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Tuesday, September 30, 2008

Q2 results may be worse than expected: Vallabh Bhansali

Vallabh Bhansali, Chairman of Enam Financial, expects Q2 results to be poorer than what most people thought. �We have not faced times like this. Some of this panic can be seen as warranted and also unwarranted. These are uncertain times which we must navigate calmly and quietly.�

Here is a verbatim transcript of the exclusive interview with Vallabh Bhansali on CNBC-TV18. Also watch the accompanying video.

Q: Lowest levels of 2008 and across the length and breadth of the market there is deep sense of gloom, what is your take of how we fare during trade today?

 

A:  Times are extraordinary and uncertain. Markets are reacting to that.

 

Q: Do you expect more pain on the global markets front and the way the changes on Wall Street have been impacting India?

 

A: Times are definitely very uncertain. We have not faced times like this. People do not have right data at this point in time to deal with. So, some of this panic can be seen as warranted and unwarranted. But there is no getting away from the uncertainty of times.

 

Q: Global cues aside, are there any domestic triggers that you think could help shake these markets out of morbidity?

 

A: Our markets are sharply down, prices are down way below indices. Therefore to think that prices will keep falling to zero is quite silly. This is not the time to sell family jewels. It is time to hold some cash so that one does not feel an emergency. What has happened in Wall Street is not due to lack of assets but it is because of lack of liquidity. So, those who do not have any liquidity must have liquidity and this is not the time to sell family jewels. These are uncertain times, which we must navigate calmly and quietly.

 

All central banks will want to come together because they realized that rumours can kill the markets much more than reality. As they come together, they will also have the benefit of US learning of how you can get it wrong and it is more important to be proactive rather than reactive.

 

So, a lot of countries and central banks which do not have the same problems as US domestic issues will want to take advantage of this situation. That is my hope. I hope it also turns out to be the right forecast.

 

Q: What is your outlook on the upcoming earning season? In Q1, everyone said any signs of slowdown will only be seen in Q2. This is going to be a quarter when nerves are going to get tested, what is your outlook or assessment of how corporate India is going to perform?

 

A: What would happen is you should not double count. If these stocks have corrected in advance of earnings or global issues, global developments looking at those earnings is hardly of any relevance. Those results may be expectedly poorer than most people thought. But the ground reality both in America and here is that economic slowdown is not really half as indicated by the stock prices.

 

Q: You spoke of India being in a stronger position vis-�-vis other emerging markets. In your assessment, what will it take to bring buyers back to this market place?

 

A: I think everywhere it is a question of leadership. The Dow held better than the markets because of proactive or responsive leadership in the US. I think that is a big lesson that we all have to hammer all the time that leadership can make opportunities out of difficulties and otherwise create difficulties. So, I sincerely hope that the central bank in India has provided this kind of leadership. I think all other aspects of economy also have the benefit of the same kind of strong, wise leadership.

EIGHT MONTHS THAT CHANGED THE STOCKS WORLD

LOST IN TRANSITION


ICICI Bank stock falls to 2-year low Nishanth Vasudevan MUMBAI
    SHARES of ICICI Bank fell to a two-year low on Monday, as the lack of clarity over the bank's losses on its overseas investments — mainly in debt paper issued by global financial giants, triggered another bout of selling. In addition to these concerns, analysts and brokers said the stock is being pounded for being on the portfolio of most foreign investors, who have stepped up selling in Indian equities in recent weeks.
    "In the bull run, the stock was among the most favoured among foreign institutions due to its bellwether status in the Indian banking sector. So, it does not come as a surprise that the stock has taken the maximum beating, especially when they have turned bearish on India," said a banking analyst at a foreign broking house. Analysts said foreign ownership in ICICI Bank is close to 70%.
    Analysts said the ownership pattern of ICICI Bank and market perceptions of the bank's riskier asset portfolio has resulted in several investors shifting to India's largest bank, SBI, in recent months. In the past week, ICICI shares have fallen roughly 22%, as against the Sensex's decline of 10% in the period. On Monday, the stock ended 12% lower at Rs 493.30, off the low of Rs 483.
    Derivative analysts said the revival in ICICI stock on Monday was marginal, in the absence of shortcovering, an indication that traders are expecting further decline in it. The build-up in ICICI Bank futures contracts has been mostly short positions.
    "Institutions seem to be the dominant short-sellers in ICICI Bank. Retail investors usually cover short positions, when there is a sharp intra-day decline such as the one on Monday, as they are happy with smaller profits," reasons Geojit Financial Services head of technical and derivatives research, Alex Mathews. He expects the stock to find support at Rs 475, breaking which there could be sharper downside, he added.
    Investors now await the private bank's July-September or second quarter earnings to gain a sense of its losses from global investments. Enam Securities estimates ICICI Bank's overseas investments at close to $5 billion, a substantial portion (around 60%), of which is invested in various US & European Banks.
    Merrill Lynch, in its September quarter earnings preview report for banks, said: "The total MTM (mark-to-market) hits on its overseas investments (including to global financials) could vary from $100 million to $250 million; but that hit would be on its London subsidiary. Hence, to that extent it has to be captured through the book value (impact is Rs 5-8/share)." A finance ministry official was quoted recently by one of the wire agencies as having said investments in instruments of financial giants like Lehman Brothers and AIG has led to ICICI Bank alone losing Rs 309 crore. In its attempts to soothe bruised investor sentiment, ICICI Bank, in a statement to stock exchanges on Monday, said 98% of its UK subsidiary's non-India investment book is rated investment grade and above.

DR turnover halves to $8.14 billion
Shailesh Menon MUMBAI
    THOUGH depository receipts of Indian companies listed on overseas bourses are still trading at a premium, there has been a sharp drop in trading volumes. While negative sentiment towards Indian share persists, the fall of blue chip investment banks has aggravated the situation, opine experts.
    In absolute terms, trading turnover has already halved over the past nine months, with experts fearing September (no data available) to be the worst month with respect to demand for depository receipts (DRs) of Indian companies. To get an idea of the dip in trading volumes, in January, this year, the total value of DRs transacted stood at $16.52 billion. Since then trading volumes have more or less fallen every month (except in March and July), with March logging $11.23 billion, May witnessing $8.67 billion worth of DR trades and August seeing a further drop to $8.14 billion.
    "Investor-interest has reduced considerably as a result of falling domestic market. Institutional buying (in overseas markets) has come down significantly with fresh investor money (into funds) coming down to a trickle over the past six months," said Instanex Capital Consultants CEO Gautam Chand, adding, "the fall of global banks has also resulted in falling turnover of depository receipts."
    Depository receipts (DR) represent stocks of a company trading on a foreign stock exchange. Many Indian companies with global ambitions have floated their shares on bourses in London, Luxembourg and New York to tap foreign investors.
    Ironically, it was in the first quarter (January-March) of the current year that the trading turnover of Indian companies on International Order Book (trading platform on LSE that lists Indian GDR-global depository receipts) had clocked a 94% year-onyear rise to a record $3.3 billion. Reliance Industries, SBI, Indiabulls Real Estate and L&T were among the scrips that witnessed robust trading activities then.
    "Most of the trading in DR segment is done by market makers. The trades are taken on the prop books of bulge-bracket investment banks. But with most global banks suffering huge sub-prime losses, prop book dealing has been restricted or almost come to an end (as in the case of fallen banks — Bear Stearns, Lehman Brothers and Merill Lynch)," said an investment expert who advises a handful of foreign portfolio investors in India.
    According to a study conducted by Instanex, of the approximately $15 billion worth of Indian equities traded abroad, almost 73% is in American Depository Receipts (ADRs). ICICI Bank is the toptraded ADR by far, accounting for 36% of total ADR turnover (buy + sell). In case of GDRs (listed on the London Stock Exchange), the top five GDRs account for 83% of traded value of the 23 frequently-traded DRs in London. Reliance Industries is amongst the top-traded GDRs, accounting for 47% of traded values in Indian DRs there.

    'No more significant fall'
New Delhi: The government does not expect the stock markets to fall significantly below the levels witnessed on Monday, when the benchmark Sensex plunged by nearly 700 points during its intraday trade. "We do not expect any major dip beyond this (level)," secretary, department of economic affairs, Ashok Chawla said. He added that low sentiments in the markets was the fallout of the effects of the global markets. The BSE barometer on Monday went low by 506.43 points at 12,595.75, a level last seen on July 16. The all-round selling pressure gained further momentum after reports poured in that the US financial crisis was spreading in the European markets. — Our Bureau

Monday, September 29, 2008

Globe-trotters at the high table

BACK in March 2007, almost 18 months before the ET jury met on September 24, Indra Nooyi agreed to come on board as jury chairperson. In fact, she planned her high-powered, week-long trip to India with 30 top PepsiCo executives around the ET jury meeting this year—one of the world's most powerful women set aside an entire day for ET.
    When Wall Street started to crumble just a week ago, we were asked by worried wellwishers—will your high-profile jury, including big names in high finance, make it? They all did, and despite hectic schedules kept a
large chunk of time aside for the engagement with ET. The day started with a private lunch with ET for most of the jury members, a high-octane tête-à-tête that set the tone for the afternoon and evening.
    "The jury is extraordinary and I am sure these guys were your first picks. It is really a tribute to The Economic Times and India as a whole that such a heavy duty jury has come together to judge the awards," said Anshu Jain, known to be one of the most influential bankers in the world.
    All that firepower can be intimidating but as the day progressed, it wasn't just us—the jury members, too, found themselves stretching their horizons, re-examining their view
points, and flexing their thinking muscles to the extreme. Exhilarating, one called it.
    Business channels had positioned their OB vans strategically outside the Taj Mahal Hotel in Delhi, hoping to get a moment with the world's biggest CEOs, but could only get a sniff as the trail of power disappeared into the depths of the Aftab Mahtab. We bring you the high notes, but sorry, we can't replay the full recital. When a former chairman—Azim Premji— tells you that he thinks this year's discussion was more rigorous than when he chaired the 2007 jury, you know that the level of dialectic went off some super-power scale.
Heady mix of brain power
    Management gurus would have loved to be flies on that wall. From every corner of the world, the widely divergent jury members brought with them an astonishing variety of perspectives, viewpoints, and even fundamental assumptions. On each and every category. Best practices from West and East met, mingled and coalesced into a scintillating brew of brain power.
    ET's phalanx of wise men—and woman—challenged each other. They argued, they soulsearched—and came up with entirely new benchmarks. Over an intense two hours, with barely a break for coffee. These are men and women who make billion-dollar decisions every minute, but for ET, they brought all those formidable talents to work on deciding the winners of The Economic Times Awards for Corporate Excellence. As Peter Sands, global CEO of Stanchart, put it, "Every time we approached a discussion, someone would come up with a completely different but equally valid way of looking at things, and we'd go, 'aha'."
    Chairperson Indra Nooyi—"You can call me Madam Chairman," she joked—set the tone. She kept referring to ET's black book of dossiers for criteria, precedents and information on each nominee. But she picked categories for discussion in her own order of preference, and then moved back and forth between categories as the debate raged fast and furious across the table.
    Ms Nooyi's first question to ET was whether Business Leader could also be a woman. Why isn't it just called Businessman, she asked. Yes, we said, it could be a woman—maybe someday soon—that's why we leave it gender neutral. Next, a few points of precedence which veterans like Deepak Parekh explained to the first-timers. ET juries like to spread the cheer, and normally don't repeat a winner in the same category for three years, or give two awards to the same nominee. And then the jury got to work.
    When is an individual the winner, and when is an organisation the critical driver for success? Work in progress, milestones, or future sustainability? Why does India Inc have such a meagre track
record in philanthropy? Is a policy change agent also a reformer? What weightage should be given to an entrepreneur-nominee versus an inheritornominee? How Indian does a Business Leader, or Global Indian have to be? Conversely, how global do they have to be? Where does entrepreneurship begin and end? How much risk-taking is good, bad, and when does it turn ugly?
    All the jurors had more than done their homework. The assignment involved poring over the 100-odd pages of ET's backgrounders, shooting off their choices and arguing their cases with both depth and passion and split-second timing.
    Another trend that rose to the surface this year: the cast of characters in India Inc is changing. Not just for the international jurors. In many cate
gories, even for the Indian stalwarts, many nominees were not the faces familiar in the schmoozing rooms of India Inc. An indication that an entire new generation of entrepreneurs and businessmen is rising to the top, perhaps?
    As always, each jury member tabled two names out of five nominees for discussion. Those with the maximum votes from all were discussed threadbare. In almost every category, choosing between the winner and runner-up became tough.
    In a slight departure from precedent, Ms Nooyi left every category on 'hold' while moving on. She left that leeway to change, amend or finalise the choices after later discussions and ideas were thrashed out. Keeping her options open for change, while at the same time keeping the debate on track and a strict watch on the extremely tight schedule.
    This year, the jury more than exercised its privi
lege of throwing up names from outside the list into the ring, or shifting nominees from one category to another. For instance, Sun Pharma's Dilip Shanghvi was nominated for the Business Leader category. But the jury decided he was the best embodiment of excellence as an entrepreneur, and gave him that award instead. In Lifetime Achievement, among a host of others outside the list, Ashok Ganguly emerged as the final consensus choice though Cipla's Yusuf Hamied had impassioned champions, for drastically changing world views and global practices given his AIDS drug campaign. Kamal Nath, for his zeal in selling India's point of view to the world, be it on climate change, WTO or financial sector reforms, was another wild card entry.
    As always, the Corporate Citizen category generated some of the most passionate discussion. Anshu Jain pointed out that compared to global standards, the level of philanthropy and CSR initiatives among Indian corporates is still relatively low at an industry-wide level. Sunil Mittal pointed out that Indians are still new to riches, and worry about losing them, compared to global billionaires. Also unlike in the West, Indians tend to save for future generations. While Dr Reddy's emerged as the consensus candidate, the jury as a whole felt that Corporate Citizenship and CSR is one area where India Inc still has a long way to go. Well, if you make comparisons to Bill Gates, it sure does.
    And so it went on. We could have written a management book but the entire process was highly confidential. Finally, Madam Chairman ticked off her own voting sheets, signed them, and handed them over to ET. All I's dotted and T's crossed. Discussions can be flexible and free flowing, but deliverables are deliverables.
    Amid all the private conversation, here's a nugget that may warm the hearts of everyone worried about the death of investment banking, and the state of their careers. Despite Lehman going under, the verdict from this jury is that the top 40% of the talent from all crisis-hit investment banks will be lapped up by the competition. And yes, they'll even get a bonus. "Ah, that means things aren't all that bad," concluded Harish Manwani. Dessert time, folks.


FRAMES FROM A
JURY


THE WORLD'S HERE: (STANDING, L-R) SUNIL MITTAL, HARISH MANWANI, KUMAR BIRLA, PETER SANDS & ANSHU JAIN (SITTING, L-R) AZIM PREMJI, INDRA NOOYI & DEEPAK PAREKH

 

THREE WISE MEN: Anshu Jain, Azim Premji and Harish Manwani before the jury meeting



Brick and Immortal

ET Is The Newspaper I Am Most Familiar With — Indra Nooyi



    THE backdrop was threatening, even ominous. In the course of a tumultuous September, modern Wall Street has changed for ever and many of the storied names of the world of finance have gone under. Strong men are quaking in their boots and the biggest economy in the world is eagerly awaiting a government bailout.
It was no surprise then that the ET Jury chose to recognise companies and individuals of substance. The preference was very much for brick and mortar, for solidity and stability. Materiality was a word which came up several times in the course of the proceedings. Compa
nies and individuals who had built institutions with sustainable businesses won the vote of approval. Given the depth and variety of experience of our jury, led by the peripatetic Indra Nooyi, Pepsi-Co's worldwide chairman and CEO, ET's class of '08 could not have hoped for a better endorsement.
    The choices themselves emerged after intense, heated and entirely confidential discussions. The jurors dissected the guts of the win
ners, checking management practices, global vision, ethics and viability before arriving at their choice. One presence loomed over the proceedings. Indra Nooyi was very much the man of the match, guiding the deliberations with panache, grace, elegance and humour, combining flirtatious charm with a steely grasp of issues. We would love to give away some of the nuggets but are bound by a strict code of secrecy.
    First the winners: Given the broad paradigm, the choices were logical. Our Business Leader of the Year is India's 'Mr Infrastructure' AM Naik, the chairman and CEO of engineering titan L&T. It's not much of an exaggeration to say that Mr Naik is building the foundation of 21st century India. He has built four airports and six ports, not to mention numerous
factories. Along the way, he has created a company with great management depth and the capability to execute international projects. The jurors were impressed by Mr Naik's passion, integrity, pride in his company and his determination.
    The Company of the Year, Tata Steel, pioneered industrialisation in India early in the previous century. It has begun this century by buying Corus, the erstwhile British Steel, and has completed the integration process, a formidable challenge for the best of companies, without a whiff of trouble. It is now the fifth-largest steelmaker in the world, post the Corus deal.
    The jury chose Sun Pharma's Dilip Shanghvi, who has built a highly acclaimed pharmaceutical company, as Entrepreneur of the Year. The Indian
pharma story is well known and there have been many contenders for the top position but in the last few years, Sun Pharma has been streets ahead of the competition. Mr Shanghvi was in fact on ET's shortlist for Business Leader of the year, but the jury decided his entrepreneurial achievements—he built the company from scratch—needed to be recognised.
    The emphasis on brick and mortar also manifested itself in the choice of
emerging company. Welspun Gujarat Stahl Rohren is the world's third largest maker of steel pipes and a company on the fast growth track. A sterling record of achievement, first as the creator of the modern Hindustan Lever (now HUL) and a long career in public service resulted in the Lifetime Achievement Award for Ashok Ganguly. Here again, the jury went beyond the ET shortlist, which is entirely its prerogative, and something which juries in the past have done.
    Kamal Nath, India's commerce and industry minister, won the jury's acclaim for pushing through a slew of reforms facilitating foreign direct investment and for his business-friendly policies.
Lengthy debate over some nominees
    Mr Nath has also been the face of India at the prolonged, and so far futile, WTO negotiations, the Doha round. It was Mr Nath's firmness—his foreign critics would call it intransigence—which resulted in the collapse of the talks. Mr Nath's international stature clearly impressed our jury.
    The award for Policy Change Agent saw a prolonged debate over the meaning of the award. Eventually the jury plumped for E Sreedharan, the creator of the Konkan Railway and most famously, the Delhi Metro. The consensus was that masterful execution which influences and changes policy met the criteria for the award. Funding metro projects by developing real estate is a model which the Delhi Metro has pioneered.
    ET's most power-packed international jury, with three global CEOs (two, Ms Nooyi and Anshu Jain, of Indian origin) chose to acknowledge Arun Sarin's feats as Vodafone CEO with the Global Indian Award. Again this category saw a complex and nuanced discussion of the criteria for the award, but sorry—we can't give you any details.
    The Businesswoman Of The Year award went to a lady who has built India's largest private sector
insurance company from inception. Shikha Sharma, CEO of ICICI Prudential, has headed the company from its birth.
    The Corporate Citizen Award also saw a lengthy debate on the quality of work which companies do outside their core businesses. Some of the jury members felt that Indian companies don't do enough. The jury eventually decided on Dr Reddy's Foundation.
    The jury of 2008 is remarkable for featuring three international business leaders. Apart from chairman Nooyi, the global contingent consisted of StanChart PLC CEO Peter Sands and Deutsche Bank head of global markets and co-head investment banking Anshu Jain. The other five members have been closely associated with the ET Awards and possess a wealth of institutional memory. They are Aditya Birla Group chairman Kumar Mangalam Birla, HDFC chairman Deepak Parekh, Wipro chairman Azim Premji, Bharti Enterprises chairman and CEO Sunil Mittal and Unilever president—Asia, Africa, Central and Eastern Europe—Harish Manwani.
    The ET Awards are presented by Raymond, in association with the Taj Mahal Hotel and television partner Times NOW.
    For more details, log on to www.etawards.economictimes.com 


 


 


Saturday, September 27, 2008

Can’t sell = gag order

The world over, there is a ban on short selling of securities.This is suppression of free speech

If the stock market starts falling precipitously, should we not beseech the government to help us? The Sensex was at 22,000 less than a year ago, and today it is nearly half that number. Many people's stock market wealth has been practically wiped out. Why can't the government simply allot some funds and do massive wholesale purchase of a variety of stocks, and prop up the Sensex? If not all the way to 22,000 then at least to, say, 18,000? Sounds unthinkable? (Some of you are going to say, most Indians don't own shares, so why should the government bail out those rich folks who own shares? Bailing out indebted farmers was problematic, but at least they are mostly poor and vulnerable. And buying shares is a risky activity, so those who deal in shares do so knowingly).
ers of the Unit Trust of India (UTI) were bailed out. Since the UTI investor base was very large, the bail-out got political blessings. This happens in other countries as well. In 1998 in the wake of the East Asian crisis, the Hong Kong authorities pumped big funds to prop up their stock market. The Shanghai index has similarly been protected from time to time. Our neighbours in Karachi have gone several steps ahead. In response to an almost violent dharna of stockbrokers, authorities in Pakistan declared that the KSE index should not fall below a certain level. If it did, the exchange would be shut. Pakistan has been downgraded by rating agencies, and is bleeding an outflow of $ 300
In India, the possibility that the share market will be supported by government action is unlikely. But that doesn't mean it has not happened here. A few years ago, unit holdmillion every week. There are skirmishes on the Afghan border where it seems Pak forces are fighting American forces. The country risk has risen steeply.
    Karachi's move to ban downward prices can be understood as a desperate attempt. But how do you explain the spate of knee-jerk reactions from all across the western world? The US has banned the short sale of more than 800 stocks. Australia, Germany, France, Belgium and ten other countries have all banned short sales. These are sale of shares that you don't possess, but are willing to bet that they are going down. As short-selling pressure mounts, the prices decline, and short-sellers are
able to cover up by buying cheaply the fallen stock. It's the reverse of first buy, then sell. You first sell, then buy. The problem is as more shortsellers join the herd, stocks are collapsing all across. Incidentally, India's policy on short sales is unchanged. As usual, we were extra cautious in our policy in the first place, so we don't need to change anything. The authorities can proudly say "we told you so"!
    But if stockholders can't be bailed out since they took risks knowingly, then why is their short-selling curbed? That too is risky and done knowingly. Short-sellers are often caught 'short' because the anticipated price fall does not happen. Short-selling is part of normal price discovery process, and reveals bearish or bullish sentiment. If shortselling is banned, then the sentiment expression is being suppressed. It is like asking newspapers not to publish any bad news, since it creates a bearish sentiment. Markets are ultimately conversations, and suppression of trading is, in a sense, suppression of free speech. We have done it unwisely in commodity markets in India, and now other mature economies are doing it in their stock markets.
    Perhaps these are abnormal times. Just as you can't shout 'fire' in a crowded theatre, short sales are being given the status of inflammatory speech.

Ajit Ranade
on the wheels that make Mumbai run — money and economy


Markets are ultimately conversations, and suppression of trading is in a sense, suppression of free speech


Wednesday, September 10, 2008

Oil Investors Pulled $39 Billion in Futures Contracts (Update2)

By Daniel Whitten

Sept. 10 (Bloomberg) -- Commodity index investors, blamed for record oil prices, sold $39 billion worth of oil futures between a July record and Sept. 2, causing crude to plunge, according to a report released today.

The work by Michael Masters, president of the Masters Capital Management hedge fund, blames investors who buy and hold an index of commodities for driving prices to records and for their subsequent drop. It comes a day before the U.S. Commodity Futures Trading Commission is set to discuss its own study of energy trading with a congressional committee.

Masters testified three times before Congress this year, arguing that limits on traders would cut oil prices to $65 to $70 a barrel. He has been cited by lawmakers who introduced at least 20 measures to curb speculation. Congressional pressure on the CFTC to step up enforcement and restrict anonymous trades has pushed index traders out of their positions, Masters said.

``I don't think it's just coincidence that the money came out after the pressure was put on these folks,'' Masters, who wants legislation that would set limits on index commodity holdings, said in an interview.

Crude oil futures surged to a record $147.27 on July 11, an increase of 53 percent for the year, on the New York Mercantile Exchange, then fell 26 percent to $109.71 on Sept. 2. Oil fell $1.24, or 1.2 percent, to $102.02 today on the Nymex.

``The speculators that drove prices up basically deflated the bubble,'' saidFadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York. ``They said, `That's it, the game is over. We are going to bet on another horse.'''

`Buying Pressure'

Crude oil prices increased almost $33 a barrel from January through May due to ``buying pressure,'' then decreased by about $29 a barrel starting July 15 because of ``selling pressure,'' according to Masters's report.

Senator Byron Dorgan, a member of the Committee on Energy and Natural Resources, said today that there was ``no apparent reason'' for such fluctuations.

The study ``finally destroys the myth that there is some supply and demand relationship to what has happened to the run- up in oil prices,'' Dorgan, a North Dakota Democrat, told reporters today in Washington. ``This is pure, unbridled, relentless speculation.''

The CFTC is expected to release a report tomorrow that will lay out its findings on the impact of index investors and over- the-counter trading on commodities. Regulators may require Wall Street banks to regularly disclose their energy futures positions connected to the unregulated swaps market, according to people familiar with the discussions.

Investment Banks

JPMorgan Chase and Co., Goldman Sachs Group Inc., Barclays Plc and Morgan Stanley control 70 percent of the commodities swaps positions, and swaps dealers are the largest holders of Nymex crude oil futures contracts, Masters said.

Representatives for all four banks declined to comment. Banks enter into swaps with airlines and hedge funds to profit from moves in crude prices and then offset some of that risk in futures markets such as the Nymex.

``These large financial players have become the primary source of the recent dramatic and damaging price volatility,'' Masters said in the report.

The commission has put out special requests for information from traders and imposed limits on the number of U.S. oil futures contracts a trader can hold on Intercontinental Exchange Inc.'s London-based ICE Futures Europe market.

Masters's Critics

Critics of Masters's earlier work said he lacks access to the data needed to draw his conclusions. His hedge fund is based in the U.S. Virgin Islands.

Walter Lukken, the acting chairman of the commission, is among those who question the validity of Masters's data.

``Just as weather forecasters have no effect on the weather, energy speculators have no effect on the price of oil,'' said Scott Talbott, a lobbyist for the Financial Services Roundtable, which represents investors. ``His fallacy is that he ignores the laws of supply and demand, which determine the price of oil.''

Masters earlier this year reported that index speculators such as those that trade on Standard & Poor's GSCI accounted for $260 billion of assets, up from $13 billion in 2003. As of Sept. 2 that number was down to $223 billion, Masters said.

``For the supply and demand people, what I would like for them to explain is how from the supply-and-demand rationale you could have oil at $95 in January, at $150 in June and back to $100 in September,'' Masters said.

Hedge Fund Holdings

Masters's hedge fund held shares in the four major U.S. airlines, AMR Corp., Delta Air Lines Inc., US Airways Group Inc. and UAL Corp, according to a June 30 regulatory filing. Airlines hedge oil and have been hurt by commodity price fluctuations.

He said he extrapolates his numbers from agricultural data, which is publicly available, to arrive at overall numbers that include oil futures investments.

In arguing for legislation, lawmakers, primarily Democrats, will point to the Masters report and a Massachusetts Institute of Technology report released in June alleging that speculation caused the rise in energy prices.

``Why did so much money come into these markets and why is it leaving?'' asked Senator Maria Cantwell, a Washington Democrat, in an interview. If Congress reduces scrutiny, ``do we see the run-ups happening again?''

Scott Defife, with the Smart Energy Policy Coalition, said Masters's findings ``run counter to the analysis and judgment of the vast majority of economists'' as well as Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

Those and others have ``concluded that volatile energy prices are the result of global economic conditions, the changing strength of the dollar and supply-demand fundamentals,'' Defife said in a statement.

To contact the reporter on this st

Tuesday, September 9, 2008

A rich harvest from Kisaan Bazaars

Organised retail might be faltering in urban India, but is booming in rural India, going by the experience of DCM Shriram Consolidated Ltd's Hariyali Kisaan Bazaar (HKB). Aimed exclusively at rural India, the company has seen sales from its 160 stores more than double in the last couple of years.

Average sales at an HKB store have gone up to Rs 5 lakh a day during the harvest seasons, while it is around a tenth of that during the lean season. That means the turnover of a single HBK store is over Rs 6 crore, annually, while the investment cost varies between Rs 2 crore and Rs 3 crore.

The growing popularity of HKB stores has also prompted banks and insurance companies to look at possible tie-ups to tap the rural customer. ICICI Lombard and HDFC Bank have already tied up with HKB for their products. Though he furnished few details, Ajay S Shriram, chairman & senior managing director, DCM Shriram Consolidated, said, "Banks and insurance companies get a ready customer base on a platter."

Shriram said HKB's retail model was developed exclusively for rural customers. "We have no intentions to bring it to urban areas; it has been designed for rural customers," he said, adding that retail in rural India is commercially viable.

HKB not only sells products relating to agriculture like fertilisers and seeds, but also household items as 40% of rural India comprises those that are not engaged in farming, Shriram pointed out.

The success of HKB has also encouraged the company to launch pulses and masalas under its own Hariyali brand.

Luis Bunuel  - "Age is something that doesn't matter, unless you are a cheese."

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Eddie Izzard  - "Never put a sock in a toaster."


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Clifford Stoll  - "The Internet is a telephone system that's gotten uppity."

Reliance on borrowed funds risks banks’ health: RBI

 HIGHER reliance on borrowed funds rather than deposits to finance businesses poses a threat of systemic risk to banks, according to the Reserve Bank of India (RBI). 

    The central bank, in its July policy review had already indicated that it would be initiating inquiries against banks with very high creditto-deposit ratios. 
    According to the latest report on currency and finance released by RBI last week, deposits, traditionally, constituted the primary source of funds for banks. But they started relying on borrowings, as depositors switched to other alternate instruments such as mutual funds and stocks as the financial market developed. 
    The report says, "In this new envi
ronment, banks face the challenge of proper assessment of risks associated with borrowed liquidity against stored liquidity inherent in core deposits. Regulators also need to be proactive in dealing with the emergence of any systemic risks." 
    As deposits are generally insured up to a threshold limit by the government, they allow savers to retrieve their funds on demand without any capital loss, thereby ensuring full safety. 
    For banks, insured deposits are not only a subsidised source of funds with no default risk, but also constitute the preferred 'core' funding for banks. 
    But borrowings are considered to be more sensitive to a bank's financial health. As the providers of uninsured funds risk losing their money in case of a bank failure, they are more likely to demand higher re
turns or pull out some of their money from the bank. 
    The report has cautioned that this shift in resource mobilisation by banks has several implications for resource management. First, the decline in cheaper insured deposits may raise the costs for banks by making them rely on more expensive funding through borrowings. Therefore, the shift to non-deposit funding would require banks to engage in more active, complex and costly management of their funding base to ensure that they can meet their repayment commitments. 
    Second, in certain circumstances, raising funds through non-deposit sources such as borrowing or bulk deposits may be cheaper at the margin than the insured deposits even if the rates paid on non-deposit funds are actually higher. 
    This could be due to higher non
interest costs required to raise insured deposits such as the expense of branches, staff and technology. 
    Further, the report has said that while raising rates to attract new deposits could also increase the cost of its existing deposit base, borrowings can be raised by banks without altering the cost for its existing deposits. Therefore, banks, in the face of growing preferences towards nondeposit instruments, may find it economical to reduce their branch structure or to carry out new techniques for raising money. 
    However, with increasing reliance on non-deposit sources of funding, banks would have to develop the requisite expertise to design prompt and cost-effective repayment schedules, establish additional sources of emergency back-up funds, and build up buffer of marketable and liquid securities.

Luis Bunuel  - "Age is something that doesn't matter, unless you are a cheese."

Sunday, September 7, 2008

The Cracks Are Showing

The cement sector is feeling the pinch of a slowdown in sales growth as well as shrinking profits.While small and medium companies have reported higher topline growth than large firms, they have fared poorly in terms of net profit

SH I KHA SHAR MA ET INTELLIGENCE GROU P 


THE CEMENT sector is facing a double whammy. At a time when India Inc is reporting robust demand, cement producers are feeling the pinch of a slowdown in sales growth as well as shrinking profits. 
    A slowdown in construction activity has affected the revenue growth of cement companies, while escalating fuel prices and distribution costs have affected their earnings. Net sales of the top 32 cement producers grew by a modest 11% year-onyear to Rs 9,680 crore in the June '08 quarter, against 23% growth reported during the corresponding quarter last year. Significantly, companies could not capitalise on the improvement in realisations, as cement prices increased marginally by 3% in the previous quarter. 
    On the cost front, raw material cost rose 28%, much higher than revenue growth, thereby affecting companies' operating margins. Power and fuel cost jumped 39% during the June '08 quarter, against a mere 11% growth in the June '07 quarter. 
Similarly, freight and other distribution expenses — which are a key cost component, accounting for 15% of sales — increased by 12% to Rs 1,425 crore. With a sharp rise in operating cost, the cement industry's operating margin declined nearly 600 basis points during the quarter. 
    Among non-operating cost heads, interest 
cost registered a sharp increase of 24% in Q1 FY09, against a decline in interest component during Q1 FY08, while depreciation provision rose by 30%, against just 6% growth in the same quarter last fiscal year. With sales growth moderating and both operating and other cost components recording high growth, cement companies' net profit shrunk by as much as 21%. This is in sharp contrast to the 21% growth in profit seen during Q1 FY08. 
    While cement producers' financials have 

been affected, their operational efficiencies have also reduced. The industry, which has been operating with high capacity utilisation over the past few years, witnessed a decline in utilisation rate, from 91% in July '07 to 86% currently. This is partly due to commissioning of fresh capacities. 

    According to industry reports, there was an 8% increase in total installed capacity during the June '08 quarter. Among the major players, Ambuja Cements has increased its capacity by 15% to 4.4 million tonnes (mt). 
    For the industry as a whole, production rose to 46 mt in Q1 FY09, compared to 42 mt in the same quarter last year, despite the decline in capacity utilisation. With more capacity expected to be commissioned in the near future, there's likely to be a glut in the market. According to CMIE data, the value of all the projects, which have either been announced or are under implementation, is around Rs 40,000 crore. 
    If we compare small, medium and large companies, an interesting trend emerges. Small and medium-sized companies performed better in terms of topline growth, compared to the industry heavyweights. However, these companies fared poorly in terms of net profit due to inefficient cost management. 

    Large companies — having revenues of more than Rs 1,500 crore for the June '08 quarter — reported a 4% growth in sales, against 28% growth for medium-sized companies, which had sales of Rs 500-1,400 crore. While smaller companies generated healthy double-digit sales growth of 13%, their bottomlines bore the brunt of cost pressure. The profit of small companies declined by 24%, while that of mid-sized cement producers fell 8%. 
    Going forward, prices are expected to soften due to an increase in the supply of cement. Further, strong regional players such as Shree Cement, Madras Cement, Jaypee and JK Cement, among others, are better placed due to their proximity to raw materials and strong local markets. 
    shikha.sharma1@timesgroup.com 






Jane Wagner  - "The ability to delude yourself may be an important survival tool."

Time For The Tsunami

FOR THE theory that this article has been propounding for the past few weeks — the Nifty not budging anywhere until the Dow Jones Industrial Average breaks out above 11,750 or below 11,000 — validation came last Tuesday. As crude oil prices cooled down, equities across the world had a one-day party. Not to be left behind, the Dow gaped up and rallied all the way to 11,800 in the first hour of trade. But then market technicals took over and the Dow sold off dramatically, finally ending the day in the red — over 300 points off its intra-day highs. 

THE DESI SUCKERS: But before the Dow made it clear for the umpteenth time that we are in a bear market, Nifty bulls, too, had their rare day under the sun. As the Nifty kept shooting up right through Tuesday, the perma-bulls on Indian television kept adding further fuel to the fire. As anchors celebrated the plunge in crude prices, analyst after analyst kept talking about the 'Nifty's technical breakout.' One of them even analysed whether 6,300 on the Nifty was possible in the next few months! Amidst all this celebration, most people forgot that we are in a vicious bear market, for which high crude prices were never the reason in the first place — they just became one of the many factors later on. And the chance of the Nifty breaking out on its way up before the Dow breaking out above 11,750 was next to nothing.THE SMART MONEY RATIO: Not that resisting the temptation of falling for the continuation of Tuesday's rally was easy. The fact that even foreign institutional investors (FIIs) — who have been consistently dumping Indian equities for the past few months — suddenly gave up their bear mask and bought equities worth over $300 million shows that even big sharks were trapped on Tuesday. But this is where the smart money ratio (SMR) could have come to our rescue. 
    As is evident in the adjoining chart, the SMR — the ratio of the Volatility Index (VIX) and the near-month put call ratio (PCR) — had reached dangerously low levels on Tuesday. This was because not only had the VIX hit its lowest since June, but also because Nifty's September PCR had shot up over 1.41. So, a continuation of Tuesday's rally would have meant that the VIX would have fallen to around 25 and/or the Nifty September PCR would have shot up to nearly 1.75 — a perfect invitation for a tsunami. THE SCARED GRIZZLY: Although both the Nifty and Dow are close to the lower ends of their respective ranges, for strange reasons, Nifty bears continue to be 
non-committal. Even on Friday, while the Nifty succumbed to gravity, bears continued to wait and watch. The fact that Nifty September futures added about 7.5 lakh shares in open interest on Friday and the premium on them shot up to 13.9 points from about 8.3 points on Thursday makes it clear that bulls continue to 'hope', while bears continue to be jittery. However, this is understandable if one takes into account the massive whipsaws that both bulls and bears have gone through in the past few weeks. 
FRESH TRADE: At the time of going to press, the Dow was trading at sub-11,100 levels — with a loss of over 100 points. By the time you read this, if it has shut below 11k, it should ideally go and retest its July 15 low of 10,827 (the 10,700 level is a decent support, given that it was the June '06 low). But considering the pent-up bear force, if 11k gives way, it will be akin to the floodgates of a dam collapsing — we all know what happens then. 
    Although last week's 
recommendation of buying the 4,300 or 4,200 September put got a big scare by Tuesday, for anyone who had the courage to hold on through the bull party, they are now priceless. For traders seeking fresh entries, it makes sense to wait for the lower end of the current range — 4,150 — to break, before initiating fresh shorts. 
    Having faced more than a couple of whipsaws, one will be better off shorting so close to the lower end of this range. As for bulls, it's unlikely that the Nifty can have its own bull market when big daddy, the Dow Jones Industrial average, is in a bear grip. So, if you are a Nifty bull, pray for the Dow to hold on to 11k, for below that, it's nothing but a tsunami. 
    shakti.patra@timesgroup.com 





Marcel Marceau  - "Never get a mime talking. He won't stop."

Double Bonanza

A prosperous middle class and rising industry growth will ensure an increase in the consumption of high-grade stainless steel in the country

THE BOOM in the commodity cycle in the past few years has put the spotlight on the steel sector. But within this bigger industry, the smaller segment of stainless steel is less talked about. Stainless steel is a steel alloy, with the alloying material typically being nickel, manganese and chrome. 

    Though compared to steel, the amount of alloy material is relatively less (1-10% of nickel, 14-20% of chrome and 2-15% of manganese), the higher prices of these materials, especially nickel, significantly impact the cost of production of stainless steel. 
    Stainless steel is mainly categorised into three series, depending on the type and amount of alloy material. The 200 series is a mix of chrome, manganese and a lesser amount of nickel, the 300 series is a combination of high nickel and chrome, and the 400 series mainly contains chrome. Historically, there exists a high correlation between the price movements of stainless steel and its alloying materials. 
    Depending on the grade, the prices and application of these three types of stainless steel series varies. The 200 series is mainly used in kitchenware and utensils items, whereas the 300 series is used for engineering applications. The 400 series is used in exhaust systems of auto and railway sectors. 
    India accounts for a little over 7% of the world's total production. More than 80% of the total production comprises flat products, while the rest are longs. But this segment is highly scattered and many steel manufacturers produce stainless steel in small qua
ntities along with other major steel products like coils, bars and slabs among others. Moreover, around 30% of the production comes from the unorganised sector. 
    Globally, the 300 series is used predominantly, whereas in India, it is the chrome-manganese alloy or the 200 series. Therefore, Indian stainless steel producers are less sensitive to high and volatile nickel prices. The current per capita consumption of stainless steel in India is a little over 1 kg, compared to 10-15 kg in the developed world. Historically, there exists a high correlation between income growth and consumption of stainless steel. Looking at the Indian growth trajectory, it can be inferred that this segment is bound to grow. Demand is expected to grow at 
around 12% against the global average of 5-6%. Some of the players like Jindal Stainless and Visa Steel are setting up 1.6 and 0.5 million tonnes of stainless steel capacity over the next two years. 
    Further, the main growth drivers for stainless steel consumption will come from two sources — higher income growth of the Indian middle class and rising industry growth. While the former will increase the consumption of flat products, the latter will drive the consumption of long products. Some of the major industries that are going to drive this growth are construction, auto and process industry, among others. For instance, the new airports and railway metro projects will require a large amount of stainless steel. 

    But the consumption pattern of different grades is likely to change. Due to industrialisation, the use of high nickel grade 300 series will increase to 20% from the current 15%. Similarly, the growth in railway and auto sectors will be primarily responsible for increase in share of 400 series, from the current 5% to 10%. Both these increases in market shares will be at the cost of the 200 series, though this series will grow in absolute terms. The prices of most of these alloying materials are also expected to soften in the near future and hence, stainless steel prices will also cool down. 
    As mentioned earlier, barring 
Jindal Stainless, most of the players are either small or produce stainless steel as a part of their overall product portfolio. This gives them less bargaining power compared to big primary steel producers. Some of these players include Mukand, Panchmahal Steel and Shah Alloys. In a commodity boom period, stainless steel producers are less profitable than integrated steel players. However, as the former's demand is less affected in a downturn due to their small size and nature of demand, investors can use such stocks to diversify within the steel sector portfolio. Within the sector, the best bets are Jindal Stainless and Visa Steel. 
    santanu.mishra@timesgroup.com 




A. P. Herbert  - "A high-brow is someone who looks at a sausage and thinks of Picasso."

BULL'S EYE


RAYMOND 
RESEARCH: MERRILL LYNCH RATING: UNDERPERFORM CMP: Rs 194 

MERRILL Lynch has maintained its 'underperform' rating on Raymond as the near-term earnings will remain subdued with denim continuing to be a huge drag on overall performance. The management has indicated that it may reduce its involvement in the denim business — this can be a time-consuming process. Raymond's 50:50 denim joint venture with Belgian denim major UCO NV continues to pile losses (Q1 '09 loss Rs 40 crore, FY08 loss Rs 120 crore). Losses are driven by suboptimal capacity utilisation in overseas facilities, continued poor denim market and rising cotton prices. Worsted capacity expansion by 7 million metres at Vapi is on track. This will take the total capacity to 38 million by March '09 and can potentially help free up about 140 acres at Thane, where a part of its worsted capacity is currently located. Merrill Lynch estimates that this land may be worth over Rs 200 per share. However, the Thane closure is unlikely to be taken up before elections next year. Worsted fabric performance is likely to improve in the current fiscal. Merrill Lynch has assumed a 4% year-on-year (y-o-y) rise in realisations driven by price increases and a richer mix. This, together with slightly weaker wool prices, should drive EBIDTA margin expansion by 150 bps. FY09 will be a year of consolidation and streamlining of businesses. The management intends to entirely focus resources on 4-5 key brands. To this end, it aims to expand its retail network judiciously, with a larger proportion of stores through the franchise route in tier-III and IV towns. Raymond added 31 stores in Q1, to reach 518 stores. 

GAIL 
RESEARCH: INDIA INFOLINE RATING: BUY CMP: Rs 416 

INDIA Infoline has maintained its long-term 'buy' rating on Gas Authority of India (Gail) with a target price of Rs 450. In its annual report, the company has emphasised on clean fuel industrialisation by creating green energy corridors. This is in line with its ongoing capacity expansion plan, which is focused on developing a countrywide gas grid and setting up city gas projects in 28 cities within the next five years. Gail registered net sales growth of 12.2% y-o-y to Rs 18,000 crore in FY08. This was driven by a robust growth of 52.6% y-o-y in LPG sales and 17.8% y-o-y growth in polymer sales. LPG volumes remained flat, but realisations were up by 52.2% y-o-y as sharing of under-recoveries declined 11.7% y-o-y. Petrochemicals volumes rose by 12.8% y-o-y, whereas realisations for the segment rose by 4.5% y-o-y. Gas trading volumes grew by 2.5% y-o-y to 23.3 billion scm and transmission volumes increased from 77.29 mmscmd in FY07 to 82.1 mmscmd in FY08. The profit and loss statement was a mixed bag with robust topline expansion and increase in operating margins being offset by a higher effective tax rate and one-time write-back of Rs 340 crore in the previous year. The balance sheet continues to remain strong with a fourth consecutive year of decline in the debt-equity ratio and a sharp improvement in return on capital employed (RoCE) in FY08. 

PURAVANKARA PROJECTS 
RESEARCH: DEUTSCHE BANK RATING: SELL CMP: Rs 203 

DEUTSCHE Bank has initiated coverage on Puravankara Projects with a 'sell' rating. Its asset-light business model, strong balance sheet and good financial disclosures make Puravankara an excellent developer. However, high floor space index (FSI) on its landbank, coupled with over-concentration in the residential vertical and in Bangalore, are threats in the current environment of weakening demand and tight financial markets. Given its net worth, Puravankara has an asset-light model with a smaller land bank and at a lower cost (unlike peers). Furthermore, its land bank is largely paid for, implying less time and risk in securing clear land titles. The low gearing of 48% should enable it to replenish its land bank during cyclical slowdowns. Deutsche Bank believes that financials will be driven by scaling-up operations, coupled with moving up the value chain. The high FSI (~3.1x vis-à-vis ~1.2x for peers) on its land bank in the current environment of strong headwind can make marketing a challenge. Though Puravankara has been around for nearly two decades, its completions to date are lower than its peers in Bangalore. Concentration in residential (~80% of land bank) and Bangalore (63%), which is seeing significant oversupply, are other concerns. The trading price of Rs 165 is at a 30% discount to discounted cash flow (DCF)-based NAV of Rs 236. With a 19% downside potential to the target price, Deutsche Bank recommends a 'sell' rating. 

JAIPRAKASH ASSOCIATES 
RESEARCH: EDELWEISS SECURITIES RATING: BUY CMP: Rs 168 

EDELWEISS Securities has maintained a 'buy' rating on Jaiprakash Associates (JPA) . Since November '07, of the total 4.7 million sq ft that it owns, JPA has been able to sell 2.9 million sq ft in Greater Noida and 3.6 million sq ft in Noida, till date. Supported by its low land acquisition cost, the company is offering properties at various price points to ensure offtake. Accordingly, sales price varies from ~Rs 5,500-10,000/sq ft in Greater Noida and Rs 4,800-6,400/sq ft in Noida. The company has received Rs 900 crore in cash at Greater Noida and Rs 590 crore at Noida. JPA has completed sub-contracting for the project and has finalised 24 sub-contractors. The management has guided that the expressway will be available for commuting in time for the Commonwealth Games. JPA will retain project planning, equipment ordering and raw material procurement. Financial closure for the project is complete and land and forest clearances have been secured. The management has highlighted its intent to bring all the power entities under one fold. It indicated the need for infusing $500 million by September '09, for which, it is considering various options like securitising operational power plants. The company reiterated its intent to convert first warrant issue (~Rs 1,985 crore at Rs 397/share; Rs 400 crore put in till date). To tackle concerns of the open offer, following the second warrant conversion (~10% dilution), it plans to defer shareholders meeting to extend conversion window till FY11E. After factoring in concerns over further cement price correction this year in the northern market, Edelweiss has lowered its EPS by 18.6% in FY09E and 23.3% in FY10E. While earnings growth is likely to remain moderate in the near term, long-term value remains in the stock.
Marcel Marceau  - "Never get a mime talking. He won't stop."

This is bad news for D-Street.

Economic slowdown is no longer an academic prophecy, it's now out in the open. Investment — the biggest driver of economic growth — is showing clear signs of slowing down. This is bad news for D-Street. Karan Sehgal and Supriya Verma Mishra 
investigate...

FOR THREE heady years from 2005-07, the Indian economy touched new highs. The gross domestic product (GDP) grew at an average rate of 9% during the period, with India becoming the second fastestgrowing major economy of the world. This was the result of unprecedented growth in investments triggered by low interest rates, as well as high growth in demand. These low interest rates were, in turn, possible on account of a low inflation rate. However, the entire cycle seems to have turned. India's growth engine is now showing signs of deceleration. The trouble started with the rise in inflation. The Indian economy, which was getting used to 5% inflation, is now having to deal with prices rising at the rate of more than 10%. The fact that the Reserve Bank of India (RBI) has started increasing the repo rate and cash reserve ratio (CRR) clearly indicates that the central bank can sacrifice a few basis points in GDP growth to contain inflation. As a result of high inflation and a spate of interest rates hikes, there has been a slowdown in investment plans announced by industries. We, at the ET Intelligence Group, analysed the data released by CMIE and observed that the rate of implementation of corporate capital expenditure (capex) plan has slowed down. The rate of implementation is defined by investments under implementation divided by the sum of investments under implementation and investments announced. On an average, the rate of implementation for India Inc had come down to 44.8% as of end June '08, from 52.7% as of December '06. Simply put, Corporate India is implementing lesser investment plans these days. 
    The bigger worry is that as much as Rs 43,000 crore worth of investment plans (across industries) were shelved during the quarter ended June '08. The situation is unprecedented as this is the first time that the current bull run is witnessing such a colossal abandonment of investment plans. In fact, even capacity additions have been low, which is evident from the slowdown in completed projects. However, despite all this, what is astonishing is the pace at which India Inc is announcing its investment plans. 
This can be attributed to the fact that often, the stock market reacts positively to mega expansions plans by companies. But whether these plans materialise is another story. Nonetheless, even amidst concerns of an economic slowdown, corporates continue to announce new projects. Broadly, the industry is divided into five categories — manufacturing, electricity, services, mining and construction. Of these, only manufacturing has not seen a slowdown in implementation of investment plans. Mining projects have seen one of the worst slowdown in implementation, with the rate crashing to 37% in June '08 from around 50% in December '06. As for specific industries, ferrous metals, construction, electricity generation, transport services and petroleum products have been the highest gainers of investments that have been announced. However, in terms of implementation of these plans, some of them seem to have lost ground. Ferrous metals and organic chemicals have seen the highest rate of implementation vis-à-vis plans that were announced earlier. At a 52% rate of implementation, the organic chemicals sector was among the top few gainers. In case of ferrous metals, particularly steel, India has enough iron ore — a major raw material for steel. Steel prices — which are expected to remain bullish in the international market in the near term — are apparently providing a strong impetus for capacity expansion in the industry. As demand continues to outpace supply, the rate of implementation of steel projects remains high. 
    However, the list of losers is longer. Despite big announcements, many projects in the infrastructure sector, including petroleum, transport services (highways, rail projects, airports and ports) and electricity generation seem to have hit hurdles. For instance, the power sector saw a 720-basis point decline in project implementation: only 40% of the projects were under implementation at the end of June '08, against 47% in December '06. Similarly, transport services, which include roads and flyovers, have also fared poorly in terms of implementation of investment plans. The implementation rate in the sector has fallen to just 44.9% as on June '08 from 62.4% as of December '06. 

    However, a slowdown in infrastructure should not be surprising. Even when investments in other sectors were rising at a breathtaking pace till the end of FY08, infrastructure investment was rising at a much slower pace. For instance, private corporate investments rose to 16.1% of the GDP in FY08 from 5.4% of the GDP FY02. But infrastructure investments accounted for only 5.3% of the GDP in FY08. This shows that even when interest rates were low, enough money was not being invested in basic infrastructure like roads, ports and airports. Whatever little funds were flowing into the sector have further slowed down. Sectors like transport and power form the backbone of the economy and a slowdown in investments in these sectors will have a deeper impact on the entire economy. 
    karan.sehgal@timesgroup.com 





Clifford Stoll  - "The Internet is a telephone system that's gotten uppity."

Nuclear family to take India on high-tech trip

NUKE WINTER NO MORE

Energy, Communications, Avionics...The Works

THE Nuclear Suppliers' Group (NSG) has lifted obstacles to India buying products and technologies associated with civilian uses of nuclear technology from (and selling these to) most significant nuclear powers save the US. To enable civil nuclear commerce with the US, that country's legislature must ratify the 123 Agreement finalised between the Bush administration and New Delhi. 

    The implications are not just for nuclear energy, significant as these are — our existing reactors running short of fuel would be able to run at full capacity and we would be able to set up new nuclear plants. While National Security Advisor MK Narayanan announced on TV that a grateful India would let the US have a large share of India's domestic market for nuclear energy, right now, the competitive advantage in terms of standardised reactor design, scale and, therefore, costs, is with France and Russia. 
    There is also the perception in some circles that the US conditions on supply of nuclear materials might turn out to be unacceptably stringent and intrusive, going by the State department's answers to the House Foreign Relations Committee. 
NSG deal is a steal on the strategic front 
    VITAL sectors of the economy stand to benefit from access to a range of hightechnology products and technologies that had, till now, been outside India's reach because of its status as a nuclear outsider. Many advances in materials, communications, computing, signalling, chemical processing and avionics are deemed sensitive technologies not accessible to nuclear have-nots. Access to these technologies opens up now. This will improve efficiencies across the board in India, from weather forecasting to oil refining. 
    But the biggest gain is strategic. Non-proliferation activists objected to what they called India's sweetheart deal on the ground that it gives India 
an exceptional status: It is the only country that possesses nuclear bombs but is not part of the Nuclear Non-Proliferation Treaty to be accepted into the community of nations allowed to legitimately engage in nuclear commerce. The major powers of the world have recognised India's status as a growing power whose potential to contribute to a stable global order is huge. It is that recognition that persuaded them to work out the current exception to nuclear convention in the form of the waiver from NSG. As India strengthens its strategic capabilities with the help of technologies made accessible as a result of the deal, it would put an end to the current situation of an ever-widening strategic gap between China and the rest of Asia. As India steps into its now acknowledged role as a balancer of power, it will benefit India and the world. 
    Prime Minister Manmohan Singh and the ruling UPA will gain credit for having made this global breakthrough, against much opposition and at the risk of losing power.

WINNING TEAM: GEORGE BUSH AND MANMOHAN SINGH



Clifford Stoll  - "The Internet is a telephone system that's gotten uppity."

 

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