Friday, February 27, 2009

India's Q3 GDP growth drops 2.3 per cent QoQ

India's economy grew a slower than expected 5.3 per cent in the December quarter from a year earlier, slowing sharply from the previous quarter's 7.6 per cent as the global economic crisis cut demand and exports.

The annual growth for India's fiscal third quarter was lower than a median forecast of 6.2 per cent in a Reuters poll of economists and also lower than a upwardly revised 8.9 per cent annual expansion in the same quarter a year ago.

Farm output in the December quarter fell an annual 2.2 per cent vs a rise of 2.7 per cent in July-Sept quarter.

Manufacturing fell an annual 0.2 per cent in Oct-December vs a growth of 5.0 per cent in the July-September period.

Construction grew 6.7 per cent in Oct-Dec vs 9.7 per cent in July-September.

Trade, hotels, transport and communication grew 6.8 per cent in Oct-Dec vs 10.7 per cent in July-Sept.

Financing, insurance, real estate and business services grew 9.5 per cent in Oct-Dec vs 9.2 per cent in July-September.

"The only factor which seems to be growing strongly is the community and social services sector. But seeing that other sectors have slowed down significantly, we expect the government's advanced estimate to be revised to closer to 6.3 per cent, and we maintain this as our forecast," said economist Anubhuti Sahay.

The partially convertible rupee fell slightly to 50.73/74 per dollar from 50.68/69 just before the data. It had closed at 50.45/47 on Thursday, and hit a record low of 50.78 on Friday morning.

The 2018 bond yield fell to 6.41 per cent from 6.43 per cent just before the GDP data. It had ended at 6.51 per cent in the previous session.

The 30-share BSE index extended losses to be down 1.6 per cent at 8,815.52 points. It was trading down about 0.9 per cent before the data.

India's economy, Asia's third-largest, is largely driven by domestic demand and strong growth of 9 per cent or more in the past three fiscal years has attracted global attention.

But the impact of the global financial crisis is now being felt and growth is officially estimated to slow to 7.1 per cent in 2008/09 from 9.0 per cent in the previous year.

The government has rolled out a slew of steps to tackle the slowdown, including aggressive interest rate cuts, tax and duty cuts and extra spending.

Annual inflation has slowed to below 4 per cent in mid-February from a peak of nearly 13 per cent in August, and the central bank estimates it to fall to 3 per cent by end March.

Rupee hits record low of 50.69 against US dollar

The Indian rupee on Friday depreciated to an all-time low of 50.69 against the US currency in early trade on continued capital outflow by foreign funds and increased dollar demand from importers.

At the Interbank Foreign Exchange (Forex) market, the domestic currency was quoted at 50.69 against the dollar, down 23 paise from its previous day's close.

The rupee yesterday depreciated by 52 paise to 49.46/47 against the greenback.

Dealers said concerns of capital outflows by funds and increased demand for dollar from importers caused the rupee to weaken.

They added, the dollar's gains against other major currencies also weighed on the domestic currency.

Investment bankers recommend 51 pc stake sale in Satyam

Goldman Sachs and Avendus, investment bankers to Satyam Computer, are learnt to have proposed 51 per cent stake sale-- 31 per cent via preferential equity and 20 per cent through open offer-- in the IT company to a strategic investor.

According to a source associated with the process, the Satyam board which met today in Hyderabad, is understood to have discussed the proposal and would approach market regulator SEBI on Monday on the pricing issue with regard to both preferential as well as open offer routes.

After getting the green signal from the market regulator, the Satyam Board would issue Expression of Interest (EOI) to the prospective bidders, the source said.

According to the source, the investment bankers during their presentation said it would be better for the company to dilute 51 per cent equity, which should include 31 per cent preferential equity and 20 per cent open offer, to a strategic investor.

Suitors Hinduja Group and B K Modi-promoted Spice Group had said they would prefer taking 51 per cent in Satyam.

"It will be preferred if somebody can get 51 per cent..." Hinduja Group CFO Prabal Banerjee had said.

Wednesday, February 25, 2009

How Harvard's investing superstars crashed

Stocks were tumbling last fall as the new school year began, but at Harvard University, it was as if the boom had never ended.

Workers were digging across the river from Harvard's Cambridge, Mass., home, the start of a grand expansion that was to eventually almost double the size of the university. Budgets were plump, and students from middle class families were getting big tuition breaks under an ambitious new financial aid program.

The lavish spending was made possible by the earnings from Harvard's $36.9 billion endowment, the world's largest. That pot was supposed to be good for $1.4 billion in annual earnings.

Behind the scenes, though, a different story was unfolding.

In a glassed-walled conference room overlooking downtown Boston, traders at Harvard Management Co., the subsidiary that invests the school's money, were fielding questions from their new boss, Jane Mendillo, about exotic financial instruments that were suddenly backfiring.

Harvard had derivatives that gave it exposure to $7.2 billion in commodities and foreign stocks. With prices of both crashing, the university was getting margin calls--demands from counterparties (among them, JPMorgan Chase and Goldman Sachs) for more collateral. Another bunch of derivatives burdened Harvard with a multibillion-dollar bet on interest rates that went against it.

It would have been nice to have cash on hand to meet margin calls, but Harvard had next to none. That was because these supremely self-confident money managers were more than fully invested. As of June 30, they had, thanks to the fancy derivatives, a 105 per cent long position in risky assets. The effect is akin to putting every last dollar of your portfolio to work and then borrowing another 5 per cent to buy more stocks.

Desperate for cash, Harvard Management went to outside money managers begging for a return of money it had expected to keep parked away for a long time. It tried to sell off illiquid stakes in private equity partnerships but couldn't get a decent price. It unloaded two-thirds of a $2.9 billion stock portfolio into a falling market.

Now, in the last phase of the cash-raising panic, the university is borrowing money, much like a homeowner who takes out a second mortgage in order to pay off credit card bills. Since December, Harvard has raised $2.5 billion by selling IOUs in the bond market. Roughly a third of these Harvard bonds are tax exempt and carry interest rates of 3.2 per cent to 5.8 per cent. The rest are taxable, with rates of 5 per cent to 6.5 per cent.

It doesn't feel good to be borrowing at 6% while holding assets with negative returns. Harvard has oversize positions in emerging-market stocks and private equity partnerships, both disaster areas in the past eight months.

The one category that has done well since last June is conventional Treasury bonds, and Harvard appears to have owned little of these. As of its last public disclosure on this score, it had a modest 16 per cent allocation to fixed income, consisting of 7 per cent in inflation-indexed bonds, 4 per cent in corporates and the rest in high-yield and foreign debt.

For a long while, Harvard's daring investment style was the envy of the endowment world. It made light bets in plain old stocks and bonds and went hell-for-leather into exotic and illiquid holdings: commodities, timberland, hedge funds, emerging-market equities and private equity partnerships.

The risky strategy paid off with market-beating results as long as the market was going up. But risk brings pain in a market crash. Although the full extent of the damage won't be known until Harvard releases the endowment numbers for June 30, 2009, the university is already working on the assumption that the portfolio will be down 30 per cent, or $11 billion.

The strain of market turmoil is visible in staff turnover at the management company, which axed 25 per cent of its staff recently and is on its fifth chief in four years. Mendillo, 50, came to Harvard last July after running Wellesley's small endowment.

She declines to comment. But how much blame she should get is unclear; the big bets on derivatives and exotic holdings were in place before she got there. The bad bet on interest rates--a swap in which Harvard was paying a high fixed-interest rate and collecting a low short-term rate--goes back to a mandate from former Harvard President Lawrence Summers.

Jack R. Meyer, 64, a revered money manager who headed Harvard's endowment until 2005, offers a few guarded comments. "The liquidity thing most concerns me--that should not have happened," he says. Though he wasn't there at the time, Meyer says Harvard Management bought the commodity and foreign stock derivatives as a way to get exposure to those asset classes while freeing up cash to put to work elsewhere. The strategy, he says, "drained liquidity" from the endowment in recent months. "Many endowments stretched too far, and I think Harvard did as well," he says.

The endowment will remain stretched. Harvard has been counting on it to fund more than a third of its $3.5 billion operating budget. Assuming the fiscal year ends with around a $24 billion endowment value, the university will be drawing down half again as high a percentage of its assets as it did in 2004, the last time the endowment was around that size.

That can't go on forever. The strain on liquidity will continue, as the private equity partnerships compel Harvard to meet billions in capital calls in future years. Why not just unload those partnerships along with the liabilities that stick to them? Because no one wants to buy them. Private equity stakes like Harvard's are selling at 40 per cent to 60 per cent discounts in various markets. "Endowments will be shocked at the valuations of their (private equity) portfolios," says Stewart Massey, an endowment consultant at Massey Quick. "It's going to be an absolute bloodbath."

Harvard's woes are in some ways no different from those at other universities or in the market generally (the S&P 500 is down 37 per cent since last July 1). "A loss in these kinds of markets is inevitable," says Michael Eisenson, a former HMC staffer who now runs private equity firm Charlesbank. The average endowment is down 23 per cent in the five months through November, according to a university trade group.

But Harvard was supposed to be different. In the 15 years through last June, it returned an annual 15.7 per cent versus 9.2 per cent for the S&P. Meyer landed at Harvard in 1990 after scoring big investment returns at the Rockefeller Foundation.

In an unorthodox move for an endowment chief, Meyer built a Wall Street-like trading operation and managed most of HMC's money in-house. It looked like a giant hedge fund, and it had paychecks to match. A high-level HMC manager would make as much as $35 million in good years.

Those sums triggered what became an annual Harvard tradition: first, the disclosure (compelled by tax laws applying to nonprofits) of the HMC bonuses, followed by an outcry led by the late William Strauss and a group of Harvard alumni from his class of 1969.

HMC not only became a place to make big bonuses, it was also where you could make a name for yourself and become a "crimson puppy," meaning launching your own private equity firm or hedge fund with Harvard's backing. One of the puppies, Jeffrey Larson, left in 2004 to start Sowood Capital. That pile of smart money cratered in 2007, losing $350 million for Harvard.

By September 2005, Meyer himself decided it was time to go. Some people say it was because of the persistent criticism about bonuses, which were reduced near the end of his tenure; others say he had run-ins with former US Treasury Secretaries Lawrence Summers and Robert Rubin, who assumed Harvard leadership positions at the start of the decade. Meyer denies both reasons and says 16 years at Harvard was simply enough.

Meyer formed his own hedge fund, Convexity Capital, which seems to have held up well in the current market. He took with him the Harvard heads of domestic and international fixed income and both their staffs, as well as the chief risk officer, chief technology officer and chief operating officer. The survivors were demoralized. "You walked onto the trading floor, and it was just 10 per cent full," says someone who was there at the time. "There was a sense that if you were good, you left."

Five months later, Mohamed El-Erian, now 50, took over. The son of an Egyptian diplomat, he had risen to deputy director of the International Monetary Fund before joining giant bond manager Pimco. He seemed perfect for smoothing relations between HMC and the university. Filling the hole that Meyer left was another matter.

One solution: Don't even try, just hand over all of the endowment to outside money managers. But El-Erian insisted on keeping things intact. He talked of the "structural advantages" of investing a big endowment backed by an AAA-rated university, such as allowing you to borrow at low rates when making leveraged bets. The former Pimco emerging-market superstar also believed that the developing countries offered big profits to smart investors like HMC because they had become less risky thanks to ample dollar reserves and a growing middle class.

So El-Erian upped HMC's exposure to emerging-market stocks, which rose from 6 per cent of assets when Meyer left, to 11 per cent two years later. He also used total return swaps to bet on developed world stocks and commodities on the cheap, freeing up money for other investments. Tapping former Stanford endowment staffer Mark Taborsky (an "important hire," El-Erian would later write in a book), El-Erian also took money from hedge funds he didn't like and redirected it to ones he thought were winners, putting hundreds of millions into funds in Latin America, Asia and the Middle East.

The moves looked brilliant. For the year ended June 2007, Harvard returned 23 per cent versus 17.7 per cent for 151 other big institutional investors (and 20.6 per cent for the S&P 500). Fearing all markets could soon fall, El-Erian injected what he referred to as "Armageddon insurance" into HMC's portfolio for the first time by buying interest rate floors, or a wager that rates would fall, and betting, via credit default swaps, that companies could soon struggle to pay their debts.

For the following year, through June 2008, Harvard gained 8.6 per cent, versus a 13 per cent fall in the S&P. El-Erian's insurance accounted for much of HMC's outperformance. Hedge funds, however, were sucking up cash--HMC had increased investments in those areas to 19 per cent from 12 per cent a year earlier. The returns were flat. It's unclear how much of the results--good or otherwise--were El-Erian's doing. He left at the end of 2007, six months before the results came in, citing a desire to move back near his wife's family in California and return to Pimco as heir apparent to founder Bill Gross.

Since July, emerging-market shares have been a disaster, falling 50 per cent, as measured by the MSCI Emerging Markets Index, worse than US stocks. Another problem: El-Erian's insurance has been partly taken off since he left, leaving HMC vulnerable when markets plunged this fall.

The total return swaps, which easily could have been terminated, were left alone. The EFG-Hermes Middle East North Africa Opportunities Fund, a hedge fund launched in September 2007 with some $200 million of HMC cash, was down 35 per cent in 2008. El-Erian's big hire, Taborsky, left HMC in September. He's since joined El-Erian at Pimco. El-Erian and Taborsky decline to comment.

By the time Jane Mendillo walked into HMC's offices in July 2008, she figured some changes needed to be made. A former consultant who worked for years at HMC under Meyer, Mendillo got the HMC gig partly as a result of Meyer's recommendation.

She had spent the last six years running the $1.6 billion Wellesley College endowment, which was completely outsourced to external managers. Her detractors say that she was ill prepared for Harvard's liquidity crisis and slow to take cognizance of the swap exposure. But they concede that the crisis came fast on the heels of her arrival.

Mendillo did move quickly to deal with the private equity portfolio. One of her first moves at HMC, which she initiated before the markets started to fall in earnest, was to sell between $1 billion to $1.5 billion of Harvard's private equity assets in one of the biggest such sales ever attempted.

The high bids on such assets have recently been 60 cents on the dollar, says Cogent Capital, an investment bank that advised Harvard on the sale. Cogent says the big discounts are due to "unrealistic pricing levels at which funds continued to hold their investments" and "fantasy valuations."

Defenders of Harvard's portfolio argue the secondary market is discounting private equity stakes too much. The market is made up of a dozen secondary funds with at most $15 billion available, says Bryon Sheets, a partner at San Francisco secondary firm Paul Capital.

That makes it a buyer's market, given the slew of desperate banks, pension funds and endowments looking to unload assets to meet obligations. So what are Harvard's private equity stakes worth? Most private equity investors like Harvard have been waiting for their money managers to finish marking down their assets following a brutal 2008. It is a slow process that lags the public markets by as much as 180 days, says William Frieske, a performance consultant at Northern Trust, which administers endowment accounts.

But one clue to what may be coming can be found in Harvard's own portfolio. It owns units of Conversus Capital, a publicly traded vehicle that holds slices of 210 private equity funds. Conversus has cut its net asset value by 21 per cent since last summer to make a "best estimate."

Yet stock investors think things are a lot worse. Conversus shares have fallen 67 per cent since June 30 and are trading at a 62 per cent discount to the net asset value. The Conversus stock drop translates into a potential $168 million loss for Harvard, which, as of Jan. 31, was still listed as a "strategic investor."

Conversus is run by Robert Long, a former Bank of America exec who went to Boston and got $250 million from El-Erian to help him set up the firm and buy $1.9 billion of Bank of America's private equity assets. Harvard also owns a piece of Garnett & Helfrich Capital, a $350 million fund opened in 2004.

Garnett has purchased six companies but, five years later, is yet to realize any returns. The value of one of those investments, software maker Ingres, has been reduced by its minority owner to nothing "as a result of reported losses." Then there is Tallwood Venture II, a $180 million fund raised in 2002 to invest in semiconductors. It has hardly exited any of its portfolio companies, according to Thomson Reuters and SEC filings.

The fact that a fifth of HMC's portfolio is in private-equity-like investments makes it vulnerable to the kind of problems HMC faced this fall. HMC has made $11 billion of capital commitments to investment partnerships through 2018, says Moody's. HMC used to make good on those commitments with income generated by the existing private equity portfolio. "Endowments are afraid capital calls will come quickly and far ahead of any liquidity from private equity funds," says Colin McGrady, managing director at Cogent Partners.

Watching all of this, the group of 10 Harvard alumni from the class of 1969 feel vindicated. "The events of the last year show that the whole procedure of rewarding people so handsomely based on increases on paper value of the endowment was deeply flawed," says a spokesman for the group, which recently sent a letter to the Harvard president suggesting HMC staffers return $21 million of their latest bonuses. "Even now, we don't really know how well it has done in the last 10 years."

Friday, February 20, 2009

Sensex cracks below the 9,000 on weak global cues

Key benchmark indices faltered in opening trade on weak cues from global markets. The barometer index BSE Sensex fell below the psychologically vital 9,000 level. The Sensex was down 186.30 points, or 2.06%, to 8,856.33. Global cues were weak.

Asian markets declined today, 20 February 2009, after Wall Street tumbled to six-year low on Thursday, 19 February 2009, as a gloomy US unemployment data reinforced fears the world`s largest economy is in a severe slump. Key benchmark indices in Hong Kong, Japan, Singapore, South Korea and Taiwan were down by between 1.47% and 4.07%. However, China`s Shanghai Composite rose 0.58%.

US markets tumbled on Thursday, 19 February 2009 on mounting concerns about the fate of major banks and signs that the recession is deepening, pushing the Dow to its lowest level in more than six years. The Dow Jones industrial average lost 89.68 points, or 1.19%, at 7,465.95. The Standard & Poor`s 500 Index fell 9.48 points, or 1.2%, at 778.94. The Nasdaq Composite index shed 25.15 points, or 1.71%, at 1,442.82.

US government data showed a record number of continuing unemployment claims, at nearly 5 million, and a surprisingly sharp drop in manufacturing in the mid-Atlantic states.

Closer home, Commerce minister Kamal Nath is likely to announce an export booster package later this month which would address some of the crucial concerns of the exporters. The sops under consideration include simplification of rules for service tax refund, extension of time given to exporters to meet export obligation and an increase in rates of input duty reimbursement schemes like drawback and DEPB for some sectors.

At 10:25 IST, the BSE 30-share Sensex was down 186.30 points, or 2.06%, to 8,856.33. The Sensex opened 98.85 points lower at 8,943.78, also its day`s high. At the day`s low of 8,829.57, the Sensex lost 213.06 points in early trade.

The S&P CNX Nifty slumped 55.85 points, or 2%, to 2,733.50

The market breadth, indicating the overall health of the market, was weak on BSE with 600 shares declining as compared with 269 that advanced. A total of 29 shares remained unchanged.

BSE clocked a turnover of Rs 389 crore by 10:25 IST.

All the members from the 30-share Sensex pack were trading lower. Mahindra & Mahindra (down 3.53%), HDFC (down 3.13%), and Reliance Infrastructure (down 2.65%), were among the major losers from the Sensex pack.

Realty shares declined as margins of realty firms are under pressure due to falling property prices. India`s largest realty developer by market capitalisation DLF fell 3.68% to Rs 150.70 and was the top loser from the Sensex pack. Foreign brokerage Goldman Sachs in its recent research report lowered DLF`s 12-month target price to Rs 124 post weak Q3 December 2008 results.

Unitech (down 2.45%), Omaxe (down 1.60%), HDIL (down 2.72%), and Parsvnath Developers (down 1.33%), fell.

India`s largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) fell 2.18% to Rs 1265.50 on fears the worsening global economy will hit demand for petrochemicals.

Banking stocks fell as fears of rising defaults in a weakening economy and overnight fall in American Depository Receipts (ADRs), offset hopes of rate cuts from the Reserve Bank of India (RBI). India`s second largest private sector bank by net profit HDFC Bank lost 3.09% to Rs 857.50 as its ADR fell 0.26% on Thursday, 19 February 2009. India`s largest private sector bank by net profit ICICI Bank slipped 4.14% to Rs 346.55 on a 1.36% fall in its ADR on Thursday, 19 February 2009.

India`s largest bank in terms of assets and branch network State Bank of India shed 1.75% to Rs 1039.65.

Inflation rose at the lowest level in 13-months at 3.92% in the year through 7 February 2009, much lower than previous week`s annual rise of 4.39%, data released by the government on Thursday, 19 February 2009, showed. Falling inflation provides room for the Reserve Bank of India (RBI) to cut interest rates further to shield the domestic economy from the global financial sector crisis and recession in key global economies.

Only on Wednesday, 18 February 2009, the Reserve Bank of India Governor D Subbarao said that there is room to cut interest rates further. The statement comes at a time when the market is expecting further action from the central bank.

Market men see a bigger role for RBI to shield the domestic economy from the global financial sector crisis and recession in key global economies in the coming months as election code will be in force by the end of the month which means that there cannon be any policy action from the government.

IT pivotals fell as fears a weak global economy would cut the amount firms spent on technology offset a weak rupee. India`s third largest software services exporter, Wipro slipped 3.43% to Rs 212.80 despite a 1.12% rise in ADR on Thursday, 19 February 2009. India`s second largest software services exporter Infosys Technologies lost 2.26% to Rs 1181.80 as its ADR fell 1.71% on Thursday, 19 February 2009. India`s largest software services exporter by sales TCS slipped 2.41% to Rs 477.95 and India`s fifth largest IT exporter by sales HCL Technologies declined 2.93% to Rs 105.95.

However Satyam Computer Service galloped 3.03% to Rs 47.50 at 10:18 IST after it won approval to bring on board a strategic investor needed to ensure the survival of the scam-tainted software outsourcer.

Indian rupee slipped today on concerns of capital outflows following decline in global markets. The partially convertible rupee was at 49.75 per dollar against previous close of 49.62. A weaker rupee boosts operating margins of IT firms which earn a lion`s share of revenue from exports.

India`s largest power equipment maker by sales Bharat Heavy Electrical (Bhel) fell 1.24% to Rs 1365. The company reportedly plans to pump in around Rs 1000 crore in developing locomotive manufacturing facility.

India`s second largest cellular services provider by sales Reliance Communications (RCom) lost 3.5% to Rs 157 on reports the government on Thursday, 19 February 2009 reportedly informed the Parliament that it will do a special audit on the books of RCom and its subsidiaries over allegations that the telecommunications company had diverted revenues earned from its mobile services to a subsidiary to bring down the total amountit had to pay to the government as licence fee and spectrum charge.

Back home, key benchmark indices ended slightly higher on Thursday, 19 February 2009, in what was a lackluster trading session, in sync with range-bound activity in global markets. The BSE 30-share Sensex rose 27.45 points, or 0.30%, to 9,042.63 and the S&P CNX Nifty rose 13.20 points or 0.48% to 2789.35.

According to provisional data on NSE, FIIs were net sellers worth Rs 363.48 crore while mutual funds bought shares worth Rs 108.44 crore on Thursday, 19 February 2009.

Rupee falls by 21 paise against USD to 49.03

The Indian rupee extended yesterday's weakness and depreciated by another 21 paise against the greenback in early trade today on fears of more capital outflows from the domestic bourses after Asian equity markets retreated.

At the Interbank Foreign Exchange (Forex) market, the domestic currency quoted weaker at 49.03 against the US currency, a fall of 21 paise over the previous close of 48.82/83 a dollar.

The domestic currency has yesterday ended 15 paise lower at 48.82/83 against the dollar.

Dealers said concerns of capital outflows by funds on fears that domestic stock markets may open in the negative zone, in tandem with other Asian bourses, mainly put pressure on the Indian rupee.

They said dollar's strength against other rival currencies also had some impact on the domestic currency.

Meanwhile, Hong Kong's Hang Seng index fell 3.01 per cent, Japan's Nikkei shed 1.5 per cent and Singapore's Strait Times dropped 1.29 per cent in early trade today.

Gold breaks records at Rs 15,712

Gold futures continued hitting a new high for the third day at Rs 15,712 per 10 gram in early trading on the Multi Commodity Exchange, on continued buying on speculations that the global recession will deepen further.

The far-month June contract for gold surged by Rs 138, or 0.88 per cent to touch a new high of Rs 15,712 per 10 gram at the MCX counter. The contract clocked business volume of 268 lots (one lot is equal to one kg) in early trade.

Similarly, gold for April month contract rose by Rs 145, or 0.93 per cent to Rs 15,706 per 10 gram, clocking a business turnover of 4,665 lots.

Market experts said firming trends in spot markets on account of marriage season also influenced metal prices at futures market here. At Chennai, gold opened Rs 235 higher to Rs 15,725 per 10 gram.

"Continued investment buying and break of 980 US dollar an ounce level, an important resistance level, supported the bull-run in the precious metal," Galipelli Harish of Karvy Comtrade told.

Meanwhile, in global markets gold touched a high of 988.40 dollar an ounce last evening.

Inflation dipped to 3.92%

The rate of inflation dipped to 3.92%, the lowest in 13 months.

India's annual rate of inflation continued its descent during the week ended Jan 31 and fell to 4.39 percent from 5.07 percent for the week before, official data showed Thursday.

The inflation rate, based on the official wholesale price index (WIP) stood at 4.74 percent for the corresponding week of the previous fiscal, showed the statistics released by the Industry Ministry here.

The fall during the week under review was due mainly to a 3.1 percent decline in the index for fuels, as the result of a 21 percent drop in prices of lignite, 11 percent in petrol, 8 percent in cooking gas and 7 percent in high speed diesel.

While the index for primary articles fell 0.2 percent that for manufacturing also declined 0.1 percent.

Satyam board to devise process for auction

Distressed IT firm Satyam's board is likely to discuss ways of taking forward the process of conducting a public auction for inducting one or more strategic investors, in its meeting on Saturday.

The Company Law Board today allowed the IT firm to conduct a public auction for inducting one or more strategic investors and to raise its equity base.

The government-appointed board of Satyam, which the company officials said is meeting on Saturday, is likely to discuss the ways for taking forward the process of auction.

In its order, CLB Chairman S Balasubramanian said that it was necessary for Satyam to bring in long-term funds by inducting a strategic investor and accordingly its board can pass a resolution to enhance the company's authorised equity capital to Rs 280 crore, comprising 140 crore shares of Rs two each, from Rs 160 crore currently.

Ahead of the meeting of Satyam's directors, one of the suitors, B K Modi-led Spice group is holding a board meeting tomorrow to decide on its bid for the IT company. Modi had earlier suggested an e-auction for the sale of stake in Satyam, where it is seeking preferential allotment of shares amounting to a controlling stake.

Thursday, February 19, 2009

RIL to start gas supply from KG-D6 by April

Billionaire Mukesh Ambani-run Reliance Industries will start selling natural gas from its eastern offshore KG-D6 fields by April to ease fuel deficit at power and fertiliser units, the government has said.

"Supply of gas from KG-D6 is likely to begin by April 2009," oil minister Murli Deora has said at the meeting of Parliamentary Consultative Committee on Tuesday evening.

Reliance is likely to start gas production by the first week of March but the initial volume would go for testing the equipment and building pressure in the pipeline. The first sale may by early April.

Initial output may be 5-10 million standard cubic meters per day that would rise to 15-20 mmscmd by April and to 40 mmscmd by July/August.

"It has been decided to supply the first 40 mmscmd of natural gas to meet the shortfall in existing gas-based urea plants, LPG plants and power plants," Deora said.

KG-D6 gas would be a boon for the fuel-starved fertiliser and power companies, increasing production at cheaper rates.

Reliance gas that is being priced at USD 4.20 per million British thermal unit -- at least 50 per cent cheaper than competitive domestic gas -- would increase supply of urea in the country and bring down fertiliser subsidy, he said. It would also increase power generation and reduce dependence on imported oil to meet energy needs.

Reliance, Deora said, had started crude oil production from its deepsea KG-D6 block in Krishna Godavari basin on September 17, 2008, with initial output of 8,000 barrels per day.

"With commencement of the first crude oil production from deepwater of KG Basin, the year 2008 has become a landmark in the history of exploration and production in the country," he said.

The initial volumes from KG-D6 would be sold to gas-based urea manufacturing plants and the Dabhol power plant in Maharashtra. Fertiliser plants with a cumulative consumption of over 14 mmscmd have been identified.

The 2,150-megawatt Ratnagiri power plant, erstwhile known as Dabhol project, would get priority equal to fertiliser units. It will initially get 1.4 mmscmd, which would rise to 2.7 mmscmd by May/June and finally to 8.5 mmscmd before year-end.

Next in the order of priority is power sector. Plant-wise allocation within a maximum outlay of 18 mmscmd for the sector would be decided at a meeting this week.

Power plants in Andhra Pradesh, the landfall point of KG-D6 gas, will get gas keeping 70 per cent Plant Load Factor (PLF) (or installed capacity) in mind, while those in the rest of the country would get gas at 60.8 per cent PLF.

India, the world's second-fastest growing major economy, imports 75 per cent of its energy needs and its domestic gas production is insufficient to meet the demand from fertiliser makers and power generators.

Output from the KG-D6 field will reach a peak of 80 mmscmd by 2012 and the decline starting five years later will continue until 2020.

Deora said with the commissioning of a 29 million-tonnes per annum refinery at Jamnagar by Reliance Petroleum, the refining capacity of the country has increased to 177.97 million tonnes.

"Out of this, 105.5 million tonnes is in the public sector and the balance 72.47 million tonnes is in the private sector," he said. "The country is not only self-sufficient in the refining capacity for its domestic consumption but also exports petroleum products substantially."

The TV bubble is readying to burst

Is television media on the verge of a dotcom-type bust?

You bet, say the bigger media groups.

Optimists were hard to come by at Frames, the annual media industry conclave organised by the Federation of Indian Chambers of Commerce and Industry.

Most, on the other hand, seemed to anticipate that a large number of the nearly 350 TV channels in India, most of which were launched in the last three years, will vanish from the screen in the next twelve months.

"In 2007-08, exorbitant amounts of money was spent on setting up new channels," said Monica Tata, who heads the entertainment division of the Turner International India, part of the world's largest media conglomerate, Time Warner.

Tata, who recently oversaw the launch of a general entertainment and a movie channel in India, expects the market to consolidate as media companies either sell out or fold their channels. "Many of them are struggling.. They were invested on the basis of lofty and unrealistic expectations, with an eye on cashing out through IPOs.. It is very similar to the dotcom bubble," she says.

Tata's opinions reverberated widely at the annual extravaganza, which sees the top guns of the media and entertainment industry put their heads together.

"Money will dry up for new channels that are launched," predicted Aroon Purie, chairman of the India Today group, which set off a craze in 2001 by launching the first Hindi news channel, Aaj Tak.

Purie believes the blind copying of successful formats without looking at the sustainability factor is leading to the ruin of the industry.

"If anyone becomes a success, everyone follows suit.. Everyone 'hopes' to make money. We are seeing the results now," he said.

India, the second largest cable and satellite market in the world by numbers, has seen the launch of a large number of entertainment and news channels that aim to operationally break even over 3 to 5 years. The appetite was fed by increasing ad spends by companies riding a wave of liquidity originating in the US and Japan.

Purie pointed also pointed out that the entry of a large number of new players had affected the sustainability of the entire sector.

"In the last one year, my distribution costs have gone up by 50%," he said, alluding to the 'carriage fee' charged by cable operators from broadcasters for carrying their channels.

"New channels come into the space offering more and more money to the cable operators to carry their channels.. It takes Rs 25 to 30 crore to get a national distribution today," he complained.

He also pointed out that the broadcasters have been made more vulnerable due to an unusually large dependence on ad revenues, which. "The consumers pay Rs 15,000 crore as subscription fees every year. The cable operators pay Rs 2,500 crore to the broadcasters, but out of that, the broadcasters again pay Rs 1,500 crore back to them as carriage fee. So, the final share for the broadcaster is 6% of the subscription fees, against 35 to 40% in developed countries," he pointed out.

Even representatives of advertisers, media buying agencies, agreed with the grim outlook.

Sam Balsara, chairman and managing director of Madison World, said overinvestment into the media sector has made it difficult for them to sell advertisements to companies who advertisers.

"The multiplicity of channels is destroying the value chain," he said.

The fragmentation of viewership has made returns on advertisements more difficult to track, leading to more cynicism among clients. "If they had more substantial viewerships, it would have been easier for us to get the advertisers to spend more, since the returns would have been more," he explained.

Experts concur. Jehil Thakkar, executive director for media and entertainment with the audit firm KPMG sees an impending shake out. "350 channels are possible only in a digital future, not in the current circumstances where the number of channels are limited," he said.

'Buy gold. It'll only rise from here'

James Turk, founder and chairman of GoldMoney, firmly believes gold will rise to over $1,000 per ounce in the next month or two, and stay above $1,000 for the rest of the year (that could mean over Rs 18,000 in India).
James Turk, founder and chairman of GoldMoney, firmly believes gold will rise to over $1,000 per ounce in the next month or two.

It may stay above $1,000 forever if the Federal Reserve ends up printing dollars to fund the borrowing the US government is planning for this year, Turk, co-author of the investment bestseller The Collapse of the Dollar, told DNA. Excerpts:

Investors across the world now seem to be taking refuge in US government treasuries. Is that a safe thing to do?
No, for several reasons. First, interest rates on long-term paper in the US are starting to rise, so the price of government T-notes and T-bonds will likely fall from here. More worrying though is the risk of a US default.

The US government owes over $110 trillion, when aggregating all of its commitments. It is very over-indebted, and the price of default insurance is rising because the market perceives a growing risk of default.

Also, it is likely the US government will need to borrow $2.5 trillion this year because its revenues will decline as the economy weakens and it's spending rises as a result of the weakening economy, which brings up another worrying point. The Federal Reserve will need to monetise much of this debt, which will further debase the dollar and cause more inflation.

The only solution the US government seems to have for all the financial troubles is borrowing more and throwing them at the problems. It also wants its citizens to borrow more...

It is not going to work. Too much debt is the problem. We had the boom, and now we are getting the inevitable bust. Because debt is the problem, it is impossible for more debt to also be the solution.

The US government is terribly misguided. Fortunately, people know better. They have therefore cut back on spending and increased savings in order to help prepare for the tough times the US - and indeed, much of the world - is facing in the months ahead.

What will be the repercussions of the planned fiscal stimulus and all the dollars that are being printed?
The most important repercussion will be that the price of gold will continue to climb. That is always the result when governments create currency out of thin air in order to give to politicians the money they want to spend.

The prevailing feeling among a lot of experts right now is that the US dollar and US treasuries are the biggest prevailing bubbles...
Yes, the US dollar is the biggest bubble, and US government debt instruments are the second-biggest bubble. People do things during a bubble that are not prudent. That reality unfortunately only appears after the fact - after the bubble has popped. The gold price is rising because of increased demand from people looking for a safe haven to protect themselves when these two bubbles pop, which I think may happen as soon as this year or possibly next year.

Can you visualise a catalysing event that will lead to the outright capitulation of the US dollar?
It's impossible to predict. It could be another major bank failure in the US. It could be when the Federal Reserve becomes the biggest buyer of US T-bonds. It could be when China or other trade surplus countries stop accumulating dollars and start spending them instead. The event causing the tipping point cannot be predicted, but once the tipping point is reached, history shows that the currency has less than a year before it totally collapses.

How soon do you see the world moving away from the US dollar as the reserve currency?
The world has been moving away from the dollar for years. In the 1960s, nearly 90% of world trade was conducted in dollars. Today it's about 55%. People are looking for alternative currencies, and I expect gold to emerge in the future in its traditional role as international money - in other words, the money that is used for global trade.
So, investing in gold is the right decision to make right now?

Gold is not an investment. It is money. Gold doesn't generate a rate of return like investments do. The price of gold is rising against all the world's currencies because currencies are losing purchasing power, while gold is preserving purchasing power. For example, one barrel of crude oil today costs about 2 goldgrams, which is the same it cost 50 years ago. So always calculate prices in terms of gold in order to see how badly currencies are being inflated by central banks.

What price do you see gold rising to over the next one year, three years and five years?
I believe that gold will rise to over $1,000 per ounce sometime during the next month or two, and then stay above $1,000 for the rest of the year. It may stay above $1,000 forever if the Federal Reserve ends up printing dollars to fund the borrowing the US government is planning for this year.

Within five years, gold will go much higher. It depends on how badly the Federal Reserve and US government debase the dollar. Remember, it is not that gold is going up; rather, it is that the dollar is going down because it is purchasing less and less because of inflation and other debasement.

DLF slashes prices in Bangalore

DLF, the country's largest real estate player according to market capitalisation, has re-launched its Bannerghatta Road project in Bangalore with a revised price tag of Rs 2,100 per sq ft from Rs 2,775 a sq ft earlier.

The specifications have changed, too. The homes will now be 1,085-1,820 sq ft in size, down from the minimum size of 1,310 sq ft planned earlier. The project was first launched in October last year and DLF sold about 50% of the total 440 flats, said an analyst report.

The developer will compensate its existing customers who paid a higher price by adjusting the outstanding amount against future payments. Earlier, the cost of a 1,310-sq ft flat was Rs 36.35 lakh. Now, this cost has come down to Rs 27.51 lakh, a fall of Rs 8.84 lakh. A DLF spokesperson said, "We have launched our Bangalore project in 4 categories, where the base price ranges between Rs 1,800 and Rs 2,100 per sq ft."

This relaunch comes close on the heels of DLF's Hyderabad project launch at Rs 1,850 per sq ft last month, which received a fairly good response after a dismal December quarter. JP Morgan analysts Saurabh Kumar and Gunjan Prithyani, in a February 2 report, wrote, "Mid-income housing performance was most disappointing as the company booked just 77 units in the last two months against almost 400 units per month over the last two quarters. Expected rate correction and reducing unit prices may trigger a volume recovery at the earliest by second half of FY10."

Analysts, however, said developers who have already launched their projects would find it hard to compete with DLF's prices. The real estate firm's price cuts are to the extent of 40%, much more than what others are offering. This could hit competitors' sales as they are offering a minimum size of 1,445 sq ft with a base price of Rs 2,500 per sq ft.

DLF's rivals in Bangalore include the Prestige group and L&T Properties. Ravi Ramu,
director at another competitor Puravankara Projects Ltd, said, "We are selling projects at about Rs 2,750 per sq ft. We cannot go lower than this." Analysts warn that sticking to their pricing could cost developers volumes and hurt their topline. Sobha Developers, another major real estate player in the IT city, is offering a paltry 8% discount on its ready projects.

Tuesday, February 17, 2009

Rupee drops to 3-week low

The Indian rupee extended losses in afternoon trade on Tuesday dropping to three-week lows as banks bought the U.S. unit to arbitrage in the offshore non-deliverable forwards, while lower stocks also weighed.

* At 12:55 p.m., the partially convertible rupee was at 49.29/30 per dollar, its lowest since Jan. 23 and weaker than Monday's close of 48.84/85.

* One-month non-deliverable forward contracts PNDF were quoting at 49.52/62 per dollar, weaker than the onshore spot rate, providing a good arbitrage opportunity to banks.

* Indian shares fell more than 2.5 percent on Tuesday, with banks among major losers after a higher-than-expected government borrowing plan was seen as denting their outlook in the near term. See [.BO].

* A stronger dollar overseas also dampened sentiment for the rupee.

Friday, February 13, 2009

Budget hopes, firm global stocks aid rally

Profit booking in late trade cut sharp early gains in key benchmark indices. The BSE 30-share Sensex provisionally rose 151.24 points or 1.60%, off 78.52 points from the day`s high. Expectations of further rate cuts by the central bank and hopes of stimulus package for the economy in the interim general budget on Monday, 16 February 2009, lifted the bourses. Strong global cues further bolstered the sentiment

There expectations of a government stimulus for the economy in the interim general budget. The stock market expects the acting Finance Minister Pranab Mukherjee to offer tax sops and sector-specific stimulus package to revive growth when he presents the interim budget on Monday, 16 February 2009. The government has so far announced two stimulus packages including tax cuts and the capital injections for banks.

The Reserve Bank of India (RBI) announced on Thursday, 12 February 2009, it will continue to closely monitor the developments in the global and domestic financial markets and will take swift and effective action, as appropriate. Marketmen expect the RBI to cut policy rates further after the interim general budget

Meanwhile, Lalu Prasad presenting the interim railway budget 2009- 10 in the parliament today said the Railways will invest Rs 2.3 lakh crore in the year ending March 2010. Indian Railways generated a cash surplus of Rs 90,000 crore in the last five years. The Railway Minister announced fare cut in AC and mail express trains by 2% while keeping freight rates unchanged.

The railways posted a 13.17% increase in its total earning in April-January 2009 at Rs 64,876.34 crore, compared to Rs 57,327 crore in the corresponding period last year. While its freight revenue during this period jumped by 13.64% to Rs 44,016.26 crore, passenger revenue went up by 11.82% to Rs 18,042.82 crore.

Firm global markets aided gains in domestic stocks. European markets surged led by financials on news of a US plan to subsidise mortgage payments for troubled homeowners. Key benchmark indices in UK, Germany and France were up by between 1.57% and 2.46%.

Asia-Pacific stocks surged on hopes that government efforts worldwide, including talks of a US subsidy for mortgage payments, would soften the blow of the global downturn. Key benchmark indices in Japan, Hong Kong, South Korea, Singapore, Taiwan and China rose by between 0.96% and 3.23%.

The All Ordinaries index in Australia surged 1.1% on approval of a A$42 billion ($27.4 billion) economic stimulus package.

US stocks rebounded nearly 3% from day`s low in last one hour of trade to end mixed on Thursday, 12 February 2009, on reports the Obama administration was working on a new program to subsidize mortgage payments for troubled homeowners.

The Dow Jones Industrial Average fell 6.77 points, or 0.09% at 7,932.76. However the Standard & Poor`s 500 Index rose 1.45 points, or 0.17% at 835.19 and the Nasdaq Composite index gained 11.21 points, or 0.73% to 1,541.71.

According to reports, the housing plan will use government money to help reduce interest rates for struggling borrowers, while asking lawmakers to approve more ways to modify mortgages. US Treasury Secretary Timothy Geithner intends to announce the plan in coming days.

Meanwhile, US retail sales rose 1% in January 2009, for the first time in 7 months, beating economist`s expectation of a decline. Another data showed, US Initial Jobless claims for the week ending 7 February 2009 fell 8,000 at 623,000, though they still remain near 26-year high.

The BSE 30-share Sensex rose 151.24 points, or 1.60%, to 9,617.07, as per provisional closing. The Sensex opened points 74.77 higher at 9,540.60, also its day`s low. At the day`s high of 9,695.59, the Sensex gained 229.76 points in mid-afternoon trade.

The S&P CNX Nifty advanced 47.25 points, or 1.63%, to 2,940.30 as per provisional closing

The market breadth, indicating the overall health of the market, was strong on BSE with 1456 shares advancing as compared with 985 that declined. A total of 102 shares remained unchanged.

BSE clocked a turnover of Rs 3088 crore as compared to Rs 2228 crore by 14:25 IST

Among the 30-member Sensex pack, 24 advanced while the rest slipped. ACC (up 6.06%), Grasim (up 1.25%), and NTPC (up 1.11%), edged higher from the Sensex pack.

Ranbaxy (down 0.59%), Tata Power (down 0.47%), and Hindustan Unilever (down 0.02%), edged lower from the Sensex pack.

India`s largest private sector company by market capitalization and oil refiner Reliance Industries (RIL) jumped 2.69% to Rs 1388.10 on reports the company is lining up further $6 billion to develop nine satellite discoveries in the Krishna Godavari (KG) basin.

India`s largest oil exploration firm by sales Oil & Natural Gas Corporation (ONGC) rose 0.24% to Rs 696.50 on reports the company may offer a 15-20% stake in its planned petrochemical project in western India to GAIL (India). The stock came off day`s high of Rs 714.35

Metal shares gained following rise in key base metal prices on the London Metal Exchange. India`s largest private sector steel maker by sales Tata Steel jumped 4.88% to Rs 194.50 and was the top gainer from the Sensex pack. Tata Steel`s managing director today said the company is not looking at new acquisitions as of now. He forecasts February 2009 sales to rise 10-15% over January 2009.

Hindalco (up 0.89%), Nalco (up 5.69%), Jindal Steel & Power (up 4.02%), Sesa Goa (up 2.03%), gained from the steel pack.

Sterlite Industries India gained 2.66% to Rs 276.10 after a block deal of 2.01 lakh shares constituting 0.03% of the company`s equity was executed on NSE at Rs 276 per share.

Most IT pivotals gained on hopes that government efforts worldwide, including talk of a US subsidy for mortgage payments, would soften the blow of the global downturn. However, a firm rupee caped gained. TCS, India`s largest software services exporter by sales rose 0.28%. India`s third largest software services exporter, Wipro gained 0.31% after its ADR rose 2.55% on Thursday, 12 February 2009. However, India`s second largest software services exporter Infosys Technologies fell 0.19%.

IT firms derive a lion`s share of revenue from exports. The rupee rose to 48.73/74 per dollar, from its previous close of 48.85/86, as gains in Asian stocks raised hopes of capital inflows to the domestic shares. A stronger rupe affects operating margin of IT firms negatively as they earn most of their revenues from exports.

India`s top power equipment maker by sales Bharat Heavy Electricals (Bhel) jumped 3.02% to Rs 1455 after its chairman said that the company expects to get a contract worth Rs 1000 crore from NTPC for a 500 megawatt power plant.

Investors were bullish on bank stocks, betting on a rate cut next week that would boost treasury income and boost demand. India`s second largest private sector bank by net profit HDFC Bank rose 1.66% to Rs 947.25 as its ADR rose 2.68% on Thursday, 12 February 2009. India`s largest private sector bank by net profit ICICI Bank gained 3.16% to Rs 434.60 on a 0.23% gain in its ADR on Thursday, 12 February 2009.

India`s largest bank in terms of assets and branch network State Bank of India advanced 2.30% to Rs 1186.20.

Realty shares advanced on hopes the forthcoming interim budget may include sops to the housing sector. India`s largest real estate firm by market capitalisation DLF rose 3.84% to Rs 162.25 despite reports the company has pulled out of its Rs 2800 crore satellite township project in West Bengal.

Indiabulls Real Estate (up 1.17%), Anant Raj Industries (up 5%), and HDIL (up 2.15%), advanced.

As per reports, the government may announce tax sops aimed at boosting the housing sector, which has been identified as a potential driver for the economy and job creation during a slowdown. As things stand, taxpayers are allowed to deduct up to Rs 1.5 lakh of interest paid on home loans from their taxable income. This limit could be raised to Rs 2 lakh. This, if it happens, will enable those who have bought a house for self-use to save up to Rs 68,000 in tax. At present, the maximum anyone can save through this deduction is Rs 51,000.

Another possible sop for the housing sector could be reintroduction of Sec 80IA, under which corporates building dwelling units of less than 1,000 square feet area were exempted from tax on the profits from these units. This move may prompt developers towards constructing smaller houses, making houses more affordable for the lower segment of the market.

Auto stocks gained on hopes the government may announce some tax sops to the automobile sector in the forthcoming interim budget on Monday, 16 February 2009.

India`s top tractor maker by sales Mahindra & Mahindra jumped 7.05% to Rs 321 and was the top gainer from the Sensex pack.

Tata Motors (up 1.43%), Hero Honda Motors (up 1.75%), Maruti Suzuki (up 3.32%), gained.

While an across-the-board 4% cut in excise in December 2008 makes any drastic concessions difficult, excise duty on big cars with engine capacities of 1200 cubic centimeter (cc) or more in petrol is likely to get reduced to 16% from the existing 20%.

Wednesday, February 11, 2009

Reliance Power’s Plants Face Delay as Credit Crunch Slows Loans

Reliance Power Ltd., the utility that sold shares in India’s biggest initial public offering last year, may face delays in building its largest coal-fired plants as the global credit crunch holds up loan approvals.

“The lead time for getting loans has increased,” Chief Executive Officer Jayarama Chalasani said by telephone in Mumbai.

The Mumbai-based company is 25 billion rupees short of the 145 billion rupees ($3 billion) it needs to borrow for its first 4,000 megawatt plant at Sasan in central India, Chalasani said in an interview. Reliance Power expects to raise funds for a similar plant at Krishnapatnam in the south by June, he said.

Reliance Power, controlled by billionaire Anil Ambani, sought to borrow $4 billion overseas for the projects by December and was forced to seek rupee loans instead after banks led by Standard Chartered Plc asked for more time to study proposals. A dispute over the supply of natural gas has stalled the utility’s largest plant in northern India and contributed to the 56 percent slump in its shares since they started trading a year earlier.

“The delay in raising funds may hurt Sasan’s completion schedule,” said Abhineet Anand, Mumbai-based analyst at Antique Broking Ltd. “The timing of raising funds is key to Sasan and other large Indian power projects.”

The company, which is yet to start producing power, has borrowed 120 billion rupees for Sasan from a group of 12 banks led by the State Bank of India and expects to get the rest by the end of this month, Chalasani said. Work on the plant in Madhya Pradesh state has already started to ensure that loan delays don’t affect the completion schedule, he said.

Overseas Loans

The rupee debt will be repaid when the company secures dollar-denominated loans from overseas banks, the CEO said. Reliance Power has appointed Standard Chartered as lead banker and China Development Bank Corp. for the overseas borrowings.

The overseas loan for Sasan was delayed because it is “the largest to be raised on a project-finance basis,” Chalasani said yesterday. “Banks, therefore, need more time to examine the expense side of the business including mining technology and capital and operating expenses. This is much more complicated and is completely different from financing any other power project.”

He declined to give a timeline for obtaining overseas loans.

The first phase of the Sasan project is scheduled to be completed by December 2011 and the second by March 2013. The Krishnapatnam plant in Andhra Pradesh is due to start in 2013.

The company was the lowest bidder for a similar-sized project at Tilaiya in the eastern state of Jharkhand, which is yet to be awarded by the federal Power Ministry. Each project may cost as much as 200 billion rupees, Chairman Ambani said Sept. 23.

Ultra Mega Projects

The three coal-fired plants are among the 12 so-called ultra mega power projects that the government is auctioning to help increase India’s generation capacity by 33 percent.

Reliance Power spent 26.86 billion rupees from the proceeds of last year’s share sale on the Sasan and Krishnapatnam plants and on other smaller projects as of Dec. 31, the company said in a Jan. 22 statement to the Bombay Stock Exchange.

“They will have to ensure that fund raising shouldn’t disturb project schedules,” said Mahesh Patil, who helps manage an equivalent of $8.8 billion at Birla Sunlife Asset Management in Mumbai.

Reliance Power’s 7,480-megawatt, gas-fired station at Dadri in Uttar Pradesh has been stalled because of a gas-supply dispute with Reliance Industries Ltd., India’s biggest company by market value, controlled by Anil Ambani’s estranged brother, Mukesh.

Gas Dispute

The dispute arose after the brothers split the Reliance group in 2005 following a family feud. Reliance Industries, an energy explorer and oil refiner, sought prices higher than contracted levels for gas to be sold to Reliance Natural Resources Ltd., which is controlled by Anil Ambani and procures fuel for his group’s power projects.

The Bombay High Court, which banned gas sales from Reliance Industries’ field in June 2007, temporarily lifted the restriction on Jan. 30. The fuel can now be supplied to customers other than Reliance Natural and state-owned NTPC Ltd.

Reliance Power raised $3 billion in India’s biggest share sale in February last year to help fund its $28 billion plan to build power plants. The company will install 28,200 megawatts, or 19 percent of India’s current capacity, in five years, according to proposals announced during the share sale.

The IPO attracted $189 billion of bids and shares were sold at as much as 450 rupees apiece. The stock fell as much as 21 percent on its Feb. 11 trading debut, prompting Reliance Power to give investors free shares to compensate them for the loss.

Investors got three free shares for every five held on May 30. The bonus issue reduced the cost of acquiring Reliance Power shares to 269 rupees for individual investors, 40 percent lower than the IPO price of 430 rupees. For large shareholders, who paid 450 rupees a share, the rate fell to 281 rupees a share.

No free shares were given to Ambani or the founder group. The stock closed at 103.25 rupees in Mumbai yesterday.

Currency futures to clock $1 bn/day in '09: MCX-SX

India’s trading volume in currency futures is expected to cross the $1-billion (Rs 4,800 crore) mark in the current year, a top industry official said.

“I would expect 2009 should see us through the $1-billion volume (per day) in currency futures,” MCX-SX’s Chief Executive Officer (CEO) U Venkataraman said on the sidelines of a Banking and Financial Services Industry (BFSI) summit here on Tuesday.

The average combined daily trading volume in currency futures on NSE, MCX-SX and BSE is estimated at around Rs 2,000 crore.

“I would reckon the $1-billion volume per day could be an ideal thing that the market can boast of,” Venkataraman said.

“On Tuesday, we have scaled up to $800 million. Big corporate houses are still not looking at currency futures. Every business exposed to foreign exchange risk needs to have a facility to hedge against such risk,” he said.

Globally, the average volume of currency futures was around $80 billion, but it was much less compared to the $3.2-trillion spot market trades every day, Venkataraman said, adding that futures trading was close to 4-4.5 per cent of the OTC market.

In the first phase of operations, only the dollar-rupee pair is traded in the currency futures market.

Asked on launching of other currency futures, Venkataraman said, “We will be looking at introducing other currency pairs as and when allowed by regulatory authorities like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi)… We expect further reforms to come in.”

Globalisation, integration of markets and progressive increase of cross-border flow of capital have transformed the dynamics of Indian financial markets. This has increased the need for dynamic currency risk management.

The steady rise in India’s foreign trade along with liberalisation in the foreign exchange regime has led to a large inflow of foreign currency into the system in the form of FDI and FII investments.

Railways earnings up 13.17%

The railways have earned Rs 64,876.34 cr between April 2008 and 2009 compared to Rs 57,327 cr in the same period last fiscal, registering an increase of 13.17 per cent. The total goods earnings have gone up from Rs 38,734.12 cr during April t o January last fiscal to Rs 44,016.26 cr for the same period this fiscal, showing an increase of 13.64 per cent.

The total passenger earnings during the first ten months of the financial year 2008-09 were Rs 18,042.82 cr as compared to Rs 16,134.94 cr during the same period last fiscal, registering an increase of 11.82 per cent. The earnings from other coaching amo unted to Rs 1639.42 cr during April-January 2009 compared to Rs 1539.31 cr during the same period last fiscal, an increase of 6.50 per cent. The total sundry earnings have gone up from Rs 918.63 cr during April-January 2008 to Rs 1,177.84 cr during Apri l-January 2009, showing an increase of 28.22 per cent. 

US Senate approves stimulus plan

The US Senate has passed an economic stimulus plan expected to cost some $838bn (£573bn).

The Democratic-controlled Senate voted 61-37 to approve the measure, with few Republicans opting to back it.

Tough negotiations are now expected in order to reconcile the Senate bill with the House of Representatives's version.

President Barack Obama welcomed the vote as a good start. It came as the US Treasury Secretary unveiled a bank bail-out plan worth some $1.5 trillion

Bank plan skepticism sinks Wall Street

Stocks tumbled on Tuesday with the Dow and the S&P 500 down more than 4 percent, as bank shares slid on concerns that a plan to shore up the financial sector may not be enough to loosen up credit and contain the deepening recession.

Indexes slumped immediately following Treasury Secretary Timothy Geithner's announcement of a plan to mop up $500 billion in spoiled assets from the beleaguered banking system.

Financial stocks, which had spearheaded a rise in the market in recent sessions in anticipation of the plan, skidded as the lack of details in Treasury's announcement raised questions about whether the plan will be enough to rein in the financial crisis.

The KBW Banks index tumbled 12.2 percent and the S&P financial index slid 8.9 percent.

Monday, February 9, 2009

R. Branson - "Life at 30k Feet"

India set to beat China in growth rate

All it the brighter side of the current downturn. India may pip export-dependent China in the last quarter of FY09 and emerge as the fastest growing nation among all large economies.

As China’s GDP growth rate dropped to 6.8% during the October-December quarter and is expected to go down further, the Indian government has become hyper-active to achieve at least a 6.5% growth in Q4 to register a win over China.

If India achieves a better growth rate than China even for one quarter, the message will go across to the world and help India in wooing foreign capital, waiting to chase growth stories. Already, government officials in India have been highlighting reports of a few investment analysts who doubted China’s official GDP numbers and claimed that it could just be in the positive territory in the last quarter.

A secretary in the government of India confirmed to SundayET that India has a brighter chance of overtaking China in the last quarter of FY09, or Q1 in case of China which follows the calendar year.

“China is heavily dependent on exports and the way things are unfolding China’s GDP for January-March quarter would be quite low. We have so far achieved 7.9% and 7.6% growth in the first two quarters, according to the provisional numbers. Though our Q3 number, to be announced by month end, is expected to be less than the comparable number in China (6.8% in Oct-Dec, 08), the softening of interest rates will stimulate demand and ensure a faster growth rate than China in Q4,” he said.

Though the Chinese economy grew at 9% during 2008, down from the revised 13% growth rate in 2007, the last quarter number (6.8%) has made the Indian authorities hopeful that India might be able to pip China in GDP growth. As China’s export constitutes 37% of its economy against 13% in the case of India, the recession in the developed world will make China suffer the most.

PM’s economic advisory council (EAC) member Satish C Jha said he won’t be surprised if India grew faster than China. “The situation in China is worse than us. Exports are drastically coming down and China is hit hard. Our economy is driven more by domestic demand and our rural economy is much more resilient than that of China. If our stimulus packages are implemented properly, I won’t be surprised if India pips China in GDP growth,” Mr Jha said.

Impact of economic meltdown less severe in India: ILO

The impact of the global economic meltdown would be less severe in India and other south Asian countries since they are less exposed to the US economy and the financial market, a top ILO official has said.

Director of ILO's Department of Economics and Labour market analysis, Duncan Campbell has also said that India should focus on imparting education to continue its growth in future.

"The effect of the economic downturn in India and south Asian countries would be less severe as they are less exposed to the US economy and the financial market," Campbell said.

The official said, "Progress could be halted if suitable education is not imparted now. In fact in India, only education can ensure equal distribution, access to economic opportunities and brisk growth path for everyone."

The ILO in its recent report on Global Employment Trend had predicted a global job loss to the tune of 1.5 million in 2009 as a direct impact of the global financial meltdown.

Lauding India's rural employment guarantee scheme, he said that the NREGA programme was helping in reducing poverty in the rural areas.

Stating that the level of social security in India is still "weak", the official said that more than 75 per cent of India's working population earns less than two dollars per day.

"The time for India is to look inwards. Though it has achieved considerable reduction in the level of acute poverty, the economic crisis can result in increase in levels of working poverty in India," he said.

Campbell was recently on a visit to India to form an inter-ministerial task force for promoting the concept of "green jobs" in the country.

"Recession is an opportunity for India to rethink the structure for future and the future for India is in green jobs. We are in consultation with ministries of Environment and Forest, Medium and Small Industries, Labour and Employment, Agriculture and others to arrive at certain common policy platforms on this," Campbell said.

The official said that the observations about India are based on the fact that the level of stimulus package in the Indian economy had been much less when compared to other South Asian economies like China.

Sunday, February 8, 2009

India’s budget deficit may be three times the targeted figure

India’s budget deficit may be three times the targeted figure, as the government steps up spending to arrest an economic slowdown, Suresh Tendulkar, the top economic adviser to Prime Minister Manmohan Singh, said.

It may widen to 7.5 percent of gross domestic product in the year ending March 31 against a target of 2.5 percent, Tendulkar said in a telephone interview in New Delhi Thursday. The government would announce its revised borrowing plan in an interim budget on February 16, he said.

Singh’s government wrote off 717 billion rupees (US$14.7 billion) in farm loans and raised salaries of five million government employees by 21 percent in the past nine months ahead of general elections in April.

Since December, it has cut taxes and announced an extra 200 billion rupees of spending to protect the economy from the global recession.

“India’s fiscal woes are multiplying,” Rajeev Malik, an economist at Macquarie Capital Securities in Singapore, said. “The populist spending initiatives were announced well before the fiscal boost became fashionable. Whatever the original motivation, the spending will be useful in cushioning the hit to growth.”

India’s rupee pared earlier gains after Tendulkar’s comments. The currency traded at 48.7925 per dollar as of 10:27 a.m. in Mumbai, compared with 48.81 on Wednesday, according to data compiled by Bloomberg. It rose as high as 48.775 earlier.

Slower growth

The central bank last week cut its economic growth forecast for the year ending March 31 to 7 percent from between 7.5 and 8 percent.

Slowing growth is putting the brake on tax collections, further impairing government finances.

India’s personal and corporate tax collections rose 12.5 percent to 2.47 trillion rupees between April 1 and

January 31, S.S.N. Moorthy, chairman of the Central Board of Direct Taxes, said Wednesday. That compares with a target of 3.65 trillion rupees by March 31.

Tendulkar said the current global recession is an “extraordinary situation” that requires higher public spending.

“The usual concern about the budget deficit is that it crowds out private investment,” Tendulkar, who is the chairman of Singh’s Economic Advisory Council, said. “But when the economy is on the downturn and investment is sluggish, it will not crowd out private investments.”

‘Fiscal consolidation’

He said the combined budget deficit of the federal government and the states will be close to 10 percent of GDP.

“When the economy recovers, we need to get back to fiscal consolidation,” Tendulkar said.

“There will be pressure on the rating companies to downgrade India’s credit rating,” D. H. Pai Panandiker, president at RPG Foundation, an economic policy group in New Delhi, said. “So far they have resisted, probably on optimism of India’s growth prospects.”

India’s investment-grade credit ratings were maintained by Standard & Poor’s on October 31 on expectations the nation’s economic expansion will not be hurt by a global slowdown.

S&P said it affirmed India’s BBB-long-term credit rating, the lowest investment category. S&P had raised India’s long-term rating by one notch in January 2007.

Still, Tendulkar said the onus of boosting India’s growth falls on monetary policy, because “there are limitations in the fiscal space.”

India’s central bank kept interest rates unchanged last week after lowering them to a record on January 2 to help shield Asia’s third-largest economy from a global slump. The Reserve Bank of India’s reverse repurchase rate is at 4 percent and the repurchase rate at 5.5 percent.

“The central bank must see the implications of the borrowing program before it next sets rates,” Tendulkar said. “They have to figure out how to maintain liquidity supply. My guess is they would cut rates after seeing the interim budget.”

Inflation slows

Inflation slowed to near a one-year low, giving the central bank more room to cut interest rates to stimulate economic growth.

Wholesale prices climbed 5.07 percent in the week to January 24 from a year earlier after gaining 5.64 percent the previous week, the commerce ministry said Thursday. Economists expected an increase of 5.25 percent.

Central bank governor Duvvuri Subbarao said last week inflation would slow to below 3 percent by March 31 and indicated rates would be cut to help the economy weather the global recession. A top aide of Singh said Thursday that rate cuts may come after the government’s interim budget on February 16.

“Interest rates are bound to fall as prices ease and the economy slows,” N. R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi, said. “The central bank will have to assess the government’s borrowing program before it set interest rates.”

The central bank would “have to figure out” the liquidity needed in the banking system after seeing the government’s borrowing program for the financial year starting April 1, Tendulkar said.

Singh’s government will announce an interim budget on February 16 because its five-year term ends in May this year.

Thursday’s inflation rate may be revised in two months, after the government receives additional price data. The commerce ministry cut the inflation rate for the week ended November 29 to 7.86 percent from 8 percent.

Friday, February 6, 2009

Rupee ends higher by another 9 paise at 48.68/69

The Indian rupee on Friday ended higher by another nine paise to close at nearly a four-week high of 48.68/69 against the greenback on

the back of a smart rise in equity markets amid narrow movements in the dollar overseas.

In range-bound trade at the Inter-bank Foreign Exchange (Forex) market, the local currency resumed higher at 48.70/71 from the previous close of 48.77/79 a dollar.

It later moved in a range of 48.66 and 48.77 before settling the day at 48.68/69 a dollar.

Forex dealers attributed the rise in the rupee to smart recovery in the Indian benchmark Sensex, which ended up by nearly 210 points or 2.31 per cent on firm global cues and expectations of more sops in the forthcoming interim budget.

Asian indices also ended stronger following a good rally on Wall Street last night on expectations of a massive US stimulus package later in the day.

The dollar was trading in a narrow range against its major rivals in Asian trade today as attention was focused on the fate of the US stimulus package and the announcement of jobs data.

According to analysts, the rise in the rupee was restricted by sustained capital outflows.

Meanwhile, global crude oil prices were trading above USD 40 a barrel in Asian trade today.

You can pay Rs 70,000, book a Nano by Feb-end

Tata Motors’ Nano, the small car seen as a symbol of India’s expertise in frugal engineering, is likely to be launched on March 3. Billed as the world’s cheapest, the small car’s first recipients may be celebrities, including political leaders, social workers, sports stars and film stars.

Government officials said the company had chosen March 3 as the launch date because it is the birth anniversary of Tata Group founder, Jamsetji Tata. However, the details had not yet been firmed up.

Bookings for the Rs 1 lakh Nano will begin by February end. The booking amount for the world’s cheapest car will be around Rs 70,000.

But, even after paying 70% of the car’s total cost, the wait could be quite long.

Sources familiar with development said that all dealers of Tata Motors and branches of the State Bank of India (SBI) will accept bookings simultaneously across the country in the next three weeks. SBI will initially engaged 100 branches and take the number eventually to 1,000.

Tata Motors and SBI have entered into an exclusive arrangement for the Nano car. SBI will not only act as sole lender to buyers but also offer its branches for bookings.

As Tata Motors is eyeing initial bookings of over one lakh cars, the company hopes to collect around Rs 700 crore in just a few weeks. Allotment will be made through a draw and, going by projections even during this recession, those at the top of the draw would have the choice of becoming proud owners of the first Nanos, or getting a premium in the black market.

Nano would be launched in March 2009 with cars rolling out from the Pantnagar plant in Uttranchal. This plant can produce only 3,000 cars per month — just a fraction of the demand.

Things will ease only after the cars roll out of Sanand plant near Ahmedabad which will have an initial capacity of producing 2,50,000 cars per annum. But the Gujarat plant will take at least one year to start production.

Nano’s launch had been scheduled for 2008 but plans got derailed when Tatas were forced out of Singur in West Bengal.

When contacted, a spokesperson for Tata Motors said, "We have not announced an official date or any marketing plans so far."

Sources in the government, however, said: “The Tatas are planning to give Nano to celebrities initially. Senior Tata officials had discussed this at the Vibrant Gujarat Summit recently.”

Those likely to figure in the list include President Pratibha Patil, Prime Minister Manmohan Singh, Congress President Sonia Gandhi and Opposition Leader LK Advani.

The company may also reserve a Nano for Buddhadeb Bhattacharjee, the chief minister of West Bengal, where it was to be made initially. Others likely to get it are sports stars like Sania Mirza, Sachin Tendulkar and Mahendra Singh Dhoni. Still others may be those who endorse Tata brands, like actors Aamir Khan, Ajay Devgan and Kajol.

Narendra Modi, the chief minister of Gujarat, who was instrumental in attracting the Nano plant to Gujarat after it failed to take off in West Bengal owing to political controversy over land acquisition, may also be given the car.

"This marketing strategy will help the Tatas brand the common man's car as people's car. It will be a car for the masses," sources said.

However, the masses may have to brave a waiting period as Tata Motors dealers will start taking bookings for the car before the Sanand factory reaches full production. The booking amount is likely to be Rs 70,000 a car.

The standard model will be available for Rs 1 lakh and there will two other models priced at Rs 1.24 lakh and Rs 1.34 lakh.

Tata Motors had touched an intraday high of Rs 136.75 and an intraday low of Rs 132. At 10:14 am, the share was quoting at Rs 136.30, up Rs 5.20, or 3.97% on the NSE.

The company may roll out Nano on March 3, reports Business Line.
It was trading with volumes of 318,474 shares. Yesterday the share closed down 3.21% or Rs 4.35 at Rs 131.10.

Share Price Movement During The Last 12 Months
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