart Express Q2 net dips 22 pc at Rs 13 cr * Courier and logistics major Blue Dart Express today said its net profit for the second quarter ended September 30 declined 22.08 per cent at Rs 13.58 crore over corresponding period last fiscal.
The firm registered a net profit of Rs 17.43 crore in the second quarter of FY'08, Blue Dart Express said in a filing with the BSE.
The company's net sales rose to Rs 262.84 crore in the quarter from Rs 207.30 crore in the same period a year ago.
For the six months ended September 30, Blue Dart Express reported a net profit of Rs 64.95 crore against Rs 50.99 crore in the corresponding period a year ago. Net sales of the firm rose to Rs 747.13 crore this fiscal from Rs 576.44 crore in the same period last year.
Shares of the company were trading at Rs 520, down 5.45 per cent in afternoon trade on the BSE.
Kirloskar Oil Q2 net dips 18 pc at Rs 27.3 cr * Kirloskar Oil Engines Ltd today said its net profit for the second quarter ended September 30 declined 18.75 per cent at Rs 27.3 crore over the corresponding period a year ago. The company had clocked a net profit of Rs 33.6 crore in the same quarter last fiscal, Kirloskar Oil Engines Ltd said in a filing with the Bombay Stock Exchange.
Net sales for the quarter under review rose to Rs 592 crore from Rs 543.5 crore for the corresponding period last fiscal.
For the six months ended September 30, 2008, the company posted a net profit of Rs 56.8 crore against a net profit of Rs 51 crore for the same period last year.
The company's net sales rose to Rs 1,157.8 crore for the reviewed period from Rs 1,035.1 crore for the same period last fiscal. Shares of the company were trading at Rs 55.50, down 1.16 per cent in afternoon trade on the BSE.
**** Sona Koyo Q2 net loss at Rs 7.32 cr * Steering gears and drive line components maker Sona Koyo Steering Systems today said its net loss for second quarter ended September 30 stood at Rs 7.32 crore, against a net profit of Rs 8.79 crore in the same period a year ago.
The firm's total income for the quarter under review rose to Rs 180.27 crore from Rs 166.30 crore in the second quarter of the previous fiscal, Sona Koyo Steering Systems Ltd said in a filing with the Bombay Stock Exchange.
For the six months ended September 30, the firm announced a net loss of Rs 8.96 crore, while net profit in the same period last fiscal stood at Rs 16.77 crore.
Shares of the company were trading at Rs 10.50, up 4.17 per cent on the BSE.
Bajaj Electricals Q2 net dips 7 pc at Rs 12 cr * Bajaj Electricals today said its net profit for the second quarter ended September 30 declined by 7.43 per cent at Rs 12.2 crore over the corresponding period last fiscal. The company had clocked a net profit of Rs 13.18 crore in the second quarter of fiscal 2008, Bajaj Electricals said in a filing with the Bombay Stock Exchange.
Net sales of the firm rose to Rs 378.57 crore in the quarter from Rs 304.28 crore in the same period a year ago.
For the six months ended September 30, the firm reported a net profit of Rs 22.22 crore, against Rs 20.96 crore in the corresponding period a year ago.
Bajaj Electricals' net sales rose to Rs 695.91 crore in the quarter under review from Rs 556.41 crore in the same period last year.
Shares of the company were trading at Rs 338.15, down 1.33 per cent in afternoon trade on the BSE.
*** Nippon Batteries Q2 net down 12 pc at Rs 4 cr * Nippon Batteries today said its net profit for the second quarter ended September 30 dipped by 11.95 per cent at Rs 3.83 crore over the corresponding quarter last fiscal.
The company had a net profit of Rs 4.35 crore in the second quarter FY'08, Nippon Batteries said in a filing with the BSE.
Total income for the quarter under review rose to Rs 73.09 crore from Rs 71.10 crore in the same period last year.
For the six months ended September 30, the company reported a net profit of Rs 7.55 crore, against Rs 8.56 crore in the corresponding period a year ago.
The firm's total income rose to Rs 143.10 crore in the second quarter from Rs 144.16 crore in the same period a year ago.
Shares of the company were trading at Rs 310, up 1.64 per cent in afternoon trade on the BSE.
Century Textiles Q2 net dips 57 pc at Rs 28 cr * B K Birla Group-controlled Century Textiles & Industries today said its net profit for second quarter ended September 30 declined 56.98 per cent at Rs 28.55 crore over the same period a year ago. The firm had a net profit of Rs 66.37 crore for Q2 of fiscal 2008, Century Textiles said in a filing with the BSE.
Its total income rose to Rs 872.11 crore in Q2 of current fiscal from Rs 784.95 crore in the same period last year.
For the six months ended September 30, Century Textiles reported a net profit of Rs 91.05 crore. It had clocked a net profit of Rs 170.48 in the same period last fiscal, and its total income rose to Rs 1,825.93 crore in the six-month period from Rs 1,631.92 crore in the same period in the last fiscal.
Shares of the company were trading at Rs 205.50, down 0.92 per cent on the BSE.
*** Tourism Finance Corp Q2 net at Rs 5 cr * Tourism Finance Corporation of India today said its net profit for the second quarter ended September 30 stood at Rs 4.90 crore, clocking more than a three-fold jump from the corresponding period year ago.
The company had a net profit of Rs 1.36 crore in Q2 of fiscal 2008, TFCI informed BSE.
Income from operations rose to Rs 18.24 crore in the quarter under review from Rs 12.52 crore in the same period a year ago.
For the six months ended September 30, the company posted a net profit of Rs 10.11 crore against Rs 2.96 crore in the corresponding period a year ago.
Income from operations rose to Rs 32.50 crore in the quarter under review from Rs 25.47 crore last year.
Shares of the company were trading at Rs 13.65, down 2.15 per cent in the afternoon trade on the BSE.
Bajaj Auto Finance Q2 net up 21 pc at Rs 4 cr * Consumer finance company Bajaj Auto Finance today said its net profit for the second quarter ended September 30 rose by 20.89 per cent at Rs 4.57 crore over the corresponding period a year ago. The company clocked a net profit of Rs 3.78 crore for second quarter FY'08, Bajaj Auto Finance said in a filing with the BSE.
Total income for the quarter rose to Rs 136.82 crore from Rs 123.10 crore in the same period a year ago.
For the six months ended September 30, Bajaj Auto Finance reported a net profit of Rs 7.58 crore against Rs 7.89 crore in the same period last year.
Total income rose to Rs 264.62 crore in the second quarter this fiscal from Rs 226.90 crore a year ago.
Shares of the company closed at Rs 70.30, down 2.02 per cent on the BSE.
*** GNFC Q2 net dips 34 pc at Rs 79 cr * Gujarat Narmada Valley Fertilisers today said its net profit for the second quarter ended September 30 dipped by 34.45 per cent at Rs 79.04 crore over the corresponding period a year ago.
The company posted a net profit of Rs 120.58 crore in Q2 of last fiscal, GNFC said in a filing with the BSE.
Net sales of the company rose to Rs 868.13 crore in the quarter under review, from Rs 1,141.18 crore in the same period a year ago.
For the six months ended September 30, the firm reported a net profit of Rs 107.31 crore against Rs 196.37 crore in the same period last fiscal.
Net sales of the company rose to Rs 1,405.96 crore from Rs 1714.83 crore in the same period a year ago.
Shares of the company were trading at Rs 54.55 crore, down 2.76 per cent on the BSE.
Shalimar Paints Q2 net up 1 pc at Rs 2 cr * Shalimar Paints today said its net profit for the second quarter ended September 30 rose 0.86 per cent at Rs 2.33 crore over the corresponding period a year ago. The company had a net profit of Rs 2.31 crore in Q2 of fiscal 2008, Shalimar Paints said in a filing with the Bombay Stock Exchange.
Net sales of the company rose to Rs 101.47 crore for the quarter under review from Rs 80.51 crore in the same period last fiscal.
Shares of the company closed at Rs 183.50,down 8.11 per cent on the BSE.
**** Jindal Saw Q2 net up 11 pc at Rs 100 cr * Jindal Saw today said its net profit for the second quarter ended September 30 grew by 11.11 per cent at Rs 100.08 crore over the corresponding period a year ago.
The firm had a net profit of Rs 90.07 crore in Q2 of last fiscal, Jindal Saw said in a filing with the BSE.
Total income of the firm rose to Rs 1,488.68 crore for the quarter under review from Rs 1,430.53 crore in the same period a year ago.
For the six months ended September 30, Jindal Saw posted a net profit of Rs 285.68 crore, a 17.86 per cent growth over the corresponding year-ago period. The company had clocked a net profit of Rs 242.37 crore in the same period last year.
Jindal Saw's total income decreased to Rs 3,463.33 crore during the six-month period from Rs 3,989.79 crore in the year-ago period.
Shares of the company closed at Rs 355.45, down 3.08 per cent on the BSE.
Bajaj Finserv Q2 net at Rs 12 cr * Bajaj Group financial services arm Bajaj Finserv today posted a consolidated net loss of Rs 11.87 crore for the second quarter ended September 30, while it had a net profit of Rs 47.73 crore in the corresponding quarter last fiscal.
Total income of the company rose to Rs 92.37 crore in the quarter under review from Rs 84.11 crore in the same period a year ago, Bajaj Finserv informed the Bombay Stock Exchange.
On a standalone basis, it posted a net profit of Rs 14.23 crore for the quarter ended September 30, while it clocked a net profit of Rs 16.6 crore in the same period a year ago.
Bajaj Finserv has significant presence in the insurance business through its 74 per cent holding in Bajaj Allianz Life Insurance, a 74 per cent holding in Bajaj Allianz General Insurance, and in retail financing through its 40.53 per cent holding in Bajaj Auto Finance.
Shares of the company closed at Rs 150, down 0.40 per cent on the BSE.
*** Neyveli Lignite Corp Q2 net dips 18 pc at Rs 188 cr * State-run Neyveli Lignite Corp today said its net profit for the second quarter dipped 18.46 per cent at Rs 188.39 crore over the corresponding period last fiscal.
The company posted a net profit of Rs 231.04 crore in the Q2 of FY 2008, Neyveli Lignite said in a filing with the BSE.
Its total income rose to Rs 818.31 crore for the September quarter from Rs 882.08 crore in the same period in FY 2008 .
For the six months ended September 30, the company has a net profit of Rs 474.22 crore, against Rs 512.41 crore in the corresponding year-ago period.
Total income rose to Rs 2,055.93 crore in the Q2 ended September 30 from Rs 1,808.01 crore in the year-ago period.
Shares of the company closed at Rs 62.50, down 2.50 per cent on the BSE.
* Hinduja Foundries, one of the largest suppliers of castings to automobile makers, today said its net profit for second quarter ended September 30 declined by 77.13 per cent at Rs 1.07 crore over the corresponding period a year ago. The company had a net profit of Rs 4.68 crore for the same quarter last fiscal, Hinduja Foundries Ltd said in a filing with the Bombay Stock Exchange.
Its net income rose to Rs 119.85 crore for Q2 of current fiscal from Rs 110.51 crore for the same quarter last year.
For the six months ended September 30, 2008, it posted a net profit of Rs 5.65 crore, while the company had a net profit of Rs 8.77 crore for the same quarter last fiscal.
Its net income rose to Rs 245.05 crore for the reviewed period from Rs 215.05 for the corresponding period last year.
Shares of the company closed at Rs 101.20, down 4.53 per cent on the BSE.
**** Greenply Industries Q2 net at Rs 11.14 cr * Plywood and laminate products maker Greenply Industries today posted a marginal growth in its net profit at Rs 11.44 crore for the second quarter ended September 30 over the corresponding period a year ago.
The company had a net profit of Rs 11.18 crore for the same quarter last fiscal, Greenply Industries Ltd said in a filing with the Bombay Stock Exchange.
Its net income rose to Rs 236.68 crore for the reviewed period from 158.88 crore for the year-ago period.
For the six months ended September 30, 2008, it posted a net profit of Rs 18.40 crore, while it had a net profit of Rs 2025 crore in the same period last fiscal.
Shares of the company closed at Rs 73.60, down 5.64 per cent on the BSE.
The firm had clocked a net profit of Rs 18.51 crore in the same quarter last fiscal, Voltamp Transformers said in a filing with the Bombay Stock Exchange.
Net sales rose by 14.78 per cent at Rs 169.96 crore for the quarter under review from Rs 148.07 crore a year ago.
For six months ended September 30, the company reported a net profit of Rs 50.50 crore, a growth of 42.09 per cent over the corresponding year-ago period. It had a net profit of Rs 35.54 crore in the same period last fiscal.
The company's net sales rose to Rs 340.11 crore during six months from Rs 277.34 crore in the year-ago period.
Shares of the company were trading at Rs 405.05, down 3.24 per cent on the BSE.
**** Coromandel Fertilisers Q2 net up 71 pc at Rs 181 cr * Fertiliser and chemical manufacturer Coromandel Fertilisers Ltd today said its consolidated net profit for the its September quarter stood at Rs 181 crore, up by 71.56 per cent over the corresponding period a year ago.
The company had a consolidated net profit of Rs 105.5 crore in the same quarter last fiscal, Coromandel Fertilisers Ltd said in a filing to the Bombay Stock Exchange.
Its consolidated total income for the quarter rose to Rs 3,404.7 crore from Rs 1,802.7 crore for the year-ago period.
While net profit for the six months ended September 30, 2008 stood at Rs 374.8 crore, against Rs 131.2 crore for the same period last fiscal.
Shares of the company were trading at Rs 132.20, up 5.30 per cent in afternoon trade on the BSE.
Yes Bank Q2 net up 40 pc at Rs 64 cr * Private sector lender Yes Bank today said its net profit for the second quarter ended September 30 grew by 40.50 per cent at Rs 63.62 crore over the corresponding quarter last fiscal.
The bank registered a net profit of Rs 45.28 crore in the second quarter of FY'08, Yes Bank said in a filing with the Bombay Stock Exchange.
Total income for the quarter under review rose to Rs 569.93 crore from Rs 379.38 crore in the year-ago period.
"In the recent market environment, Yes Bank has preserved to ensure highest credit quality of assets while sustaining income and growth objectives," Yes Bank Managing Director and CEO Rana Kapoor said.
Shares of the company were trading at Rs 80.05, 0.44 per cent in afternoon trade on the BSE.
*** Blue Dart Express Q2 net dips 22 pc at Rs 13 cr * Courier and logistics major Blue Dart Express today said its net profit for the second quarter ended September 30 declined 22.08 per cent at Rs 13.58 crore over corresponding period last fiscal.
The firm registered a net profit of Rs 17.43 crore in the second quarter of FY'08, Blue Dart Express said in a filing with the BSE.
The company's net sales rose to Rs 262.84 crore in the quarter from Rs 207.30 crore in the same period a year ago.
For the six months ended September 30, Blue Dart Express reported a net profit of Rs 64.95 crore against Rs 50.99 crore in the corresponding period a year ago. Net sales of the firm rose to Rs 747.13 crore this fiscal from Rs 576.44 crore in the same period last year.
Shares of the company were trading at Rs 520, down 5.45 per cent in afternoon trade on the BSE.
Kirloskar Oil Q2 net dips 18 pc at Rs 27.3 cr * Kirloskar Oil Engines Ltd today said its net profit for the second quarter ended September 30 declined 18.75 per cent at Rs 27.3 crore over the corresponding period a year ago. The company had clocked a net profit of Rs 33.6 crore in the same quarter last fiscal, Kirloskar Oil Engines Ltd said in a filing with the Bombay Stock Exchange.
Net sales for the quarter under review rose to Rs 592 crore from Rs 543.5 crore for the corresponding period last fiscal.
For the six months ended September 30, 2008, the company posted a net profit of Rs 56.8 crore against a net profit of Rs 51 crore for the same period last year.
The company's net sales rose to Rs 1,157.8 crore for the reviewed period from Rs 1,035.1 crore for the same period last fiscal. Shares of the company were trading at Rs 55.50, down 1.16 per cent in afternoon trade on the BSE.
**** Sona Koyo Q2 net loss at Rs 7.32 cr * Steering gears and drive line components maker Sona Koyo Steering Systems today said its net loss for second quarter ended September 30 stood at Rs 7.32 crore, against a net profit of Rs 8.79 crore in the same period a year ago.
The firm's total income for the quarter under review rose to Rs 180.27 crore from Rs 166.30 crore in the second quarter of the previous fiscal, Sona Koyo Steering Systems Ltd said in a filing with the Bombay Stock Exchange.
For the six months ended September 30, the firm announced a net loss of Rs 8.96 crore, while net profit in the same period last fiscal stood at Rs 16.77 crore.
Shares of the company were trading at Rs 10.50, up 4.17 per cent on the BSE.
Bajaj Electricals Q2 net dips 7 pc at Rs 12 cr * Bajaj Electricals today said its net profit for the second quarter ended September 30 declined by 7.43 per cent at Rs 12.2 crore over the corresponding period last fiscal. The company had clocked a net profit of Rs 13.18 crore in the second quarter of fiscal 2008, Bajaj Electricals said in a filing with the Bombay Stock Exchange.
Net sales of the firm rose to Rs 378.57 crore in the quarter from Rs 304.28 crore in the same period a year ago.
For the six months ended September 30, the firm reported a net profit of Rs 22.22 crore, against Rs 20.96 crore in the corresponding period a year ago.
Bajaj Electricals' net sales rose to Rs 695.91 crore in the quarter under review from Rs 556.41 crore in the same period last year.
Shares of the company were trading at Rs 338.15, down 1.33 per cent in afternoon trade on the BSE.
*** Nippon Batteries Q2 net down 12 pc at Rs 4 cr * Nippon Batteries today said its net profit for the second quarter ended September 30 dipped by 11.95 per cent at Rs 3.83 crore over the corresponding quarter last fiscal.
The company had a net profit of Rs 4.35 crore in the second quarter FY'08, Nippon Batteries said in a filing with the BSE.
Total income for the quarter under review rose to Rs 73.09 crore from Rs 71.10 crore in the same period last year.
For the six months ended September 30, the company reported a net profit of Rs 7.55 crore, against Rs 8.56 crore in the corresponding period a year ago.
The firm's total income rose to Rs 143.10 crore in the second quarter from Rs 144.16 crore in the same period a year ago.
Shares of the company were trading at Rs 310, up 1.64 per cent in afternoon trade on the BSE.
Century Textiles Q2 net dips 57 pc at Rs 28 cr * B K Birla Group-controlled Century Textiles & Industries today said its net profit for second quarter ended September 30 declined 56.98 per cent at Rs 28.55 crore over the same period a year ago. The firm had a net profit of Rs 66.37 crore for Q2 of fiscal 2008, Century Textiles said in a filing with the BSE.
Its total income rose to Rs 872.11 crore in Q2 of current fiscal from Rs 784.95 crore in the same period last year.
For the six months ended September 30, Century Textiles reported a net profit of Rs 91.05 crore. It had clocked a net profit of Rs 170.48 in the same period last fiscal, and its total income rose to Rs 1,825.93 crore in the six-month period from Rs 1,631.92 crore in the same period in the last fiscal.
Shares of the company were trading at Rs 205.50, down 0.92 per cent on the BSE.
*** Tourism Finance Corp Q2 net at Rs 5 cr * Tourism Finance Corporation of India today said its net profit for the second quarter ended September 30 stood at Rs 4.90 crore, clocking more than a three-fold jump from the corresponding period year ago.
The company had a net profit of Rs 1.36 crore in Q2 of fiscal 2008, TFCI informed BSE.
Income from operations rose to Rs 18.24 crore in the quarter under review from Rs 12.52 crore in the same period a year ago.
For the six months ended September 30, the company posted a net profit of Rs 10.11 crore against Rs 2.96 crore in the corresponding period a year ago.
Income from operations rose to Rs 32.50 crore in the quarter under review from Rs 25.47 crore last year.
Shares of the company were trading at Rs 13.65, down 2.15 per cent in the afternoon trade on the BSE.
Bajaj Auto Finance Q2 net up 21 pc at Rs 4 cr * Consumer finance company Bajaj Auto Finance today said its net profit for the second quarter ended September 30 rose by 20.89 per cent at Rs 4.57 crore over the corresponding period a year ago. The company clocked a net profit of Rs 3.78 crore for second quarter FY'08, Bajaj Auto Finance said in a filing with the BSE.
Total income for the quarter rose to Rs 136.82 crore from Rs 123.10 crore in the same period a year ago.
For the six months ended September 30, Bajaj Auto Finance reported a net profit of Rs 7.58 crore against Rs 7.89 crore in the same period last year.
Total income rose to Rs 264.62 crore in the second quarter this fiscal from Rs 226.90 crore a year ago.
Shares of the company closed at Rs 70.30, down 2.02 per cent on the BSE.
*** GNFC Q2 net dips 34 pc at Rs 79 cr * Gujarat Narmada Valley Fertilisers today said its net profit for the second quarter ended September 30 dipped by 34.45 per cent at Rs 79.04 crore over the corresponding period a year ago.
The company posted a net profit of Rs 120.58 crore in Q2 of last fiscal, GNFC said in a filing with the BSE.
Net sales of the company rose to Rs 868.13 crore in the quarter under review, from Rs 1,141.18 crore in the same period a year ago.
For the six months ended September 30, the firm reported a net profit of Rs 107.31 crore against Rs 196.37 crore in the same period last fiscal.
Net sales of the company rose to Rs 1,405.96 crore from Rs 1714.83 crore in the same period a year ago.
Shares of the company were trading at Rs 54.55 crore, down 2.76 per cent on the BSE.
Shalimar Paints Q2 net up 1 pc at Rs 2 cr * Shalimar Paints today said its net profit for the second quarter ended September 30 rose 0.86 per cent at Rs 2.33 crore over the corresponding period a year ago. The company had a net profit of Rs 2.31 crore in Q2 of fiscal 2008, Shalimar Paints said in a filing with the Bombay Stock Exchange.
Net sales of the company rose to Rs 101.47 crore for the quarter under review from Rs 80.51 crore in the same period last fiscal.
Shares of the company closed at Rs 183.50,down 8.11 per cent on the BSE.
**** Jindal Saw Q2 net up 11 pc at Rs 100 cr * Jindal Saw today said its net profit for the second quarter ended September 30 grew by 11.11 per cent at Rs 100.08 crore over the corresponding period a year ago.
The firm had a net profit of Rs 90.07 crore in Q2 of last fiscal, Jindal Saw said in a filing with the BSE.
Total income of the firm rose to Rs 1,488.68 crore for the quarter under review from Rs 1,430.53 crore in the same period a year ago.
For the six months ended September 30, Jindal Saw posted a net profit of Rs 285.68 crore, a 17.86 per cent growth over the corresponding year-ago period. The company had clocked a net profit of Rs 242.37 crore in the same period last year.
Jindal Saw's total income decreased to Rs 3,463.33 crore during the six-month period from Rs 3,989.79 crore in the year-ago period.
Shares of the company closed at Rs 355.45, down 3.08 per cent on the BSE.
Bajaj Finserv Q2 net at Rs 12 cr * Bajaj Group financial services arm Bajaj Finserv today posted a consolidated net loss of Rs 11.87 crore for the second quarter ended September 30, while it had a net profit of Rs 47.73 crore in the corresponding quarter last fiscal.
Total income of the company rose to Rs 92.37 crore in the quarter under review from Rs 84.11 crore in the same period a year ago, Bajaj Finserv informed the Bombay Stock Exchange.
On a standalone basis, it posted a net profit of Rs 14.23 crore for the quarter ended September 30, while it clocked a net profit of Rs 16.6 crore in the same period a year ago.
Bajaj Finserv has significant presence in the insurance business through its 74 per cent holding in Bajaj Allianz Life Insurance, a 74 per cent holding in Bajaj Allianz General Insurance, and in retail financing through its 40.53 per cent holding in Bajaj Auto Finance.
Shares of the company closed at Rs 150, down 0.40 per cent on the BSE.
*** Neyveli Lignite Corp Q2 net dips 18 pc at Rs 188 cr * State-run Neyveli Lignite Corp today said its net profit for the second quarter dipped 18.46 per cent at Rs 188.39 crore over the corresponding period last fiscal.
The company posted a net profit of Rs 231.04 crore in the Q2 of FY 2008, Neyveli Lignite said in a filing with the BSE.
Its total income rose to Rs 818.31 crore for the September quarter from Rs 882.08 crore in the same period in FY 2008 .
For the six months ended September 30, the company has a net profit of Rs 474.22 crore, against Rs 512.41 crore in the corresponding year-ago period.
Total income rose to Rs 2,055.93 crore in the Q2 ended September 30 from Rs 1,808.01 crore in the year-ago period.
Shares of the company closed at Rs 62.50, down 2.50 per cent on the BSE.
* Hinduja Foundries, one of the largest suppliers of castings to automobile makers, today said its net profit for second quarter ended September 30 declined by 77.13 per cent at Rs 1.07 crore over the corresponding period a year ago. The company had a net profit of Rs 4.68 crore for the same quarter last fiscal, Hinduja Foundries Ltd said in a filing with the Bombay Stock Exchange.
Its net income rose to Rs 119.85 crore for Q2 of current fiscal from Rs 110.51 crore for the same quarter last year.
For the six months ended September 30, 2008, it posted a net profit of Rs 5.65 crore, while the company had a net profit of Rs 8.77 crore for the same quarter last fiscal.
Its net income rose to Rs 245.05 crore for the reviewed period from Rs 215.05 for the corresponding period last year.
Shares of the company closed at Rs 101.20, down 4.53 per cent on the BSE.
**** Greenply Industries Q2 net at Rs 11.14 cr * Plywood and laminate products maker Greenply Industries today posted a marginal growth in its net profit at Rs 11.44 crore for the second quarter ended September 30 over the corresponding period a year ago.
The company had a net profit of Rs 11.18 crore for the same quarter last fiscal, Greenply Industries Ltd said in a filing with the Bombay Stock Exchange.
Its net income rose to Rs 236.68 crore for the reviewed period from 158.88 crore for the year-ago period.
For the six months ended September 30, 2008, it posted a net profit of Rs 18.40 crore, while it had a net profit of Rs 2025 crore in the same period last fiscal.
Shares of the company closed at Rs 73.60, down 5.64 per cent on the BSE.
Thursday, October 16, 2008
Markets tumble as recession fears trump bailout
NEW YORK (Reuters) - Gloomy economic data and warnings from the U.S. Federal Reserve that hard times were still to come wiped out two days of relative optimism about the credit crisis and sent markets into free-fall on Wednesday.
In the worst one-day percentage declines since the stock market crash of 1987, the Dow Jones industrial average ended down 733 points or 7.87 percent, and the S&P 500 index lost 9 percent. The losses reversed Monday's record surges that had been sparked by optimism about bank bailouts.
Fed Chairman Ben Bernanke warned that credit market turmoil posed a "significant threat" to an already weak economy.
European shares shed 6 percent and U.S. crude fell more than $4 a barrel to a 13-month low of $74.54.
France, Germany and Britain called for leaders of the Group of Eight major industrialized countries to gather next month with the heads of emerging economies to consider a radical overhaul of the world's 60-year-old financial architecture.
The White House said G8 leaders were expected to meet this year on the worst financial crisis since the Great Depression.
The United States reported its biggest monthly decline in retail sales in more than three years, and Europe offered negative economic data and outlooks of its own.
Governments around the world have pledged $3.2 trillion in emergency measures, including taking stakes in banks to help them stabilize, rallying world markets on Monday.
Optimism quickly gave way to fears that major economies were headed for recession despite government intervention.
GLOOMY OUTLOOK FROM FED
"By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," Bernanke said.
Suggesting an openness to further interest-rate cuts, Bernanke said concerns about inflation were diminishing. He said it would take time to restore normal flows of credit.
Fed Vice Chairman Donald Kohn said latest readings on the U.S. economy have become more downbeat and the impact of a recent emergency interest rate cut had been "overwhelmed" by escalating mistrust among financial institutions unwilling to lend to one another.
The U.S. housing market has yet to hit bottom, and inventories of unsold homes are likely to remain elevated, Kohn said. It was probable the economy would remain "subpar" well into next year, gradually improving in late 2009 and 2010, he said.
As stocks around the world plunged and emerging markets were pummeled, the dollar and safe haven assets such as gold and short term U.S. treasuries rose.
"It looks like everything that's economically sensitive is getting hit pretty good," said Scott Vergin, portfolio manager at Thrivent Financial in Minneapolis, Minnesota.
"The thing is, how much has the credit crunch already impacted the real economy?" added Vergin. "That's what everyone's really worried about."
SUMMIT TO REFORM FINANCIAL SYSTEM
At a European Union summit in Brussels, British Prime Minister Gordon Brown led calls for an international summit and urged a rebuilding of the International Monetary Fund (IMF) as the keystone of global market regulation.
EU leaders called for a summit soon to revamp financial structures set up at the Bretton Woods conference in 1944.
Dutch Finance Minister Wouter Bos said a stronger role for the IMF was needed "in the absence of American leadership at the moment." French President Nicolas Sarkozy told the summit a "new form of capitalism" was needed.
The United States on Tuesday offered to take up to $250 billion worth of equity in its banks, an astonishing move in the home of free market capitalism.
U.S. President George W. Bush stressed that the move was temporary. "I'm confident in the long run this economy will come back," he told reporters.
The U.S. action followed an agreement by European leaders to undertake a 2.2 trillion euro ($3 trillion) rescue of European banking giants, which have been hit by a credit crisis brought on by defaulting mortgages in the United States.
SIGNS OF RECESSION
Signs of a looming recession abounded on Wednesday.
The U.S. government said retail sales dropped 1.2 percent in September, the biggest monthly decline in three years, and wholesale prices slipped 0.4 percent.
The Fed's Beige Book report said economic activity weakened across the United States in September as businesses revised capital investments and consumers curtailed spending.
U.S. bank JPMorgan Chase said third-quarter profit plunged 84 percent, while Wells Fargo & Co reported a 25 percent drop in earnings.
British unemployment rose to 5.7 percent, its highest level in eight years, according to government data. And German economic growth will only be slightly above zero in 2009, Finance Minister Peer Steinbrueck said.
The European Central Bank said it would allow banks to swap a larger range of their assets for central bank funds and offer extra U.S. dollar liquidity through foreign exchange swaps.
Southeast Asian nations, backed by $10 billion from the World Bank, were the latest to join the rescue effort, agreeing to create a multibillion fund to help banks.
Iceland, driven close to bankruptcy by the effects of frozen credit markets on its banks, cut interest rates a staggering 3.5 percentage points as its officials pursued help from Russia via a multibillion-euro loan.
The economy is dominating the U.S. presidential campaign, which sees a final debate between the candidates on Wednesday.
Democrat Barack Obama has accused Republicans of presiding over unfettered financial deregulation while John McCain has sought to regain his footing on economic issues after drawing criticism for saying U.S. fundamentals were strong.
In the worst one-day percentage declines since the stock market crash of 1987, the Dow Jones industrial average ended down 733 points or 7.87 percent, and the S&P 500 index lost 9 percent. The losses reversed Monday's record surges that had been sparked by optimism about bank bailouts.
Fed Chairman Ben Bernanke warned that credit market turmoil posed a "significant threat" to an already weak economy.
European shares shed 6 percent and U.S. crude fell more than $4 a barrel to a 13-month low of $74.54.
France, Germany and Britain called for leaders of the Group of Eight major industrialized countries to gather next month with the heads of emerging economies to consider a radical overhaul of the world's 60-year-old financial architecture.
The White House said G8 leaders were expected to meet this year on the worst financial crisis since the Great Depression.
The United States reported its biggest monthly decline in retail sales in more than three years, and Europe offered negative economic data and outlooks of its own.
Governments around the world have pledged $3.2 trillion in emergency measures, including taking stakes in banks to help them stabilize, rallying world markets on Monday.
Optimism quickly gave way to fears that major economies were headed for recession despite government intervention.
GLOOMY OUTLOOK FROM FED
"By restricting flows of credit to households, businesses, and state and local governments, the turmoil in financial markets and the funding pressures on financial firms pose a significant threat to economic growth," Bernanke said.
Suggesting an openness to further interest-rate cuts, Bernanke said concerns about inflation were diminishing. He said it would take time to restore normal flows of credit.
Fed Vice Chairman Donald Kohn said latest readings on the U.S. economy have become more downbeat and the impact of a recent emergency interest rate cut had been "overwhelmed" by escalating mistrust among financial institutions unwilling to lend to one another.
The U.S. housing market has yet to hit bottom, and inventories of unsold homes are likely to remain elevated, Kohn said. It was probable the economy would remain "subpar" well into next year, gradually improving in late 2009 and 2010, he said.
As stocks around the world plunged and emerging markets were pummeled, the dollar and safe haven assets such as gold and short term U.S. treasuries rose.
"It looks like everything that's economically sensitive is getting hit pretty good," said Scott Vergin, portfolio manager at Thrivent Financial in Minneapolis, Minnesota.
"The thing is, how much has the credit crunch already impacted the real economy?" added Vergin. "That's what everyone's really worried about."
SUMMIT TO REFORM FINANCIAL SYSTEM
At a European Union summit in Brussels, British Prime Minister Gordon Brown led calls for an international summit and urged a rebuilding of the International Monetary Fund (IMF) as the keystone of global market regulation.
EU leaders called for a summit soon to revamp financial structures set up at the Bretton Woods conference in 1944.
Dutch Finance Minister Wouter Bos said a stronger role for the IMF was needed "in the absence of American leadership at the moment." French President Nicolas Sarkozy told the summit a "new form of capitalism" was needed.
The United States on Tuesday offered to take up to $250 billion worth of equity in its banks, an astonishing move in the home of free market capitalism.
U.S. President George W. Bush stressed that the move was temporary. "I'm confident in the long run this economy will come back," he told reporters.
The U.S. action followed an agreement by European leaders to undertake a 2.2 trillion euro ($3 trillion) rescue of European banking giants, which have been hit by a credit crisis brought on by defaulting mortgages in the United States.
SIGNS OF RECESSION
Signs of a looming recession abounded on Wednesday.
The U.S. government said retail sales dropped 1.2 percent in September, the biggest monthly decline in three years, and wholesale prices slipped 0.4 percent.
The Fed's Beige Book report said economic activity weakened across the United States in September as businesses revised capital investments and consumers curtailed spending.
U.S. bank JPMorgan Chase said third-quarter profit plunged 84 percent, while Wells Fargo & Co reported a 25 percent drop in earnings.
British unemployment rose to 5.7 percent, its highest level in eight years, according to government data. And German economic growth will only be slightly above zero in 2009, Finance Minister Peer Steinbrueck said.
The European Central Bank said it would allow banks to swap a larger range of their assets for central bank funds and offer extra U.S. dollar liquidity through foreign exchange swaps.
Southeast Asian nations, backed by $10 billion from the World Bank, were the latest to join the rescue effort, agreeing to create a multibillion fund to help banks.
Iceland, driven close to bankruptcy by the effects of frozen credit markets on its banks, cut interest rates a staggering 3.5 percentage points as its officials pursued help from Russia via a multibillion-euro loan.
The economy is dominating the U.S. presidential campaign, which sees a final debate between the candidates on Wednesday.
Democrat Barack Obama has accused Republicans of presiding over unfettered financial deregulation while John McCain has sought to regain his footing on economic issues after drawing criticism for saying U.S. fundamentals were strong.
RBI cuts CRR by 100 basis points
The Reserve Bank of India on Wednesday cut the Cash Reserve Ratio (CRR) further by 100 basis points to 6.5 per cent of NDTL with effect from the current reporting fortnight that began on October 11, 2008. This measure will release additional liquidity into the system of the order of Rs.40,000 crore.
On Tuesday, October 14, 2008, the RBI decided to conduct a special 14 day Repo at 9 per cent per annum for a notified amount of Rs 20,000 crore with a view to enabling banks to meet the liquidity requirements of mutual funds. Rs 3,500 crore of this facility was utilised by banks yesterday.
Further, the Reserve Bank announced this morning that this 14 day repo facility will now be conducted every day until further notice upto a cumulative amount of Rs 20,000 crore for the same purpose. Banks obtain liquidity from the Reserve Bank under the Liquidity Adjustment Facility (LAF) against the collateral of eligible securities that are in excess of their prescribed Statutory Liquidity Ratio (SLR).
It has been decided, purely as a temporary measure, that banks may avail of additional liquidity support exclusively for the purpose of meeting the liquidity requirements of mutual funds to the extent of up to 0.5 per cent of their NDTL. This additional liquidity support will terminate 14 days from the closure of this special term repo facility announced on October 14, 2008. This accommodation will be in addition to the temporary measure announced on September 16, 2008 permitting banks to avail of additional liquidity support to the extent of up to 1 per cent of their NDTL.
RBI instituted a mechanism of Special Market Operations (SMO) for public sector oil marketing companies in June-July 2008 taking into account the extraordinary situation then prevailing in the money and forex markets. RBI will institute a similar facility when oil bonds become available.
Under the Agricultural Debt Waiver and Debt Relief Scheme Government had agreed to provide to commercial banks, RRBs and co-operative credit institutions a sum of Rs.25,000 crore as the first instalment. At the request of the Government, RBI has agreed to provide the sum to the lending institutions immediately. This liquidity support will be provided by the Reserve Bank of India under Section 17(3b) and Section 17(4E) of RBI Act to scheduled banks and NABARD respectively.
Interest Rates on FCNR (B) Deposits
Currently, the interest rate ceiling on FCNR(B) deposits of all maturities has been fixed at Libor/Euribor/Swap rates for the corresponding maturities minus 25 basis points for the respective foreign currencies. In view of the prevailing market conditions, RBI has decided to increase, with immediate effect, the interest rate ceiling on FCNR (B) deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 25 basis points.
Interest Rate on NR(E) RA Deposits
Currently, the interest rate ceiling on NR(E) RA for one to three years maturity should not exceed the Libor/Euribor/Swap rates plus 50 basis points for US dollar of corresponding maturity. In view of the prevailing market conditions, RBI has decided to increase, with immediate effect, the interest rate ceiling on NR(E)RA deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 100 basis points.
Banks will be allowed to borrow funds from their overseas branches and correspondent banks up to a limit of 50 per cent of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher, as against the existing limit of 25 per cent.
The above measures will be reviewed on a continuous basis in the light of the evolving liquidity conditions.
The Reserve Bank is monitoring developments in the financial markets closely and continuously and would respond swiftly and even pre-emptively to any adverse external developments impinging on domestic financial stability, price stability and inflation expectations. The Reserve Bank is committed to maintaining financial stability and active, and flexible liquidity management using all policy instruments is an integral part of this objective.
On Tuesday, October 14, 2008, the RBI decided to conduct a special 14 day Repo at 9 per cent per annum for a notified amount of Rs 20,000 crore with a view to enabling banks to meet the liquidity requirements of mutual funds. Rs 3,500 crore of this facility was utilised by banks yesterday.
Further, the Reserve Bank announced this morning that this 14 day repo facility will now be conducted every day until further notice upto a cumulative amount of Rs 20,000 crore for the same purpose. Banks obtain liquidity from the Reserve Bank under the Liquidity Adjustment Facility (LAF) against the collateral of eligible securities that are in excess of their prescribed Statutory Liquidity Ratio (SLR).
It has been decided, purely as a temporary measure, that banks may avail of additional liquidity support exclusively for the purpose of meeting the liquidity requirements of mutual funds to the extent of up to 0.5 per cent of their NDTL. This additional liquidity support will terminate 14 days from the closure of this special term repo facility announced on October 14, 2008. This accommodation will be in addition to the temporary measure announced on September 16, 2008 permitting banks to avail of additional liquidity support to the extent of up to 1 per cent of their NDTL.
RBI instituted a mechanism of Special Market Operations (SMO) for public sector oil marketing companies in June-July 2008 taking into account the extraordinary situation then prevailing in the money and forex markets. RBI will institute a similar facility when oil bonds become available.
Under the Agricultural Debt Waiver and Debt Relief Scheme Government had agreed to provide to commercial banks, RRBs and co-operative credit institutions a sum of Rs.25,000 crore as the first instalment. At the request of the Government, RBI has agreed to provide the sum to the lending institutions immediately. This liquidity support will be provided by the Reserve Bank of India under Section 17(3b) and Section 17(4E) of RBI Act to scheduled banks and NABARD respectively.
Interest Rates on FCNR (B) Deposits
Currently, the interest rate ceiling on FCNR(B) deposits of all maturities has been fixed at Libor/Euribor/Swap rates for the corresponding maturities minus 25 basis points for the respective foreign currencies. In view of the prevailing market conditions, RBI has decided to increase, with immediate effect, the interest rate ceiling on FCNR (B) deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 25 basis points.
Interest Rate on NR(E) RA Deposits
Currently, the interest rate ceiling on NR(E) RA for one to three years maturity should not exceed the Libor/Euribor/Swap rates plus 50 basis points for US dollar of corresponding maturity. In view of the prevailing market conditions, RBI has decided to increase, with immediate effect, the interest rate ceiling on NR(E)RA deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 100 basis points.
Banks will be allowed to borrow funds from their overseas branches and correspondent banks up to a limit of 50 per cent of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher, as against the existing limit of 25 per cent.
The above measures will be reviewed on a continuous basis in the light of the evolving liquidity conditions.
The Reserve Bank is monitoring developments in the financial markets closely and continuously and would respond swiftly and even pre-emptively to any adverse external developments impinging on domestic financial stability, price stability and inflation expectations. The Reserve Bank is committed to maintaining financial stability and active, and flexible liquidity management using all policy instruments is an integral part of this objective.
Nifty stock futures fall 6 pc in Singapore
SINGAPORE: Nifty stock index futures fell 6 per cent in Singapore on Thursday, indicating a sharply lower market open as global markets reeled from recession worries.
By 0215 GMT, Nifty futures were down 200 points at 3,139. On Wednesday, India's 50-share NSE index fell 5.1 per cent to 3,388.4, while the main 30-share BSE index declined 5.9 per cent.
The MSCI index of Asia-Pacific shares outside of Japan traded 5.4 per cent lower on Thursday after downbeat US economic data spread fears of a deep global slowdown.
On Wednesday, India's central bank slashed its cash reserve requirement for banks for the second time in a week on Wednesday, releasing 400 billion rupees ($8.2 billion) into the banking system to boost money market liquidity.
By 0215 GMT, Nifty futures were down 200 points at 3,139. On Wednesday, India's 50-share NSE index fell 5.1 per cent to 3,388.4, while the main 30-share BSE index declined 5.9 per cent.
The MSCI index of Asia-Pacific shares outside of Japan traded 5.4 per cent lower on Thursday after downbeat US economic data spread fears of a deep global slowdown.
On Wednesday, India's central bank slashed its cash reserve requirement for banks for the second time in a week on Wednesday, releasing 400 billion rupees ($8.2 billion) into the banking system to boost money market liquidity.
Wednesday, October 15, 2008
Indian economy in danger, say three wise men of BJP
The BJP has held the UPA government responsible for the current liquidity crisis. Describing the crisis as “the UPA government’s own creation,” the BJP maintained that it was the government’s preference for monetary measures that is responsible for the crisis.
Going a step further, the BJP said that the Indian economy was in real danger and that finance minister P Chidambaram was misleading the country by stating that the fundamentals of the economy were strong. Warning that the finance minister’s regular reiteration of the Indian economy’s strong fundamentals was meaningless, senior BJP leaders Jaswant Singh, Yashwant Sinha and Arun Shourie drew attention to the fate of economies of southeast Asia, Brazil and Argentina as well as the western economies, which despite strong fundamentals now find themselves in deep crisis.
“If the government continues to fail in taking appropriate measures, India may face the situation of Brazil and Argentina. Our already vulnerable economy is now in real danger of being seriously destabilised. To go on chanting the lullaby, ‘our fundamentals are strong’, is worse than useless.
Nothing happened to the fundamentals of southeast Asian economies overnight, yet their currencies, their financial systems, and eventually their economies collapsed,” senior BJP leader Arun Shourie said. The BJP has argued that far from the fundamentals of the Indian economy being strong, these have been “decidedly weakened” by the UPA government. “What we have today is a crisis of confidence and trust: These cannot be restored by empty pep talk. They have to be restored by specific measures,” the BJP leaders said.
The BJP locates the cause of the current economic crisis in the country to the preference for monetary measures to tackle inflation. Former finance minister Yashwant Sinha said that the government ignored “the supply side, which was responsible for this inflation”. The party has called short-term responses to the liquidity crunch as well as longer term measures to strengthen the economy. Countering charges from the government, that the main Opposition party “only criticised without offering solutions”, the BJP put forth a 12 step programme to deal with the crisis.
The party’s contention is that the Indian economy, which was already facing a crisis arising out of the government’s mismanagement has now been “severely mauled” by the prevailing global financial crisis. Senior BJP leader Jaswant Singh said, “the global economic tsunami has hit India as well. There are global dynamics to the crisis but there are national challenges as well.
There is a problem of solvency of the national government and institutional solvency”. Countering finance minister p Chidambaram’s contention that a bailout like the West would resolve India’s liquidity crisis, Mr Sinha said that the current liquidity crisis has little to do with the global crisis “The stock market crisis is just one manifestation of it. Equally badly affected are the money market and the exchange market.
Sentiment is weak and loss of confidence is palpable. The violent fluctuations, noticed in these markets in the last couple of weeks, is the surest sign of the nervousness which has gripped these markets. It is the crisis in the real economy, however, which is the cause for more serious concern”, the former finance minister said.
The BJP maintained that the government’s mismanagement had already resulted in imbalances such as the high fiscal deficit, high current account deficit, elevated inflation levels, and a collapsing real estate sector. None of these, according to Mr Sinha, were the creation of the global crisis. Instead these are all the direct result of the “complacency and the cavalier attitude of the UPA government which slept on the wheel while the crisis was brewing”. The senior leader said that the government contributed to this problems by its acts of omission and commission.
Going a step further, the BJP said that the Indian economy was in real danger and that finance minister P Chidambaram was misleading the country by stating that the fundamentals of the economy were strong. Warning that the finance minister’s regular reiteration of the Indian economy’s strong fundamentals was meaningless, senior BJP leaders Jaswant Singh, Yashwant Sinha and Arun Shourie drew attention to the fate of economies of southeast Asia, Brazil and Argentina as well as the western economies, which despite strong fundamentals now find themselves in deep crisis.
“If the government continues to fail in taking appropriate measures, India may face the situation of Brazil and Argentina. Our already vulnerable economy is now in real danger of being seriously destabilised. To go on chanting the lullaby, ‘our fundamentals are strong’, is worse than useless.
Nothing happened to the fundamentals of southeast Asian economies overnight, yet their currencies, their financial systems, and eventually their economies collapsed,” senior BJP leader Arun Shourie said. The BJP has argued that far from the fundamentals of the Indian economy being strong, these have been “decidedly weakened” by the UPA government. “What we have today is a crisis of confidence and trust: These cannot be restored by empty pep talk. They have to be restored by specific measures,” the BJP leaders said.
The BJP locates the cause of the current economic crisis in the country to the preference for monetary measures to tackle inflation. Former finance minister Yashwant Sinha said that the government ignored “the supply side, which was responsible for this inflation”. The party has called short-term responses to the liquidity crunch as well as longer term measures to strengthen the economy. Countering charges from the government, that the main Opposition party “only criticised without offering solutions”, the BJP put forth a 12 step programme to deal with the crisis.
The party’s contention is that the Indian economy, which was already facing a crisis arising out of the government’s mismanagement has now been “severely mauled” by the prevailing global financial crisis. Senior BJP leader Jaswant Singh said, “the global economic tsunami has hit India as well. There are global dynamics to the crisis but there are national challenges as well.
There is a problem of solvency of the national government and institutional solvency”. Countering finance minister p Chidambaram’s contention that a bailout like the West would resolve India’s liquidity crisis, Mr Sinha said that the current liquidity crisis has little to do with the global crisis “The stock market crisis is just one manifestation of it. Equally badly affected are the money market and the exchange market.
Sentiment is weak and loss of confidence is palpable. The violent fluctuations, noticed in these markets in the last couple of weeks, is the surest sign of the nervousness which has gripped these markets. It is the crisis in the real economy, however, which is the cause for more serious concern”, the former finance minister said.
The BJP maintained that the government’s mismanagement had already resulted in imbalances such as the high fiscal deficit, high current account deficit, elevated inflation levels, and a collapsing real estate sector. None of these, according to Mr Sinha, were the creation of the global crisis. Instead these are all the direct result of the “complacency and the cavalier attitude of the UPA government which slept on the wheel while the crisis was brewing”. The senior leader said that the government contributed to this problems by its acts of omission and commission.
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