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Saturday, December 27, 2008

A look at economic developments around the world


A look at economic developments and stock-market activity around the world Thursday:

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TOKYO - The yen weakened slightly against the dollar after a dramatic surge in recent days, as Japan warned of possible intervention in the foreign exchange market and ahead of an expected rate cut by the country's central bank. The pause in the yen's climb came as Tokyo strengthened its language on the possibility of intervening to limit the currency's strength and protect Japanese exporters. Finance Minister Shoichi Nakagawa told reporters he would "implement appropriate measures" regarding the yen's gains. "For export manufacturers the acceleration of the strong yen is a negative factor," he said. The Bank of Japan, which began a two-day policy meeting on Thursday afternoon, was widely expected to cut interest rates from the current 0.30 percent, probably by half, which could also cause the yen to weaken as investors sold the currency and sought better rates elsewhere. The Nikkei 225 stock average climbed 54.71 points, or 0.6 percent, to 8,667.23.

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LONDON - British auto manufacturers stepped up pressure on Prime Minister Gordon Brown's government to deliver an industry bailout package as a report revealed that car production slumped by a third in November. The Society of Motor Manufacturers and Traders warned that crumbling domestic and export demand would lead to extended plant closures and job cuts as production falls, leaving Britain unprepared for improved economic conditions. The industry body wants the government - which has confirmed it is in talks with Jaguar Land Rover's Indian owner about possible financial support - to move quickly to restore demand and loosen tight credit conditions. Meanwhile, official figures showed British retail sales unexpectedly rose 0.3 percent from October to November, even as government debt hit its highest in almost a quarter century and a survey indicated half a million households will be behind in mortgage payments next year. Britain's FTSE-100 closed up 0.2 percent at 4,330.66.

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FRANKFURT, Germany - Business confidence in Europe's biggest economy fell to its lowest point in over a quarter century in December as the global economic crisis stanched near-term prospects. The Munich-based Ifo Institute said that its monthly index of German business sentiment slipped to 82.6 points in December from 85.8 points in November. It was last that low in November 1982, and has fallen more than 20 points in the last year. The survey said that the business climate for manufacturing - a key segment of Germany's economy - cooled considerably. Germany's DAX rose 48.02 points, or 1 percent, to 4,756.40.

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BEIJING - China cut prices for gasoline, diesel and jet fuel. The price of diesel will fall by 18 percent while the price of gasoline is cut by 13.8 percent, effective Friday, according to the country's planning agency. Jet fuel prices will fall by 32 percent. The cuts will help trucking companies, airlines, factories and others that are being squeezed by high fuel prices and a slump in sales. The price cuts come as Beijing is trying to revive falling economic growth but the announcement made no mention of a link with its stimulus measures. It said prices were cut to reflect a decline in global oil costs. The benchmark Shanghai Composite Index climbed 2 percent, or 38.87 points, to 2,015.69. Hong Kong's Hang Seng Index recovered near the end of the session to add 0.2 percent to 15,497.81.

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PARIS - Bernard Madoff's alleged $50 billion investment fraud demonstrates the absolute necessity of better regulation of financial sectors, the French prime minister said. Francois Fillon called the affair "a real scandal" and said it "clearly shows that the regulatory reform we've been calling for ... is absolutely necessary." His comments on Europe-1 radio came after France's market regulator said late Wednesday that French investors may have lost "several hundred million euros" in the scam through mutual funds with indirect exposure to Madoff's funds. The CAC-40 in France was down 0.2 percent at 3,234.15.

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SEOUL, South Korea - South Korea said it plans to establish a 20 trillion won ($15.5 billion) fund with central bank support next year to help shore up banks and encourage them to lend. The fund, set to start operations from Jan. 1, is aimed at helping lenders boost their capital adequacy ratios by purchasing certain shares and bonds, the Financial Services Commission announced. Participation is available to banks on a voluntary basis, according to the commission, which serves as South Korea's financial regulator. Meanwhile, brawling South Korean lawmakers tried to sledgehammer their way into a parliamentary meeting room barricaded by the ruling party as the National Assembly descended into chaos over a free trade agreement with the United States. Opposition parties were incensed by the ruling Grand National Party's move to submit the agreement to a committee on trade, setting in motion the process for the accord to win approval in the legislature. The opposition attempt failed, and 10 GNP legislators introduced the bill to the committee. The Kospi closed up 0.5 percent at 1,175.91.

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STOCKHOLM, Sweden - Swedish lawmakers approved a 28 billion kronor ($3.6 billion) aid package to help prevent the country's auto industry from collapsing. The plan includes 20 billion kronor in credit guarantees, 5 billion kronor in rescue loans and 3 billion kronor in research funds. It does not include options to buy troubled brands such as Ford Motor Co.'s Volvo or General Motors Corp.'s Saab. Ford has said it intends to offload Volvo, by either selling it or spinning it off into a separate company, and General Motors has said it is performing "a strategic review" of Saab.

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KIEV, Ukraine - About 1,000 angry Ukrainians rallied in the Ukrainian capital, protesting price increases, wage delays, utility cutoffs and other effects of the economic crisis gripping this ex-Soviet nation. Inflation has ravaged the economy and the hryvna has lost half its value since the global financial meltdown began in September. Adding to the tensions, Russia's state natural gas monopoly, Gazprom, warned on Thursday it will cut gas supplies to Ukraine on Jan. 1 if it fails to pay off a $2 billion gas debt.

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BRUSSELS, Belgium - Euro-zone trade swung into a surprising surplus in October, the EU statistics agency said, even as a stronger euro and tumbling demand abroad tamps down exports from the recession-hit 15-nation economy. The euro-zone reported a trade surplus of 900 million euros ($1.27 billion) in October from a year ago after posting a 4.5 billion euros ($6.36 billion) deficit in September. Euro exports of 141.2 billion euros ($199.65) were up 1 percent in October compared to the same month last year. This outpaced imports, which were up 3 percent to 140.3 billion euros ($198.37) - bucking a general trend in which euro nations now import more than they export. Meanwhile, BayernLB, the first German bank to seek state help, won EU approval for a 10 billion euros($14.14 billion) cash injection from the German government to help it survive the financial crisis. Germany has promised to put forward a restructuring plan for the bank within four months, it said. The bank already plans to slash 5,600 jobs - 29 percent of its staff - by 2013 and close offices outside Germany which will help it reduce costs by ?670 million.

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MOSCOW - The ruble ratcheted downward as the Russian Central Bank again loosened its defense of the currency, which is under constant pressure from declining oil prices and increasing economic woes. The depreciation was the second in as many days, the third this week, and the eighth since Nov. 11, when the bank began backing off support of the ailing national currency. The bank manages the value of the ruble against the dollar and euro, and has sought to let it fall in value more slowly than it would have under free market conditions.

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SINGAPORE - In a news conference here, World Bank President Robert Zoellick called on Asian governments to reject raising tariffs and other trade barriers in response to the global economic slowdown. Zoellick decried the failure of the Doha round of World Trade Organization talks and urged countries to maintain open trade policies. Asian economies, most of which rely on exports to drive growth, have suffered from a fall in demand from developed countries. While most countries in the region expect to avoid recession, they've all seen growth slow this year.

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MUMBAI, India - Lower fuel prices have pushed India's inflation down sharply, the Ministry of Commerce said, as the government tried to scrape together more funds to stimulate the country's flagging economy. The wholesale price index - India's most-watched inflation measure - hit 6.8 percent for the week ended Dec. 6, down from 8 percent for the prior week. This time last year, inflation was just 3.8 percent.

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SANTIAGO, Chile - A six-year cycle of rapid economic growth in Latin America will come to an end next year because of the global economic slowdown, a U.N. agency predicted. The Economic Commission for Latin America and the Caribbean said growth will fall to 1.9 percent in 2009 from 4.6 percent this year. Falling international demand for Latin America's commodities is stalling economic growth in the region, according to a presentation by commission Executive Secretary Alicia Barcena. In afternoon trading, Chile's IPSA was nearly flat at 2,349, while Argentina's Merval index lost 0.7 percent to 1,140 and the Bovespa in Brazil lost 0.5 percent to 39,763. Mexico's IPC gained 1.5 percent to 22,889.


Friday, December 26, 2008

ADAG to hire 90k in ‘next few months’

TIMES NEWS NETWORK

New Delhi:
Anil Dhirubhai Ambani Group (ADAG) on Friday said it plans to create 90,000 new
jobs in the next few months.
    A spokesperson said the company is creating up to 90,000 employment opportunities in insurance and other finance companies. Within three months, ADAG plans to recruit 75,000 to 90,000 agents and sales representatives to sell their tax savings and other financial products.
    The spokesperson said that the company would like to tap the opportunities created by the fall in interest rates. He said with interest rates coming down, investment climates will improve. Besides, 90,000 agents and sales representative, he said, the company will appoint 2,500 sales managers in the insurance sector alone.
    Besides this, he added that, there is not much impact on the telecommunication business so far due to slowdown in the economy and a large number of employees are being hired in the Reliance Energy and Reliance Infrastructure.
    He said the company is in the process of implementing a number of power plants in the country.


Businesses that can beat downturn blues

FOR SOME, IT IS BAPTISM BY FIRE

Debojyoti Ghosh & Swati Anand | TNN

Bangalore: For all entrepreneurs who feel that getting venture capital funding in times of downturn might be tough, here's a sunny story. Suresh Narasimha, CEO of TELiBrahma, received venture capital funding of $2 million two months ago. Narasimha, who started the company around 2004, is seeing the positive side of the slump. "As an entrepreneur, this is the time to focus on the actual value of your business and differentiate it with more propositions,'' he says.
    TELiBrahma is a Bangalore-based mobile solutions company, which currently has 50 employees. The company
powers solutions like bluetooth-based mobile advertising, promotions, enterprise solutions and location-based social networking and appears unaffected by the slowdown. Experts believe there are other sectors too that may do well, no matter what the current situation of the economy is. "Sectors like healthcare, education, consumer goods and retail as well as media and entertainment are bound to do well. The slowdown is not that severe in India as yet,'' says Pradeep Kanakia, national head of markets at consultancy firm KPMG.
    As for the IT sector, the focus has shifted from pure services to products, and technology in education and healthcare. At IDG Ventures, for in
stance, six of the nine companies that received funding from them are product companies. "We believe there are certain sectors that are truly recession-proof, like security, medical sciences and technology in defence and remote monitoring, says Sudhir Sethi, managing general partner, IDG Ventures India.
    In the slowdown, companies will invest less in new capital and would like to extend the life of existing capital assets. Hence demand for remote management and predictive maintenance technologies is expected to grow. "A major construction company has used such a technology from ConnectM and
has already seen a 15% cost saving,'' says Sethi. Energy management too is seen to be an area that will gain in such times, since it is a major cost for most companies. "Gifting is an area that might see downtrading, but will not stop. Hence our investment in the online initiative Myntra,'' says Sethi. "Avionics, autoelectronics and robotics will continue to do well.'' Laura Parkin, executive director of National Entrepreneurship Network (NEN), cites the example of an entrepreneur who runs a snack food company: "The company has grown by 10% in recent times. The entrepreneur told me that since people have stopped eating out, they buy more snack foods and eat at home.''


India Inc M&As defy mkt volatility in ’08

Deals Sealed From Oil & Gas To Auto Sectors

Mumbai: One would think the subprime credit crisis, fluctuating commodity and equity prices and the closure of a myriad large investment banks and other financial institutions could have dealt a body blow to M&A and private investment activity in the country. Not quite so. Despite recent events, India has seen some of the largest deals in sectors that were till recently not very popular among Indian deal makers—micro finance, oil and gas and automotive sectors.
    There have been some landmark deals announced during 2008 (January to December 15, 2008) which displays India Inc's resilience during turbulent times. The year also witnessed several billion dollar deals, eclipsing 2007's seven deals by two additional deals, according to a new report.
    What is hearty to note, India Inc remains a favourite destination for international private equity funding and inbound M&A. The country is also an active investor in international companies, thereby increasing its global footprint. There were 24 M&A deals with value of over $250 million in 2008 as compared to 22 deals and 20 deals in 2007 and 2006 respectively. Take Daiichi Sankyo's pharma target Ranbaxy Laboratories for $4,506.31 million for a 60% stake. Or even Oil and Natural Gas Corp Videsh's acquisition of Imperial Energy for $2,800 million. HDFC Bank acquired Centurion Bank for $2,377.50 million, while Tata Motors acquired the opera
tions of Jaguar and Land Rover for a cool $2,300 million. All in 2008.
    The year also saw a spurt in domestic M&A activity. The value of domestic deals announced has increased from $4.99 billion and $2.85 billion in 2006 and 2007 respectively to $5.09 billion in 2008, even though the volume of domestic deals decreased from 321 deals in 2007 to 171 deals in 2008. "Corporate India has done significant number of M&A transactions in 2008 with a value of over $30 billion. It is creditable to note that this has been achieved irrespective of the global economic slowdown and dwindling stock prices," said C G Srividya, partner, specialist advisory services at Grant Thornton.
    She adds: "It is noteworthy that the deal traction on M&A has been good andstable in all quarters, irrespective of the volatility in economy and market. After several years, we have seen a significant amount of high value inbound deals, showing the increasing interest and the attractiveness of Indian businesses to international companies." Last year, the inbound value was primarily from a single large deal. In
terestingly, some of the typical sectors such as oil & gas, automotive, chemicals among others have contributed significantly to the deal value.
    Deal volumes (M&A and PE together) though have dropped in 2008 as compared to 2007. There were more than 1,000 deals in 2007, as compared to 751 in 2008. The value of cross border deals (both inbound and outbound) announced in 2008 (January-December 15) has reduced by almost 47% from 2007, according to the annual Grant Thornton report.
    The value of inbound deals has fluctuated from $5.4 billion in 2006 and $15.50 billion in 2007 to $12.48 billion this year. The value of outbound deals fluctuated from $9.91 billion in 2006 and $32.76 billion in 2007 to $13.15 billion in 2008.
    PE investments in Indian companies have crossed the $10 billion mark in 2008. "While private equity has grown considerably over 2006 and prior years, it is about 45% less than last year. This is considering that the billion dollar deals that were seen last year were missing this year and the significant decline has come only from the second half of 2008," Srividya added.


Private equity deals decline by 80% in Oct & Nov

Mumbai: Private equity investments have declined by as much as 80% in the first two months of the December quarter with the ongoing credit crunch casting its shadow on the investment space of the country. Private equity investment in 41 companies during the October-November period stood at $969.22 million, a whopping 80% plunge over the same period last year.
    In the last year, there were as many as 71 deals during the corresponding period attracting an investment of $4,753.98 million, as per data compiled by Nexgen Capital, the merchant-banking arm of brokerage firm SMC Global.
    "With FII selling offsetting the investment this year and slowdown in the global economy, there is a lack of clarity about the entire economic scenario in the country. Hence, PE funds are adopting a wait-andwatch approach before investing their money," Venture Intelligence founder and CEO Arun Natarajan said.
    Meanwhile, analysts feel that volatility in the currency market has put pressure on the PE investors in the country as they are confused over the valuation of the company.
    "The number of PE deals are coming down this quarter and the road ahead is also quite competitive for the corporates as redemption pressure and lack of conviction are forcing PE players to hold back investment,"Jagannadham Thunuguntla, Nexgen Capital equity head, said. Also, corporates hit by the slowdown, and witnessing value erosion, would now see the average PE deal size coming down substantially from the previous period. "The average deal size in October-November 2007 period was at $40-45 million, which has come down to $5-10 million this year. We expect the trend to continue in the coming quarters till a sense of rationality comes back to the investors. Going forward, such a situation is expected to continue till mid or end of 2009," Thunuguntla said. Corporates which want investment are not able to attract funds. On the other hand, companies in which funds are interested, are playing hard to get bwecause of low valuations, he added. Also, a growing number of funds are now shifting focus to India-centric companies, being confident of assured returns. AGENCIES

Sunday, December 21, 2008

Sprinting the Last Mile

Tulip Telecom has seamlessly trascended between the wired and wireless platforms to connect people and places

 Acompany that has changed its name twice in the 16 years since its launch may come across as a bit confused. On the contrary, for Tulip Telecom (which is its most recent name) this has been an indication of an evolving and more mature business strategy. The company started in 1992 as Tulip Software, a partnership firm selling software products. With a proliferation of distributors and thinning margins, its promoters shifted to selling network equipment and setting up wireless networks for companies in 1999. In line with the new business, the name of the company was changed to Tulip IT Services in 2002.
    The next leap was towards providing services, when the company created its own networks that customers could use. This was followed by a second name change in April 2008 when it was rechristened Tulip Telecom, reflecting the company's new focus on enterprise data connectivity and managed services. "In 1999, we did a
project for Bank of Punjab (now a part of HDFC Bank) connecting 20 branches but the network was owned by the customer. Today we have our own network and we still work with HDFC Bank," says Lt Col (Retd) HS Bedi, chairman, Tulip Telecom, which clocked revenues of Rs 1,219 crore in March 2008. Bedi took premature retirement from the Army where he was last coordinating the Army's automation plan before embarking on his entrepreneurial journey.
    Today Tulip Telecom's portfolio includes network integration—which means that the company not only
designs and develops networks but also manages them for its clients. It is one of the largest Multi-Protocol Label Switching (MPLS) Virtual Private Network (VPN) providers using wireless for last mile connectivity. Simply put, this allows a user to use multiple service providers on a single network to improve reliability of access. Among Tulip's major wins is the Kerala government's Akshaya project where it created a district-wide network in Malappuram for e-enabling education centres, rural online banking, healthcare, placements, e-posts, Internet telephony and most importantly e-governance.
    Tulip is now India's largest MPLS-VPN service provider with about 28% share (source: Frost & Sullivan). The key, explains Bedi, was that while other service providers were using the last mile fibre optic net
works of other operators, Tulip chose to create its own last mile wireless network. "That is how we took the lead," he says.
    Four years ago, when the company was building its own network, Bedi recalls that he was on the lookout for private equity funding. "I was wanted Rs 30 crore but had a rough time because private equity players didn't understand the business," he says. But as time went by, the business requirements grew and so did its funding needs. "I was getting greedy and wanted more money to grow the business. Finally in 2006, we decided to go for an IPO diluting 31% of our shares and raising Rs 105 crore," adds Bedi. The stock market slide has affected Tulip's stock as well, pulling it down from a 52-week high of Rs 1,225 in January 2008 to Rs 385 in the beginning of December. The scrip, however, has already begun inching up and traded at Rs 537.50 on 19th December.

    Going forward, the company is reducing its exposure to network integration, which currently makes up a third of its business. "As most corporates try to cut down on capex, we are slowly reducing network integration and will get it down to 15% (of our business) soon," he says. The equipment business too is seeing diminishing margins. The new areas that Tulip is betting on are international bandwidth, high capacity domestic lease circuits and high capacity Internet. For this it's investing Rs 100 crore to roll out fibre optic cables in 10 large Indian cities targeting high-bandwidth customers, by March 2009. It's investing an additional Rs 500 crore to install fibre cables in rural areas over the next two years, says Bedi. In August last year, the company raised $150 million (approx Rs 750 crore) through the FCCB route. "Most of that money is lying in our account at the moment," says Bedi.
    Tulip is now looking at acquisitions in the managed services space in developed countries besides partnering with companies to roll out similar networks in the developing world. Explaining why the company has never forayed into the retail segment, Bedi says, "Retail involves high investments and profits are lower. I once
saw the business model of a competitor and he was losing money only because he was in retail." That strategic choice has paid off. Today, margins in the data business (services) are in the range of 30-40%, says Bedi. As for name changes, Bedi assures that there will be no more happening for now.
ravi.sharma4@timesgroup.com 




Mystery behind Maytas price tag

Big Four Auditors Say They Didn't Value Co

SATYAM'S valuation of unlisted Maytas Properties is turning out to be a whodunit. The big four audit firms have denied any role in the generous valuation of the private company owned by the Raju family. Satyam's abortive attempt last week to acquire Maytas has turned into a blazing corporate governance controversy.
    Satyam had said one of the big four audit firms was the advisor to the board. And, based on this report, the board had proceeded with the acquisition of privately-owned real estate company of the Rajus for $1.3 billion (about Rs 6,240 crore). In an email to ET, an E&Y spokesperson said: "I would like to reiterate that Ernst & Young was not involved with the Satyam-Maytas transaction." ET received similar responses from PwC, Deloitte and KPMG. ET interacted with the spokespersons of PwC and Deloitte, while the KPMG spokesperson responded through an SMS.
Realty slump makes Maytas valuation suspect
    THEN, who valued Maytas? Satyam did not reply to an email asking the basis on which the land bank of Maytas Properties was valued at Rs 6,400 crore, or Rs 1 crore per acre.
    Real estate brokers said the valuation was done when the prices of land on the outskirts of Hyderabad was below Rs 10 lakh an acre due to the slump in real estate prices.
    "Maytas Properties has three upcoming SEZs in Hyderabad and most are in the development phase. The firm also has properties in Nagpur, Chennai and cities in Andhra Pradesh such as Vizag. Putting these properties together, the maximum valuation could be Rs 3,500 crore. Considering current market conditions, even this valuation may be a little extreme. But a valuation of Rs 6,240 crore is completely over the top," a senior official with a leading property consultancy firm said.

    An independent Satyam director had earlier told ET that the board relied on E&Y's advice, something that has been denied by the firm. Satyam had to reverse its decision within 12 hours following protests by investors across the world. Despite the cancellation of the Maytas transaction, the Satyam scrip had crashed 33%.
    dev.chatterjee@timegroup.com 


Firms settle out of court with banks DERIVATIVE TRUCE

 AYEAR ago, many firms were up in arms against their bankers when their derivative deals backfired. It was the first big encounter of Indian companies with a brutal currency market and complex derivatives — the kind of stuff that were till then confined to the pages of Liar's Poker and Bonfire of the Vanities. Today, a working capital crunch and trade downturn have pushed them to the negotiating table.
    Sundaram Multi Pap, a Mumbai-based firm which was the first to move court, has unconditionally withdrawn the case, preferring instead to settle the entire loss with its banker ICICI — the most
aggressive derivatives player. The settlement happened some weeks ago.
    Some other firms that have agreed to resolve the derivative losses out of court are
Avanti Seeds, Ramdev Rice, Sumeet Industries and Nitin Spinners. A month ago, Bangalore-based silk fabrics exporter Himatsingka Seiden opted for a settlement with HDFC Bank, while an European bank recently resolved its dispute with a Tirupur exporter. Settlements are also being negotiated with companies which did not move court. "Nearly 40 clients of ICICI have signed MoUs with the bank to resolve the derivatives issues," said a senior official.
    Two things have made such agreements possible. First, the fall in Swiss franc against the dollar has cut the mark-to-market losses in these cross-currency derivatives, making the positions less risky and easier to settle. Secondly, some companies
were left with little choice after banks froze their working capital lines. Yen appreciation could spell trouble for cos
    ACCORDING to a senior lawyer, some banks had obtained orders prohibiting the promoters of companies — which had entered into derivatives — from disposing assets, particularly in cases where the promoter is a guarantor. "These orders restricted their ability to raise funds as securing loans against assets would have been construed as disposal of assets," he said.
    Indian exporters and other companies had entered into cross-currency derivative transactions with banks to either get a better exchange rate on their export receivables or convert more expensive rupee loans into Swiss franc or yen which carry a much lower interest rate. The deals went haywire when the Swiss franc and yen began to rise unexpectedly against the dollar and the exchange-risk protections derived from option contracts got knocked off.
    Today, a different story is unfolding. "The pain is in the dollar-rupee deals. After exporters who were hit by the earlier derivatives walked out of the
contracts, they sold their expected dollar receivables in the plain rupee-dollar foward market. Some of these deals stretch for as long as two to three years. Now, with the dollar rising against the rupee, they feel they have lost out," said a treasurer of a foreign bank. For these firms, it could be more than an opportunity loss. If the export market slumps, overseas buyers will ask for a better rate and that's when exports contracted at less attractive exchange rates may feel the pinch. However, there is a distinct feeling that the dollar surge is overdone and the next few months could see the greenback sliding against the rupee.
    Another currency to watch out for is the yen. Some companies — and bankers feel the number would not exceed 30 — may be feeling the jitters due to the recent appreciation of yen. Having breached 90 to a dollar, the Japanese currency may touch 85 in a thin December market. These corporates had bought yen protections at levels ranging from 90 and 85 to reduce the risks arising from a rising yen. Under the contracts, better known as American knock-out options, the protection will van
ish once yen touches that mark.
    These are synthetic deals to swap rupee loans into yen, where corporates pay the interest and repay the loan principal in yen. To hedge against yen volatility, many companies had bought currency options which give them the right to purchase yen at a pre-decided rate.
    So, even if yen appreciates, they would be in a position to buy the currency at a rate that is cheaper than the prevailing market rate. However, such options do not give absolute protection irrespective of the level at which the yen trades against the dollar. There are conditions: in some contracts, protection vanishes after the yen touches 90 or various levels between 90 and 85 a dollar. So, even if the yen recedes after touching 90, the companies will not enjoy the protection (or the option to buy yen at the agreed level).
    Corporates that have bought European options are better placed. For them, the exchange rate on the date of interest or principal payment is what matters. So if the yen shoots above the preagreed mark on those days, the protection would disappear.
    sugata.ghosh@timesgroup.com 





Wednesday, December 17, 2008

Satyam’s fall keeps traders busy churning strategies

Market just won't suffer nonsense. Mess with principles, you face brutal consequences. Satyam may have learnt it the hard way

SATYAM Computer was the centre of action on bourses on Wednesday, with traders churning out trading strategies to profit from the sharp dip in the stock. While many traders made money by simply creating short positions in Satyam futures, a handful of arbitrageurs managed to eke out profits from the price differential in spot and futures markets during the session.
    "Only astute traders, who managed to sell Satyam futures in the first few seconds after the market opening, have managed to get some good spreads," said Dharam Chand Sethia of Kredent Brokerage, a Kolkatabased proprietary firm.
    There was very little scope for option traders in Satyam in the absence of enough readily-available strikes. The exchange introduces limited fresh strikes in options contracts for the day's trading, based on the underlying's closing price in the previous session. Also, there is no facility to invoke fresh strikes during market hours. As the last strike available in Satyam options contract on Wednesday was Rs 205 and the stock was trading between Rs 160 and Rs
170 for most of the day, most traders were forced to stick to futures and shares. Satyam shares ended at Rs 157.10, down 30.6%, or Rs 69, from Tuesday.
    Around 11.5 crore Satyam shares were traded on both exchanges combined in the cash segment, while the total open interest in its futures contracts was over 1.7 crore. Brokers said the sharp fall in the stock triggered some margin calls — a demand from a broker to his client for margin deposit — in cases where investors had judged that the stock would not fall below the recent lows and had created long positions. They added,
however, that the cascading impact of margin calls was limited as Satyam futures are not heavily traded on a regularly basis.
    Analysts said the sharp build-up of positions in Satyam in the past few sessions worth 60 lakh units in open interest till Tuesday, indicated that some informed investors had already received a whiff of the now-shelved Satyam-Maytas plan. Though Satyam's prospects on bourses may be subdued in the foreseeable future, analysts expect a rebound in the stock over the next couple of days, led by short-covering.
    nishanth.vasudevan@timesgroup.com 


RAJU BAN GAYA GENTLEMAN

Deal off but hostile bid threat looms
SUDDEN IMPACT: CO GETS INTO DAMAGE CONTROL
Satyam promoters couldn't live this one down, and killed the idea even before it could take off. Stung by shareholder criticism, they dumped the plan to buy Maytas' stakes. But the damage is done. Share price has tanked, its credibility is at stake and no one's buying the Satyam story.

RATTLED by the shareholder backlash and a brutal stock market, Satyam Computer Services is bracing itself for any eventuality, including a hostile takeover bid or a forced change of management. It is looking at options like a share buyback and a special dividend payout to restore investor confidence in the near term. The company may also continue to pursue other acquisitions, CFO V Srinivas told ET. The company's ADR was up 51% at $8.62 in initial Wednesday trades, an indication that the company's contrition had at least some impact on irate investors.
    Under relentless assault for poor corporate governance, Satyam announced on Wednesday morning, well before the
market opened, that it was calling off the controversial $1.6-billion deal to buy two firms — Maytas Properties and Maytas Infrastructure — founded by the family of its promoter and chairman B Ramalinga Raju.
The dramatic developments since the deal was announced and the 30% slide in the stock on Wednesday, seem to have shaken up some members of the senior management. "We cannot rule out anything, including a hostile takeover bid at this juncture, especially given the valuations now," said Ram Maynampati, a whole-time director. While hostile bids are rare in India, the possibility of institutional investors paring their holdings has strength
ened such perceptions. For instance, after the deal was called off, A Balasubramanian, CIO of Birla Sun Life Mutual Fund, said, "While we, as a fund house, will not participate in the panic, we will definitely think of corrective action in the near future."
    According to unconfirmed reports, Satyam had proposed the deal since some of the promoters and their investment firms had faced margin calls from financiers after having borrowed against stocks. Besides the expected downgrades by brokerages, what's significant is that institutional shareholders have not softened their view on the management, even after the deal was cancelled. A senior official of a private life insurance company said, "We have doubts regarding their intent. We are initiating a meeting with the management and do not rule out legal action."

REALITY CHECK

CENTRE STAGE
Trading revolved around Satyam

RATING DOWN
Brokerages downgrade stock

ETHICS FIRST
Mellowed FIs willing to talk
Hostile bid for Satyam unlikely, feel investment bankers
    SUKUMAR Rajah, CIO (equity) of Franklin Templeton, said: "Our endeavour is to focus on companies with higher quality management standards, and in case of any corporate governance lapse, we look to limit the adverse consequences for our investors through various measures."
    The market capitalisation of Satyam fell by $1 billion to Rs 10,649 crore ($2.23 billion) on Wednesday from Rs 15,261 crore ($3.2 billion) on Tuesday. The company has a cash pile of around $1.2 billion — one factor that could make it a potential takeover target. Investment banking circles, however, feel that a hostile bid for Satyam is unlikely. The head of M&A of a large overseas firm said, "Satyam has been very vulnerable for some time. Would somebody be brave enough to do that now?" On the other hand, a number of market participants felt Ramalinga Raju may not have as much influence on shareholders as he did earlier.
    Also, in case of a hostile takeover, it would take a lot of effort to delist the company or even reach the 51% mark, said another senior banker. Mr Raju was not seen selling out even though the promoter stake in the company has been falling for some time, he said. Most corporates, especially MNCs, feel hostile bids don't go down well with Indian authorities. "Though theoretically it's possible, the acquiring company needs to have a lot of staying power," said a senior banker.

Tuesday, December 16, 2008

Advance Tax Mop-Up Signals SLOWDOWN

The Advance tax numbers are out for the quarter from October till December and going by the numbers, it not half as bad as we all had expected. From fears of advance taxes not coming in or more than halving, the figures that have come out, especially in today's trying times is very encouraging. What brings some succor to the heart and once again reiterates the faith in the PSUs is the fact that they have kept up the momentum and it is private sector which has shown the dip. As we say time and again, the Govt can teach a lesson or two to USA about managing finances while we can learn many lessons about managing security in the country from the US.

 

Before we go ahead, it is pertinent to understand that advance tax is paid every three months, four times a year and in four instalments:

On or before the 15th June --- Not less than fifteen per cent.

On or before the 15th September--- Not less than forty-five per cent, as reduced by the amount, if any, paid in the first instalment.

On or before the 15th December --- Not less than seventy-five per cent, as reduced by the first and second instalments.

On or before the 15th March --- which is 100%, as reduced by the amount paid in the earlier instalments.

 

Hence the significance of the Advance Tax, as it is an indicator of the health of not just the company but is a reflection of the economy. Given the trying times, it was expected that figures for Oct-Dec quarter would show a dip but surprisingly, the Advance Tax numbers have been good. State Bank of India has emerged as the top tax payer for the third quarter with a 56% jump in the payment on a YoY at Rs.1700 crore. Bank of India showed a 76%  jump at Rs.370 crore, Bank of Baroda paid 10% higher at Rs.220 crore and the highest jump was by Central Bank of India, up by a whopping 123% at Rs.163 crore. LIC Housing reported a 33% jump at Rs.44 crore.

 

The private sector banks have not had to so good. HDFC Bank, on a YoY showed a 10.7% dip in advance tax for the third quarter at Rs.250 crore. ICICI Bank also showed a marginal dip of 0.6% at Rs.470 crore. Indusind Bank reported a 10% rise in the payment at Rs.22 crore and HDFC showed a 30% jump at Rs.279 crore. Clearly, the PSU banks outweigh the private sector banks when it comes to advance tax payments in current Q3.

 

On the companies front, the story is not so good for India Inc. Reliance Industries showed a 15.22% dip in its advance tax payment for Q3FY08 at Rs.440 crore as against Rs.519 crore last years Q3. L&T showed a robust 73% rise , while Tata Chemcials showed a 46% rise, TCS showed a rise of 19% , Tata Steel showed a 69% drop, Tata Power paid 12% higher and Tata Sons showed a 72% dip. This means that to a large extent, the Tata group had a mixed bag. 

 

Though other auto companies are yet to give their numbers, the going is expected to be tough, at least that is what the figures of M&M indicates, which for Q3FY08 has shown a shocking 93% drop in advance tax payments. Cement sector is also expected to take a hit and Ultratech showed a 53% drop. Numbers are expected to come from realty which would again be a eye sore. Ditto for steel. Pharma has turned in a negative collection and by the time the rest of the companies announce, it is sure to show a dip.

 

Despite this, like all of us, the Central Board of Direct Taxes (CBDT) is also optimistic and does not feel that current figures are bad. It has infact not revised its direct tax collection target downward for the current fiscal, and it still remains at Rs 395,000 crore.

Q3 advance tax figures are very important as they indicate the earning ability of the company give the fact that they need to pay a whopping 75% of their estimated estimated tax liability for the year by December 15. So if a company shows a huge fall in the payment, it means that its bottomlines are under pressure. These figures will thus indicate which companies are in trouble and which are still holding their head above the water.

Sunday, December 14, 2008

Shocking predictions... (Must read)...


 

The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting a revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente,
 the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine
considering what he told Fox News this week.

Celente says that by 2012 America will become an undeveloped nation, that there will
be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

"We're going to see the end of the retail Christmas... .we're going to see a fundamental
shift take place....putting food on the table is going to be more important that putting gifts under the Christmas tree," said Celente, adding that the situation would be "worse than the great depression".

"America's going to go through a transition the likes of which no one is prepared for,"
said Celente, noting that people's refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.

Celente, who successfully predicted the 1997 Asian Currency Crisis, the subprime
mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as "The Panic of 2008," adding that "giants (would) tumble to their deaths," which is exactly what we have witnessed with the collapse of Lehman Brothers, Bear Stearns and others. He also said that the dollar
would eventually be devalued by as much as 90 percent.

The consequence of what we have seen unfold this year would lead to a lowering in
living standards, Celente predicted a year ago, which is also being borne out by plummeting retail sales figures.

The prospect of revolution was a concept echoed by a British Ministry of Defence
report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, "The world's middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest," and that, "The middle classes could become a revolutionary class."

In a separate recent interview, Celente went further on the subject of revolution in America.

"There will be a revolution in this country," he said. "It's not going to come yet, but it's
going to come down the line and we're going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen."

"The first thing to do is organize with tax revolts. That's going to be the big one because
people can't afford to pay more school tax, property tax, any kind of tax. You're going to start seeing those kinds of protests start to develop."

"It's going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes
of which we have never seen before. Tent cities are already sprouting up around the country and we're going to see many more."

"We're going to start seeing huge areas of vacant real estate and squatters living in them
as well. It's going to be a picture the likes of which Americans are not going to be used to. It's going to come as a shock and with it, there's going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people's minds weren't wrecked on all these modern drugs - over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody's comprehension."

The George Washington blog has compiled a list of quotes attesting to Celente's accuracy as a trend forecaster.

"When CNN wants to know about the Top Trends, we ask Gerald Celente."  - CNN Headline News

"Gerald Celente has a knack for getting the zeitgeist right."
- USA Today

"There's not a better trend forecaster than Gerald Celente. The man knows what he's talking about."
- CNBC

"Those who take their predictions seriously ... consider Gerald Celente and the Trends Research Institute."
- The Wall Street Journal

"Gerald Celente is always ahead of the curve on trends and uncannily on the mark ... he's one of the most
accurate forecasters around."
- The Atlanta Journal-Constitutio n

"Mr. Celente tracks the world's social, economic and business trends for corporate clients."- The New York Times

"Mr. Celente is a very intelligent guy. We are able to learn about trends from an authority."- 48 Hours, CBS News

"Gerald Celente has a solid track record. He has predicted everything from the 1987 stock market crash
and the demise of the Soviet Union to green marketing and corporate downsizing."- The Detroit News

"Gerald Celente forecast the 1987 stock market crash, 'green marketing,' and the boom in gourmet coffees."- Chicago Tribune

"The Trends Research Institute is the Standard and Poors of Popular Culture."- The Los Angeles Times

"If Nostradamus were alive today, he'd have a hard time keeping up with Gerald Celente."- New York Post

So there you have it - hardly a nutjob conspiracy theorist blowhard now is he? The price of not heeding
his warnings will be far greater than the cost of preparing for the future now. Storable food and gold are two good places to make a start.

Sunday, December 7, 2008

how to cash in on intra-day volatility

In the current uncertain times, playing in a volatile market may be the only way investors can extract profits from the stock market. Ashish Agrawal and Amit Jain tell you how to cash in on intra-day volatility



    VOLATILITY IS no longer being shunned by retail investors these days. In fact, a new breed of investors has emerged which likes to play with the market and is ready to take risks. This is a far cry from the days when retail investors used to play safe and invest with a long-term horizon.
    Further, since these are uncertain times in the stock market, the indices and individual stocks have started dancing in tune to the movements in overseas markets.
    Given the turmoil in global markets, it is become increasingly difficult for traders and investors to make profits, since all decisions at the global level affect the domestic market as well. Perhaps the only way that retail investors or traders can extract profits from the stock market is to make the most of the intra-day volatility seen in highly liquid stocks, rather than carrying forward their risks.
    To provide a reckoner on volatility for this set of investors, ET Investor's Guide examines the intra-day volatility of
constituents of the Nifty 50 and Nifty Junior stocks for the period January-November '08. The exercise involves calculating the daily volatility for 221 sessions so far and arriving at the average volatility on the basis of this.
    Volatility refers to the variation in the value of the underlying and thus measures its instability. Though volatility is generally perceived to be negative, indicating high risk, it can be turned to an investor's advantage if s/he buys at the day's lows and sells at the day's highs. While there are complicated mathematical ways of calculating volatility, a simple method is by looking at the highest and lowest value of the stock.
    For example, if a stock had a price range of Rs 900-1,100 on a day, then its volatility for the day will be 200 divided by 1,000 (the average value), expressed in percentage terms. The volatility in this particular case works out to 20%.
    Our analysis shows that Housing Development & Infrastructure (HDIL) has the maximum average volatility during this period at 9.1%, with the highest volatility of 34.9%.
    This is followed by Unitech, with
average volatility of 8.5% and highest volatility of 75.6%. The top 10 companies have average volatility ranging from 7.6% to 9.1%. This means that if an investor had taken an exposure of Rs 100,000 each in the top 10 stocks at the day's low and sold at the day's high, s/he would have made a total gain of Rs 80,187, or 8.02% of the exposure taken, on an average day.
    Even if an investor is able to encash 50% of the total gains available through intra-day volatility, s/he would have made a total gain of Rs 88.6 lakh on an exposure of Rs 10 lakh — which is almost nine times the exposure taken over a 10-month period! If you think capturing even 50% value is too much and requires a lot of skill, settle for 10%. Even that will give you about Rs 18 lakh within 10 months!
    There is scope for an even higher risk and better returns than what we have mentioned so far. This is possible in case of intra-day players who take positions to exit them on volatility at a suitable time during the same session, in the futures and options segment.
    What is even more interesting is that
the exercise requires a very small capital base in hand — only to offset the maximum losses that an investor undertakes in case s/he continuously goes wrong for a week or so. However, to be on the safe side, a retail investor can make the most of this intra-day volatility by keeping some strict stoploss options on a daily basis, to ensure that his losses get restricted on days when his calls go wrong.
    Our analysis shows that the most volatile stocks are concentrated in the real estate and financial services sectors. Among the top 10 most volatile stocks, three are from the reality sector, while two are from the financial sector.
    It may be noted that these sectors displayed maximum volatility during last year's bull run as well. The list also includes names such as Moser Baer and Suzlon Energy, which have become highly volatile in recent times because of various company-specific factors. While there are no trends in terms of promoter group, there are three companies from the Reliance ADAG group among the top 10 volatile stocks.
    On the other hand, as regards intra
day traders who like to play safe to ensure that their risks get minimised, our study reveals that even the least volatile stocks among the Nifty 50 and Nifty Junior constituents display average intra-day volatility of 3.9-4.8%.
    These stocks mainly belong to the FMCG and pharma sectors. They include companies such as Cipla, Sun Pharmaceutical, Cadila Healthcare, Aventis, Hindustan Unilever, ITC, Asian Paints, Container Corporation and Infosys Technologies.
    Even capturing half of that volatility, say 1.75-2% on every trading day, will benefit investors, considering that returns are not available by investing in a falling market.
    Although the sectoral thrust of last year continues, the future may not be a replica of the past. The sectoral focus keeps changing with a varying macroeconomic environment, diverse consumer preferences and government policies. For investors who want to cash in on the intra-day volatility, the real art lies in being aware of the changing market dynamics.
    ashishkumar.agrawal@timesgroup.com 




how to cash in on intra-day volatility

In the current uncertain times, playing in a volatile market may be the only way investors can extract profits from the stock market. Ashish Agrawal and Amit Jain tell you how to cash in on intra-day volatility



    VOLATILITY IS no longer being shunned by retail investors these days. In fact, a new breed of investors has emerged which likes to play with the market and is ready to take risks. This is a far cry from the days when retail investors used to play safe and invest with a long-term horizon.
    Further, since these are uncertain times in the stock market, the indices and individual stocks have started dancing in tune to the movements in overseas markets.
    Given the turmoil in global markets, it is become increasingly difficult for traders and investors to make profits, since all decisions at the global level affect the domestic market as well. Perhaps the only way that retail investors or traders can extract profits from the stock market is to make the most of the intra-day volatility seen in highly liquid stocks, rather than carrying forward their risks.
    To provide a reckoner on volatility for this set of investors, ET Investor's Guide examines the intra-day volatility of
constituents of the Nifty 50 and Nifty Junior stocks for the period January-November '08. The exercise involves calculating the daily volatility for 221 sessions so far and arriving at the average volatility on the basis of this.
    Volatility refers to the variation in the value of the underlying and thus measures its instability. Though volatility is generally perceived to be negative, indicating high risk, it can be turned to an investor's advantage if s/he buys at the day's lows and sells at the day's highs. While there are complicated mathematical ways of calculating volatility, a simple method is by looking at the highest and lowest value of the stock.
    For example, if a stock had a price range of Rs 900-1,100 on a day, then its volatility for the day will be 200 divided by 1,000 (the average value), expressed in percentage terms. The volatility in this particular case works out to 20%.
    Our analysis shows that Housing Development & Infrastructure (HDIL) has the maximum average volatility during this period at 9.1%, with the highest volatility of 34.9%.
    This is followed by Unitech, with
average volatility of 8.5% and highest volatility of 75.6%. The top 10 companies have average volatility ranging from 7.6% to 9.1%. This means that if an investor had taken an exposure of Rs 100,000 each in the top 10 stocks at the day's low and sold at the day's high, s/he would have made a total gain of Rs 80,187, or 8.02% of the exposure taken, on an average day.
    Even if an investor is able to encash 50% of the total gains available through intra-day volatility, s/he would have made a total gain of Rs 88.6 lakh on an exposure of Rs 10 lakh — which is almost nine times the exposure taken over a 10-month period! If you think capturing even 50% value is too much and requires a lot of skill, settle for 10%. Even that will give you about Rs 18 lakh within 10 months!
    There is scope for an even higher risk and better returns than what we have mentioned so far. This is possible in case of intra-day players who take positions to exit them on volatility at a suitable time during the same session, in the futures and options segment.
    What is even more interesting is that
the exercise requires a very small capital base in hand — only to offset the maximum losses that an investor undertakes in case s/he continuously goes wrong for a week or so. However, to be on the safe side, a retail investor can make the most of this intra-day volatility by keeping some strict stoploss options on a daily basis, to ensure that his losses get restricted on days when his calls go wrong.
    Our analysis shows that the most volatile stocks are concentrated in the real estate and financial services sectors. Among the top 10 most volatile stocks, three are from the reality sector, while two are from the financial sector.
    It may be noted that these sectors displayed maximum volatility during last year's bull run as well. The list also includes names such as Moser Baer and Suzlon Energy, which have become highly volatile in recent times because of various company-specific factors. While there are no trends in terms of promoter group, there are three companies from the Reliance ADAG group among the top 10 volatile stocks.
    On the other hand, as regards intra
day traders who like to play safe to ensure that their risks get minimised, our study reveals that even the least volatile stocks among the Nifty 50 and Nifty Junior constituents display average intra-day volatility of 3.9-4.8%.
    These stocks mainly belong to the FMCG and pharma sectors. They include companies such as Cipla, Sun Pharmaceutical, Cadila Healthcare, Aventis, Hindustan Unilever, ITC, Asian Paints, Container Corporation and Infosys Technologies.
    Even capturing half of that volatility, say 1.75-2% on every trading day, will benefit investors, considering that returns are not available by investing in a falling market.
    Although the sectoral thrust of last year continues, the future may not be a replica of the past. The sectoral focus keeps changing with a varying macroeconomic environment, diverse consumer preferences and government policies. For investors who want to cash in on the intra-day volatility, the real art lies in being aware of the changing market dynamics.
    ashishkumar.agrawal@timesgroup.com 




US auto slowdown to hit IT cos here

THE slowdown in the US automobile industry is likely to impact the growth of select Indian IT companies. Some Indian companies such as Satyam Computer Services, TCS, Wipro and Infosys could be hit by delayed payments and a freeze in contracts as their major customers in the auto sector face threat of bankruptcy, according to analysts.

    The top three US automakers — General Motors (GM), Ford Motor and Chrysler — are seeking a bailout from the US government. And, even if they succeed in getting the bailout, their IT expenditure could drop more than $1.5 billion a year, said analysts. Future contracts could come with demands for price cuts, which the IT majors will be pressurised to agree to.
    "To cut costs, auto companies would shrink in size to trim their operations. Some of them will shut down a few plants. This means reduction in operational IT spends," Gartner VP advisory service manufacturing group Thilo Koslowski told ET. The companies are also likely to axe expenditure on new IT initiatives often referred as discretionary spends.

    Edelweiss Capital's IT analyst Viju George said: "In case of a bailout, the US auto companies would cut their discretionary spend to stay afloat. As of now, about a third of their IT spends are of discretionary nature. This portion could get impacted going ahead."
    Analysts say the magnitude of the impact would be known in next 2-3 months, once auto players have a relook at their IT budgets.
    Though the IT budgets of these auto companies are as small as 1-2% of their total revenue, in absolute terms, it is a sizeable amount given their huge
toplines. GM ended 2007 with $181 billion in revenue. Ford and Chrysler reported sales of $172 billion and $58.6 billion, respectively. IT spends are likely to fall by at least half a per cent over the next years for each of these companies, said Mr Koslowski. This would mean the overall IT expenditure of the three US auto giants would fall by $1.5 billion.
    Among the top-five Indian IT exporters, Satyam is likely to take the biggest hit as it provides IT services to GM and Ford. "Satyam is likely to be
affected the most as it earns 5-6% of its revenue from the automobile sector," said Mr George. According to him, impact on Wipro will be muted as its exposure to the auto sector is modest. GM is Wipro's clients too.
According to industry observers, exposure of TCS to the US auto sector is limited only to Chrysler and is likely to be less affected. "Infosys would get impacted as a good portion of incremental deals won by Infosys in the past 7-8 quarters are in manufacturing vertical," said Religare Capital
markets IT analyst Anurag Purohit. A senior official of the IT giant said clients had frozen talks on the new contracts that are currently on the anvil. Officials of Infosys, TCS, Wipro and Satyam were not available to respond to ET queries on this.
    Gartner's Koslowski said US auto clients, who earlier used to ask for a 3-5% price cut every year, are bound to pressurise their IT vendors for more at lesser costs. "They (IT companies) will have to be more flexible while approaching the auto companies," he said.
    jessica.irani@timesgroup.com 



A RS 31OOO-CR PUSH

CENTRE OPENS BAG OF GOODIES TO KEEP THE GROWTH ENGINE WHIRRING After rate cut, govt slashes duties across-the-board & lines up a slew of measures for exporters, realty & auto

THE government on Sunday unveiled a Rs 30,700-crore fiscal stimulus package mainly comprising additional spending and excise duty cuts aimed at boosting consumption, the latest in a flurry of measures being rolled out by policymakers, keen to steer the economy away from a painful slowdown.
The government's fiscal package, announced a day after
the central bank cut a key interest rate, has Rs 20,000 crore in additional expenditure, an across-the-board 4% excise duty cut amounting to Rs 8,700 crore and benefits worth Rs 2,000 crore for exporters.
    In addition, the government hopes to precipitate infrastructure projects worth Rs 100,000 crore through faster clearances of public-private partnership projects, and ensure their easier financing by way of a tax break on fund raising by the India Infrastructure Finance Company, a specialist lender to the infrastructure sector. The government will also take steps to ensure that already budgeted expenditure of Rs 300,000 crore will actually be spent over the next four months of the current fiscal to end-March 2009, as it increasingly resorts to pumppriming to shore up the economy that continues to face headwinds from the global financial market turmoil.
    These measures complement Saturday's
one percentage point cut in the repo rate announced by the central bank, and the refinance facilities for housing and small and medium industries that are designed to boost the slowing realty and manufacturing sectors.
    Planning Commission deputy chairman Montek Singh Ahluwalia told reporters that the government would not hesitate in taking further expansionary measures if the economic situation worsened.
    The latest steps will lift the government's fiscal deficit above its target of 2.5 % of gross domestic product this year, Mr Ahluwalia said, adding that a higher fiscal deficit was tolerable in the current environment and was an appropriate "counter-cyclical" policy. "It is a desirable step in times
of external contraction." The fiscal package drew a mixed response from the industry.
    Car manufacturers reacted positively and promised to pass on the duty cuts to consumers, which would bring prices down by between Rs 8,000 and Rs 45,000. Public sector banks are expected to announce easier terms for housing, auto and personal loans on Monday.
    "We were anticipating a package of Rs 70,000 crore. A few sectors such as steel, cement, construction and real estate need boost from the government," said Assocham president Sajjan Jindal. The trade body is expecting another package of
around Rs 30,000 crore in January.
    "Given the extent of problems that are being faced by the industry, we hope that Sunday's announcement is only part of the total fiscal package and more such measures will be seen in the near future," said CII director general Chandrajit Banerjee.
    An official statement said the government has been concerned about the impact of the global financial crisis on the Indian economy. The global roil has already forced several developed economies into a recession, and hit India too. The economic growth this year is expected to ease to around 7%, down from the average 9% in the past three years.
    Instead of cutting duties selectively, the government has cut the Cenvat, or excise duty, by 4% on all products, barring petroleum products. The three major rate slabs of central excise duty — of 14%, 12% and 8% — will now stand at 10%, 8% and 4%, and Mr Ahluwalia said the government was
hopeful that companies would pass on the benefit of the cuts to consumers. This could give a fillip to domestic demand in sectors such as automobiles, consumer durables and cement that are most affected by the economic slowdown.
    The package provides Rs 1,450 crore to the exports sector, which for the first time in five years saw a 12% drop in October. Exporters will get refunds of terminal excise duty, a lower interest rate of 7% for pre- and post-shipment credit for sectors such as handloom, textiles, leather, marine, gems & jewellery and small and medium enterprises.
Collateral-free lending on loans up to Rs 1 cr
    IT allows labour-intensive medium, small and micro enterprises collateral-free lending on loans of Rs 50 lakh up to Rs 1 crore. Besides, the lock-in period for loans under an existing credit guarantee scheme are being cut to 18 months from 24, a move that will encourage banks to give more loans to the sector. RBI has already announced an increase in re
finance facilities to SIDBI. The housing and infrastructure sectors also received significant emphasis in the package. To ensure that infrastructure projects are not starved of funds, the government allowed the India Infrastructure Finance Company to raise Rs 10,000 crore by way of tax-free bonds, giving it a larger pool of funds to refinance long-term loans to the sector. The power sector has been allowed dutyfree import of naptha.


Govt To Spend Rs 20K Cr More; Home Loan Package Coming

Excise cut 4% across the board to boost demand

New Delhi: Faced with a somnolent economy that's not responding enthusiastically to monetary measures such as interest rate cuts, new finance minister (and Prime Minister) Manmohan Singh on Sunday took the twin route of fiscal incentives and government spending to stimulate growth.
    He has identified two important levers that might spur the economy back on the growth path. First, and perhaps the most important, is keeping comsumption levels in the economy high, even if that requires the government spending from

its own pocket. The second is related to the first: Ensuring that employment levels do not fall, not only to ensure continuing consumption but also because growing unemployment is suicidal when elections are just a few months away.
    With these two broad-brush objectives in mind, Planning Commission deputy chairman and trusted man of the PM, Montek Singh Ahluwalia unveiled a stimulus package for the economy with an acrossthe-board 4% cut in excise duties and a Rs 20,000-crore increase in plan expenditure as the centerpieces. Other meas
ures included interest rate cuts on loans for infrastructure and exports, while a separate package for home loans has been promised soon. There are also measures which are aimed at providing exporters and the really small scale units some breathing space. Looking at the breadth, scope and impact of the measures announced, it can be assumed that if Manmohan Singh had a middle name, it would probably be Keynes.
    Will the blanket cut bring down prices and encourage consumers to start shopping again, which in turn would create demand for industry? Ahluwalia expressed the hope that
manufacturers would use the opportunity provided by the excise duty cut to reduce prices. However, initial reactions from industry indicated that not all of them are planning to pass on the benefit to consumers. Car prices to fall, but consumer goods may not
    The governments booster dose drew a mixed response on Sunday. The effectiveness of the 4% excise duty cut across the board will depend on whether the industry passes on the benefits to the customers or not and that remains to be seen. While auto manufacturers, already suffering a dip in demand, said they would pass on the entire benefit to customers, makers of consumer
durables and non-durables were not very inclined to do so right away. Instead, they wanted to use the excise benefit to offset earlier costs. Planning commission deputy chairman Montek Singh Ahluwalia has already sent a signal, saying during the slowdown period, manufacturers should pass on the benefit by lowering prices to boost demand. P 19 Revenue loss not a worry, says Centre
    The excise cut would also impact imported goods, since the countervailing duty applicable to them would come down by the same amount. The 4% cut is estimated to cost the government Rs 8,700 crore by way of foregone revenues. If demand rise, the revenue loss would be smaller since what the government would lose by way of cutting duty it would make up through larger volumes.
    Ahluwalia said the government was not worried about the revenue loss or about the fiscal deficit. He admitted that the stimulus package would lead to widening of the fiscal deficit, but said the main aim of the government at present was to arrest the slowdown.
    Announcing the intention to increase plan expenditure by Rs 20,000 crore, Ahluwalia pointed out that with this, the government would be spending Rs 300,000 crore under plan and non-plan expenditure in the next four months of the current fiscal. This includes Rs 280,000 crore, provided in the budget but not spent so far.
    The government also decided to allow Indian Infrastructure Finance Company Limited (IIFCL) to raise Rs 10,000 crore in tax-free bonds. This will enable it to raise funds at a lower interest rate. IIFCL will use the funds to refinance low-interest bank lending to infrastructure projects under public-private partnership (PPP).
    The lower rates, Ahluwalia said, would improve the viability of projects.

Dr M's
Booster Dose For
Economy

Measure | Across the board excise duty cut of 4%
Impact | Prices of most manufactured goods to fall. Expect cheaper cars, bikes; consumer durables like washing machines, ACs; nondurables like soaps, eatables; commodities like steel, cement

Measure | Additional plan spend of Rs 20,000cr this fiscal Impact | Expected to stimulate demand and boost economy

Measure | India Infrastructure Finance Company Ltd allowed to raise Rs 10,000 crore through tax-free bonds for lending to highway projects Impact | Leg up for infrastructure projects; estimated that this would support public-pvt partnership projects worth Rs 1 lakh cr in highways

Measure | RBI to provide Rs 4,000crore refinance facility to National Housing Bank for
lending to housing finance companies at low rate
Impact | Cheaper home loans; expected to stimulate demand for houses

Measure | Govt to bear two percentage points of interest costs in loans taken by export units Impact | Indian exporters, hit by global slump, to become more competitive

Measure | Govt departments allowed to replace their vehicles in current fiscal Impact | Sale of cars to rise

Measure | More relief for micro and small units, apart from RBI pumping in Rs 7,000 crore into SIDBI Impact | Micro and small units, which employ millions, may stay afloat. Govt doesn't want these units to shut down in an election year

 

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