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Sunday, January 29, 2012

Should you buy these bonds?


Both Hudco and IRFC bonds offer good tax-adjusted returns, but retail investors should buy only if they don't plan to sell them on listing.

The recently ended tax-free bond issues from the National Highways Authority of India (NHAI) and Power Finance Corporation (PFC) have received a good response from all categories of investors, especially the high net worth individuals (HNIs) and institutional investors. While this helped the infrastructure companies to close the issues in advance, it left many retail investors in a quandary because they were waiting to apply at the last minute. As the interest rates have started declining after the issues, experts hope that these bonds will start trading at a premium to their issue prices. "The listing premium of NHAI/PFC bonds should be around 2-3%," says Vikram Dalal, managing director, Synergee Capital Services. However, retail investors don't have to enter the secondary market to buy the NHAI/PFC bonds because two more tax-free bond issues are currently available in the primary market. These are from the Housing and Urban Development Corporation (Hudco) and Indian Railways Finance Corporation (IRFC). 

Why you should rush 
Though the closing date for the Hudco issue is 6 February, and for the IRFC issue, it's 10 February, investors are advised to submit their applications at the earliest. This is because the probability of an early close in this case is also very high and, therefore, anyone waiting for the last minute is likely to be disappointed. As per the offer documents, the issuer has the right to close before the stated date, subject to the condition that it remains open for a minimum of three days. There is also another reason for this rush—both Hudco and IRFC bonds will be alloted to the investors on a first come, first serve basis up
to the limit reserved for each category of investors. So, the early birds will get the allotment. 
Lower rate 
The retail investors who apply for these bonds, including the Hindu undivided families (HUFs) who can invest up to 5 lakh should be a little 
more careful this time. This is because the higher rate offered to retail investors is applicable to the first allottee only. Anyone who buys these bonds from retail investors will only get the lower rates applicable to other investors' category. This implies that the price offered will also be less, so you should be ready for a much lower listing premium compared with that of the NHAI/PFC bonds. Though this should not affect the long-term investors, who are ready to hold these bonds till maturity, it may be a hindrance for those who want to sell it on listing. 
Other features 
Note that there is no cumulative option in these bonds and the interest payment will be on an annual basis. Though these bonds are available in dematerialised form, 
investors can also apply for them in the physical form, if they so desire. The minimum investment amount is 10,000 for Hudco and IRFC, but there is a minor difference. In the case of Hudco, investors can subsequently apply in multiples of 1,000, while for IRFC, it has to be in multiples of 5,000. There is also a difference in their rating levels—while IRFC is AAA rated, Hudco is only AA+ rated. "Since both are central government undertakings, there is no problem with their credit quality," says Dalal. Since Hudco is offering a bit more, you can settle for it, especially ifyou have to choose between the two due to lack of resources. 
Lock in at higher yields 
The timing of these bond issues is very important. The RBI has cut the cash reserve ratio in its previous policy review meet, and it is only a matter of time before it begins cutting the key policy rates. So, this is the right time to buy for investors who want to lock in at the existing high yields. Since bond price rates and bond yields are inversely related, the fall in interest rates will push up the prices of these bonds. Hence, these bonds also offer a good long-term trading opportunity to investors who want to apply now and sell it after 1-2 years after most of the rate reduction is over. "Once the interest rates start coming down, the prices of these bonds will start going up. Since the interest rates are expected to come down in the next 1-2 years, the combined return on these bonds, that is, the capital gain and interest earned, should be much higher for a 1-2 year holding period," says Virendra Kothari, managing director, Etica Wealth Management. 
Who should apply? 
Remember that these are tax-free bonds, not tax-saving infrastructure bonds and, therefore, the amount invested will not be allowed as deduction from your total income. While the interest is tax-free in these bonds, the interest earned on tax-saving bonds is taxable. So, these will be more beneficial for investors who are in the higher tax brackets. The pre-tax yield for retail investors who are in the highest tax bracket works out to be 12.01% for IRFC bonds and 12.08% for Hudco bonds.





Ambani Bros may Plan a Joint CBM Play

RIL & Rel Power have held initial talks to minimise costs by developing common infra for their blocks

RAJEEV JAYASWAL NEW DELHI 



    Mukesh Ambani's Reliance Industries and his younger brother Anil's Reliance Power have held initial talks to jointly develop their adjoining coal-bed methane (CBM) blocks, giving the estranged brothers another opportunity to join forces apart from the potential handshake in the telecom sector. 
Executives of RIL and Reliance Power confirmed that the two companies had initiated discussions a few months ago to optimise costs by developing common infrastructure at the contiguous CBM blocks in Madhya Pradesh. But talks were preliminary and so far they have not made significant headway, they said. Cash-rich en
ergy major RIL, which has the skills to drill on land and the deep sea, is close to starting production from its Sohagpur CBM block in 2012-13 and is locked in a dispute with the oil ministry over CBM pricing. It does not want to talk about collaboration. "We will not offer any comments," a spokesman said. Reliance Power said it was open to cooperation. "The company always evaluates possibilities of cooperation with other organisations in the zone of our investment area for expeditious execution of our projects," it said in response to a specific query from ET on cooperation in CBM with RIL. 
The Ambani brothers, who fought an acrimonious, public battle after they divided the business empire, had issued a joint statement in May 2010 saying that they had cancelled non-compete arrangements between them and hoped to create "an overall environment of harmony, co-operation and collabora
tion between the two groups". 
ET had reported in November that Reliance Industries was likely to use the towers and fibre optic cables of Anil Ambani's telecom company to provide high-speed data services, although this would not involve any equity investment. Last month, the 
Ambani family got together in a public display of bonhomie on the birth anniversary of their father, but no business announcements followed. Industry officials said that compared to the telecommunication sector that has a grand, country-wide operation, CBM, which involves commercial extraction of methane gas trapped in coal deposits, is a new and relatively small business. Companies such as RIL have opposed the government's move to tightly control CBM sales and pricing. RIL has opposed the oil ministry's directive that the government will choose the customers with whom it can negotiate prices — a constraint that the company says is a contractual violation that restricts its ability to recover costs. Reliance wants to use the pricing formula prevalent in LNG trade, which the government has opposed. According to oil ministry officials, RIL has completed CBM exploration activities and is expected to start gas production from Sohagpur fields in 2012-13. The government has approved development plans for RIL's Sohagpur blocks, an official said. Reliance Power has drilled about a dozen exploration wells in Sohagpur-East and plans to enter the next phase of drilling test wells to finalise the field development programme. The peak gas production from the three blocks is estimated at around 7 million standard cubic meters per day (mmscmd), about one-fifth of current output from RIL's KG-D6 block. While RIL has two blocks — Sohagpur-West and Sohagpur-East — Reliance Power has one block, Sohagpur-North. 
RIL bagged the two Sohagpur blocks in the first CBM bidding round in 2002. The West block has an area of 500 sq km, while the east block is spread on 495 sq km. RIL holds 100% interest 
in the two blocks. The government had awarded Sohagpur-North block to the Reliance Power-led consortium in September 2006 under the third bidding round. Geopetrol International is its partner in the project with 10% stake in the block, with an area of 609 sq km. India has the world's fourth-largest coal reserves, which are estimated to hold about 92 trillion cubic feet of coal-bed methane. The government has awarded over 30 CBM blocks and Great Eastern Energy-operated Raniganj block is commercially producing CBM.

Sebi Probes Patni Delisting on Shareholders’ Complaints

Some shareholders have complained that iGate has announced plans to delist Patni without first reducing stake to 75%; Phaneesh Murthy says co has got nod for all its plans

The capital market regulator is inquiring if technology outsourcer Patni Computer Systems can delist without lowering its promoter stake to 75% as mandated by law. 

The move follows complaints by some shareholders in Patni alleging that USbased software maker iGate has violated norms by announcing delisting of the Indian company without first paring its stake from 83% to 75%. 
"The regulator is looking into it after some shareholders complained," said a person familiar with the matter. 
In a public announcement on January 11, 2011, iGate had said it would delist Patni shares, after completion of the open offer, under the Sebi (Delisting of Equity Shares) Regulations 2009. But Sebi objected to the delisting after the open offer. The regulator, however, approved the open offer after the acquirer gave a commitment that it will not delist Patni without bringing down its stake. 
"Sebi cleared the open offer after an un
derstanding that it will not delist the company without bringing down the promoters stake to 75%," said a merchant banker familiar with the issue. He said after this, Patni released a corrigendum in newspapers on March 30, 2011, withdrawing its earlier announcement to delist. 
After the open offer, the shareholding of the acquirers reached around 83%. However, on November 16, Patni again announced its plan to delist by bringing down the promoter stake. 
iGate Patni CEO Phaneesh Murthy told ET: "We have followed all laws and have
got all approvals for whatever we are doing." Sebi did not respond to ET queries. 
Murthy has repeatedly said in the past that the company will bring back the shareholding of promoters in line with regulations. 'Yes, whatever are the current norms… we will comply with them and one of the norms, like you said, is very clear that we have to try and 
bring it down to 75%. You typically get a year to plan that out and do that. So we do not anticipate that we will be running foul of any of the regulators," he had told ET NOW on June 28, 2011. 
According to a ministry of finance notification, "every listed company shall maintain public shareholding of at least 25%. If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of one year from the date of such fall." Patni scrip touched a one-year low of 
. 250 in August last year due to bad market conditions and news that shares will not be delisted before bringing down the promoter stake. It closed at . 466 on Friday. 
An iGate-led consortium had clinched a deal to buy nearly 63% stake in India's sixth-largest IT firm Patni Computer for about $1.2 billion by buying the entire 45.6% stake of Patni brothers — Narendra Patni, Ashok Patni and Gajendra Patni — along with General Atlantic's 17.4% stake. The acquirers also bought another 20% from the public at . 503.50 a share via the mandatory open offer route.

Nasscom Sees Cloudy Skies for Indian IT

Exports may shrink in 2012-13 as clients hold back spending due to uncertain environment

HARSIMRAN JULKA & SHRUTI SABHARWAL 
The apex body of Indian technology companies is likely to forecast a slowdown in software exports in 2012-13, as corporations keep a wary eye on the global economic uncertainty and control expenses on information technology outsourcing. 

"As of now, two things are certain: we might not be able to beat the upper end of this year's forecast, and it's unlikely the industry will grow any faster next year," said an official at the National Association of Software and Services Companies, or Nasscom. 
The person requested anonymity because he was not authorised to share projections before Nasscom's annual summit in Mumbai in February. 
"Double-digit growth for financial year ending March 2013 would be a safe prediction," the official added. 
Nasscom's members, which include companies such as Infosys, Tata Consultancy Services and Wipro, are struggling to provide clarity about demand. In a normal year, Nasscom officials are more or 
less certain about the growth forecast by the end of January. But this time companies are still negotiating with customers on outsourcing budgets. 
Usually, Nasscom compiles forecasts from member companies, both Indian and multinationals, by January, and polls top analysts before giving its annual growth projection for the Indian IT industry sometime in February. 
"It doesn't look as robust. The picture is hazy this year. You can't see the goal unless the road is clear. We might revise it upwards during the year, if the picture becomes clearer," said another official. He added that companies are yet to submit revenue forecasts for the year, so an accurate prediction is not possible now. India's IT services and BPO exports were predicted by Nasscom to grow 16-18% in 2011-12 to $70 billion. The industry is likely to meet the target. 

V Balakrishnan, chief financial officer of Infosys, said clients have become cautious because of the uncertainty. Even though they have the budgets to spend, they may not do so, leading to fluctuations in forecasts by companies. 

"In such an environment, forecasting becomes a problem more than anything else because unlike earlier, growth does not come in a straight line," he said. Research firm Gartner has lowered its IT spend forecast from 4.6% to 3.7%. 
US, Europe still in Turmoil 
"US dollar-based IT spending in western Europe will contract in 2012 as the ongoing political uncertainty and a mild recession lead businesses and consumers in Europe to be cautious in the coming months about spending on IT products and services," said Richard Gordon of Gartner. 
Mid-sized tech company Mind-Tree is of the view that the depreciation of the rupee is hitting multinational software outsourcing firms, which contribute a significant portion of India's total IT exports. 
"If you look at most of the large Indian IT companies, they are growing at the upper end of Nasscom's guidance, so the problem is not there. What is impacting overall growth is that for multinationals and large US companies' captives, growth has been impacted because of the significant rupee depreciation," CFO Rostow Ravanan said. 

Outsourcing experts believe business started slowing down in mid-2011, and is yet to pick up momentum. 
Amneet Singh, vice-president of global sourcing at Everest Group, said total outsourcing activity in 2011 would be marginally lower than 2010, impacting the entire industry. 
"We are not seeing any positive indicators; the momentum is still weak. The US has political problems and Europe has the sovereign debt crisis which will continue to impact growth even in calendar year 2012."

Sari cancer a threat for women: Docs

Mum Medics Cite Three Instances

Chennai: The next time you drape a sari, you might want to re-tie that petticoat knot. According to an article in the November issue of the Journal of the Indian Medical Association, doctors at Grant Medical College (GMC) in Mumbai have reported cases of what they are referring to as 'sari' cancer. 

    "We have treated three women for waist or sari cancer in the past couple of years," says author of the article Dr G D Bakhshi, who is an associate professor of surgery at GMC. He authored the piece with colleagues Dr Ashok D Borisa and Dr Mukund B Tayade. While two of the patients diagnosed a couple of years ago are mentioned in the article, the third was detected three months ago. All the women were above the age of 40. 
    "The sari petticoat, if tied in the same place day after day, 
can cause chronic irritation along the waistline," says the report. "The constant irritation can result in scaling or pigmentation. But most sariwearers don't notice it until it gets chronic," says Dr Bakhshi. He adds that women need to be cautious because waist dermatoses can turn malignant as it did in the case of the three women treated at GMC. 
    Dr Bakhshi advises sariwearers to tie their petticoats looser or switch from the usual rope-like belt to broader ones that reduce pressure on the area. He also suggests that they keep changing the level at which they tie saris. "This kind of cancer does not really affect those wearing pants or belts because the pressure is spread over a larger area, unlike in the case of a petticoat nada or string," he says. 
    Treatment depends on the stage at which the cancer has been diagnosed. "If detected early, it can be treated with reconstructive surgery. But if the cancer has spread to the lymph nodes then we need to remove the malignancy," says Dr Bakhshi. He adds that if detected early the cancer is curable. 
    Chennai-based dermatol
ogist Dr Maya Vedamurthy says that around 3% of sariwearers who come to her have waist dermatoses but she has not seen any cases where it has turned malignant. "The moment I notice it, I tell the patient to start wearing the nada a little looser or switch to a broader string," she says. 
    Like sari cancer, there are several lifestyle-related cancers that are increasingly being seen in India, such as breast, ovarian and tobaccorelated cancers. "There are many types of tobacco-related cancers from lung and stomach to bladder and pancreatic. The cancer is also lifestyle-related, caused by smoking as well as increased levels of pollution in the environment," says Dr T Rajkumar, professor and head of molecular oncology, Cancer Institute, Adyar. 

SAFE RATHER THAN SARI 
Tie your petticoat string looser 
Get a broader string so the pressure on the waist is less 
Keep changing the position of the string each time you wear a sari 
If you notice scaling or pigmentation at the waistline, consult a doctor


Sunday, January 22, 2012

RBI may Hold Rates Despite Slowing Growth, Inflation

Few are forecasting an interest rate cut by Reserve Bank of India Governor Duvvuri Subbarao on Tuesday, despite growth slowing and inflation at a two-year low. Some are hoping for a cut in cash reserve ratio (CRR) without conviction. But everyone is praying, rather impatiently, that he does 'something' soon to revive the animal spirits. 

The first detailed monetary policy review since the curbs to arrest the rupee's slide against the dollar may dwell on the latest threat to economic management from the currency when domestic demand-fuelled inflation itself is yet to ebb. 
The inflation forecast of 7% by March may be retained, but the GDP growth estimate may be sliced to 7%, from 7.6%, amid falling demand for goods and subdued export growth due to the simmering European crisis. Any action will be a surprise. 
"It's worth keeping in mind that there are still upside risks to inflation from pent-up
commodity price pressures, fiscal slippages, and slow progress on structural reform," said Leif Eskesen, economist at HSBC. "With growth conditions improving slightly and core inflation still elevated, there is no compelling case to ease monetary policy this time around." 
A steadfast Subbarao has conditioned the 
market not to expect anything that would lead to compromising his anti-inflationary stance, even though some dodgy data such as the Index of Industrial Production have in the past prompted calls for monetary easing Guv Averse to Committing to Lowering Rates 
Although he has promised not to raise interest rates as focus shifts to reviving growth, the governor is averse to committing to lowering rates when crude and other commodity prices are either rising, or are subsidised. 
With the government poised to lift prices of many administered commodities such as oil, coal and fertilisers to limit the damage to its finances, Subbarao may highlight the potential for reversal in price rise to justify his pause, and not a cut in rates. 

"Economy is largely depending on diesel price," said Petroleum Minister Jaipal Reddy. "Any increase in price will have a cascading affect. Inflation is coming down at the moment. We will, therefore, wait for an appropriate moment and talk to state governments and take a decision." Inflation as measured by the Wholesale Price Index fell to a two-year low of 7.5% in December 2011, lower than a two-year average of about 9%. But it was influenced by lower food product inflation, which turned negative, while the central bank's barometer — manufacturing prices — continued to climb.

Thursday, January 19, 2012

RIL Earnings to Feel the Margin Pressure

Quarter Preview

Refiner may report a fall in Q3 profit, but interest income to support bottomline

Reliance Industries' December '11 quarter numbers are likely to be dismal, following a pressure on refining and petrochemical margins and weakness in KG basin gas volumes. This will be its first time in the past two quarters to show a fall in profit. A spurt in its other income could be the only positive factor in its earnings. 

RIL's all three major business segments will face a fall in profit for the December '11 quarter, according to analyst estimates. The petroleum refining business, which brings in over two-third of its revenues, will see gross refining between $7 and $8 per barrel — substantially lower to $10.2 of the first half of FY12. 
The demand for petrochemical industry has remained under pressure due to slowing economic growth throughout the December '11 quarter. This is likely to impact RIL's second-largest business segment, which contributes more than a fifth of the behemoth's topline. 
The company's gas production from KG D6 basin has been on a steady fall after briefly touching 80 MMSCMD in December 2009. The production is likely to have averaged 41-42 MMSCMD for the December '11 quarter. Further, the 30% stake sale to BP would reduce RIL's contribution from the gas sale. 
However, this time, its sagging 
earnings will have support from a new fourth segment — other income. After the BP deal, RIL is sitting on a cash pile in excess of . 75,000 crore, interest income on which could prove a significant support to the bottomline. 
At the aggregate level, the company's profits are likely to be down 5-12% from the year-ago level of . 5,136 crore. Whereas, net revenues are expected to show a growth of 19-33% over . 59,789 crore of December 2010. RIL's cash pile continues to bulge, 
which is a good thing for its balance sheet. However, analyst community remains concerned about its potential use. "Cash flow is greater than capex, and a significant part of incremental cash flows are being driven to non-core businesses, which in our view are return dilutive," mentioned a Morgan Stanley research report that downgraded RIL to 'underweight.' 
ramkrishna.kashelkar 
@timesgroup.com 


LIC, HDFC MF Go against the Tide, Stock Up on SBI LIC increased stake to 12.76%, HDFC MF bought 1.7% even as stock fell 13% in Q3



Two of India's largest institutional investors stocked up on shares of State Bank of India in the three months to December 31, when many on the Dalal Street were shunning the stock because of worries about the lender's asset quality. 
Life Insurance Corporation (LIC), India's largest institutional investor in equities, increased its stake in SBI to 12.76% from 8.68% while the country's largest asset manager HDFC Mutual Fund bought 1.7% stake for its Top 200 product. 
SBI shares, which closed at . 1,883.70 on Thursday, fell 13% during the quarter and touched a 52-week low of . 1,576 on December 20. BSE's Bankex dropped 15% and the Sensex declined 6% during the period. Brokers said LIC's investment in SBI last quarter was in line with its 'contrarian' investment strategy --buy when the crowd is bearish and vice-versa. 
During the quarter, domestic institutions, including insurance companies and mutual funds, raised their holding in SBI to 18.70% from 18.53% while foreign institutions
cut their stake to 7.88% from 8.65% "Last quarter was a good time to accumulate SBI. The bank has many structural positives, especially with the possibility of RBI changing its stance some time soon," said Vaibhav Agrawal, VP – research at Angel Broking. 
Investors have been concerned about the state-run bank's asset quality as a slowing economy and high interest rates threatened to in
crease its non-performing assets. Analysts said such worries persist. "With an ever-ballooning restructured portfolio (at over 4% of the loan book) that has already witnessed slippages at 20%, we factor in marginally higher NPLs (higher slippages and lower recoveries) during FY13E," said Ambit Capital analysts, in a recent note. The brokerage has a 'sell' rating on the stock with a price target of . 1,590. 
Recent reports that SBI has classified its exposure to Kingfisher Airlines as an non-performing asset had heightened worries. 
"Over the last quarter, the market was concerned about its asset quality. But hopefully, the stress assets will peak over the next two quarters, giving a positive boost to valuations. This will also coincide with a favourable turn in the interest rate cycle," said Rajat Rajgarhia, director – research at Motilal Oswal Financial Services. "For investors looking at a long-term horizon, SBI is trading at attractive valuations," he said.



PRE-PREF ISSUE LOCK-IN TO GO Sebi to Make it Easier for Cos to Tap MF, FI Funds

    Market regulator Sebi plans to allow mutual funds and insurance firms to subscribe to preferential issues of companies even if they have traded the shares of the issuing corporates in the past six months, to boost liquidity in the markets and make it easier for firms to raise funds. Such transactions are currently banned, blocking a key source of funds for companies. "The removal of the pre-preferential issue lock-in norm for financial firms would help India Inc raise resources from the domestic market," said the head of a foreign investment bank. 

But this restriction will continue to be in place for promoters. A Sebi official said institutional investors such as mutual funds and insurance companies play an important role in ensuring liquidity in the secondary market. "It is felt that they should be differentiated from promoters while applying the lock-in relating to pre-preferential issue. This unduly restricts the trading ability of institutional investors," he said. 
This restriction was imposed in 2004 to prevent institutional investors and promoters from manipulating the price at which shares were issued through preferential allotments. A preferential allotment is done by issuing shares of a company to a select group of investors at a price that is not less than the average price of the last six weeks. The revised norms are likely to be announced at a Sebi board meeting on January 28 in Delhi. The board is also planning to change the guidelines for foreign currency convertible bonds (FCCBs) and optionally convertible debentures (OCDs), and disallow the holders of these instruments from subscribing to 
bonus and rights issues. 
At present, the issuing company makes a provision in its books for bonus or rights shares in proportion to the FCCB holder's entitlement and transfers them at the time of conversion. In addition, bondholders are allowed to lower their conversion price in proportion to the equity expansion through these two routes. 
According to Sebi, these provisions result in granting twin benefits to such instrument holders, and it plans to correct this situation by doing away with their entitlement for bonus and rights shares. 

What's on Anvil 
Insurance firms and mutual funds will be exempted from six-month lock-in prior to preferential allotment. However, the lock-in on shares allotted in preferential issue will continue 

The six-month prepreferential issue lock-in for promoters to stay 
FCCB and OCD holders will not be allowed to subscribe t o 
bonus and rights shares 
Compulsorily convertible 
debenture holders will continue to be eligible for bonus and right issues 
Market Report 
Nifty Clears 5k on FII Buying, Strong Results 
OUR BUREAU MUMBAI 
The Nifty closed above the psychological mark of 5000 for the first time in six weeks, mirroring the strength in Asian markets, on news the International Monetary Fund (IMF) was seeking to boost its resources to tackle the euro zone debt turmoil. Strong demand for French and Spanish debt auctions also alleviated investor concerns over the crisis. 
BSE Sensex advanced 1.17% to close at 16643.74, while Nifty rose 1.26% to close at 5018 – the first time since December 7. 
Strong third quarter results from private lender HDFC Bank and two wheeler makers – Bajaj Auto and Hero MotoCorp – contributed to the upbeat mood, boosted by foreign institutional buying to the tune of . 630 crore on Thursday. So far in 2012, these investors have pumped in over $1 billion (. 5,023 crore), compared with $385 million of net sales in the whole of 2011. 
Aviral Gupta, fund manager - equity, Indiabulls Mutual Fund, said, "We expect FII inflows to be maintained throughout the year. There is negligible shock value in the system. We expect things to improve on both global and domestic fronts going ahead." 
Reliance Industries will be keenly watched as its board meets on Friday to consider and approve a share buyback proposal. Its stock price extended Wednesday's
gains by around 1% to close at . 785 on Thursday. 
Yields declined in France's bond sale on Thursday, the country's first auction since Standard & Poor's downgrade of the country's AAA credit rating. Spain's longer-term debt has received strong response, with yields down more than 150 basis points from a previous sale of the same bonds in November, according to agency reports. 
"These results are bullish for both Spain and the broader periphery, and stand to further underpin the ongoing 'risk-on' tone," Richard McGuire, rate strategist at Rabobank, told Reuters. The FTSE Eurofirst 300 was up 0.8% and the Euro Stoxx 50 has risen 1.4% at the time of going to the press. In Asia, MSCI Asia Apex 50 rose 1.4%, with Hong Kong's Hang Seng Index closing up 1.3% and Chi
na's Shanghai Composite Index also gaining 1.3%. 
Investors will now turn their focus to RBI's rate-setting meeting next Tuesday. While the central bank is more likely to keep the rates steady, investors are on the lookout for RBI's outlook on inflation and interest rates. "The RBI will most likely adopt a 'wait and watch' approach. The opinion on a possible CRR cut is divided," says Amar Ambani, research head, IIFL. "Much of the recent moderation in inflation is due to a combination of improved supplies and a high base, while the core manufacturing inflation remains sticky. There is a likelihood that food inflation might turn back up as the base effect starts to wear off," he said.







Starbucks closing in on deal with Tata Coffee

Mumbai: Starbucks Corp, the world's largest coffee company, is finalizing its retail partnership with Tata Coffee and hopes to announce the deal by the end of this month, a senior official of the Indian company said on Thursday. In early 2011, the Seattle-based company signed a pact with the Tata group firm to buy coffee from India and explore opening retail stores in the country. 

    "We are close to finalizing it and are working on the final details. We hope to make an announcement very soon," M D Kumar, chief financial officer of Tata Coffee, said. Tata Coffee plans to open a Starbucks coffee shop by the end of this year, MD Hameed Huq told reporters on the sidelines of the International Coffee Festival in Delhi earlier in the day. 
    In India, where tea has long been the beverage of choice, an increasingly affluent and urban population with westernized tastes is embracing cafes. 
    The two companies had planned to open the first Starbucks outlet in India by mid-2011, but the plan was delayed on account of difficulties in acquiring real estate, Tata Coffee chairman R K Krishnakumar had said in August. REUTERS

Monday, January 16, 2012

Google Benefits from Illegal Content: Delhi HC

The Delhi High Court on Monday said that websites such as Google and Facebook could be liable for the content posted on their platform by users, as they benefit from it. Google India's counsel Neeraj Kishan Kaul argued before the court that the complainant Vinay Rai has failed to find out the bloggers or users who are posting such images and 'instead blaming the landlord for what a tenant does'. 

"The landlord can't be held liable for an illegal activity carried out by a tenant in his house," said Kaul to a packed courtroom. 
In response, justice Suresh Cait said, "In this case, the landlord is benefiting from the illegal activity carried out by a tenant. Thus the landlord is liable." 
Hariharan, the counsel for complainant Vinay Rai, countered Google India's argument that Google India does not control or benefit from the platforms, such as YouTube, Orkut or Blogger. 
Hariharan said that every click on a Google-owned website gets it revenue for the content. He said that Google India is wrong in stating that it is just an ad collection subsidiary of Google Inc. "The memorandum of association of Google India shows that it is in the business of production of software, internet products, computer-aided design, analysis, selling internet search, engineering platforms and solutions. Thus it is not only in the business of advertising, as it states." 
Google India has filed a petition in the Delhi High Court to quash summons against it in a lower court, on the premise that it does not control Google.com, or You-Tube.com, but just collects ads on behalf of Google Inc. 
The complainant countered Google India's argument that it is a separate legal entity. "The memorandum states that the office of Google India's managing director will be vacated upon direction of Google Inc. Its trademark can also not be changed without Google Inc's permission. Thus, both are closely linked," se
nior counsel Hariharan said. 
He also said that entirely all, but one share, of Google India, are held by Google Inc, and thus it is a direct beneficiary of the parent. "Google Inc owns about 91,294 shares in Google India. Only one share vests with some party," Hariharan said. Speaking earlier, Facebook's lawyer Sidharth Luthra said that the evidence collected by the complainant is not testified as an electronic record, and thus should not be admitted. Luthra cited the Tehelka case which he represented, where the images taken by Tehelka.com were not being admitted as electronic evidence, until the hard disk where it was stored was certified as per section 29 of Indian Penal Code. Lawyers for Google and Facebook argued that wholesale blocking of certain so-called 'obscene' keywords will limit the internet. 
Additional solicitor general AS Chandhiok, who was also present in the courtroom, said the government has given a sanction to prosecute these websites. "The government held four meetings with them last year. Despite bringing to their notice the content was not removed," he added. The court expressed the urgency to hear the matter on a daily basis. Justice Cait said there are about 2,000 criminal complaints pending before the court, but the court wants to hear this matter urgently, as it is very important for the nation. The high court has given Jan 19, as the next date of hearing. The court's decision will also be important for the internet users in India, about one-third (42 million) of whom are hooked on to Facebook. About 3 million access the Google Plus and Twitter while Google's Search is used by almost 100 million users.
"Right now, the laws are ambiguous and unclear," says Yogesh Bansal, CEO ofApnacircle.com, an internet portal for professional networking. If you are operating in India, you have to follow the law of the land. None wants website content to create a law and order problem in the society and create tensions among communities. But people should decide what's good for society," Bansal added.

It Pays More to Ferry Goods than Men

PASSENGER TRANSPORT FIRMS LAG BEHIND

In transportation — rail, road and air — it is not the glamorous passenger business that makes money. Moving cargo is where the profits are. In the past three years, as the economy lurched from one crisis to another and aviation companies took a beating, goods transporters have defied conventional wisdom and performed better on a host of parameters, a study by the Economic Times Intelligence Group shows. They have better margins, earn better return on capital and have posted a decent growth in net profit compared to the passenger transport sector, showing that goods transportation is probably more profitable than the volatile, service-oriented passenger transport business. 

Take, for example, the financials for the year ended March 2011. While all airlines posted 20%-plus growth in revenue, their profits were severely battered. Jet Airways posted a net loss of . 86 crore, while Kingfisher's net loss stood at . 1,027 crore. Goods carriers, on the other hand, fared much better. Container Corporation of India posted an 11.35% rise in net profit, Gati's profit rose 48.42%, while profits at Blue Dart Express jumped 54.8%. Jet earned a margin of 11.24% compared with Container Corp's 31.15% for that year. Cargo companies were also able to use their capital more effectively. Allcargo's return on capital employed was 17.5% for March 2011, compared with SpiceJet's 13.41%. Blue Dart's ROCE was much higher at 28.2%. 
    "In passenger
oriented industries such as aviation, high competition has reduced pricing power, whereas there isn't as much competition in logistics. It is more of a wholesale market and hence its profitability would accordingly be stronger," says Sandip Sabharwal, chief investment officer, PMS, at Prabhudas Lilladher. 
There are a number of reasons for this. Ferrying passengers from one place to another is expensive. The capital expenditure is very high, whether it is airlines or road 
transport. Companies rarely have pricing power and when they do, it is only for a short period, such as the holiday season from November to February. Even Indian Railways, a monopoly, makes little money in its passenger businesses. In the past five years, the contribution from passenger business to the Railways' turnover has dipped to about 26.97% in 2009-10 from 30% six years ago. Revenue from goods transportation is more than double that of the passenger business. For the year ending March 2010, 67% of Railways' revenue came from goods traffic while the rest was from passenger transportation. 
"Airlines are a more capital-intensive business. These companies have more debt on their balance sheets and have to pay high interest to service loans. Fuel is also not subsidised for airlines, and they have to pay tax on the fuel. On the other hand, cargo companies get subsidised fuel and have lower debt on their books," says Saurabh Mukherjee, head of equities, Ambit Capital. In order to spend money, airlines borrow. If revenues sag or the capital markets tank, the gap is usual
ly filled by more borrowings. 
After some time, it becomes a vicious cycle, forcing airline companies to take on ever higher levels of debt. "It is not that logistics carriers are doing anything great in a slowing economy; it's just that airlines have done poorly because of high fuel taxes and more government controls. The high debt has compounded the situation for airlines," said AK Prabhakar, senior VP, Anand Rathi Securities. 
Goods carriers also have pricing power as they work on a cost-plus basis. For passenger carriers, it is the other way round. Increasing ticket prices invites a backlash in the form lower bookings and revenue. The only consolation for aviation/passenger companies is that everybody suffers during bad economic conditions. All cargo companies suffered in the year ended March 2010 with only Allcargo and Patel Integrated managing to keep their heads above water. 
But if you are an investor looking for safe, steady returns in a volatile market, what would you choose? An airline saddled with debt and bleeding profusely or an unglamorous goods carrier with 
little debt and a steady track record? Over the past year, the share prices of the three listed airlines —SpiceJet, Jet Airways and Kingfisher — have declined 71%, 66% and 55%, respectively.


 

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