For the first time, Federal Reserve Chairman Ben Bernanke acknowledged the U.S. could reel into recession from the powerful punches of housing, credit and financial crises. Yet, he was coy about the Fed's next move.
With home foreclosures swelling to record highs and job losses mounting, Bernanke on Wednesday offered Congress an unflinching -- and more pessimistic -- assessment of potential damage to the national economy.
"A recession is possible," said Bernanke, who is under immense political and public pressure to turn things around. "Our estimates are that we're slightly growing at the moment, but we think that there's a chance that for the first half as a whole there might be a slight contraction."
Under one rule of thumb, six straight months of a shrinking economy would constitute a recession, but Bernanke wasn't getting into that. "A recession is a technical term," he said. "I'm not yet ready to say whether or not the U.S. economy will face such a situation."
Whether or not the economy already has fallen into its first recession since 2001 -- and many economists believe it has -- the housing debacle and other economic woes are a major concern for homeowners, job losers and investors. That means they're a concern to Congress and the presidential contenders, too.
The Fed and the White House have been thrust into crisis-management mode.
Hoping to limit damage, the Federal Reserve has been slashing interest rates since the start of the year in an effort to get people and companies spending again. "We are fighting against the wind," Bernanke said, "at least offsetting significantly the headwinds coming from these financial factors."
But he didn't offer a clear signal about the Fed's interest-rate intentions from here on.
At the last meeting of the central bank's policymakers in March, two members dissented from the decision to sharply cut rates. Those officials, who have reputations for being extra vigilant about fighting inflation, are concerned that cutting rates too much or too quickly could damage the economy by pushing prices higher. Although Bernanke said he hopes inflation will moderate in coming quarters, he said high energy prices have clouded the outlook.
Still, economists believe the Fed probably will drop its key rate again at its next meeting at the end of this month. Some analysts predicted the Fed's key rate would fall as low as 1.50 percent this year, from the current 2.25 percent.
"The Fed has pulled out all the stops to rescue both financial markets and the economy and now is probably hoping for the best," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.
On Wall Street, stocks initially dropped after the Fed chief's remarks, then fluctuated through the day before ending moderately lower. The Dow Jones industrials lost 45.44 points to finish the day at 12,608.92.
Employers slashed jobs in January and February, and Friday's report for March could show more losses. The nation's unemployment rate, now at 4.8 percent, probably will move higher in coming months, Bernanke told Congress' Joint Economic Committee.
Striking a hopeful note, though, he said he expects economic growth to pick up in the second half of the year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive interest rate reductions.
"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.
On the hot seat, Bernanke was grilled by senators about the Fed's moves to aid the once mighty Wall Street firm Bear Stearns, and about additional actions Congress and the White House should take to provide relief to struggling homeowners.
"I hope that you will use your position to jawbone this administration to get behind the housing relief effort before Congress," said committee chairman Charles Schumer, D-N.Y. "Addressing the housing crisis head-on will do as much to instill confidence in the markets as lowering interest rates or bolstering regulatory oversight of wayward mortgage lenders and financial institutions. We need to do all of it."
Sen. Robert Bennett, R-Utah, said people shouldn't view the situation as Wall Street versus Main Street.
"My experience is that Wall Street and Main Street are inextricably linked," he said. "We've reached the point in our financial system now where a community bank on Main Street has to have a correspondence with a major bank on Wall Street in order to keep things going, and that what happens in the banking system generally permeates down to the very lowest level."
Bernanke urged Congress to take additional steps to bolster the housing market and to aid people in danger of losing their homes. But he refused to be pinned down on making specific recommendations in other areas, such as how to help struggling state governments hit by the crisis. That exasperated Sen. Edward Kennedy, D-Mass., who pleaded: "What are we going to tell the states? ...The states are in a critical situation."
Besides lowering interest rates, the Fed has taken a series of extraordinary steps in recent weeks and months to prop up the nation's financial system, which has been in a state of high jeopardy.
In a controversial move, the Fed backed a $29 billion lifeline as part of JP Morgan's deal to take over the troubled Bear Stearns, the nation's fifth largest investment house, which was on the brink of bankruptcy. Bear Stearns had invested heavily in risky mortgage-backed securities that eventually soured with the collapse of the housing market.
That brought criticism from Democrats and others who contend the Fed is bailing out Wall Street and putting billions of taxpayer dollars at potential risk.
Bernanke defended the move as necessary to avert a meltdown in the entire financial system. "The damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," he said. The Fed's unprecedented involvement was meant as a one-time event. "It has never happened before, and I hope it never happens again," he told lawmakers.
Although the taxpayers are on the hook for the $29 billion, Bernanke believed they wouldn't suffer any losses. "I feel reasonably confident that we will be able to recover all of the principle and indeed some interest, and there is some chance of even upside beyond that."
To also ease the credit crisis, the Fed -- in the broadest use of its lending authority since the 1930s -- agreed to temporarily let big investment firms obtain emergency financing.
Bernanke said the Fed "never lost a penny" in the past from various lending maneuvers
Thursday, April 03, 2008
Wednesday, April 02, 2008
EVENING UPDATES
Fidelity on Wednesday announced the launch of Fidelity Online, www.fidelity.co.in, a financial gateway that will help investors learn and plan as well as transact and track their investments in Fidelity Funds.
India`s second largest two-wheeler maker Bajaj Holdings & Investment (formerly Bajaj Auto) reported an 10.42% dip in total sales of vehicles during March 2008 at 176,101 units as against 196,592 units in the same month last year.
India's industrial production growth, which slowed to 5.3 per cent in January, is likely to further come down to around 3.4 per cent between April-July when the country faces maximum power scarcity, industry body, Assocham said.
Industrial production has already slipped by 25 per cent in February-March and captive power stations within the industrial premises are running at half the capacities, as diesel and petrol have turned expensive, Assocham said in its report on 'Fallout of Worsening Summer Power Situation on Industrial Production in April-July 2008'
Korean consumer durables maker Samsung has launched a range of 'Freshtech' refrigerators in the Indian market, along with new models of microwave ovens.
TVS on Wednesday announced the launch of the 'eco-friendly' "Scooty Teenz Electric" in Karnataka targeting young women and enthused by their increased use of two-wheelers.
The founder group of UTV Software Communications said on Wednesday it has tied up with a unit of Walt Disney Co to source ABC's news programming for its new business news channel in India.
Tata Motors intends to list its shares on the Tokyo Stock Exchange.
SEBI insists the broking firms to maintain Chinese wall among its various activities like proprietary trading, investment banking and research.
Stock market regulator, the Securities and Exchange Board of India (SEBI) proposed to ban equity researchers from buying and selling shares of the concerned company 30 days before and five days after publication of the research reports.
Tata Motors intends to raise around USD 983 million in Japan for acquisitions.
The IT space looks good if one has atleast 6 months perspective..Infosys can be a good buy at 1,480-1,490 for a target of Rs 1,750.
India`s second largest two-wheeler maker Bajaj Holdings & Investment (formerly Bajaj Auto) reported an 10.42% dip in total sales of vehicles during March 2008 at 176,101 units as against 196,592 units in the same month last year.
India's industrial production growth, which slowed to 5.3 per cent in January, is likely to further come down to around 3.4 per cent between April-July when the country faces maximum power scarcity, industry body, Assocham said.
Industrial production has already slipped by 25 per cent in February-March and captive power stations within the industrial premises are running at half the capacities, as diesel and petrol have turned expensive, Assocham said in its report on 'Fallout of Worsening Summer Power Situation on Industrial Production in April-July 2008'
Korean consumer durables maker Samsung has launched a range of 'Freshtech' refrigerators in the Indian market, along with new models of microwave ovens.
TVS on Wednesday announced the launch of the 'eco-friendly' "Scooty Teenz Electric" in Karnataka targeting young women and enthused by their increased use of two-wheelers.
The founder group of UTV Software Communications said on Wednesday it has tied up with a unit of Walt Disney Co to source ABC's news programming for its new business news channel in India.
Tata Motors intends to list its shares on the Tokyo Stock Exchange.
SEBI insists the broking firms to maintain Chinese wall among its various activities like proprietary trading, investment banking and research.
Stock market regulator, the Securities and Exchange Board of India (SEBI) proposed to ban equity researchers from buying and selling shares of the concerned company 30 days before and five days after publication of the research reports.
Tata Motors intends to raise around USD 983 million in Japan for acquisitions.
The IT space looks good if one has atleast 6 months perspective..Infosys can be a good buy at 1,480-1,490 for a target of Rs 1,750.
Industrial production growth to slip by 35%
India's industrial production growth, which slowed to 5.3 per cent in January, is likely to further come down to around 3.4 per cent between April-July when the country faces maximum power scarcity, industry body, Assocham said.
Industrial production has already slipped by 25 per cent in February-March and captive power stations within the industrial premises are running at half the capacities, as diesel and petrol have turned expensive, Assocham said in its report on 'Fallout of Worsening Summer Power Situation on Industrial Production in April-July 2008'.
"Industrial production suffered heavily in winters of 2007 as power deficit remained within the range of 18-20 percent. Between the month of February and March 2008, the deficit went up to around 25 per cent, causing industrial production to fall steeply," Assocham president Venugopal Dhoot said.
India's industrial production growth came down to 5.3 percent year on year as compared to 11.6 per cent in January
2007. Power deficit in April-July last year stood at 13.4 percent.
While the power supply situation was unlikely to improve because of constraints on the generation side, Indian Inc's
minimum production loss would be at around 35 per cent. The power utilities are unable to meet demand for electricity by industries, which is growing at around 20-25 per cent, the chamber said.
"The states in which power supply to industrial locations would be most hit are Delhi, Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Maharashtra, Andhra Pradesh, Karnataka, Tamil Nadu and Gujarat," Dhoot said.
In the union territory and the nine states mentioned, the captive power plants put up by industrial units are operating
at less than 50 per cent of their capacities on the back of
costlier fuel, Dhoot added.
Maharashtra is facing an acute shortage of power with
energy deficit touching about 20 per cent, Assocham said.While Madhya Pradesh is facing a deficit of around 1,100 MW, the situation is no better in Gujarat, it said. The southern part of the country was likely to suffer energy shortage of 2,000 MW, particularly in Andhra Pradesh, Karnataka and Tamil Nadu.
Industrial production has already slipped by 25 per cent in February-March and captive power stations within the industrial premises are running at half the capacities, as diesel and petrol have turned expensive, Assocham said in its report on 'Fallout of Worsening Summer Power Situation on Industrial Production in April-July 2008'.
"Industrial production suffered heavily in winters of 2007 as power deficit remained within the range of 18-20 percent. Between the month of February and March 2008, the deficit went up to around 25 per cent, causing industrial production to fall steeply," Assocham president Venugopal Dhoot said.
India's industrial production growth came down to 5.3 percent year on year as compared to 11.6 per cent in January
2007. Power deficit in April-July last year stood at 13.4 percent.
While the power supply situation was unlikely to improve because of constraints on the generation side, Indian Inc's
minimum production loss would be at around 35 per cent. The power utilities are unable to meet demand for electricity by industries, which is growing at around 20-25 per cent, the chamber said.
"The states in which power supply to industrial locations would be most hit are Delhi, Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Maharashtra, Andhra Pradesh, Karnataka, Tamil Nadu and Gujarat," Dhoot said.
In the union territory and the nine states mentioned, the captive power plants put up by industrial units are operating
at less than 50 per cent of their capacities on the back of
costlier fuel, Dhoot added.
Maharashtra is facing an acute shortage of power with
energy deficit touching about 20 per cent, Assocham said.While Madhya Pradesh is facing a deficit of around 1,100 MW, the situation is no better in Gujarat, it said. The southern part of the country was likely to suffer energy shortage of 2,000 MW, particularly in Andhra Pradesh, Karnataka and Tamil Nadu.
NEWS UPDATES
The Videocon group intends to acquire Motorola`s mobile handset business, which is being split into a separate company. The company has appointed one of the world`s top three investment bankers who will convey its interest to buy out the mobile handset business of telecom giant.
Cairn India plans to raise USD 250 mn loan and has approached International Finance Corp. The company seeks loan for funding the development of its oil and gas block in Rajasthan, and to build a 600 km crude oil pipeline.
Subhash Projects & Marketing bagged order worth Rs 3.29 billion for execution of Main Plant, CW & Offsite Civil Works package for Bongaigaon Thermal Power Project (3X 250 MW) from NTPC.
The IT space looks good if one has atleast 6 months perspective..Infosys can be a good buy at 1,480-1,490 for a target of Rs 1,750
Tata Motors intends to raise around USD 983 million in Japan for acquisitions.
Cairn India plans to raise USD 250 mn loan and has approached International Finance Corp. The company seeks loan for funding the development of its oil and gas block in Rajasthan, and to build a 600 km crude oil pipeline.
Subhash Projects & Marketing bagged order worth Rs 3.29 billion for execution of Main Plant, CW & Offsite Civil Works package for Bongaigaon Thermal Power Project (3X 250 MW) from NTPC.
The IT space looks good if one has atleast 6 months perspective..Infosys can be a good buy at 1,480-1,490 for a target of Rs 1,750
Tata Motors intends to raise around USD 983 million in Japan for acquisitions.
Microcredit raises hopes for farm widows
Savita Jiddewar is a rare success story on the cotton fields of Maharashtra, the epicentre of an agrarian crisis that has seen 150,000 farmers commit suicide since 1997 because they could not pay back loans.
Her home stands out strikingly in this small village of dirt lanes and pale blue brick houses. She has a television set, a DVD player and a comfortable sofa. A mobile phone rings intermittently and the aroma of cooking wafts from the kitchen.
Clearly, she is well off in a farming village where most people struggle to make ends meet and where at least four people have killed themselves unable to repay crop loans.
While her neighbours borrowed heavily, entangling themselves in a never-ending cycle of debts, Jiddewar, a widow whose husband and daughter died in a road accident, made her moves smartly.
She joined a microcredit programme last year, saving tiny amounts that she ploughed back into her cotton fields, and earning a life of relative comfort.
After the agrarian crisis broke out in the early 1990s when India began privatising its economy, several voluntary organisations and banks in the region began microcredit schemes for women.
But women are only now joining in large numbers and the benefits are showing.
"Initially I wasn't sure what this is all about but then I saw other women who were doing well," Jiddewar said as she walked around her village, the air heavy with the smell of cow dung and animal feed.
BUSINESS ACUMEN
Jiddewar then joined the Annapurna women's self help group, one of around 60,000 such groups in Vidarbha. Here, the microcredit model is benefiting some 500,000 women and widows of farmers.
A farmers' lobby in the area estimates there are about 20,000 widows in Vidarbha whose husbands committed suicide after crops failed and they could not pay moneylenders and banks.
The women form groups of 10 or 12 to start a business and approach a bank for tiny credits. The banks encourage the women to save with them, with each member depositing amounts starting from $1 every month.
The next loan to the group depends on how fast they repay the initial credit after making a saving.
There are a variety of banks offering microcredit and the women are careful not to choose the wrong option.
Jiddewar's group chose the one that gave them $2,500 for community farming. Within months of borrowing her group had managed to pay back half the amount. Now the group is considering setting up a stationery shop.
Once left without hope after their sons and husbands died, many windows are picking up the pieces again.
"There was a time when we didn't know where the next meal was going to come from," said Mirabai Shyamrao Martawar, whose husband killed himself by jumping into a river after moneylenders pestered him for payment.
"Now I save fifty rupees (a little over $1) every month after providing for 10 members in the family."
The women are into a variety of businesses such as goat farming, community farming, running corner shops, bamboo handicrafts and glue making.
Without an income, life for these women and their children was a constant struggle for survival. Young widows were particularly vulnerable.
"This is a revolution," said Manoj Bhoir, whose voluntary group Village Development and Education Society facilitates microcredit for 650 self help groups.
"These women are determined to repay not only the debts of their families but also provide a better life for their children."
In many cases widows were thrown out by their in-laws. Only a small number were given $2,500 in compensation by the government after proving their husbands committed suicide.
But there is criticism as well of the microcredit model in Vidarbha. Although defaults are almost nil, many women are repeat borrowers and have become dependent on loans for household expenditures rather than capital investments.
But for tens of thousands of women in Vidarbha, microcredit seems their best chance of breaking from a life of debt.
"In a group we are safe," said Martawar. "When one is in trouble the others will come forward to help."
Her home stands out strikingly in this small village of dirt lanes and pale blue brick houses. She has a television set, a DVD player and a comfortable sofa. A mobile phone rings intermittently and the aroma of cooking wafts from the kitchen.
Clearly, she is well off in a farming village where most people struggle to make ends meet and where at least four people have killed themselves unable to repay crop loans.
While her neighbours borrowed heavily, entangling themselves in a never-ending cycle of debts, Jiddewar, a widow whose husband and daughter died in a road accident, made her moves smartly.
She joined a microcredit programme last year, saving tiny amounts that she ploughed back into her cotton fields, and earning a life of relative comfort.
After the agrarian crisis broke out in the early 1990s when India began privatising its economy, several voluntary organisations and banks in the region began microcredit schemes for women.
But women are only now joining in large numbers and the benefits are showing.
"Initially I wasn't sure what this is all about but then I saw other women who were doing well," Jiddewar said as she walked around her village, the air heavy with the smell of cow dung and animal feed.
BUSINESS ACUMEN
Jiddewar then joined the Annapurna women's self help group, one of around 60,000 such groups in Vidarbha. Here, the microcredit model is benefiting some 500,000 women and widows of farmers.
A farmers' lobby in the area estimates there are about 20,000 widows in Vidarbha whose husbands committed suicide after crops failed and they could not pay moneylenders and banks.
The women form groups of 10 or 12 to start a business and approach a bank for tiny credits. The banks encourage the women to save with them, with each member depositing amounts starting from $1 every month.
The next loan to the group depends on how fast they repay the initial credit after making a saving.
There are a variety of banks offering microcredit and the women are careful not to choose the wrong option.
Jiddewar's group chose the one that gave them $2,500 for community farming. Within months of borrowing her group had managed to pay back half the amount. Now the group is considering setting up a stationery shop.
Once left without hope after their sons and husbands died, many windows are picking up the pieces again.
"There was a time when we didn't know where the next meal was going to come from," said Mirabai Shyamrao Martawar, whose husband killed himself by jumping into a river after moneylenders pestered him for payment.
"Now I save fifty rupees (a little over $1) every month after providing for 10 members in the family."
The women are into a variety of businesses such as goat farming, community farming, running corner shops, bamboo handicrafts and glue making.
Without an income, life for these women and their children was a constant struggle for survival. Young widows were particularly vulnerable.
"This is a revolution," said Manoj Bhoir, whose voluntary group Village Development and Education Society facilitates microcredit for 650 self help groups.
"These women are determined to repay not only the debts of their families but also provide a better life for their children."
In many cases widows were thrown out by their in-laws. Only a small number were given $2,500 in compensation by the government after proving their husbands committed suicide.
But there is criticism as well of the microcredit model in Vidarbha. Although defaults are almost nil, many women are repeat borrowers and have become dependent on loans for household expenditures rather than capital investments.
But for tens of thousands of women in Vidarbha, microcredit seems their best chance of breaking from a life of debt.
"In a group we are safe," said Martawar. "When one is in trouble the others will come forward to help."
MARKET PREDICTION
GLOBAL MARKETS ARE IN GREEN AFTER USB AND DEUTSCH BANK WRITEDOWN NEWS AND Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 -- indicating a contraction, but a slower one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.
INDIAN MARKET WOULD EXPECT TO OPEN IN GAP UP.
LEVEL OF NIFTY 4800-4850-4910-5050.IF MARKET SUSTAIN ABOVE 4950 THEN WE CAN EXPECT LONG WITH SL 4850 .
SECTOR TO BE WATCHED OUT OIL&GAS AND FMCG.
TOTAL MARKET OI IS 52K CR
PUTCALL RATIO IS 1.25%.
HAVE A NICE TRADING DAY....
-MR.SAM
INDIAN MARKET WOULD EXPECT TO OPEN IN GAP UP.
LEVEL OF NIFTY 4800-4850-4910-5050.IF MARKET SUSTAIN ABOVE 4950 THEN WE CAN EXPECT LONG WITH SL 4850 .
SECTOR TO BE WATCHED OUT OIL&GAS AND FMCG.
TOTAL MARKET OI IS 52K CR
PUTCALL RATIO IS 1.25%.
HAVE A NICE TRADING DAY....
-MR.SAM
Wall Street Surges on UBS and Lehman Brothers Stock News, Better-Than-Expected Economic Data
Wall Street began the second quarter with a big rally Tuesday as investors rushed back into stocks, optimistic that the worst of the credit crisis has passed and that the economy is faring better than expected. The Dow Jones industrials surged nearly 400 points, and all the major indexes were up more than 3 percent.
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Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland's UBS AG issued new shares to help bolster their balance sheets. With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from the nation's credit struggles has been felt. Moreover, the banks' moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.
Analysts believe there must be a recovery in bank and brokerages to lead major stock indexes higher. Some of the biggest financial players had their sharpest moves of the year Tuesday -- Citigroup Inc. shot up 11 percent, JPMorgan Chase & Co. rose 9 percent, and Lehman surged 18 percent.
"Investors have a difficult time making decisions about the stock market if they don't have confidence in major financial institutions, so there's been a lot of sideline cash," said Richard Cripps, chief market strategist for Stifel Nicolaus. "The extreme conditions that we've seen here over the past few months has been missing that confidence ... but that appears to be changing, and we're seeing the response."
Meanwhile, Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 -- indicating a contraction, but a slower one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.
The Dow rose 391.47, or 3.19 percent, to 12,654.36. It marked the eighth-biggest point gain ever for the Dow, and the third time in two weeks it came close to or surpassed 400 points.
Broader stock indicators also gained sharply. The Standard & Poor's 500 index rose 47.48, or 3.59 percent, to 1,370.18 -- the index's best start to a second quarter since 1938. And, the Nasdaq composite index rose 83.65, or 3.67 percent, to 2,362.75.
The advance was in contrast to a lackluster session on Monday, where stocks managed a moderate gain in the final session of a dismal first quarter. Major indexes ended the first three months of 2008 with massive losses, marking the worst period since the third quarter of 2002 when Wall Street was approaching the lowest point of a protracted bear market.
Renewed enthusiasm that the credit crisis might be waning was also felt in the Treasury market, where government securities fell as investors withdrew money to take bets on stocks. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.55 percent from 3.43 percent late Monday. The yield edged up to 3.56 percent in after-hours trading.
In addition to hopes about the financial sector, Wall Street was relieved to see the feeble dollar regain some strength against the euro. The euro fell to $1.5596 from $1.5785 late Monday in New York.
And there was also optimism that commodities prices, which have hit historic highs in recent months, have begun to retreat. Crude fell 60 cents to settle at $100.98 on the New York Mercantile Exchange after earlier falling below $100. Meanwhile, gold dropped back below $900 an ounce.
"This is a nice way to begin the second quarter," said Todd Leone, managing director of equity trading at Cowen & Co. "All the financials are up big, and there's a sense that things are turning. We definitely have not seen the last of the credit crisis, but we're getting closer."
The stock rally was underpinned by the announcements from UBS and Lehman Brothers that they are boosting capital by issuing new stock. Shares of banks and brokerages hovered near multiyear lows in recent months as investors feared heavy losses from investments tied to subprime mortgages would be overwhelming.
Earlier this month, widespread concerns about Bear Stearns' financial position forced the investment bank to sell itself to JPMorgan in a deal engineered by the Federal Reserve -- and that stoked fears that other investment houses might follow.
JPMorgan rose $4.05, or 9.4 percent, to $47; while Bear Stearns was up 36 cents, or 3.4 percent, to $10.85 -- slightly above the $10 per share acquisition price.
UBS, one of Europe's biggest banks, said it will issue up to $15 billion in new stock and that its chairman, Marcel Ospel, had quit. Investors chose to look past the bank's announcement that it will take a fresh $19 billion write-down due to additional declines in the value of its mortgage assets and other credit instruments, following an $18 billion write-down last year. Its shares surged $4.21, or 14.6 percent, to $33.01 in trading on the New York Stock Exchange.
Lehman Brothers, dogged by speculation it might reveal losses big enough to cripple the company, on Tuesday raised $4 billion of capital to stymie questions about its financial stability. Lehman rose $6.70, or 17.8 percent, to $44.34.
The Russell 2000 index of smaller companies rose 22.68, or 3.30 percent, to 710.65.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 4.65 billion shares, compared to 4.02 billion on Monday.
In overseas trade, Tokyo's Nikkei closed up 1.04 percent. There were gains in Europe too, with London's FTSE rising 2.64 percent, Frankfurt's DAX gaining 2.84 percent and Paris' CAC 40 advancing 3.38 percent.
ADVERTISEMENT
Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland's UBS AG issued new shares to help bolster their balance sheets. With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from the nation's credit struggles has been felt. Moreover, the banks' moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.
Analysts believe there must be a recovery in bank and brokerages to lead major stock indexes higher. Some of the biggest financial players had their sharpest moves of the year Tuesday -- Citigroup Inc. shot up 11 percent, JPMorgan Chase & Co. rose 9 percent, and Lehman surged 18 percent.
"Investors have a difficult time making decisions about the stock market if they don't have confidence in major financial institutions, so there's been a lot of sideline cash," said Richard Cripps, chief market strategist for Stifel Nicolaus. "The extreme conditions that we've seen here over the past few months has been missing that confidence ... but that appears to be changing, and we're seeing the response."
Meanwhile, Wall Street got another boost when the Institute for Supply Management said its March index of national manufacturing activity rose to a reading of 48.6 -- indicating a contraction, but a slower one than in February and tamer than many analysts had predicted. Government data on construction spending for February also came in better than expected.
The Dow rose 391.47, or 3.19 percent, to 12,654.36. It marked the eighth-biggest point gain ever for the Dow, and the third time in two weeks it came close to or surpassed 400 points.
Broader stock indicators also gained sharply. The Standard & Poor's 500 index rose 47.48, or 3.59 percent, to 1,370.18 -- the index's best start to a second quarter since 1938. And, the Nasdaq composite index rose 83.65, or 3.67 percent, to 2,362.75.
The advance was in contrast to a lackluster session on Monday, where stocks managed a moderate gain in the final session of a dismal first quarter. Major indexes ended the first three months of 2008 with massive losses, marking the worst period since the third quarter of 2002 when Wall Street was approaching the lowest point of a protracted bear market.
Renewed enthusiasm that the credit crisis might be waning was also felt in the Treasury market, where government securities fell as investors withdrew money to take bets on stocks. The 10-year Treasury note's yield, which moves opposite its price, rose to 3.55 percent from 3.43 percent late Monday. The yield edged up to 3.56 percent in after-hours trading.
In addition to hopes about the financial sector, Wall Street was relieved to see the feeble dollar regain some strength against the euro. The euro fell to $1.5596 from $1.5785 late Monday in New York.
And there was also optimism that commodities prices, which have hit historic highs in recent months, have begun to retreat. Crude fell 60 cents to settle at $100.98 on the New York Mercantile Exchange after earlier falling below $100. Meanwhile, gold dropped back below $900 an ounce.
"This is a nice way to begin the second quarter," said Todd Leone, managing director of equity trading at Cowen & Co. "All the financials are up big, and there's a sense that things are turning. We definitely have not seen the last of the credit crisis, but we're getting closer."
The stock rally was underpinned by the announcements from UBS and Lehman Brothers that they are boosting capital by issuing new stock. Shares of banks and brokerages hovered near multiyear lows in recent months as investors feared heavy losses from investments tied to subprime mortgages would be overwhelming.
Earlier this month, widespread concerns about Bear Stearns' financial position forced the investment bank to sell itself to JPMorgan in a deal engineered by the Federal Reserve -- and that stoked fears that other investment houses might follow.
JPMorgan rose $4.05, or 9.4 percent, to $47; while Bear Stearns was up 36 cents, or 3.4 percent, to $10.85 -- slightly above the $10 per share acquisition price.
UBS, one of Europe's biggest banks, said it will issue up to $15 billion in new stock and that its chairman, Marcel Ospel, had quit. Investors chose to look past the bank's announcement that it will take a fresh $19 billion write-down due to additional declines in the value of its mortgage assets and other credit instruments, following an $18 billion write-down last year. Its shares surged $4.21, or 14.6 percent, to $33.01 in trading on the New York Stock Exchange.
Lehman Brothers, dogged by speculation it might reveal losses big enough to cripple the company, on Tuesday raised $4 billion of capital to stymie questions about its financial stability. Lehman rose $6.70, or 17.8 percent, to $44.34.
The Russell 2000 index of smaller companies rose 22.68, or 3.30 percent, to 710.65.
Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 4.65 billion shares, compared to 4.02 billion on Monday.
In overseas trade, Tokyo's Nikkei closed up 1.04 percent. There were gains in Europe too, with London's FTSE rising 2.64 percent, Frankfurt's DAX gaining 2.84 percent and Paris' CAC 40 advancing 3.38 percent.
Tuesday, April 01, 2008
EVENING UPDATES
- Reliance Money on Tuesday joined hands with Canada's Recognia, a leading provider of technical charts for stocks, that would allow its customers to know if previous patterns indicate a future rise or fall in share prices.
- Public sector oil firms on Tuesday raised aviation turbine fuel (jet fuel) prices by over 13 per cent in step with rise in international oil prices.
- Finance minister P. Chidambaram has approved a Bill which comes into effect on 01.04.2008 and it states that all Privately Held companies need to give a minimum salary increment of 15% to all employees every six months.
- Gold fell to a six-week low level below Rs 12,000 to Rs 11,830 per 10 grams on the bullion market on Tuesday on heavy selling by stockists influenced by a weakening trend in global markets.
- GAIL India has entered into a contract with the consortia of Reliance Industries, BG Group of UK and Oil & Natural Gas Corporation (the co-ventures of the PMT fields in western offshore) for buying the entire quantity of 17.3 million metric standard cubic meter per day.
- The Ministry of New and Renewable Energy has submitted for approval, the draft terms of reference and composition of the proposed National Biofuel Development Board to foster use of clean fuel in the country.
- Commerce Secretary, GK Pillai says, steel prices should come down by 10-20%. He says the government wants steel producers to bring down prices on their own; otherwise the government will have to act on its own.
CORPORATE ANNOUNCEMENT
Nissan Copper to increase borrowing limits (1-Apr, 17:40 Hrs IST)
SREI Infrastructure Finance allots equity shares (1-Apr, 17:37 Hrs IST)
Reliance Industries announces second gas discovery in deepwater exploration block (1-Apr, 17:23 Hrs IST)
Hazoor Multi Projects to convene board meeting (1-Apr, 17:10 Hrs IST)
Mediaone Global Entertainment to convene board meeting (1-Apr, 16:55 Hrs IST)
Mcleod Russel India's director resigns (1-Apr, 16:20 Hrs IST)
United Phosphorus allots equity shares (1-Apr, 16:17 Hrs IST)
SEL Manufacturing Company's director resigns (1-Apr, 15:48 Hrs IST)
GAIL signs short term-sheet with Gujarat State Petroleum (1-Apr, 15:30 Hrs IST)
Simplex Trading & Agencies' director resigns (1-Apr, 15:25 Hrs IST)
Shiv Vani Oil & Gas Exploration Services allots warrants (1-Apr, 15:18 Hrs IST)
Heritage Foods India commissions six more retail stores (1-Apr, 15:05 Hrs IST)
DCM Shriram Industries allots equity shares (1-Apr, 15:02 Hrs IST)
Sudal Industries to convene board meeting (1-Apr, 15:00 Hrs IST)
Gruh Finance to announce financial results (1-Apr, 14:57 Hrs IST)
Cera Sanitaryware to convene board meeting (1-Apr, 14:54 Hrs IST)
Accentia Technologies acquires 51% stake in Oak Technologies Inc USA (1-Apr, 14:50 Hrs IST)
India March manufacturing growth at 8-mth low
Indian manufacturing activity grew at its slowest pace in eight months in March, slipping further from its peak in December as consumer demand softened due to high interest rates, a survey showed on Tuesday.
The ABN AMRO Bank purchasing managers' index (PMI) softened to a seasonally adjusted 57.5 in March, its lowest reading since July, from 59.5 in February and below December's 61.9, which was the highest reading since the survey began in April 2005.
A reading above 50 signals expansion while readings below 50 suggest contraction.
The index reflects government data, which has shown annual industrial output growth slowing in recent months from double-digit rates at the start of the fiscal year in April 2007.
The PMI, compiled by UK-based NTC research and sponsored by the Dutch bank, tracks changes in manufacturing business conditions by polling 500 companies each month on output, new orders, employment and prices.
Inflation, including higher prices for raw materials, lower export orders and a slump in consumer demand have depressed manufacturing output in recent months.
The output index fell to an eight-month low of 60.3 in March from 62.2 in February. The new orders index eased to an eight-month low of 64.0 in March from 68.4 in February.
The export index dropped to an eight-month low of 53.0 in March from 55.7 in February.
The input price index fell to 53.8 in March from 57.5 in February, and factory-gate prices fell to an eight-month low of 51.7 in March from 54.2 in February.
In contrast, government data on Friday showed wholesale price inflation soared to a 14-month high of 6.68 percent in the middle of March, well above the central bank's comfort zone of around 5 percent.
Most forecasters expect India's economic growth to have slowed in the fiscal year that ended on Monday from the year-earlier pace of 9.6 percent, which was the strongest growth in 18 years.
The central bank has kept its main lending rate unchanged at 7.75 percent for a year, having raised it five times between June 2006 and March 2007. It also raised the proportion of cash that banks have to keep in reserve with the central bank to keep monetary conditions tight.
The ABN AMRO Bank purchasing managers' index (PMI) softened to a seasonally adjusted 57.5 in March, its lowest reading since July, from 59.5 in February and below December's 61.9, which was the highest reading since the survey began in April 2005.
A reading above 50 signals expansion while readings below 50 suggest contraction.
The index reflects government data, which has shown annual industrial output growth slowing in recent months from double-digit rates at the start of the fiscal year in April 2007.
The PMI, compiled by UK-based NTC research and sponsored by the Dutch bank, tracks changes in manufacturing business conditions by polling 500 companies each month on output, new orders, employment and prices.
Inflation, including higher prices for raw materials, lower export orders and a slump in consumer demand have depressed manufacturing output in recent months.
The output index fell to an eight-month low of 60.3 in March from 62.2 in February. The new orders index eased to an eight-month low of 64.0 in March from 68.4 in February.
The export index dropped to an eight-month low of 53.0 in March from 55.7 in February.
The input price index fell to 53.8 in March from 57.5 in February, and factory-gate prices fell to an eight-month low of 51.7 in March from 54.2 in February.
In contrast, government data on Friday showed wholesale price inflation soared to a 14-month high of 6.68 percent in the middle of March, well above the central bank's comfort zone of around 5 percent.
Most forecasters expect India's economic growth to have slowed in the fiscal year that ended on Monday from the year-earlier pace of 9.6 percent, which was the strongest growth in 18 years.
The central bank has kept its main lending rate unchanged at 7.75 percent for a year, having raised it five times between June 2006 and March 2007. It also raised the proportion of cash that banks have to keep in reserve with the central bank to keep monetary conditions tight.
India cuts duties, bans rice exports to ease prices
India on Monday scrapped import duties on crude edible oils and banned exports of non-basmati rice amid a raft of measures to stem rising inflation, which hit a 14-month high in mid-March and has alarmed policymakers.
Surging prices of essentials such as wheat, sugar, edible oils and steel have drawn howls of protest from the government's communist allies as well as the main opposition Bharatiya Janata Party.
Many of the drivers -- rising demand in developing nations, severe weather, biofuel production, hot commodity markets -- are global, but for India's governing coalition the headaches are very much local with nearly a dozen states going to the polls this year and general elections due by May 2009.
After four hours of debate with ministerial colleagues, Finance Minister Palaniappan Chidambaram said import duty on all edible oil in crude form would be slashed to zero percent with immediate effect.
Duty on maize imports was cut to zero from 15 percent, while a ban on exports of pulses was extended for 12 months. All exports of non-basmati rice had to stop, the minister said.
While the cabinet committee on prices deferred a decision on tackling steel and iron ore prices as the steel minister was overseas, the minister cautioned firms not to hike rates.
"There are some reports that steel producers are planning to raise prices. I would on behalf of the government advise them to observe restraint," Chidambaram told reporters.
Hours before the ministers met, Reserve Bank of India Governor Y.V. Reddy told reporters in Mumbai that he was ready to act against what he described as "unacceptably" high inflation if necessary, but any steps needed careful thought.
LIMITED OPTIONS
Indian bond yields rose to their highest in more than five months on Monday on expectations a surge in inflation will lead to a monetary policy response from the central bank.
Before the latest fiscal moves, commentators said monetary policy tools could also work to an extent but tackling food price inflation required a long-term strategy while the politics demanded a quick fix.
"I think they have not realised the enormity of food price inflation. It affects landless labourers, the urban poor and the middle class," said political analyst Mahesh Rangarajan.
"For the Congress party, food price inflation could put a dampener on the farm loan waiver. It's a very serious issue."
The Congress party-led government made a $15 billion scheme to write off the debts of millions of small farmers the centrepiece of its budget presented late in February.
Chidambaram said on Friday the government was determined to take all measures including fiscal, monetary and supply side moves, to moderate inflation, and was ready to accept lower growth to trim prices.
Annual wholesale inflation -- the most widely watched measure -- jumped to 6.68 percent in mid March, largely driven by foods and manufactured product prices and economists expect it to remain high for a few months.
ALLIES PILE PRESSURE
The government's communist allies, who provide the government with a parliamentary majority from outside the coalition, on Sunday stepped up the pressure, setting an April 15 deadline for it to begin steps to bring down prices or face protests.
In recent weeks, the authorities had already cut import duty on palm oil, banned exports of edible oils, and scrapped tax refund schemes for exports of steel and cement.
Rice imports had been made cheaper through duty cuts and exports had already been severely curbed.
With polls looming and leftist allies on the attack while growth is already showing signs of moderating, analysts say the government is likely to continue to use fiscal steps ahead.
"From a political perspective, food inflation matters more than non-food inflation to voters and the government is likely to continue resorting to fiscal measures, including increased subsidies to check food inflation," Rajeev Malik, analyst at JPMorgan, wrote in a recent research report.
"A hike in policy rates cannot be completely ruled out but the central bank is likely to favour tightening liquidity conditions before considering the option to hike rates."
The central bank has kept its repo rate, through which it infuses funds into the banking system, at 7.75 percent for the past 12 months, its highest rate since November 2002.
Surging prices of essentials such as wheat, sugar, edible oils and steel have drawn howls of protest from the government's communist allies as well as the main opposition Bharatiya Janata Party.
Many of the drivers -- rising demand in developing nations, severe weather, biofuel production, hot commodity markets -- are global, but for India's governing coalition the headaches are very much local with nearly a dozen states going to the polls this year and general elections due by May 2009.
After four hours of debate with ministerial colleagues, Finance Minister Palaniappan Chidambaram said import duty on all edible oil in crude form would be slashed to zero percent with immediate effect.
Duty on maize imports was cut to zero from 15 percent, while a ban on exports of pulses was extended for 12 months. All exports of non-basmati rice had to stop, the minister said.
While the cabinet committee on prices deferred a decision on tackling steel and iron ore prices as the steel minister was overseas, the minister cautioned firms not to hike rates.
"There are some reports that steel producers are planning to raise prices. I would on behalf of the government advise them to observe restraint," Chidambaram told reporters.
Hours before the ministers met, Reserve Bank of India Governor Y.V. Reddy told reporters in Mumbai that he was ready to act against what he described as "unacceptably" high inflation if necessary, but any steps needed careful thought.
LIMITED OPTIONS
Indian bond yields rose to their highest in more than five months on Monday on expectations a surge in inflation will lead to a monetary policy response from the central bank.
Before the latest fiscal moves, commentators said monetary policy tools could also work to an extent but tackling food price inflation required a long-term strategy while the politics demanded a quick fix.
"I think they have not realised the enormity of food price inflation. It affects landless labourers, the urban poor and the middle class," said political analyst Mahesh Rangarajan.
"For the Congress party, food price inflation could put a dampener on the farm loan waiver. It's a very serious issue."
The Congress party-led government made a $15 billion scheme to write off the debts of millions of small farmers the centrepiece of its budget presented late in February.
Chidambaram said on Friday the government was determined to take all measures including fiscal, monetary and supply side moves, to moderate inflation, and was ready to accept lower growth to trim prices.
Annual wholesale inflation -- the most widely watched measure -- jumped to 6.68 percent in mid March, largely driven by foods and manufactured product prices and economists expect it to remain high for a few months.
ALLIES PILE PRESSURE
The government's communist allies, who provide the government with a parliamentary majority from outside the coalition, on Sunday stepped up the pressure, setting an April 15 deadline for it to begin steps to bring down prices or face protests.
In recent weeks, the authorities had already cut import duty on palm oil, banned exports of edible oils, and scrapped tax refund schemes for exports of steel and cement.
Rice imports had been made cheaper through duty cuts and exports had already been severely curbed.
With polls looming and leftist allies on the attack while growth is already showing signs of moderating, analysts say the government is likely to continue to use fiscal steps ahead.
"From a political perspective, food inflation matters more than non-food inflation to voters and the government is likely to continue resorting to fiscal measures, including increased subsidies to check food inflation," Rajeev Malik, analyst at JPMorgan, wrote in a recent research report.
"A hike in policy rates cannot be completely ruled out but the central bank is likely to favour tightening liquidity conditions before considering the option to hike rates."
The central bank has kept its repo rate, through which it infuses funds into the banking system, at 7.75 percent for the past 12 months, its highest rate since November 2002.
East Asia faces uncertainty, slower 2008: World Bank
East Asia faces challenging times in 2008 as falling exports and reduced business spending result in slower economic growth at a time when rising food prices push up inflation rates, the World Bank said. In its semi-annual report released on Tuesday, the World Bank predicted 7.3 percent growth for East Asia, excluding Japan. Developing Asia, which also excludes Singapore, Hong Kong, South Korea and Taiwan, would expand 8.6 percent, which will be its lowest growth rate since 2002, and down from 10.2 percent in 2007, the fastest pace since the early 1990s. Given the high level of uncertainty about the global outlook, spawned by the U.S. subprime mortgage financial turmoil, the World Bank said it was assuming a range of outcomes for the external environment in making these forecasts. It assumes the U.S. economy could grow anywhere between 0.5 and 1.4 percent this year, down from 2.2 percent in 2007. The Eurozone could see growth in a 1.3-1.7 percent range, compared with 2.7 percent in 2007. The World Bank predicts China's growth would dip below 10 percent in 2008 after five years of double-digit rates. "The near-term outlook for the region will depend to a large extent on the robustness of domestic demand in the face of slowing exports," the World Bank said. Exports to markets outside the United States and domestic demand had propped up Asia in the latter half of 2007, it said. Private consumer spending picked up and business spending was strong in China, Indonesia and Vietnam. While business investment spending could slow this year, it could prove more resilient than in the 2001 recession, due to higher levels of capacity utilisation and stronger corporate balance sheets, it said. Moreover, domestic banks appeared to have had minor exposure to the subprime mortgage crisis and credit flows remained healthy despite the volatility in equity and bond markets. "Current account surpluses and large foreign reserves should provide a buffer that will enable economies to accommodate volatility in international capital flows without forcing the kinds of sudden large adjustments in domestic demand that became inevitable during the 1997-98 financial crises," the bank said. It said that in 2007, net current account surpluses totaled close to 9 percent of regional GDP, while net capital inflows were worth an additional percentage point of regional GDP. Limited spillover The World Bank said Asia's export growth seemed to be either gradually easing, or even recovering in parts, unlike in 2001 when a U.S. downturn caused export momentum to plunge, and that supported the case for a soft landing for the region. While regional equity markets had succumbed to the risk aversion and financial turbulence in U.S. markets and offshore financing costs had increased, domestic credit terms remained unaffected, it said. Exports to the United States as a share of East Asia's purely extra-regional exports have fallen from 34 percent in 1999 to 29 percent in 2006, it said. "Nevertheless, past experience shows that underlying deterioration in bank asset quality can remain obscured during a period of fast growth such as East Asia has experienced in recent years," it warned. It also said the spillovers from the credit market turmoil onto the East Asian financial sector would need to be closely monitored and re-evaluated as the turmoil intensifies and spreads to an increasingly wider classes of assets. Inflation risks But the bigger challenge for Asia would be managing rising inflation in economies already showing signs of over-heating and excessively rapid credit growth, the World Bank said. Rising food and fuel prices have driven inflation to a 26-year high in Singapore, nearly 14-month high in India and highest in more than a decade in Hong Kong and China. The World Bank said Asia needed to continue its move towards more flexible exchange rates, so it can make better use of monetary policy to tackle inflationary pressures. But it also warned that food comprised a larger share of consumption in developing countries than in the developed world. In East Asia, that ranges between 31 and 50 percent, it said. "Other things being equal, the surge in food prices is therefore likely to increase poverty in the low and lower middle income countries of the region, although against that must be set the poverty reducing impact of continued robust economic growth."
Japan business sentiment hits 4-year low - tankan
Business sentiment among big Japanese manufacturers has sunk to a four-year low, a Bank of Japan survey showed on Tuesday, further evidence of a worsening economic outlook and reinforcing market speculation that the central bank may cut rates later in the year.
Worries about the global credit crunch, rising raw material costs, fragile share prices and a stronger yen contributed to weaker confidence, and the outlook for the coming quarter was even bleaker.
Eroding optimism also led to the weakest capital spending plans by large firms in six years. Economists warned that companies were underestimating the effect of a stronger yen, suggesting further profit and capital spending downgrades.
"The BOJ faces a difficult situation, with a growth slowdown coming at a time when consumer prices are rising," said Joseph Kraft, managing director at Japanese Capital Markets at Dresdner Kleinwort.
"It's highly likely the BOJ will keep interest rates on hold in coming months, but this tankan suggests the probability may rise for a rate cut before the year-end if data in coming months is weak and back up the deterioration in sentiment."
The BOJ's closely watched tankan quarterly corporate survey showed the headline index of big manufacturers' sentiment fell to plus 11 from plus 19 in the previous survey, and below the market's median forecast of plus 13.
That was the lowest since a reading of plus 7 in December 2003 and the eight-point drop was biggest in three years, but financial markets mostly took the survey in stride.
The yen fell slightly against the dollar after the tankan to trade around 99.80 yen Tokyo stock market's Nikkei average .N225 ignored the survey. It lost 18 percent in January-March, the worst worst quarterly performance since 2001. The outlook for June was plus 7, a sign that big manufacturers expect conditions to worsen. The index is the percentage of firms reporting a favourable business environment minus those reporting unfavourable conditions.
WEAKEST CAPEX PLANS IN 6 YEARS
The tankan, meaning short-term economic outlook, also showed big firms planned to cut capital spending, which has been a key engine for Japan's growth, by 1.6 percent in the business year that started on Tuesday.
That was the bleakest capital spending reading for a March tankan since 2002, although companies tend to be cautious on capital spending at the start of the business year and gradually revise up their plans as the year progresses.
Cabinet ministers stuck to the view that the world's second-largest economy is stalling, and remained cautious.
"I am very worried about declines in capital spending plans, particularly for big manufacturers," Economics Minister Hiroko Ota told a news conference.
"The key to the outlook for Japan's economy is how big and how long the U.S. economic slowdown would be," she said.
Japan's economy grew a surprisingly strong 0.9 percent in the last quarter of 2007, but economists expect growth to slow in 2008 amid fears that the U.S. economy -- Japan's No.2 trading partner after China -- is heading into recession.
Japan's annual inflation hit a decade-high 1.0 percent in February, but that was due to rising oil and food prices and not prompted by an improving economy, giving the central bank the dilemma of dealing with rising prices in a slowing economy.
No rate move is expected by most economists when the BOJ's policy board has its next meeting on April 8-9. Markets expect the central bank to leave interest rates at 0.5 percent for a while, though some see a rate cut on the horizon.
Investors are pricing in a 25 percent chance of a central bank rate cut by June and a 55 percent chance of a cut by the end of the year.
"When the index goes down for two straight quarters, about 80 percent of the time the economy risks tipping into a recession," said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.
The yen has risen about 10 percent against the dollar so far this year. Big manufactures said in the tankan they see the dollar averaging 109.21 yen in fiscal 2008/09, down sharply from their previous outlooks but still putting the yen much weaker than it is trading at currently.
"This indicates ample possibilities for downward revisions in capital spending and earnings outlooks. I worry about the negative implications going forward," Shimamine said.
"But I don't expect a rate cut by the BOJ. They will likely maintain that the current rate level doesn't leave room for a cut and the economy is still generally growing."
Adding to concerns over the murky economic outlook, policy paralysis in parliament has left the central bank without a permanent governor and sparked speculation that Prime Minister Yasuo Fukuda could lose his job.
Worries about the global credit crunch, rising raw material costs, fragile share prices and a stronger yen contributed to weaker confidence, and the outlook for the coming quarter was even bleaker.
Eroding optimism also led to the weakest capital spending plans by large firms in six years. Economists warned that companies were underestimating the effect of a stronger yen, suggesting further profit and capital spending downgrades.
"The BOJ faces a difficult situation, with a growth slowdown coming at a time when consumer prices are rising," said Joseph Kraft, managing director at Japanese Capital Markets at Dresdner Kleinwort.
"It's highly likely the BOJ will keep interest rates on hold in coming months, but this tankan suggests the probability may rise for a rate cut before the year-end if data in coming months is weak and back up the deterioration in sentiment."
The BOJ's closely watched tankan quarterly corporate survey showed the headline index of big manufacturers' sentiment fell to plus 11 from plus 19 in the previous survey, and below the market's median forecast of plus 13.
That was the lowest since a reading of plus 7 in December 2003 and the eight-point drop was biggest in three years, but financial markets mostly took the survey in stride.
The yen fell slightly against the dollar after the tankan to trade around 99.80 yen Tokyo stock market's Nikkei average .N225 ignored the survey. It lost 18 percent in January-March, the worst worst quarterly performance since 2001. The outlook for June was plus 7, a sign that big manufacturers expect conditions to worsen. The index is the percentage of firms reporting a favourable business environment minus those reporting unfavourable conditions.
WEAKEST CAPEX PLANS IN 6 YEARS
The tankan, meaning short-term economic outlook, also showed big firms planned to cut capital spending, which has been a key engine for Japan's growth, by 1.6 percent in the business year that started on Tuesday.
That was the bleakest capital spending reading for a March tankan since 2002, although companies tend to be cautious on capital spending at the start of the business year and gradually revise up their plans as the year progresses.
Cabinet ministers stuck to the view that the world's second-largest economy is stalling, and remained cautious.
"I am very worried about declines in capital spending plans, particularly for big manufacturers," Economics Minister Hiroko Ota told a news conference.
"The key to the outlook for Japan's economy is how big and how long the U.S. economic slowdown would be," she said.
Japan's economy grew a surprisingly strong 0.9 percent in the last quarter of 2007, but economists expect growth to slow in 2008 amid fears that the U.S. economy -- Japan's No.2 trading partner after China -- is heading into recession.
Japan's annual inflation hit a decade-high 1.0 percent in February, but that was due to rising oil and food prices and not prompted by an improving economy, giving the central bank the dilemma of dealing with rising prices in a slowing economy.
No rate move is expected by most economists when the BOJ's policy board has its next meeting on April 8-9. Markets expect the central bank to leave interest rates at 0.5 percent for a while, though some see a rate cut on the horizon.
Investors are pricing in a 25 percent chance of a central bank rate cut by June and a 55 percent chance of a cut by the end of the year.
"When the index goes down for two straight quarters, about 80 percent of the time the economy risks tipping into a recession," said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.
The yen has risen about 10 percent against the dollar so far this year. Big manufactures said in the tankan they see the dollar averaging 109.21 yen in fiscal 2008/09, down sharply from their previous outlooks but still putting the yen much weaker than it is trading at currently.
"This indicates ample possibilities for downward revisions in capital spending and earnings outlooks. I worry about the negative implications going forward," Shimamine said.
"But I don't expect a rate cut by the BOJ. They will likely maintain that the current rate level doesn't leave room for a cut and the economy is still generally growing."
Adding to concerns over the murky economic outlook, policy paralysis in parliament has left the central bank without a permanent governor and sparked speculation that Prime Minister Yasuo Fukuda could lose his job.
Air fares set to rocket as oilcos hike ATF prices by 12-14%
Air travellers will have to shell out more for their tickets, as airlines gear up to hike the fuel surcharge once again. The move follows one of the steepest increases in aviation fuel prices that comes into effect tonight. Oil companies have increased the price of aviation turbine fuel by 12-14% in various cities. Though domestic airlines had not yet decided on the quantum of increase, the fuel surcharge is likely to go up from Rs 1,650 per ticket now to about Rs 2,000, senior airline sources said. In a new development, some airlines like SpiceJet have decided not to pass on the increase uniformly to all passengers. The increase in surcharge for passengers travelling short distances, mostly on ATRs and other smaller aircraft will be between Rs 100 and Rs 150 while the medium and long-haul passengers will pay out Rs 350 to Rs 400 more. Passenger lobby groups have been asking for differential fuel surcharges depending on the distance travelled, for some time now. Airlines have been forced to accede to this, because higher fares have started killing passenger demand, particularly on shorter sectors where train fares are comparable. Growth in passenger demand has come down substantially in the first three months of this year.
Speaking to ET, the SpiceJet CEO Siddhanta Sharma said high air fares could stunt passenger growth, specially among the price-sensitive leisure segment. Fuel surcharge combined with congestion charge now amounts to Rs 1,800 per ticket. The impact is felt most by short haul passengers who could end up paying a surcharge higher than the basic fare. Domestic airlines last increased fuel surcharge in December, after which oil prices had started softening. Though oil companies reduced ATF prices in January and February there was no relief for passengers as airlines did not cut the surcharge. However, oil prices have increased significantly in the past one month, with the Indian crude oil basket breaching the $100/bbl mark. The increase in prices is maximum at India’s busiest airport in Mumbai, where airlines also face high sales tax. The new price for ATF at Mumbai is Rs 55,192 per KL. The minister for civil aviation Praful Patel says has been asking state governments to cut sales tax on aviation fuel. Airlines too have been lobbying for a cut in taxes, as aviation fuel in India now costs about 70% more than in Singapore or Dubai. From the point of view of the oil companies, ATF is one of the few products that they make profits on, since prices are passed on every month to the airlines. They lose money on the bulk of other petroleum products like petrol, diesel, kerosene and LPG.
Speaking to ET, the SpiceJet CEO Siddhanta Sharma said high air fares could stunt passenger growth, specially among the price-sensitive leisure segment. Fuel surcharge combined with congestion charge now amounts to Rs 1,800 per ticket. The impact is felt most by short haul passengers who could end up paying a surcharge higher than the basic fare. Domestic airlines last increased fuel surcharge in December, after which oil prices had started softening. Though oil companies reduced ATF prices in January and February there was no relief for passengers as airlines did not cut the surcharge. However, oil prices have increased significantly in the past one month, with the Indian crude oil basket breaching the $100/bbl mark. The increase in prices is maximum at India’s busiest airport in Mumbai, where airlines also face high sales tax. The new price for ATF at Mumbai is Rs 55,192 per KL. The minister for civil aviation Praful Patel says has been asking state governments to cut sales tax on aviation fuel. Airlines too have been lobbying for a cut in taxes, as aviation fuel in India now costs about 70% more than in Singapore or Dubai. From the point of view of the oil companies, ATF is one of the few products that they make profits on, since prices are passed on every month to the airlines. They lose money on the bulk of other petroleum products like petrol, diesel, kerosene and LPG.
MARKET PREDICTION
GLOBAL MARKETS ARE IN GREEN ITS A JUST RELIEF RALLY ON APRIL FOOL DAY.
MARKET IS FORMING LOWER TOP AND LOWER BOTTOM.
LEVEL FOR NIFTY IS 4600-4680-4730-4800-4910.
TOTAL MARKET ROLLOVER WAS 71% TOTAL OI IS 42K CR AND IT IS CRAWL UPTO 49K CR TILL 31.3.08.
PUTCALL RATIO IS 1.19.
POSITIVE SECTOR FOR THE DAY IF MARKET SUSTAIN ABOVE 4800 IS FMCG BECAUSE OF OI .
IF MARKET DOES NOT SUSTAIN 4750 GO SHORT IN BANKING & FINANCIAL SERVICE.
SEBI GAVE TWO BOUNCER YESTERDAY ONE MINIMUM NETWORTH OF RS 5 L FOR TRADING IN F&O & ADVISORY WOULD BE BANNED .
Brokers shall not executive transactions for own account in securities ahead of making recommendations to their clients in such securities.
HAVE A NICE TRADING DAY.......
MARKET IS FORMING LOWER TOP AND LOWER BOTTOM.
LEVEL FOR NIFTY IS 4600-4680-4730-4800-4910.
TOTAL MARKET ROLLOVER WAS 71% TOTAL OI IS 42K CR AND IT IS CRAWL UPTO 49K CR TILL 31.3.08.
PUTCALL RATIO IS 1.19.
POSITIVE SECTOR FOR THE DAY IF MARKET SUSTAIN ABOVE 4800 IS FMCG BECAUSE OF OI .
IF MARKET DOES NOT SUSTAIN 4750 GO SHORT IN BANKING & FINANCIAL SERVICE.
SEBI GAVE TWO BOUNCER YESTERDAY ONE MINIMUM NETWORTH OF RS 5 L FOR TRADING IN F&O & ADVISORY WOULD BE BANNED .
Brokers shall not executive transactions for own account in securities ahead of making recommendations to their clients in such securities.
HAVE A NICE TRADING DAY.......
- BY MR. SAM
State Bank completes acquisition of GTF
Country's largest lender State Bank of India on Monday said it has completed the acquisition of leading factoring firm Global Trade Finance (GTF). SBI had sealed the deal in January-end by picking up a 91 per cent stake in GTF for about Rs 525 crore. The bank acquired the stake from three promoters of GTF -- Export-Import Bank of India (40 per cent), International Finance Corporation (12.5 per cent) and Fim Bank Malta (38.5 per cent) while the remaining nine per cent is being held by Bank of Maharashtra. Global Trade is one of the country's biggest players with a marketshare of close to 40 per cent. SBI is already present in the factoring business through its company, SBI Factors and Commercial Services, in which it is the majority stakeholder. With this acquisition, SBI's marketshare increases substantially. "This acquisition is a part of SBI's overall strategy to be able to offer a full bouquet of services to its very large and diverse client base," SBI said in a release issued today. While SBI Factors, the first factoring company in the country, has been mainly focusing on domestic factoring, Global Trade has been extending export factoring services to its customers and is the largest export factor in the country. Following the acquisition, "State Bank expects both companies to complement each other and help SBI to consolidate its leadership in both SME business and export financing, where State Bank has traditionally had a strong presence," the release stated. The public sector lender said its strong domestic and international presence combined with its high brand equity were "expected to benefit the newly-acquired company."
NEWS UPDATES
- The Steel Authority of India is scouting for fluxes mines to meet the requirement of the company, which is slated to produce 26 million tons of hot metal by 2010-11.
- The board of directors of IL&FS Investment Managers, at its meeting held on Apr. 01, 2008, approved the issue of bonus shares in the ratio of 1 equity share for every 2 shares held.
- Investors mostly got a raw deal from the stock Markets, with as many as 1,000 Companies, including top five IT firms Infosys, TCS, Wipro, Satyam and HCL Tech, collectively losing over Rs 2,50,000 crore in market value in 2007-08.
- Essel Propack buys US medical devices firm.
- The Reserve Bank is likely to tighten money supply in its annual credit policy on April 29 to rein in inflation, but the move may not push interest rates up because of huge liquidity in the banking system.
- Reliance Petroleum (RPL) will raise USD 500 million and has roped in a consortium of six international banks for the same.
- Aptech has disclosed a phenomenal jump in net profits for the year ended in December 2007. During the quarter, the company swung to the profits of Rs 24.60 million from net loss of Rs 66.60 million in the year ended December 2006.
- Swiss bank UBS AG says it expects to post first quarter net losses of $12 billion and to seek $15 billion in new capital.Switzerland's largest bank also said in a statement Tuesday that it sees losses and writedowns of approximately $19 billion on U.S. real estate and related credit positions. Its chairman Marcel Ospel will step down, to be succeeded by Peter Kurer.
- Global Internet firm AOL's call centre facility in Bangalore has been acquired by Aegis BPO Services - an Essar group company. The value of the deal has not been disclosed by the companies. Industry sources, however, peg it around $30 million (Rs 120 crore).
- BSE to launch Sensex futures on US bourse: Report
- India ranks 44th in most-preferred retail locations list: Report
- Tata Motors to invest Rs 6K cr in Pune, M&M readies Rs 1,500 cr for Chakan
- Ferrari may drive into India in 2010
- Barclays to set up private bank in India
China CLSA Purchasing Managers' Index Rises to 54.4
China's manufacturing activity expanded at the quickest pace in five months as output and domestic orders increased, according to a survey by CLSA Asia- Pacific Markets.
The Purchasing Managers' Index rose to 54.4 in March from 52.8 in February, CLSA said today in an e-mailed statement. A separate report, published jointly by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, also showed a higher reading.
Rising domestic consumption may help the world's fastest- growing major economy weather a slowdown in exports as the global economy cools. Retail sales increased at the quickest pace in at least nine years in January and February.
``Chinese manufacturing is revealed to be growing rapidly, mainly due to the strength of orders from the domestic economy,'' said Eric Fishwick, head of economic research at CLSA in Singapore.
The worst snowstorms in half a century disrupted activity in January and February.
The CLSA index is based on replies to questionnaires sent to purchasing executives at more than 400 industrial companies. The survey tracks changes in output, new orders, employment, prices, inventories and delivery times. The data is seasonally adjusted.
``It was the insight into inflationary pressures that was most valuable,'' said Fishwick. ``And worryingly, input, output and export price indices all hit record highs in March.''
China's inflation surged to an 11-year high of 8.7 percent in February.
The output index rose to 55.6 in March from 53.2 in February, while the index of new orders climbed to 57.8 from 55.1. The index of export orders fell to 50.9 from 51.9.
A reading above 50 indicates an expansion and a reading below 50 a contraction.
The Purchasing Managers' Index rose to 54.4 in March from 52.8 in February, CLSA said today in an e-mailed statement. A separate report, published jointly by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, also showed a higher reading.
Rising domestic consumption may help the world's fastest- growing major economy weather a slowdown in exports as the global economy cools. Retail sales increased at the quickest pace in at least nine years in January and February.
``Chinese manufacturing is revealed to be growing rapidly, mainly due to the strength of orders from the domestic economy,'' said Eric Fishwick, head of economic research at CLSA in Singapore.
The worst snowstorms in half a century disrupted activity in January and February.
The CLSA index is based on replies to questionnaires sent to purchasing executives at more than 400 industrial companies. The survey tracks changes in output, new orders, employment, prices, inventories and delivery times. The data is seasonally adjusted.
``It was the insight into inflationary pressures that was most valuable,'' said Fishwick. ``And worryingly, input, output and export price indices all hit record highs in March.''
China's inflation surged to an 11-year high of 8.7 percent in February.
The output index rose to 55.6 in March from 53.2 in February, while the index of new orders climbed to 57.8 from 55.1. The index of export orders fell to 50.9 from 51.9.
A reading above 50 indicates an expansion and a reading below 50 a contraction.
Monday, March 31, 2008
India exports to touch $ 200 bn: CII survey
India’s exports is likely to achieve twenty percent growth for the 2004-09 periods and expected to touch $200 billion by next year, said a CII Survey. However, the CEO survey conducted by the CII on Foreign Trade Policy said it required government support through tax refund schemes to achieve this feat. The survey said, to sustain the growth of exports, government should continue tax refund schemes such as Duty Entitlement Pass Book , Export Promotion Capital Goods ,Duty Free Import Authorization in the next fiscal as well. The survey said exporters are looking for new export promotion schemes from the annual supplement, to be announced on April 7. The new scheme would help exporters in getting raw material at cheaper cost and make the Indian products more competitive in the international markets, it added. The CEOs said the government should further simplify export and import procedures for small and medium enterprises, which contribute a large portion of total exports from the country. The powers of regional and zonal offices of Directorate General of Foreign Trade Policy (DGFT) should be enhanced to ensure quick approvals to exporters. Currently, the cases are sent to the Head Office of DGFT in New Delhi for approval, they said. The CEOs suggested implementing Electronic Data Interchange (EDI) across all ports, besides improving infrastructure, road linkages with ports and setting a target of a maximum of 10 hours turnaround time at ports for all goods by 2010. They said the benefits should be provided to exporters as the Indian products such as capital goods, high-tech and healthcare products, medical equipments, automobile and information technology are facing intense competition from China, Brazil, France, Bangladesh and ASEAN countries. In addition, the participants said the government should set up a mechanism to control increase in sea freight, as there is a 61 per cent increase in the cost in last one year, making exports uncompetitive.
'Kyoto II' climate talks open in Bangkok
The first formal talks in the long process of drawing up a replacement for the Kyoto climate change pact opened in Thailand on Monday with appeals to a common human purpose to defeat global warming.
"The world is waiting for a solution that is long-term and economically viable," U.N. Secretary-General Ban Ki Moon said in a video address to the 1,000 delegates from 190 nations gathered in Bangkok.
The week-long meeting stems from a breakthrough agreement in Bali last year to start negotiations to replace Kyoto, which only binds 37 rich nations to cut emissions of greenhouse gases by an average of five percent from 1990 levels by 2012.
U.N. climate experts want the new pact to impose curbs on all countries, although there is wide disagreement about how to share the burden between rich nations led by the United States and developing countries such as China and India.
No major decisions are likely from the Bangkok talks, which are intended mainly to establish a timetable for more rounds of talks culminating in a United Nations Climate Change conference in Copenhagen at the end of next year.
"We see this as very much a process-oriented meeting," chief U.S. climate negotiator Harland Watson told reporters before the opening ceremony.
However, environmental groups are keeping a close eye on Bangkok for signs of sustained commitment by rich and poor countries alike to minimising global warming by curbing emissions of greenhouse gases such as carbon dioxide.
"It's the first test of whether the goodwill and good intentions that were present in Bali are still there when they they get down to the hard negotiations," said Angela Anderson of the Washington-based Pew Environment Group.
TOUGH TALKS
Although the negotiations are likely to be tough and tortuous, a series of U.N. climate change reports last year highlighted the need to curb global warming.
One report in particular said it was more than 90 percent certain that human actions -- mainly burning fossil fuels -- were to blame for changes to the weather system that will bring more heatwaves, droughts, storms and rising seas.
One major issue to be tackled is the reluctance of big developing nations such as India and China to agree to any measures that might curb their rapid industrialisation.
Negotiators will also have to work out how to deal with the United States -- the only rich nation not to have signed up to Kyoto -- given that President George W. Bush will be leaving the White House after November's election.
Bush pulled the United States out of Kyoto in 2001, saying the pact would hurt the economy and was unfair since it excluded big developing nations from committing to emissions cuts.
The White House has since moderated its stance by saying it would accept emissions targets if all other big emitters do as well based on their individual circumstances.
This has tempered criticism, but green groups and many poorer nations say they don't expect much progress on a replacement climate pact until a new U.S. administration takes office in January 2009.
All three main presidential candidates are greener than Bush and back a cap-and-trade system to encourage business to curb carbon emissions.
The United Nations wants the new treaty to be in place by the end of 2009 to give companies and investors as much advance knowledge as possible of coming changes, and national parliaments time to ratify it before 2012, when Kyoto expires.
"The world is waiting for a solution that is long-term and economically viable," U.N. Secretary-General Ban Ki Moon said in a video address to the 1,000 delegates from 190 nations gathered in Bangkok.
The week-long meeting stems from a breakthrough agreement in Bali last year to start negotiations to replace Kyoto, which only binds 37 rich nations to cut emissions of greenhouse gases by an average of five percent from 1990 levels by 2012.
U.N. climate experts want the new pact to impose curbs on all countries, although there is wide disagreement about how to share the burden between rich nations led by the United States and developing countries such as China and India.
No major decisions are likely from the Bangkok talks, which are intended mainly to establish a timetable for more rounds of talks culminating in a United Nations Climate Change conference in Copenhagen at the end of next year.
"We see this as very much a process-oriented meeting," chief U.S. climate negotiator Harland Watson told reporters before the opening ceremony.
However, environmental groups are keeping a close eye on Bangkok for signs of sustained commitment by rich and poor countries alike to minimising global warming by curbing emissions of greenhouse gases such as carbon dioxide.
"It's the first test of whether the goodwill and good intentions that were present in Bali are still there when they they get down to the hard negotiations," said Angela Anderson of the Washington-based Pew Environment Group.
TOUGH TALKS
Although the negotiations are likely to be tough and tortuous, a series of U.N. climate change reports last year highlighted the need to curb global warming.
One report in particular said it was more than 90 percent certain that human actions -- mainly burning fossil fuels -- were to blame for changes to the weather system that will bring more heatwaves, droughts, storms and rising seas.
One major issue to be tackled is the reluctance of big developing nations such as India and China to agree to any measures that might curb their rapid industrialisation.
Negotiators will also have to work out how to deal with the United States -- the only rich nation not to have signed up to Kyoto -- given that President George W. Bush will be leaving the White House after November's election.
Bush pulled the United States out of Kyoto in 2001, saying the pact would hurt the economy and was unfair since it excluded big developing nations from committing to emissions cuts.
The White House has since moderated its stance by saying it would accept emissions targets if all other big emitters do as well based on their individual circumstances.
This has tempered criticism, but green groups and many poorer nations say they don't expect much progress on a replacement climate pact until a new U.S. administration takes office in January 2009.
All three main presidential candidates are greener than Bush and back a cap-and-trade system to encourage business to curb carbon emissions.
The United Nations wants the new treaty to be in place by the end of 2009 to give companies and investors as much advance knowledge as possible of coming changes, and national parliaments time to ratify it before 2012, when Kyoto expires.
Basel II comes into play on banks
Several frontline banks will be gearing up to face the challenge of conforming to tougher global banking standards from Monday under Basel II.
Basel II, which was conceived in June 2004, seeks to create an international standard that banking regulators can use to determine how much capital banks should set aside to cover their operational and financial risks.
The Basel II standards require banks to allocate capital in different proportions against various risks.
The Reserve Bank of India has decided to implement the new standards in phases. Domestic banks which have branches overseas will have to comply with the new capital adequacy standards by March 31.
The deadline for compliance with Basel II standards in the case of the remaining commercial banks is March 31 next year.
The State Bank of India (SBI), the Bank of Baroda (BoB), the Bank of India, Indian Bank and ICICI Bank will be among the first entities that will have to meet the new standards. All of them have high capital adequacy ratios under Basel I and are not expected to have any trouble in complying with the new standards.
In fact, it might be easier for them to do so as the Reserve Bank has lowered the risk weightages on some categories of loans — residential housing and education — from 125 per cent to 75 per cent under Basel II.
The banks will have to adopt the standard approach for credit risk and the basic indicator approach to operational risk while computing their capital requirements under the new framework.
In the standard approach, credit risk is measured on ratings given by an external credit rating agency. This is different from the earlier approach where there was a single risk weight of 100 per cent for all corporate loans, irrespective of their ratings.
Thus, if it was a AAA rated company or a firm with a much lower rating, banks had to allocate Rs 9 as capital (capital adequacy ratio of 9 per cent and the 100 per cent risk weight) for every Rs 100 lent.
Under the new regime, capital allocated will vary with the risk involved or the rating assigned. In the case of a corporate with a triple A rating, the risk weightage is only 20 per cent and the allocation of capital is lower.
So, if a bank lends Rs 100 to such a company, the capital allocated will be only Rs 1.80 (20 per cent of Rs 9).
This capital will progressively rise to Rs 13.50 in the case of a lowest rated company as the risk weightage in this case is 150 per cent. The risk weightage for unrated loans will be at 100 per cent.
While banks are already asking top companies to get rated, the BoB, the SBI and the three others are already Basel-II compliant.
It is estimated that in the past few months, more than 300 companies, ranging from leading firms such as Reliance Industries to other small and medium enterprises, have got themselves rated.
“We have rated more than 100 companies,” said a senior official from rating agency Crisil. Over the next few months, many more companies will get rated.
In the meantime, banks which have to comply with the new norms from next year have already entered into bilateral arrangements with various credit rating agencies to rate their corporate clients.
The basic indicator approach to operational risk requires banks to hold capital that is equal to the average of the 15 per cent annual gross income over the past three years. Gross income includes net interest income and non-interest income.
To comply with this additional capital requirement, banks had tapped the markets with follow-on offerings and other instruments to raise funds.
Basel II, which was conceived in June 2004, seeks to create an international standard that banking regulators can use to determine how much capital banks should set aside to cover their operational and financial risks.
The Basel II standards require banks to allocate capital in different proportions against various risks.
The Reserve Bank of India has decided to implement the new standards in phases. Domestic banks which have branches overseas will have to comply with the new capital adequacy standards by March 31.
The deadline for compliance with Basel II standards in the case of the remaining commercial banks is March 31 next year.
The State Bank of India (SBI), the Bank of Baroda (BoB), the Bank of India, Indian Bank and ICICI Bank will be among the first entities that will have to meet the new standards. All of them have high capital adequacy ratios under Basel I and are not expected to have any trouble in complying with the new standards.
In fact, it might be easier for them to do so as the Reserve Bank has lowered the risk weightages on some categories of loans — residential housing and education — from 125 per cent to 75 per cent under Basel II.
The banks will have to adopt the standard approach for credit risk and the basic indicator approach to operational risk while computing their capital requirements under the new framework.
In the standard approach, credit risk is measured on ratings given by an external credit rating agency. This is different from the earlier approach where there was a single risk weight of 100 per cent for all corporate loans, irrespective of their ratings.
Thus, if it was a AAA rated company or a firm with a much lower rating, banks had to allocate Rs 9 as capital (capital adequacy ratio of 9 per cent and the 100 per cent risk weight) for every Rs 100 lent.
Under the new regime, capital allocated will vary with the risk involved or the rating assigned. In the case of a corporate with a triple A rating, the risk weightage is only 20 per cent and the allocation of capital is lower.
So, if a bank lends Rs 100 to such a company, the capital allocated will be only Rs 1.80 (20 per cent of Rs 9).
This capital will progressively rise to Rs 13.50 in the case of a lowest rated company as the risk weightage in this case is 150 per cent. The risk weightage for unrated loans will be at 100 per cent.
While banks are already asking top companies to get rated, the BoB, the SBI and the three others are already Basel-II compliant.
It is estimated that in the past few months, more than 300 companies, ranging from leading firms such as Reliance Industries to other small and medium enterprises, have got themselves rated.
“We have rated more than 100 companies,” said a senior official from rating agency Crisil. Over the next few months, many more companies will get rated.
In the meantime, banks which have to comply with the new norms from next year have already entered into bilateral arrangements with various credit rating agencies to rate their corporate clients.
The basic indicator approach to operational risk requires banks to hold capital that is equal to the average of the 15 per cent annual gross income over the past three years. Gross income includes net interest income and non-interest income.
To comply with this additional capital requirement, banks had tapped the markets with follow-on offerings and other instruments to raise funds.
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