FIRST ORDER 25%

We recommend

Tuesday, July 30, 2013

Will Andhra’s Loss Of Telangana Be Cong’s Gain?

At 66, Mother India gets ready for her 29th baby

Hyderabad To Be Joint Capital For 10 Years


New Delhi: The Congress leadership bit the Telangana bullet on Tuesday. It decided to bifurcate Andhra Pradesh to create a separate state of Telangana—a move that will be aloss to the politically muscular state but will be a gain for the Congress as it's expected to revive the party's fortunes in the state ahead of the 2014 Lok Sabha election. 
    As reported by TOI on July 29, Hyderabad will remain the common capital of the splintered state for 10 years—a balancing act that recognizes Te
langana's claim on the city but seeks to soften the blow to the opponents who were also concerned about the investments of coastal Andhra businesses in the capital. The Centre will help AP build a new capital. 
    There are indications that a mechanism will be created to vest the governor with oversight of law and order in the city: an arrangement that falls short of turning the city into a Union Territory but reassures those worried about a sudden change in its character. 
    The call on whether to include two districts of Rayalaseema region, Ananthpur and Kurnool, will be taken later. The Congress leadership 
favours the idea but is wary of committing itself before fully assessing the fallout. 
    The desire to do well in Telangana appears to be the main driver behind the deci
sion. While announcing the CWC's decision, Congress general secretary Digvijay Singh triggered speculation of a merger of TRS with the Congress. Singh recalled TRS chief K Chandrashekhar Rao's declaration that he would merge his party if the latter created Telangana. 
Boost for other state demands 
Statehood movements across India are expectedto get a boost. In Darjeeling, Gorkhaland leaders have called for a series of agitations. The agitation for Bodoland may be revived in Assam. Demands for Bundelkhand (out of UP and MP) and Vidarbha (from Maharashtra) are also alive. P 14 Divided Andhra to lose political clout Andhra's split will cause it to lose its clout in national politics. With 42 seats in Lok Sabha, Andhra accounts for the third biggest kitty after UP (80) and Maharashtra (48). With 17 LS seats going to Telangana, Andhra will be left with 25. The number can slip to 21 if Anantapur and Kurnool is clubbed with Telangana. P 15 Rest of Andhra not to be Seemandhra The rest of Andhra Pradesh is unlikely to be named Seemandhra. Non-Telangana politicians bonded together under the Seemandhra banner giving rise to the impression that the region comprising coastal AP and Rayalseema might be renamed. But Andhra is already seen as synonymous with non-Telangana areas.WHO'S UP, WHO'S DOWN? 
CONGRESS | Will gain in Telangana, having delivered on promise. With or minus TRS, will have advantage in 17 seats in the region 
(4 more seats if 2 Rayalseema districts are added) 
YSR CONG | Jagan likely to emerge strong in coastal region as sole opponent to Telangana. So long he doesn't go with BJP, can support Congress directly 
or indirectly 
TDP | Naidu's party already in bad shape for doing 'yes-no' on Telangana. Now will be thrown off balance: strong neither in new 
state or coastal region 
BJP | May lose if Telangana euphoria and gratitude to Cong overwhelm its consistent support for new state. Not a big player in coastal areas 
WHAT NEXTGoM will be set up to consider issues like territorial boundaries and status of Hyderabad as joint capital GoM recommendations go to cabinet in form of a billAfter Cabinet approval, home ministry will send bill to President for consent 4President under Art 3 will seek opinion of state legislature Once legislature gives its opinion, President will approve bill for introduction in Parliament Parliament needs to approve the bill by simple majority President then gives assent to legislation and India's 29th state will be notifi ed Cong eyes Telangana sweep of 17 seats 
    Pieces of the puzzle were fast falling in place when TRS chief Chandrashekhar Rao said that he was a man of his word. Political circles estimate that the Congress calculation is to sweep the Telangana region, which has 17 Lok Sabha seats, in alliance with the TRS. The numbers of Lok Sabha seats which the party can hope to win will swell to 21 if the districts of Ananthpur and Kurnool are clubbed with Telangana: a huge improvement for the party which had appeared to be a washout in the state. 
    Giving its nod to the division of AP after consultations with UPA partners, the CWC said that the Centre should take steps to form a separate state of Telangana. It said that the Centre should institute a mechanism "to address the concerns of Andhra and Rayalseema on sharing of river waters, power and security 
of citizens". The CWC also said the Polavaram Irrigation Project should be declared a national project. 
    The Congress is expected to act expeditiously in order to reap the goodwill in the Telangana region. There are indications that the Union Cabinet may decide on Thursday to 
request the President to ask the Andhra Pradesh legislature to adopt a resolution spelling out where it stands on the issue of bifurcation. 
    The resolution of the state assembly will not be binding. Under the Constitution, the power to create new states and alter the boundaries of existing ones rests solely with Parliament. 
    The Congress's anxiety to clinch the issue swiftly was evident from the way AICC general secretaries Digvijay Singh and Ajay Maken sought to showcase steps taken by their party for the creation of Telangana. These included, the announcement of December 9, 2009, something which the party had virtually
dumped in the face of resentment from the anti-Telangana camp. 
    Though Congress leaders concede the breakaway faction led by Jagan Mohan will remain the dominant formation in coastal and Rayalseema regions, they are banking on his desire to keep a distance from the BJP as well as legal troubles to hope that Jagan Mohan Reddy 
will not be averse to doing business post-poll. Anti-Telangana group's last-ditch efforts fails 
New Delhi: The 'united Andhra' camp of Union ministers and MPs made a last-ditch effort to stall the formation of Telangana, urging the leadership to debate the Srikrishna Commission report in Parliament before any announcement. Comprising ministers K S Rao, Chiranjeevi, D Purandeshwari and Panabaka Lakshmi, the group petitioned Congress general secretary in-charge of Andhra affairs Digvijaya Singh on Tuesday morning. However, Singh is reported to have said, "It is too late, this is a late reaction from your side." TNN

Kiran Reddy


Jagan Reddy


Chandrababu Naidu


Venkaiah Naidu

Rupee loses 107 paise on RBI’s mixed signals

Mumbai: The rupee fell by 107 paise (1.8%) to 60.49 on Tuesday, its third-lowest close ever, after RBI maintained the status quo on interest rates and failed to come up with any new measures to support the currency. 

    Contradictory signals from the central bank on the possible duration of its liquidity tightening measures announced earlier this month led to its resolve on the rupee being tested by the foreign exchange market. 
    The stock markets also gave a thumbs down to the policy with a 250-point drop in the sensex. The rupee fell soon after RBI's policy statement said that its liquidity tightening measures would be rolled back in a calibrated manner as stability is restored to the foreign exchange market. The statement surprised markets since the rupee was steadily weakening and inching toward 60 levels despite two rounds of liquidity tightening aimed at buffering the rupee. 
    The fall of rupee below the psychological mark of 60 on Tuesday, the steepest in past three weeks, erased all gains it made since the RBI first announced the measures to defend the rupee on July 15. It is now close to the all-time low of 61.21 hit early this month. 
    In what could be his last monetary policy review, RBI governor D Subbarao, also came out with a strong opposition to a sovereign bond issue and rubbished any need to approach the IMF. 
RBI firm on stemming rupee slide, says guv 
Mumbai: Taming the exchange rate is RBI's top priority as by its own admission a 10% weakening of the rupee adds over 1.2% to inflation due to higher cost of imports. The two rounds of measures capped bank borrowings from RBI to 0.5% of their deposits. The norms also forced banks to maintain 95% of their cash reserve requirements on a daily basis as against a quarterly average earlier. These short-term measures have pushed up short-term rates above 10% and yields on 10-year bonds have crossed 8%. If these conditions persist till Septemberend, banks stand to make big losses through provisions for depreciation on bonds. 
    Subbarao, however, de
nied that RBI could be seen to be vacillating on its resolve to stabilize the exchange rate. "We have not used the word temporary very advisedly because RBI does not want to get locked into a timeframe on how long these measures might be necessary. We are determined to control volatility in the exchange rate. There will be consequences for this; there will be pain in the economy. Somebody will have to bear these costs which are inevitable and unavoidable. But we will persist with these measures and implement them consistently in order to achieve the intended results," said Subbarao, whose term as governor ends on September 4, 2013. 
    "In our view the government could increase import duty on select commodities, such as electronic goods, to reduce the import bill," said Samiran Chakraborty, head of regional research, South Asia in a research report. 
    RBI left the policy repo rate at 7.25% and retained cash reserve ratio requirement at 4%. It also cut its growth forecast for the year to 5.5% from 5.7% earlier. Bankers, under pressure from the finance ministry, have committed to hold rates. However, if the rates persist for 6-8 weeks, most will be forced to review their rates.


Monday, July 29, 2013

MAJOR BOOST FOR REDEVELOPMENT All cessed bldgs to have FSI of 3

Mumbai: In a major boost for redevelopment of over 14,000 cessed buildings in South Mumbai, the state government on Friday announced that a floor space index (FSI) of three will be extended to B and C category buildings (constructed prior to September 30, 1969). The buildings, pre-1969 tenanted properties in the island city, are classified into three categories: A (pre-1940), B (1940-1950) and C (1950-1969). 

    Chief minister Prithviraj Chavan, replying to a debate on the issue in the state legislative assembly, said that all categories of cessed buildings will now have anFSI of three. This followed a demand from Amin Patel (Congress). 
    "Developers never paid attention to B and C cessed buildings as only A category buildings used to get that FSI. Many buildings which used to be neglected by developers for want of incentives can now go in for 
redevelopment," Patel said. 
    Chavan said the government would encourage cluster redevelopment in the city. "Individual development of buildings does not create social infrastructure. The government has decided to amend rules to get proper parking, gardens and open spaces and other facilities for citizens," he said. 
    Chavan said the first phase (Sector 5) of redevelopment of Asia's largest slum, Dharavi, will be ready by the year-end. The building has stilts plus 18 floors and has 356 flats, Chavan said. Shiv Sena leader Subhash Desai said, "The Congress-NCP should give 400 sq ft flats to slum-dwellers." 
    But Nawab Malik (NCP) alleged that the saffron party was playing politics over the redevelopment issue. 
    Chavan also expressed "displeasure" over the pace of the airport slum redevelopment project. The project, involving the rehabilitation of nearly 75,000 slums, was assigned to HDIL in 2007. The government had set 2011 as the initial deadline for completing the project.

SC notice to Centre, RIL on gas price hike

New Delhi: The Supreme Court on Monday sought responses from the Centre, Reliance Industries Ltd and petroleum minister M Veerappa Moily on a PIL alleging a "conspiracy" behind the government's recent decision to increase price of natural gas from $4.2 to $8.4 per unit from April 2014. 

    Before issuing notices and seeking replies from respondents within four weeks, a bench of Chief Justice P Sathasivam and Justices Ranjana P Desai and Ranjan Gogoi sought clarifications from petitioner's counsel Colin Gonsalves and heard RIL counsel Harish Salve. 
    To Salve's preliminary objections, the bench said, "We cannot brush aside the assertions of an MP at the preliminary stage. You (respondents) file your replies and we will consider it." It fixed the hearing on the PIL for September 5.
Petitioners seek quashing of KG gas price hike 
New Delhi: The Supreme Court has refused to brush aside the allegations of a "conspiracy" to illegally hike KG Basin gas prices from next year. Petitioners, MP Gurudas Dasgupta and former power secretary E A S Sarma, said, "Mandate of this government ends prior to April 2014 when a new one will be in place pursuant to the national elections and that it is utterly unreasonable to burden a new government with subsidy." 
    The petitioners alleged that KG basin gas exploring contractors, RIL and NIKO Resources, entered into a conspiracy with the Centre "to provide exorbitant, unreasonable and excessive profits to the contractors, which will bankrupt the exchequer and severely affect the Indian economy". 
    They sought quashing of the gas price hike and requested the court to direct the government to ensure that henceforth "the price of domestically produced gas is fixed in rupees and not dollars or any other currency". "Appoint a court commission comprising independent and fearless officers and experts having expertise in the area of this dispute to inquire into the real cost of gas at the wellhead in the KG basin and also into the capacity of the basin itself and related issues raised in the petition," they said. 
    Dasgupta and Sarma also alleged that certain benefits were being granted to the contractors by government for mala fide and collateral gain which would in
crease the subsidy burden enormously. 
    They also said the gas price hike would "enormously impact" food and energy security resulting in higher prices of fertilizers, food products and cooking gas affecting the poor. 
    Quoting Comptroller and Auditor General's report, they sought a direction to RIL and NIKO to "forthwith relinquish those areas of KG basin as recommended by the CAG and delineated by the Director General of Hydrocarbon". Salve said RIL was ready to relinquish these and had already written to the government in this regard. 
    The petitioners quoted DGH to allege that only 18 wells against the required 50 had been drilled by RIL, which incurred expenditure of $5,693 million but till March 31, 2011 had recovered $5,258 million. 
    The petitioners said the petroleum ministry on May 2, 2012 issued a notice to RIL informing it that breach of production sharing contract and failure to comply with the approved plan had resulted in heavy loss of production and sought to disallow $1005 million from cumulative cost incurred by the contractor. 
    They said the matter went to arbitration with RIL appointing Justice S P Bharucha as its arbitrator and government choosing Justice V N Khare. When they were in the process of appointing the third arbitrator, the petroleum minister gave an interview saying he intended to junk arbitration and push for a negotiated settlement.

Cong clear loser, but BJP still far from victory: Poll Regional Bosses Could Emerge As Major Force

   We could end up with a Lok Sabha in which, for the first time, the single largest party has less than one-fourth of the 543 seats and no front has even a third. That is what would happen if elections were held now, according to a Times Now-CVoter opinion poll. It projects that the NDA would win 156 seats with the BJP getting 131 of them, while the UPA would win 136 with the Congress pegged at 119. 

    The poll estimated that the 'Third Front', which includes the Left, SP, RJD, TDP, BJD and some other regional parties, would win 129 seats and the 'Fourth Front', including the BSP, Trinamool Congress and AIADMK, would win 122. In short, there could be a fairly even four-way split, though the Third and Fourth Fronts are not really firmly established, at least as of now, and others 
may also morph in the coming months. 
Poll gives Sena-BJP 26 seats, 17 to Cong-NCP in Maharashtra 
    If the predictions of the Times Now-C Voter opinion poll come true, the SP, BSP, Left, AIADMK and Trinamool would each have between 22 and 33 seats, possibly giving them a crucial role in the formation of the next government in New Delhi. 
    With the two big national parties put together not winning even half of the seats, the regional bosses would really be able to call the shots in such a scenario. 
    Among the bigger states, the poll projects SP and BSP between them winning threefourths of the 80 seats in UP, with the SP picking up 33 and the BSP 27. The Congress, which won 21 seats in the state in 2009, is projected to win just five in 2014 and the BJP is estimated to gain just a couple of seats to get 12. 
    In Maharashtra, it's advantage NDA and bad news for Sharad Pawar's NCP, if the poll has got it right. It estimates that the Shiv Sena will win 15 seats of the state's 48 seats and the BJP 11, the same as the Congress. The NCP is projected to get just 6 seats, Raj Thackeray's MNS opening its account with 3. 
    In Andhra Pradesh, a state in which the Congress won 33 of the 42 seats in 2009, the CVoter poll projects it will win a mere 7. Jagan Reddy's YSR Congress, a party that didn't exist in 2009, is estimated to win 14 seats and the Telengana Rashtra Samiti 11, leaving just 7 for Chandrababu Naidu's TDP. Of course, the AP numbers could change dramatically once the formation of Telangana is announced, as expected soon. 
    In West Bengal, Mamata Banerjee will continue to fly high despite her alliance with the Congress having broken up since the last elections. The poll projects that the Trinamool Congress will win 22 of the state's 42 seats and the Left will win 17, a gain of two seats for each of them, while the Congress tally will drop from 6 to 2. In Bihar, the break-up between Nitish Kumar's JD (U) and the BJP seems to be hurting the former more. In fact, the poll projects that the BJP will emerge as the single largest party in the state winning 14 of the 40 seats, Lalu Prasad's RJD coming a close second with 12 and JD(U) in third place at 11. 
    For the full report log on to www.times of india.com 





Thursday, July 25, 2013

Now, pay BEST bills from phone

Mumbai: You will be able to pay your electricity bills in the island city from a mobile phone from August 7. The facility for 9.5 lakh consumers, cleared by the BEST committee on Thursday, will allow users to pay bills through 'mobile wallets' in three ways. 

    BEST GM Om Prakash Gupta said one can register for a wallet with 50 Money Mobile Payment Limited franchisees or online. He said the system was safe and secure, and a similar one was used by Reliance and Mahanagar Gas Limited. A senior official said that there were already netbanking and ECS facilities for making payments. 
WHAT IS A MOBILE WALLET? 
A customer loads money against his mobile number by approaching a retail outlet. The money can be used to make payments for energy and mobile bills, and for DTH recharge 
HOW IT WORKS The mobile payment can be done in three ways 
    Approach any designated MMPL retail outlet, which will create a wallet through which you can make payments using your credit/ debit card or netbanking. An SMS confirmation will be 
sent to your mobile after payment 
    Pay cash at a retail outlet. You will get an SMS confirmation 
    Register on MMPL website, and link it to your bank account

Coming up in BKC, a convention centre bigger than Nariman Pt RIL Gets State OK To Develop 82 Lakh Sq Ft

Mumbai: Plot C-64 in Bandra-Kurla Complex (BKC) may well be the city's largest construction site. The sanctioned builtup area, 82 lakh sq ft, on the 18.5-acre plot will be equivalent, or perhaps more, than that of Nariman Point, which has over 35 office towers, each with a built-up area of about 2 lakh sq ft on an average. 

    The BKC plot's developer, Reliance Industries Ltd (RIL), recently began work on a much-delayed exhibition-cum -convention centre, commercial complex and service apartments. The project got the state environment department's clearance last month. 
    Plans cleared include an 18-storey tower with four basements for parking, a commercial complex and a 348-room block of flats. Most of the builtup area will comprise parking, lobbies, staircases and terraces (non-FSI areas), with living space being 33.5 lakh sq ft. 
Rival firm dragged BKC project to court 
Mumbai: Work has commenced on plot C-64 in BKC and will tak ethree years to complete, said MMRDA commissioner UPS Madan. The authority, which controls BKC, earned a few thousand crores in a decade by selling plots on long lease. 
    An RIL spokesperson said designs were being finalized for the Rs7,566-crore project. 
    What led to the delay?RIL(its chairman is Mukesh Ambani) won the bid in January 2006 after quoting Rs 1,104 crore, a record. An RIL representative had then said Mumbai was soon to get a world-class convention-cum-exhibition centre "between Dubai and Singapore". 

    But Mukesh's brother Anil, whose Reliance Communications & Infrastructure Ltd (RCIL) was a strong contender for the plot, moved court. RCIL objected to MMRDA's grant of additional built-up area to RIL after the bidding process. RCIL questioned MMRDA's ''largesse and bonanza'' to RIL after the ''tender wasduly approved''.Describing the decision as ''totally irrational, arbitrary and capri
cious'', RCIL said it would have quoted higher (its bid was Rs 1,011.12 crore, Rs 93 crore less than RIL's) had it known that MMRDA would sanction additional construction rights. A source said the dispute between thebrotherswas resolved. 
    Two years ago, the Wadhwa Group was believed to be negotiating with RIL to jointly develop the plot. When bids were in
vited for the plot in 2004, the highestoffer wasRs75croreby a pandal decorator. It was promptly rejected: not only was it too low, but also the company wantedtodefer payment.

Cost of plot | 1,104cr Project cost | 7,566cr Completion by | 2016



Wednesday, July 24, 2013

Earnings Preview Wipro Unlikely to Match TCS Infy Show


Co's June quarter revenues may remain flat as pricing pressure in US will weigh on margins ; wage hikes may nullify benefits of weak rupee



    Wipro is expected to report flat revenues and falling profit margins when it announces results for the April-June quarter, a period during which two of India's largest software services exporters Tata Consultancy Services and Infosys delivered better-than-expected performance. Estimates point to Wipro reporting on Friday that revenue grew by less than 1%. Investors will watch for management commentary on the demand outlook for the second quarter and beyond, especially after Wipro's larger peers and mid-size IT companies say they are seeing clear signs of revival in the United States. 
"Unlike Infosys, Wipro's results are pre
dictable as they are always in line with their guidance," said Rumit Dugar, analyst at Mumbai-based Religare Institutional Research. 
Both Infosys and Wipro have been lagging the industry in growth for at least two years and have undertaken organisational restructuring to realign themselves to changing technology outsourcing market where corporations want newer solutions based on enterprise mobility, cloud computing and data analytics. 
For the June quarter, the Bangalorebased company has forecast revenues to expand by between -0.6% and 1.6 %. The management had cautioned in April that the India market, which along with the Middle East contributes about 8% to revenues, is expected to be a drag during the first quarter. 
Two weeks ago, Infosys, whose volatile performance has sent its stocks on wild swings on recent earnings days, reported a sequential revenue growth of 2.7% 
— nearly double the highest brokerage estimate of 1.5%. TCS reported sales growth of 4.1%, which was higher than what most analysts had estimated. 
Large deal wins and strong growth in the US, which drove sales for both Infosys and TCS, could set the tone for investors' expectation from Wipro for the rest of the financial year. 
After TK Kurien took over in February 2011, investors have been waiting for Wipro to return to industry-matching growth, which has remained a mirage so far. A better outlook, especially after securing the renewal of its $500-million (. 3,000 crore) contract from Citi, could assure the investors that Kurien's work has laid a solid foundation for sustainable growth. 
"Whilst Wipro has been behind in growth due to late verticalisation and higher presence in highly-competitive businesses, the steps undertaken by the company over the past two years (since TK Kurien was appointed as 
CEO) look credible and indicate a better design for future recovery," Ankur Rudra and Nitin Jain of Ambit Capital wrote recently. 
Despite the local currency weakening by as much as 10% during the quarter, Wipro is unlikely see the benefits trickling down to bottom line as the company had announced wage hikes during the 
period. Falling pricing in the US is expected to be drag on profit margins during the near term. Shares of Wipro rose a little over 2% on Wednesday. Since the July 12 earnings announcement by Infosys, Wipro's shares have risen close to 8%. Disappointing results could shave some of those market valuation gains.



Cairn India Hopes to Raise Crude Output at Barmer Plans to increase output to 215k barrels a day from 180k by fiscal-end

Cairn India, the largest private oil producer and the operator of the country's biggest on-land oilfield, hopes to ramp up crude production in its Barmer block from 180,000 barrels per day to 210,000-215,000 bpd by the end of the current fiscal, chairman Navin Agarwal said on Wednesday. It plans to invest $3 billion in its energy assets in India, on developing the prolific Barmer block in Rajasthan, Agarwal said on the sidelines of the company's seventh annual general meeting held in Mumbai on Wednesday. 

The company's interim CEO P Elango said Cairn had sought the oil ministry's approval for an integrated field development plan for the block. "We are hopeful that it will be approved soon so that we can expedite production from the Barmer block," Elango said. 
Cairn produces over 150,000 bpd of oil from the Mangala fields, over 25,000 bpd from Bhagyam, and the balance from the Aishwarya fields which commenced production earlier this March. 
Cairn also reported a net profit of . 3,127 crore for the June quarter, which was 22% higher than the previous quarter, helped by its highest-ever gross operated production of 212,442 barrels of oil equivalent per day (boepd) and a record average daily production of 173,517 
boepd from the Rajasthan block during the quarter. The company posted revenue of . 4,063 crore and EBITDA of . 2,910 crore. 
It also said that in its offshore Ravva Block, a 'high value, high risk' deeper prospect is planned to be drilled in H2 FY13-14 to optimally harness the potential of the block and in the off-shore Cambay Block (CB/OS-2), two new wells and one work-over well have been put into production leading to doubling the oil volumes during the quarter.

SBI chief lambasts RBI over Re steps Says Central Bank Should Have Hiked Rates Instead Of Choking Liquidity

Kolkata/Mumbai: State Bank of India chairman Pratip Chaudhuri came down heavily on the Reserve Bank of India stating that an interest rate hike would have been less damaging that the central bank's measures to choke liquidity. The statement comes on a day when bond yields shot up and bank stocks were plunged following RBI's second round of measures to drain liquidity to support the rupee. 
    "The RBI has to check liquidity and we hope it is a shortterm measure. It is always better to hike interest rate than choke liquidity," he said. Speaking to newspersons on the sidelines of the Ficci banking conclave on Wednesday. the SBI chairman pointed out that stability of rupee is the priority of RBI. However, he felt that the objective could be achieved by raising policy rates. 
    "Interest rate is the proper lever for managing the money market, bond market and G-sec market. Therefore, in order to rein in the prices in the bond market, interest rate which is a much better instrument should have been applied to curb liquidity," he added. 
    On Wednesday, the rupee gained 64 paise closing at 59.13 against the US dollar. But the bond markets took the brunt of RBI's measures. Prices of the benchmark 10-year bond crashed as yields rose intraday to 8.5% which is a rise of 95 basis points since RBI announced its first round of liquidity tightening measures. 
    To underline its seriousness, the central bank accepted ahigh cut-off yield of 11% at an auction of 91-day treasury 
bills—the highest in six years. 
    According to Chaudhuri, the RBI action has severely affected the bond market instantly and the yields shot up creating panic in the market and saw interest rates hardening in the short term. "Even till today, the G-sec market is languishing with the RBI and government auction almost failing. For all practical purposes, money 

market instruments are either not readily available or come at a high cost," he added. Bankers are now waiting to see if RBI measures last beyond August. If the present tight money policy continues until the end of the second quarter, banks will take a big hit in their second quarter results. "We expect these measures to last for not more than a month. However, if the measures were to persist, the higher funding cost of banks 
may translate into higher lending rates thereby endangering the already weak investment cycle. We expect downside risks to our GDP growth forecast of 5.5% in FY14, if these measures were to last over a month," said Upasna Bhardwaj, economist, ING Vysya Bank. 
    The SBI chairman said, "Any change which seriously impacts the market should be implemented in a calibrated manner. It is my view that RBI should provide at least 10-15 days to allow the market to adjust to the new liquidity measures. The repo rate is now 7.25% but the real repo is 10.25%." Chaudhuri reiterated that he is in favour of abolition of CRR to infuse liquidity into the system which he has been preaching for a year. "CRR abolition could inject Rs 3 lakh crore in the capital starved economy. In fact, in last one year, CRR has been cut down to 4% from 6%, which vindicates my stand," he added.





‘Tatas funded Unitech venture’ 2G: Anil Allegation In CBI Statement Was Not Probed


NewDelhi:In his statement to the CBI in the 2G spectrum case in February 2011, Reliance ADAG chairman Anil Ambani had claimed that the "Tatas had funded Unitech's telecom applications and fee". The CBI said it did not investigate this allegation as it wasn't in the ambit of its 2G probe. 
    CBI officials also claimed that they had not insisted on making Anil and his wife Tina Ambani witnesses in the 2G trial. "It was special public prosecutor U U Lalit who decided to make them witnesses," a top CBI official said. 
    During his statement to the CBI on February 16, 2011, Ambani had said, "To the best of my understanding, Tatas had funded Unitech's telecom applications and fee. This money was to go in form of preference shares in Unitech, and is so mentioned in a Bombay High Court order, 
which I will provide." 
    He added, "It is learnt that after Niira Radia's interference, and her meeting with Shri Karunanidhi, along with Ratan Tata, it was reportedly decided that Tatas can also get dual technology. Accordingly, Unitech kept this application open and then sold their stake to M/s Telenor to create Uninor." 
    While talking about Trai recommendations, he said, "Now the recommendations about the price of spectrum, which have recently come in February 2011, the prices discovered through auction of 3G spectrum in 2010, which were earlier recom
mended for the current prices of 2G spectrum also, have been diluted as far as metro areas are concerned. Bharti, Idea and Vodafone will be benefitted out of it, as they got maximum excess spectrum since 2001 in metros and have been enjoying the same without paying any price for it." 
    Ambani talked about other beneficiaries as well, "As regards other beneficiaries, I state that M/s Etisalat and M/s Telenor, which 
invested in Swan Telecom and Unitech Wireless respectively, money has come in the telecom company. Shivashankar of STel has got investment in STel through Middle East ie Bahrain Telecom, but it has come in the company. Earlier, in early days of telecom, Essar, Vodafone, Loop etc when they diluted their stakes the investments actually went to promoters, and not to telecom companies, as such." 
ADAG man signals to witness, pulled up 
special CBI court hearing the 2G spectrum allocation scam case on Wednesday pulled up a Reliance ADAG employee for allegedly trying to influence a prosecution witness during the recording of his evidence. 
    The court was anguished as the Reliance ADAG employee was allegedly "signalling" the witness to "say no" to a question. "Why are you (RADAG's employee) signalling to the witness? I have seen you giving signal to the witness to say no," special CBI judge O P Saini said. TNN 
Kanimozhi seeks quashing of charges early two years after a trial court framed charges against her in the 2G spectrum scam case, DMK chief M Karunanidhi's daughter and RS MP Kanimozhi on Wednesday moved the SC seeking discharge from the case. 
    "The allegations against the petitioner pertained to financial transactions of Kalaignar TV between December 2008 and August 2009, that is after more than 18 months of her resignation from Kalaignar TV," her petition said. TNN

CBI officials claimed they had not insisted on making Anil and Tina Ambani witnesses in the 2G trial


Tuesday, July 23, 2013

Why Warren Buffett Bailed on India

 India has long been viewed as a value investor's dream: rapid growth, 1.2 billion people pining for a taste of globalisation, and underdeveloped industries ripe for turnarounds. So it surprised few when the genre's guru, Warren Buffett, placed a bet on the world's ninth-biggest economy. What did come as a surprise was last week's decision by the billionaire's Berkshire Hathaway to give up on India's insurance market after just two years. Adding to the drama, the withdrawal came the same week India unveiled plans to open the economy as never before to FDI. Buffett isn't alone. Walmart, ArcelorMittal and Posco are pulling back on investments that they had announced with great fanfare. What's scaring foreigners away? A rampant political dysfunction that has stopped India's progress cold. Headwinds from New Delhi are contributing to the slowest growth rates in a decade, a record current account deficit and a 7.9% plunge in the rupee this year. Foreign-direct investment slid about 21% last fiscal. The problem is an Indian government that won't get out of its own way. The long debate over foreign-investment limits says it all. In September 2012, Manmohan Singh's governmentpassed a law allowing big retailers to open stores directly, yet no one has. Reasons are legion: too many prerequisites; constraints on whom goods can be purchased from; a raft of regulations limiting franchise models and factory construction; and the hairpulling need to negotiate separately with each of the states. 

Big Fizzle 
India has fallen into a self-destructive pattern of relenting on big issues, then killing would-be investors with the details. Take the experience of Ikea. Not content with the Swedish icon investing $2 billion, the government played hardball. It tried to bar Ikea from selling food in stores; Ikea stood its ground. But the damage was done. Executives fully expect to have to navigate India's bad infrastructure, rigid and often unskilled labour mar
kets, red tape and official corruption. They're less keen on tripping over the fine print of vaguely written laws and local power brokers with agendas at odds with New Delhi. Headlinemaking disputes involving household names like Ikea, Walmart and Berkshire don't help India's image. Worse, the uncertainty is breeding a huge trust deficit. On July 17, India moved to open important sectors such as defence, power and telecommunications to foreign investment. It's heralded as the nation's "big bang." Big fizzle is more like it, as big inflows are likely to continue eluding India. Any major foreign investor cannot ignore the experience of Vodafone, which is still wondering if it will take a multibillion-dollar loss on a deal, thanks to tax-policy changes. It's time for the government to stop squandering India's potential. The lack of transparency and reliability makes it virtually impossible to consider long-term investments. What should India do? Pass clear and strong investment laws that will survive the change of government and offer a code of conduct for state leaders. India must strengthen the rule of law as it applies to foreigners so they'll trust their money is safe. Finally, India must think long-term. Today's motivation for inviting more foreign money is to narrow the current-account deficit. The goal should be to raise competitiveness, gain fresh knowledge and create better-paying jobs for the future. India is proving that size doesn't guarantee its inevitable rise. Only true economic reform, political openness and more proactive leadership will do that — and get the Buffetts of the world to come to India and stay. 
    Bloomberg

William Pesek

Moody’s Brings Back Downgrade Concerns

But economists & traders feel ratings downgrade is unlikely as govt, RBI have moved to stem rupee's fall



When Moody's Investors Service last week said falling exchange rate will raise prices and impact government expenditure budget, the sovereign rating downgrade ghost buried by Finance Minister P Chidambaram got a fresh lease of life. Economists and traders are back to discussing whether any of the rating companies will change their outlook or downgrade it to junk. Few are convinced such a thing will happen given the governmental action and measures by the Reserve Bank of India to stem the fall. But if it happens, it may not be pleasant. "To the extent that the rating agency is worried about India's CAD and fiscal deficit, the present situation clearly has not strengthened India's case for an improved outlook or rating," says Jahangir Aziz, economist at JPMorgan Chase. The rupee is down 10% since April and bond yields have spiked nearly 100 bps from their yearly lows. This has worried investors whether policymakers will be able to meet the fiscal deficit target of 4.8% and defend the currency. Both the government and RBI are rolling out measures that could turn the tide. "I don't think RBI's moves are negative," says Deepak Parekh, non-executive chairman of HDFC. "It is helping the rupee. I can see things happening. The PM, FM, all know what needs to be done. The currency is stable now. I don't see a downgrade." Ravneet Gill, Indiahead at Deutsche Bank, said, "CAD and fiscal deficit are lower than what they were, and they were the main concerns. The government has done what it could. The FII selloff that happened was due to the QE tapering talk and it happened in debt, and not in equity, which would indicate that the concerns around earnings are not overwhelming. Also, the fact that the commodity cycle is coming off should help India's cause." Rating Downgrade Rears its Head Again 
Manmohan Singh as finance minister in the Narasimha Rao Cabinet depreciated the rupee by a quarter. However, government policies and finances are caught in such a web that his brahma astra of 1991 may boomerang this time with a sovereign downgrade to junk, say MC Govardhana Rangan & Gayatri Nayak 

    Rating companies and politicians have something in common – both are discredited, but indispensable in a socioeconomic system. The nation is suddenly back at a stage where one unreliable entity will evaluate the performance and potential of the other. The devil of a sovereign rating downgrade, that was nearly slain with the return of P Chidambaram to the finance ministry, who surprised by spending less than forecast – a sweet black swan event – is rearing its head again. 
It is not the profligacy of the government this time, but a currency that is sliding fast and furious — partly due to global factors such as the US Federal Reserve tapering bond purchases, and mostly because of India's continued reliance on short-term flows to fund excessive imports. 
A depreciating currency could be welcomed as a boon for a country suffering from a record high current account deficit — the excess of spending overseas than imports — as we did in 1991. Not quite in 2013. 
Manmohan Singh as a finance minister in the PV Narasimha Rao Cabinet depreciated the rupee by a quarter and set the stage for an economic recovery after a balance of payments crisis in 1991. But as the head of the state, he could hardly afford that now. Government policies and finances are caught in such a web that his brahma astra of 1991 may probably boomerang this time with a sovereign downgrade to junk. 
"The threat of a downgrade has more to do with India's current account deficit than with the exchange rate weakness per se,'' says Jahangir Aziz, senior Asia economist at JPMorgan Chase. "The rupee weakness, however, matters because it has the potential to widen this year's subsidy bill significantly, and therefore the fiscal deficit. To the extent that the rating agency is worried about India's CAD and fiscal deficit, the present situation clearly has not strengthened India's case for an improved outlook or rating.'' 
Indian Rupee has depreciated 10% since April amid fears that the Federal Reserve may taper its $85-billion of monthly bond purchases, shutting the liquidity tap for emerging markets. With announced reform measures not leading to a quick economic recovery, foreigners who flocked to India to benefit from higher returns have developed cold feet. After investing almost $30 billion between September 2012 and April 2013, they pulled out $5.3 billon since then. 
Standard & Poor's, which faces probe for its role in the 2008 credit crisis, rates India at Triple B- with a negative outlook and has warned that there are one in three chances of a downgrade in the next 12 months. Moody's, which rated India Baa3 last week, said, "The fall in the exchange rate, by increasing the domestic prices of imported goods, will contribute to inflation, as well as to an increase in the government's expenditures, including on subsidies.'' Both ratings are investment grade, and a downgrade of one notch can make India a junk nation. 
Government and the Reserve Bank of India have made consumption of gold, accounting for more than half the CAD, more difficult with restriction on imports and quadrupling import duty. The demand is falling, but relief from it is some way off. 
The bigger worry is crude oil, of which India imports more than three-fourths of requirements. It has faced a double whammy with its price rising to $108 a barrel, from less than $98 and due to currency depreciation. Both translate into crude turning 20% more expensive than it was a few months ago. 
Fuel subsidy, which was . 85,000 crore last year, and budgeted to be . 90,000 crore, could bloat if oil remains where it is. Nomura Securities forecasts oil subsidy to rise by . 8,100 crore for every . 1 fall in the exchange rate. Petrol prices are market determined, but diesel is subsidised. So are cooking gas and kerosene, which account for half the subsidy. Raising prices of these fuels will pinch people. So that can be ruled out when the ruling class is headed to seek votes from the electorate. 
"The government will also have to pay more on an increased fertiliser subsidy bill,'' says Sonal Varma of Nomura Securities. "Hence, 
a fiscal slippage is likely. The window for reforms is fast closing," she adds. 
Government's foreign direct investmentboosting measures are not yielding immediate results. The big-bang opening up of multi-brand retail is yet to translate into investments. The government intends to raise foreigners' limit in telecom, defence and many other sectors. 
"I don't think it's just a matter of opening up an FDI channel here or there, you have to address the root causes and send a signal that you are committed to making changes to narrow the deficits,'' says Subir Gokarn, former deputy governor of the RBI. "That is when you will start seeing new money from outside." 
CAD though may fall from the 4.8% of the GDP in 2013, but it may still remain far higher than the desired 2.5% for the next two years. Fiscal deficit target of 4.8% of the GDP may be breached as government may not be able to squeeze expenditure as it did last year. Fiscal deficit worries will acquire bigger proportion given the economic slowdown where economists are lowering their target to just about 5% from more than 5.6%. Tax collections are falling behind budgeted estimates. Indirect taxes rose 4.7% in the June quarter, compared with the fiscal year target of 20%. Direct taxes grew 12% in the fiscal first quarter, way below the 18% budget for the year. Sale of stake in state-run enterprises for . 40,000 crore appears tough, though staterun financial companies may be directed to bail out such sales. The revenue short fall and the weakening currency have created a rating risk, but it may not be there yet. 
"Although there is always a risk, I don't ex
pect a downgrade,'' says Bimal Jalan, who conducted monetary policy during the previous downgrade and the 1997 Asian crisis as RBI governor. "Growth may have declined, but our total borrowings are not very high and we have always been careful about borrowings abroad.'' The government may have bungled in its policy on subsidies and not getting its announcements translate into actual investments. But some are saying that the central bank may have also foundered in its currency operations. RBI should have shored up reserves when the flows were plenty, which it did not unlike during the times of Jalan, who also floated the Resurgent India Bonds and India Millennium Deposits, which some call a guerrilla attack. 
Governor Bimal Jalan and deputy governor Reddy would buy as much FX as possible during periods of capital inflows and sell as little as they could during episodes of capital outflows,'' says Indranil Sengupta at Bank of America Merrill Lynch. "As these guerrilla-type tactics built up FX reserves, improved investor confidence led to capital inflows and, by extension, appreciation. 
Of course, times are different. CAD at 4.8% of GDP is four times of what it was in 1997. Fiscal deficit is budgeted at 4.8%, compared to last year's 5.06%. But some amount of consistency and strong measures should be taken, and there is a need to stand by them, even if painful. Last week's liquidity tightening by RBI and raising of short-term interest rates were a case in point. But those measures were diluted, and their impact were lot lesser than what they would otherwise have been. 
If the twin deficits are not addressed in the next few months, the nation moves closer to a downgrade, even if it is by companies whose credibility has waned quite a bit. Investors are pouring in more money into Britain and the US after their downgrades. 
"Things can become much more ugly,'' says Aziz. "Right now, much of the CAD is being financed by short-term borrowing. A credit downgrade could spike the risk premium on such instruments, increasing next year's CAD and gross financing needs. This will, in turn, raise serious concerns about the sustainability of India's balance of payments.'' 
Expert Take

DEEPAK PAREKH, Chairman, HDFC 
I don't think the RBI's moves are negative. They are helping support the rupee. I can see things happening. The PM, FM all know what needs to be done. The currency is stable now. I don't see a downgrade. We have a stable outlook and if at all there is a change, outlook may turn negative, that's all


JAHANGIR AZIZ, Sr Asia Economist, JPMorgan Chase 
Things can become much more ugly. Right now, much of the CAD is being financed by shortterm borrowing. A credit downgrade could easily spike the risk premium on such instruments, increasing next year's CAD and gross financing needs. This will, in turn, raise serious concerns about the sustainability of India's balance of payments


BIMAL JALAN on possible downgrade 
Although there is always a risk, I don't expect a downgrade. Growth may have declined, but our total borrowings are not very high and we have always been careful about borrowings abroad. Our track record shows that. Measures are also being taken to control the current account deficit, including import restrictions on gold. I don't think there is sufficient economic evidence to support a downgrade. Hopefully, we will see improvements


RAVNEET GILL, India head at Deutsche Bank 
The CAD and fiscal deficits are lower than what they were, and they were the main concerns. The government has done what it could. The FII sell-off that happened was due to QE tapering talk and it happened in debt, and not in equity. Which would indicate that the concerns around earnings are not overwhelming. Also, the fact that the commodity cycle is coming off should help India's cause


SUBIR GOKARN, Brookings Institution 
I don't think it's just a matter of opening up an FDI channel here or there, you have to address the root causes and send a signal that you are committed to making changes to narrow the deficits. That is when you will start seeing new money from outside


YV REDDY, Former RBI governor on August 15, 1997 
The recent experience of the emerging economies shows that any currency could come under speculative attack if its exchange rate is out of alignment with fundamentals for a prolonged period of time

Subbarao Tightens Fist, Rate Hike All but Given Next Week

Daily funds available to banks halved, CRR raised indirectly


    The Reserve Bank of India halved the daily funds available from it to banks and raised the cash reserve requirement (CRR) without saying so, as it intensified efforts to arrest the rupee slide, probably setting the stage for a formal increase in interest rates. 
Governor Duvvuri Subbarao cut the funds RBI lends to individual banks under the liquidity adjustment facility (LAF) to 0.5% of the deposits of a bank. This compares with 1%, or . 75,000 crore, available for the entire financial system. The changes announced on Tuesday evening, which essentially replaces a limit on overall bank borrowings from RBI with a daily cap for each bank, bring down the total quantum of funds available to all banks to . 37,000 crore. RBI also raised the minimum daily average holding of the mandated 4% cash reserve requirement to 99%, from 70%. Banks have to comply with CRR norms on alternate Fridays. That essentially sucks out an estimated . 90,000 crore. CRR is the portion of deposits banks have to keep with RBI. 
Yields on commercial paper and certificate of deposits may jump 200 basis points,
and treasury bill prices may tumble as a result of RBI's actions. Prices of other bonds, including benchmark government ones, will decline, raising borrowing costs across the board, reversing the interest rate cuts of the past few quarters. Bond prices and yields move in opposite direction. 
"Holding excess of bonds (above the 23% mandated statutory liquidity ratio) is of no 
use today," said BA Prabhakar, CMD at Andhra Bank. "The bigger banks will have to sell these bonds at losses in order to generate cash liquidity. I will not be surprised if the call rates shoot past 10%." 
Investors in fixed-income securities and bond sche
mes of mutual funds may lose about 3 percentage points since July 15 when RBI dealt the first shock to the bond market. The government, which did not want to pay 9.3% for T-Bills last week after RBI tightened liquidity, may end up paying a percentage point more when it auctions cash management bills for . 6,000 crore on Wednesday. Move to Stretch Govt Fisc Further 
RBI in the last two months has been battling currency slide through various measures with little impact. Last week, it restricted the availability of funds to . 75,000 crore and raised the penal interest for borrowing from it by 200 bps. But an apparent failure of communication between the government and the central bank led to investors believing that interest rates were not being tightened but RBI's moves were just a temporary measure to stem the rupee slide. Tuesday's move seems to nullify that argument. 
The rupee, which touched a life low of 61.21 to the US dollar on July 8, is 
still hovering close to 60 instead of climbing significantly as investors say RBI does not have much fire power with the ratio of forex reserves to imports, or short-term liabilities, falling to the lowest since 2009. 
"RBI has possibly issued the fresh directions as the earlier measures did not yield desired results," said UCO Bank CMD Arun Kaul. "This will squeeze money supply as some banks that were borrowing from RBI will not be able to borrow like earlier. Short-term interest rates may go up now." RBI has also tightened the import of gold and cut liquidity to force currency speculators to end their action. The rupee ended .08% lower at 59.77. "These mea
sures have had a restraining effect on volatility with a concomitant stabilising effect on the exchange rate," RBI said. "Based on a review of the measures, and an assessment of the liquidity and overall market conditions, it has been decided to modify the liquidity tightening measures." But the measures will also impact the government's borrowing costs and strain the already stretched fiscal further. The interest rate increases this time are not like in 1998 when governor Bimal Jalan shocked raising repo, bank rate and CRR. 
"Along with investors, the government too will suffer by RBI's recent action. Fiscal deficit would rise," said a treasurer with a private bank.


Gold jewellery set to cost more on RBI’s import norms

New Delhi: Gold jewellery prices are set to go up with RBI mandating 20% of every lot of imported gold to be set aside for the purpose of exports. With the move likely to generate a shortage of the yellow metal for consumers, jewellers and retailers said this will push up domestic prices as traders will be compelled to export even at low prices to meet the norms. 

    "The government can discourage consumption of gold only by increasing the price of the metal. This is another step in that direction. The increased local premium will be factored in the end price, making it costlier for the consumer," said Jayant Manglik, president, retail distribution, Religare Securities. 
    For retailers, the move has spelt greater discomfort as it will require them to set aside one fifth of every im
port shipment for exports. According to the policy, 20% of the imported quantity of gold will be retained in customs-bonded warehouses. Fresh imports of gold will be permitted only after 75% of the retained gold is exported. 
    "It is a complicated policy. It is not possible for us to ensure a specified amount of exports with every shipment of gold imported. It will make 
it very cumbersome for retailers. We would not mind paying a penalty, but this is not a welcome move for the manufacturing industry," said Mehul Choksi, CMD, Gitanjali. 
    According to industry estimates, as against an average of 900 tonnes of consumption of gold in the country annually, exports stand at 60-65 tonnes per year. 
REINING IN DEMAND 
    According to the RBI policy, 20% of the imported quantity of gold will be retained in the customs bonded warehouses. Fresh imports of gold will be permitted only after 75% of retained gold is exported 
    The move may lead to shortage of the yellow metal for consumers 
at home, leading to hike in prices 

While the RBI move may discourage the consumption of gold to some extent, experts believe it will not be possible to push exports significantly


Sensex rallies 143 pts to 30-month high of 20,302


Mumbai: Led by FMCG majors ITC and Hindustan Unilever, the sensex gained 143 points on Tuesday to a two-and-halfyear peak of 20,302. Despite economic uncertainties on several fronts and even as Dalal Street investors shifted to defensive stocks, both the FMCG majors touched all-time peaks, with ITC closing at Rs 376 and HUL at Rs 719. The day's buoyancy was also backed by strong rallies in other major markets like the US and Japan, with several of the leading indices either at multi-year or all-time high levels. 
    Despite the current rally, there are people in the market who are cautious because they believe that the current rally is riding on a select stock, and the muted quarterly earnings numbers do not justify such euphoria. In addition, institutional dealers pointed out that foreign funds are yet to start buying Indian stocks in a big way, and for the current rally to sustain it would need FII inflows. At the close of session, net FII buying for the day was just Rs 211 crore, according to data on the exchanges. 
    BSE data on Tuesday 
showed that of the 143-point gain for the sensex, 71 points, or almost half of the gains, came from the two FMCG majors, indicating that the gains were skewed in favour of the two index heavyweights. Apart from these stocks, the other major contributors to the index's gains were ICICI Bank, Infosys and SBI. 
    Market players said that with bulls firmly in charge of the Street, there is no way the market can fall till the expiration of the current month's derivatives contracts on Thursday. Since the last derivatives expiration on June 27, the benchmark indices, sensex and NSE nifty, have each gained about 7% to their current levels. 

    "With the nifty up over 7% since the last expiry, it appears bulls are in full control irrespective of negative fundamentals. With just two days to expiry, it is unlikely that the bulls will allow their grip on the market to lessen," said Arun Kejriwal, director, KRIS, an investment research and advisory firm. "What happens Friday onward could be another story," said Kejriwal. 
    Analysts are also cautious because corporate earnings for the April-June quarter again showed that India Inc was leaning heavily against other income for reporting net profit growth. The muted growth in revenues also reflected the lack of pricing power for most manufacturers, analysts said. 

RBI TIGHTENS THE SCREWS 

MEASURE 
Banks can borrow only half percent of their deposits from RBI on any given day 
Cash reserve requirement to be applied on daily basis as against average fortnightly balance earlier 
RBI to drain liquidity through auction of 56-day and 28-day bonds for Rs 3,000cr each 

IMPACT 
Rupee could firm up as building up long positions becomes expensive 
Home and auto loan rates could inch up for customers of banks that depend on wholesale funds 
Bond prices to crash further, bond schemes of mutual funds will lose value

RBI bid to prop up may hike interest rates

Mumbai: Interest rates are likely to inch up and growth prospects may worsen with the Reserve Bank of India (RBI) introducing additional measures to make money scarce in its attempt to prop up the rupee. 

    The RBI on Tuesday limited its overnight lending to half a percentage point of a bank's deposits on any given day and also announced out of turn auction of Rs 6,000 crore worth of bonds. 
    The RBI's third measure requiring banks to maintain cash reserves on a daily ba
sis as against an average fortnightly balance earlier will force banks to set aside a cash buffer every day. 
Sensex closes at 30-month high 
ed by ITC and Hindustan Unilever, the sensex gained 143 points on Tuesday to close at a two-and-a-half - year high of 20,302. Strong rallies in other top markets with several of the leading indices at multi-year high, too powered the rise. P 15 'RBI willing to sacrifice growth for Re stability' 
Mumbai: The second round of RBI's measures to tighten money flow was announced late in the evening on Tuesday, a day the rupee weakened by 5 paise to close at 59.77. At current levels the domestic currency is a mere 12 paise stronger from the day RBI announced measures. 
    "Given RBI's serious intent to keep the rupee under control it looks like the measures may continue for some time. Corporates will feel the first impact on commercial paper rates. Banks that depend on wholesale funds will also pass on their higher cost of borrowing to their corporate customers," said the chief of a public sector bank. 
Bankers feel that part of the reason for the second measures could be the build-up of sentiment in forex markets that the rupee would continue to weaken. The second set of measures came just over a week after RBI caused shortterm rates to firm up by limiting its lending to banks. 
    "The follow up measures taken today clearly indicate that there is a firm resolve to tackle any speculative activity in the forex market. It also shows that RBI is willing to sacrifice everything including growth to manage the currency," said Ashish Vaidya, head of fixed income currency and commodities at UBS. TNN

 

blogger templates | Make Money Online