Headlines : 9 June 2009

Corporate News Headline
•	Areva T&D India has bagged four contracts worth Rs. 3.5 bn from power transmission utility Power Grid Corporation of India for developing four substations in the country. (BS)
•	Wire & Wireless is planning to raise Rs. 1.92 bn on a private placement basis from institutional investors. (BS)
•	Power Trading Corp is planning to acquire coal properties overseas and has identified mines in Australia and Indonesia for the purpose. (BS)
Economic and Political Headline
•	With economic condition turning better compared to that three months ago, the Planning Commission said economy should record at least 6.7% growth rate this fiscal, the same as was witnessed in 2008-09. (BS)
•	The Bank of England is proposing an extension to its Asset Purchase Facility to buy secured commercial paper as part of its plan to restore liquidity to credit markets. (Bloomberg)
•	Japan’s corporate bankruptcies dropped 6.7% in May, for the first time in 12 months and merchant sentiment climbed to a one-year high, signs that the economy is starting to recover from its deepest postwar recession. (Bloomberg)

Headlines : 8 June 2009

Corporate News Headline
•	JSW Steel has reported a 33% rise in crude steel production to 4.59 lakh tonnes in May 2009. (BS)
•	C&C Constructions has bagged two orders worth Rs. 3.75 bn from Jaiprakash Associates. (BS)
•	ONGC approved the revised cost estimates for developing the nation's most prolific on-land oilfield in Rajasthan and agreed to invest around USD 350 mn more in the fields operated by Cairn India. (ET)
Economic and Political Headline
•	The government's direct tax collection in May this year recorded a 16.88% jump to Rs. 119.19 bn from Rs. 101.98 bn in the same month last year. (BS)
•	Payrolls in the US fell by 345,000, the least in eight months, after a revised 504,000 loss in April, reinforcing signs that the deepest recession in half a century is starting to abate. (Bloomberg)
•	Rio Tinto Group, the world’s third-largest mining company, scrapped an investment from Aluminum Corp. of China in favor of raising USD 21 bn from a share sale and an iron-ore venture with BHP Billiton Ltd. (Bloomberg)

SBI to launch several private equity funds

After launching an infrastructure fund in collaboration with Macquaire and IFC, State Bank of India is in the process of setting up 'several' other funds to cash in on the area, which is gaining importance as an alternate asset class.

"The bank is at an advanced stage in setting up a general purpose private equity fund jointly with sovereign entities in Oman. The Indian Government has designated the bank as the operationalising agency for a similar sovereign fund with Qatar. Several other funds are at various stages of formation," SBI said in its latest annual report.

SBI has already set up an infrastructure fund in association with Macquarie of Australia and IFC Washington primarily aimed at investing in India's infrastructure space.

"All necessary regulatory approvals have been received for operationalising the fund. Over USD one billion has been mobilised from large and well-known international investors including the sponsors," the bank said.

The Macquarie-SBI Infrastructure Fund would continue to raise capital during the year. Together with Indian domestic institutions, the total capital is projected to be between USD two billion to USD three billion.

How to diversify portfolio to mitigat risk?

Investing is an important part of your overall financial planning. Due to the availability of many investment opportunities, investments require proper attention. Otherwise, a wrong decision may lead to some loss of the principal or the locking up of your money when it is actually required by you.

There are various investment options available, and investors should weigh them carefully before taking decisions. It is important to diversity the portfolio by investing in different investment instruments rather than keeping all the eggs in a one basket. Broadly, these are the various categories of investment instruments available in the market:

Equity and equitybased instruments


Investing in equity is good for investors with a moderate to high risk appetite. It is best to invest only your risk capital in equity, with a medium to long-term perspective . Currently, the stock markets have rallied almost 70 percent in the last three months. The market undertone is so bullish that they are moving almost in just one direction over the last few weeks.

Corrections in the markets are very short-lived and all categories of investors are chasing stocks. Analysts believe there is some improvement in the economic and political conditions here but many parameters are yet to stabilise from a macroeconomic point of view. Due to the sharp market run, the valuations of stocks have already gone up.

Investors with a moderate to high risk appetite can look at investing in bluechip stocks during market corrections. Many analysts are expecting a 10-15 percent correction in the short term.

Equity mutual funds are a good bet for investors who want to ride the market waves without getting into direct equity investments. A systematic investment plan (SIP) can be a good way to invest in mutual funds for investors looking at investing in equity mutual funds. Under a SIP, the investor's money is invested at regular intervals and thus it helps in averaging the entry price.

Debt market


The interest rates on the bank fixed deposits and bonds are coming down after the Reserve Bank of India (RBI) cut its key policy rates many times in the last eight months. Risk-averse investors and those with a short-term horizon should look at investing in debtbased instruments.

Debt instruments are not recommended to park money for a very long time as they provide negative returns after factoring in the income tax and the inflation rate. Usually, debt instruments provide lesser returns than the inflation rate in the economy.

However, debt-based instruments are good for the short-term investors as they provide capital protection. Investors looking at parking their money for a very short term can go for liquid funds.

Property


The property market went through a correction. An investment in property (residential or commercial) is good for a long-term perspective . Property investments have given good returns over the long term.

Commodity


Investments in commodities , especially gold, have given good returns in the last couple of years. Gold prices remained firm due to hedging and speculation in the global markets. Many large funds have used gold as a hedging instrument against the weakening US dollar and rising crude oil prices. Investors can look at investing in gold exchange-traded funds, real estate funds and international funds as they add to the diversification and help in lowering risk in the portfolio.

Measuring market volatility

The sharp ups and downs in the market are referred to as volatility. Volatility is a part and parcel of the stock markets . Volatility in a way gives life to the stock markets. Had the growth paths been linear or totally predictable, the stock markets wouldn't have existed. Volatility is considered to be an ideal tool for a short-term investor to generate high returns from his portfolio. It works both ways. Emerging markets' stocks are high beta as compared to developed markets' ones.

Volatility is the rate and magnitude of change in share prices. There are two popular ways to measure volatility. One is called volatility index (VIX) and the second is called beta.

Beta is a measure of volatility of an individual stock. Beta of each stock indicates its relative risk to the index. The beta coefficient describes how the expected return from a stock is correlated to the return from the market as a whole. An asset with a beta of zero means that its price is not at all correlated with the market . That asset is independent .

A positive beta means the asset generally follows the market. A negative beta shows that the asset inversely follows the market. Here, the asset generally decreases in value if the market goes up and vice versa. Correlations are evident between companies within the same industry, or even within the same asset class (such as equity). This correlated risk, measured by beta, creates almost all of the risk in a diversified portfolio.

A beta of one represents market risk. If the beta of a stock is more than one, it is perceived as more risky than the market and if it is less than one, it indicates that the risk associated with the stock is less than the market's . A beta greater than one means the stock is more volatile than the broader market. A beta below one means it's steadier than the index.

For a stock-to-stock comparison the beta is a good tool. It will capture exceptional performances on the upside, as well as on the downside. If you have a stock that has fallen 40 percent over the past year and the index has lost nearly 20 percent in the same period, it means the stock's beta is higher than that of the index. Beta also helps keep things in perspective over the longer term.

Volatility, as measured by volatility index, is a marketwide indicator. If the markets tend to move sharply up or down, the volatility index tends to go up sharply indicating the heightened risks and nervousness of investors. VIX is a measure for the broader markets.

When the markets are rangebound or have an upward bias, the market participants' positive views are reflected in the increased buying of call options compared to put options. This keeps the volatility index at lower levels. On the other hand, if the markets are trading with a negative bias, the buying of put options increases and that reflects in higher readings in the volatility index.

Higher readings indicate higher risk. The volatility index indicates by how much the underlying index could change in the near term based on the order books of underlying options. India VIX, based on Nifty 50 option prices, measures volatility in the domestic markets.

VIX is a measure of implied volatility in trading of securities. The index is calculated using a formula that considers a large number of option strike prices. Volatility is the extent to which the price of something has changed over a period, measured as a percentage . The VIX is said to measure market sentiments, or, more interestingly, to indicate the level of anxiety or complacency in the market . It does this by measuring how much people are willing to pay to buy.

Personal loans: How good are they?

Before the economic downtrend, it would have been hard to find a family without a personal loan in the cities. With the loan providing the comfort of easy funds with slightly higher interest rates (in the range of 14 percent), it didn't pinch very hard for many.

After all, it saved the borrower from the hassle of a waiting period, making a few trips to the manager and more importantly, it was given without a request for some. The downtrend and the tight monetary situation in the economy have taken a toll on personal loans. In fact, many private banks have completely stopped disbursing personal loans while those that still offer them restrict it to their own customers .

While the product has its own set of advantages and disadvantages, much of it depends on its final use. For instance, a personal loan to clear the dues of a credit card is not a bad idea, but it can prove expensive if taken for funding a property. So, borrowers need to keep in mind a few factors while going in for a personal loan.

Use it for the short term


A personal loan carries a higher rate of interest as it is an unsecured loan. It is given purely on the basis of your income flow and in the event of non-payment , the banker has a much lower scope for recovery, despite the fact that many banks manage to recover it.

Hence, opt for a personal loan only when you need funds for a short tenure. In fact, the upper limit for a personal loan should be three years even if your bank is willing to give you a five-year tenure.

Avoid multiple loans


If your banker is not willing to give you the desired amount, it is a clear indication that the loan amount is a stress on your finances. So, avoid taking loans from multiple banks as the pressure on EMIs can get unmanageable over a period of time.

Avoid it as an option for funding home


The property boom over the last few years prompted many to take desperate measures to acquire property . One of them has been personal loans to fund a property purchase. Many have used it to make the down payment or to make up the shortfall in a home loan. Not only has it proved expensive but disastrous for many, particularly for those who booked property with the idea of making quick returns.

Another asset which needs to be avoided with personal loans is equity as stock prices are volatile and don't guarantee returns at all times. If you are planning to make money in the current equity markets through a personal loan, it is better to avoid it as the equity markets don't assure returns but personal loans expect discipline with EMIs.

72% Indian companies plan radical changes in operations

Using the global downturn as an opportunity, seven in every 10 Indian companies are planning radical changes to their business models in the next decade, while many European businesses are still undecided on their response to the recessionary conditions.

In the Asia-pacific region, around 72 per cent of businesses in India and 66 per cent in China are planning radical changes to their business models in the next decade, said KPMG International in a report.

According to the report titled 'Never catch a falling knife', Asia-Pacific businesses including those in India, are using the global recession as an opportunity for major changes to their operations, in anticipation of emergence of new international markets, while many European businesses are still undecided on how to respond to the recession.

The report has surveyed over 850 senior business decision makers from 29 countries.

It further added, nearly 90 per cent of businesses in Japan and 84 per cent of businesses in Singapore also said they were mulling major changes in their operations in the next decade.

In a sharp contrast, companies in the Czech Republic and the Netherlands only 20 per cent are planning major changes to their businesses. Further, 25 per cent companies in Belgium, 30 per cent in Hungary and 42 per cent in the UK are planning changes to their business operations.

Banks begin lending to realty sector

For bankers who were reluctant to lend to the housing sector, there has been a change in mood. Now, there is a sense of willingness to lend, though that is largely restricted to the affordable housing segment. This is priced at approximately Rs 4 lakh all the way to Rs 30 lakh.

“We have seen an interest reappearing in the real estate sector in the past few months. A growing number of our customers have been availing loan for affordable housing projects,” said Axis Bank senior vice-president retail banking Sujan Sinha. Another official at a public sector bank said with the revival in the market, banks are in the lending mode, with a lot of potential existing in the affordable housing segment. It is gathered that builders have now started terming their projects as affordable housing by cutting down on certain luxuries that were initially planned.

Niranjan Hiranandani, MD, Hiranandani Group, admits that a host of developers have converted their projects to affordable housing from what was luxurious. “Though, there is a greater demand for affordable housing projects that could change by the end of the year,” he said.

The definition of affordable housing depends on the builder and the location. Tata Housing set the ball rolling a few weeks ago by launching its project in Boisar, which is a two-and-a-half hour train ride from Mumbai. Company officials concede that margins are on the lower side at 20-25% compared to 40% for more expensive housing.

“Loans are available for builders at 13% compared to 15% a while ago. Bankers have been favouring affordable housing projects, since that is where demand could see the largest rise,” said Shobhit Agarwal, joint managing director, Capital Markets, Jones Lang LaSalle Meghraj (JLLM). Builders, for their part, have reduced the size of their apartments, apart from cutting back on frills like a gymnasium.

According to Kapil Wadhawan, vice-chairman, Dewan Housing Finance, there are projects that are coming up even in the tier I cities that can be classified as affordable. “An average loan size for our company is Rs 6 lakh and we expect to find more customers in large cities, such as New Delhi and Mumbai, which was not the case earlier,” he said.

HDFC Bank raises growth forecast for FY10

With signs of an economic recovery, private sector HDFC Bank has revised upwards India's growth forecast from 5.8 per cent to 6.5 percent for FY 10.

"Signs of a possible bottoming out in industry on the supply-side and private consumption on the demand side have driven us to revise our FY 10 growth forecast upwards from 5.8 per cent to 6.5 per cent," HDFC Bank said in a report released here.

"We are encouraged by the prospect that signs of a pick-up in industrial growth have been contemporaneous with improving demand...we also believe that the emerging signs of recovery are likely to be better entrenched," HDFC Bank said.

"While we maintain our agricultural growth outlook for FY 10 at 3 per cent on expectations of a normal monsoon, we have revised our industrial growth forecast upwards to 4.7 per cent from our earlier forecast of 4 per cent."

The private lender has also revised its services growth outlook to 8.3 per cent from the previous estimate of 7.8 per cent.

"On balance, we remain optimistic about India's growth prospects as a large part of the economy remains driven by domestic factors," the report said.

Services growth would ride on a better-than-expected performance in other segments like trade, communication, finance and insurance, it said.

ICICI bank expects growth in car, home and corporate loans

ICICI Bank on Sunday said it will have a strong showing in car, home and corporate loans business

in the current fiscal, but its relatively lower exposure to personal and other small-ticket loans could limit the overall balance-sheet growth to below 20 per cent in the year.

Stating that the last fiscal was bad, when its profit fell by about 10 per cent and it also faced rumours of a run-on the bank, ICICI Bank's CEO and MD Chanda Kochhar said that bad times were behind it.

Anticipating a growth rate of 24-25 per cent in focussed business areas like housing, corporate and car loans, Kochhar said that the overall growth in its balance sheet could, however, be below 20 per cent in the current fiscal as the full impact of shift in focus areas would not be visible.

Confident about a robust growth cycle ahead for the bank, Kochhar said, "We clearly see change of scenario. The pressure that were on us, specifically during October-November period, I think that period is behind us and we are seeing the confidence of depositors coming back.

"Deposits are growing, new customers are opening accounts, existing customers are putting back their deposits," she said.

Asked by when ICICI Bank would regain the position of largest retail lender from PSU giant SBI, Kochhar said: "I am not here really to run a race. I am here to stay on course that I have charted out in the beginning of the year."

HUL, ITC, Godrej gears up for personal care war

Enthused by their FY09 results, industry captains of the FMCG sector, ITC Personal Care, Godrej Consumer Products Ltd (GCPL) and Dabur India , are chalking out fresh growth strategy to pump up volumes in the Rs 9,500-crore personal care sector. ITC is gearing up to foray into new categories to reach out to a wider target audience this year. The company is also sharpening its focus on aggressive marketing in both rural and urban markets across the country.

With increasing competition, the market dynamics will soon change in the personal care sector in India, predict analysts. "To gain a competitive edge in this sector, FMCG majors are looking at new launches and aggressive marketing plans in FY10. The economic recession has not impacted this sector till now," said an industry analyst based in Mumbai.

On GCPL's game plan, Adi Godrej, chairman of the Godrej Group said, "Our core focus is on aggressive growth strategy for our FMCG business in FY10. We are concentrating on small packs of soaps (Rs 5) and sachets of hair colour (Rs 10) to build customer base and pump up volumes in rural areas and small towns."

Amit Burman, vice chairman of Dabur India said the company is investing in brand building and advertising plans to promote its Fem Care and Gulabari range in FY 10. "We are in the process of integrating our acquired brand Fem Care with our personal care range. Our core strategy is to promote our Femcare and Gulabari brands this year," he added.

On the subject of growth, Sandeep Kaul, chief executive, personal care products business, ITC, said, "We are in the process of developing new categories as well as new products in existing categories. 'Consumer insight based innovation' will be the key fulcrum driving our consumer engagement strategy," explained Kaul. ITC personal care products include Fiama Di Wills, Vivel range of hair care products and soaps and Superia .

According to Kaul, ITC will invest in all aspects of brand building to promote personal care brands. Given the portfolio, marketing to consumers in rural markets as well as urban markets is a key strategy driver," he said.

Meanwhile, Hindustan Unilever Ltd (HUL) is promoting its flagship brands in shampoos and skin care products. To do so HUL has recently launched a high-voltage television campaign to promote its new shampoo variant 'Clear'. Created by Lowe India, the television campaign features cine star Shilpa Shetty who for the first time appeared on a HUL campaign.

With relatively new entrants ITC and Dabur who formally entered the market just last year, competition seems to be gearing up in the Indian personal care sector in FY10.

War paint

Consumer Products and Dabur India are chalking out growth strategy to pump up volumes in the Rs 9,500-crore personal care sector

is gearing up to foray into new categories to reach out to a wider target audience this year

is promoting its flagship brands in shampoos and skin care products

Kingfisher, Jet set for battle with budget airlines

Vijay Mallya's Kingfisher Airlines and Naresh Goyal's Jet Airways have launched all-out wars on low-cost carriers (LCC) by broad basing their low fare offerings and providing superior services on board.

The gamble has already started yielding desired results. In less than a month of offering low fare service Jet Konnect in select routes, the airlines has seen a 35 per cent increase in the seat load factor. Earlier these routes served by Jet Airways was witnessing less than 50 per cent load.

Encouraged by the success of the Jet Konnect service, Jet Airways is planning to offer 62 low fare flights a day, an official said. Similarly, Kingfisher Airlines has dedicated more than 50 per cent of its capacity to its low-cost arm Kingfisher Red, which provides complementary snacks as well. Jet is also offering free food on board its Jet Konnect services, but will soon start the buy food on board facility to generate additional revenue."Jet Airways is responding to a shift in passenger demand for low fare/no-frills travel, as a result of the recent economic downturn," Sudheer raghavan, chief commercial officer, Jet Airways Konnect, said.

Airline Industry outlook grim

Demand for air travel could decline further despite signs of a more stable global economy, and prospects of a recovery this year look slim, industry executives said at a meeting of the world's airlines on Sunday.

Airlines have been suffering from weaker demand because of the financial crisis and have also been hurt by the sharp fluctuations in oil prices in the past year.

"I think it's probably going to get worse," Rob Fyfe, chief executive of Air New Zealand, told Reuters in an interview on the sidelines of an International Air Transport Association (IATA) board meeting.

The bearish comments contrast with the more positive outlook from some global policymakers and economists about a global recovery in the wake of recent data such as the slowing pace of U.S. job losses.

Airlines have cut capacity and jobs in response to a slide in profits, and some have delayed or cancelled orders for new aircraft from plane makers Boeing and Airbus, a unit of EADS.

Fyfe said unemployment is still rising and that airlines will still need to address excess capacity. The full impact of the downturn was unlikely to be seen until the traditionally weak northern hemisphere winter, he warned.

But he said that Air New Zealand is not changing its plane orders or profit guidance for this year.

Deutsche Lufthansa's Swiss unit reiterated the gloomy outlook for the industry, saying that premium passenger and cargo demand had stabilised but prospects of a recovery this year were unlikely.

"Cargo demand has stabilised at a very low level, which is giving good reason for substantial concern for the future of this business," Chief Executive Christoph Franz told Reuters.

"The same is true for passengers in business and first class," he added.

"We are not forecasting a miracle in coming months."

More recently, outbreaks of the new H1N1 swine flu virus have added to the gloomy prospects for global air travel and tourism.

According to the World Health Organisation, the new influenza strain has been found in 64 countries, and remains most prevalent in North America. WHO labs have confirmed nearly 19,000 infections.

Industry analysts have warned that any recovery in the sector is months away, as consumers cut back on air travel for business or holidays and as a drop in global trade hits cargo.

The Organisation for Economic Development and Cooperation (OECD) said last month that it expects members economies to contract 4.3 percent this year but that a recovery could begin at the end of 2009.

Damien Horth, head of Asia transport research at UBS AG, told Reuters last week that he does not expect a recovery in cargo until the fourth quarter, when firms which have run down their inventories during the crisis will then start to restock.

ONGC approves investments in Cairn oilfields

The board of state-owned Oil & Natural Gas Corp (ONGC (ONGC.NS : 1181.8 +12.45)) has approved a Cairn India plan to increase investment into their joint venture Rajasthan oilfields, media reported on Sunday.

The total cost of developing the three oil fields, in which the Indian unit of Britain's Cairn Energy owns 70 percent, has increased to $3.8 billion from $2.93 billion, the Business Standard newspaper reported.

The Press Trust of India reported that ONGC would invest $350 million more into the fields operated by Cairn India.

The revised investment plan for Mangala, Bhagyam and Aishwariya oilfields includes $940 million for a pipeline to evacuate the crude to coastal Gujarat.

ONGC owns the remaining 30 percent in the venture and has the liability to pay the royalty on the entire crude production.

The state-owned refiner will ask the Indian government to reimburse the royalty payment it has to pay for Cairn as the new plan is economically unviable, the newspaper quoted an unnamed ONGC official as saying.

India is Asia's third-largest oil consumer. It imports 70 percent of the oil it consumes and is keen to tap domestic reservoirs to help bring down its dependence on imports.

Aegis BPO to hire 12000

At a time when the Bangalore versus Buffalo City debate spooks BPO employees in India, Essar Group's backoffice unit Aegis Ltd will augment its workforce by 12,000, summing up the total headcount to 43,000 by end of this fiscal.

The company plans to hire 1,000 people every month in India and across United States, Philippines, Costa Rica and Africa where it currently has operations.

"We will be recruiting a thousand people every month, so this year we will add 12,000 to our workforce globally. We have already hired 3,000 people since the beginning of this fiscal," Aegis Limited Managing Director and Global CEO Aparup Sengupta said in Mumbai.

US President Barack Obama had last month announced end to years of tax incentives to those US companies, which create jobs overseas in places like Bangalore.

Instead, the incentives would go to those creating jobs inside the US, in places like the Buffalo city -- bordering Canada in upstate New York.

"The Ruias-led company has earmarked a capital expenditure of USD 30-35 million this year, excluding cost on infrastructure," he said.

Despite the downturn, Aegis is eyeing a turnover of over USD 550 million and aims to grow by over 50 per cent in FY10.

Indian Rupee depreciation - the negatives

It has the potential to trigger FII outflows

The rupee has depreciated by as much as 30% against the US dollar since the beginning of the current fiscal. A confluence of factors such as increase in FII outflows from the domestic equity market, a strengthening dollar, waning exports and weakening domestic economy have weighed down the value of the rupee.

Although the rupee value will remain depressed against the dollar, it is likely to stabilise around 49 against the US dollar in the near term as the heightened risk aversion of FIIs subsides and the RBI intervenes to rein in the rupee value.

The depreciating rupee is likely to add to the woes of Indian firms with significant levels of foreign currency-denominated, especially dollar-denominated loans. Increase in interest payment and principal obligations might lead to forex losses for companies with dollar loans. As per latest data, India had an external debt of $221.3 billion at the end of June 2008.

The adverse impact of the recent depreciation in the rupee is likely to be felt more so on the shortterm debt, which accounts for around 20% of India’s total external debt. A steep depreciation in the rupee has the potential to trigger FII outflows and is likely to dissuade NRI as well as FII investors from parking funds in India, as potential returns earned will be adversely affected. In fact, according to the latest available data, NRI deposits declined by as much as $1.1 billion to $42.6 billion as at end-June 2008 as compared to end-March 2008 level.

The RBI’s intervention in the forex market to support the depreciating rupee during the last few months has in part led to a decline in India’s foreign exchange reserves. India’s foreign exchange reserves have declined by $62.35 billion to $249.53 billion as on February 20, 2008 (from $311.88 billion as on April 4, 2008).

Depleting foreign exchange reserves is another cause for concern, as the available import cover is lowered, along with an adverse impact on India’s foreign debt sustainability. The depreciating rupee will do little to increase India’s exports, given similar depreciation in the currencies of India’s competitors and the global slowdown in demand.

Indian Rupee depreciation - the positives

Exporters will benefit in the short term

The depreciation of the rupee during the past few days, which has seen the currency reach new depths, has come at a time when the markets are giving mixed signals. One the one hand, the trade data for January 2009 released earlier this week shows that the trade balance has narrowed for the fifth straight month, even as the decline in exports remains a cause for concern.

The negative cue comes from yet another episode of withdrawal of FIIs. While analysts would argue that the latter phenomenon represents nothing more than a cyclical pattern of FIIs’ involvement in the Indian economy , there needs to be a careful monitoring of the assessment made by the fund managers about the Indian economy in the days ahead.

At a broader level, however, the depreciation of the currency brings to the fore several issues. Purists would argue that the currency depreciation should not be a major cause for concern in the short run for it provides an opportunity to the exporters to become more price-competitive.

Such a situation would auger well for the Indian industry as it seeks to step up its exports in the global markets that are in the midst of a slump. At the same time, the weakening of the currency would provide an added dose of protection to the domestic enterprises, especially at a time when these enterprises are smarting under the growing threat of imports from some of India’s major trading partners.

It should, however, be pointed out that the currency depreciation is detrimental to the interests of India’s exporters in the service sector as their export earnings would take a hit. With the economic downturn in the United States showing no signs of abatement, this sector is already under considerable pressure, and therefore, the depreciation of the rupee comes as a double whammy.

But what should worry the policymarkers is the fact that currency depreciation would increase the cost of debt servicing. This dimension needs attention particularly since India’s external debt, which has been creeping up since 2007, has increased by more than a quarter in the first six months of the current fiscal.

Can Tech Mahidra rescue Satyam Computers? - 2

They've shown courage to chart winning path

A few hours after the deal was announced, one was swept aside by the mountain of analysis and debates. However, as most of analysts concurred that Tech Mahindra will have a tough ahead in acquiring Satyam, what with its tainted reputation, class action suits, loss of client confidence et al, what all of us ignored was Tech Mahindra’s hunger to get into the big league.

Tech Mahindra’s business was focused exclusively on the telco sector with an uncomfortable majority of business coming from one client, British Telecom. Over-dependence on any one client can be a recipe for disaster, especially in times of a crisis like these.

Try as they would, it would have been impossible for a company like Tech M to get into the big league with its present business model. It was very clear from the bid, which was 26% higher than the nearest competitor, that Tech M wanted Satyam and wanted it bad. An acquisition of Satyam allows them just such an opportunity. Also, it would have been impossible for any one to have got a company of Satyam’s size and employee base at such a “low” price, never mind what the financial analysts say. Could Satyam have been bought at Rs 58 a share, a year back?

The above argument does not gloss over the hurdles that Tech M would genuinely face in times to come. The first challenge that would encounter is a huge set of anxious clients who would want to know how a company that is focused on a particular vertical can service a multi-discipline set-up. There would definitely be few clients who would jump ship and it will take all of the new management’s expertise and energy to retain as many as they can. Employee morale both at Satyam and Tech M might have become shaky.

Management would need to assure and encourage them to continue to give their best, in times of unprecedented global problems, a task easier said than done.

Lastly, the enormous difficulties they would face in integrating the company into Tech Mahindra would give even a meditating saint a nightmare. Despite all this hurdles, what makes me believe in Tech M successfully navigating these rough seas is the fact that they are clear about their purpose of acquisition. Tech Mahindra has shown courage, vision and desire to chart a winning path.

Can Tech Mahindra rescue Satyam computers? -1

Satyam has the potential to be resuscitated

The closing of an inglorious chapter in Satyam’s life book is both an occasion of good riddance and happy arriviste. Ingrained in our world view of evaluating businesses is an accounting principle that developed to discern a mercantile world. And while it is necessary to employ such an evaluation matrix by investors and others, it is not sufficient to evaluate Satyam, or for that matter any business that is engaged in the business of development of knowledge artefacts.

The quintessential artefacts in the IT services industry are specific development methods or processes, reusable codes, domain expertise and other sources of tacit knowledge. While this knowledge is unquantifiable in the strictest sense of accounting assets, their currency has increasing returns to scale. So Satyam has the inherent potential to be resuscitated in the first place.

Tech Mahindra’s acquisition is the second source of Satyam’s survivability. That this acquisition has been acknowledged with a thumping yes by the stock market and by sections of analysts and industry leaders is not without material considerations. In retrospect now, the Tech Mahindra-Satyam dyad made every sense, even after factoring the vicissitudes of time.

Here are two businesses that are complimentary in every sense — in terms of verticals they serve and the strengths that they posses. Lastly, their mutuality cancels the business risks of standalone model. Satyam’s customer gain assurance on continuity from this acquisition and with BT on the board as a promoter, adds to the sense of comfort.

Tech Mahindra’s acquisition of Satyam is not without challenges, particularly on how well Tech Mahindra executes the integration process and in there lies the source of Satyam’s vulnerability and sustenance. A few quick observations. Over the past few years, Satyam was slowly falling to the clique of price discounters.

To serrate the edges of the teeth and gain competitiveness on the value proposition remains an important task. On the manpower front, the Tech Mahindra-Satyam combination definitely looks bloated. With IT budgets under pressure across the spectrum, growth momentum in near term may not adequately compensate for excesses of size and hence, some degree of rationalisation on manpower front will be warranted.

Profits are not an indicator of country's well-being

In India corporate profitability is measured as an index of the country’s well-being. However, deciding economic stand point on just corporate profitability cannot hold true specifically in the case of India where diverse factors influence economic direction. Being a commodity-starved economy, India is clearly set to gain from the commodity price correction.

Also a steep downward bias in interest rates will be favourable for the economy and specifically the individual consumer. However, the same will not necessarily translate into corporate profitability and could rather cause drop in profits.

The trend on corporate profitability will act differently for the large cap space and the small and mid-cap companies. The biggest user of bank debt, after government, is the small and mid segment companies, which will gain from the low interest rate scenario. However, higher commodity prices means higher profit for sensex companies, therefore, posing a contradictory scenario.

The large cap segment is spread across many sectors, one of the largest being commodities. During the high commodity prices seen in the first half of FY 2008-09, this segment witnessed a peak in earnings. The second decisive segment in the large cap space is the banking space which in spite of many issues made significant bond gains due to a drop in yields.

However, at current levels of yields, bond gain from here on is expected to be relatively muted for most in this segment. For large companies, with the exception of select oil & gas companies that what are set to gain from new production in the next two fiscals, it appears that profits are at a structural high for the 2009 fiscal.

A drop in commodity prices will clearly benefit the consumer and the small and mid-size businesses. However, the same is not being captured adequately in aggregate profits and reflecting on corporate profitability. The aggregate numbers will be dwarfed by large companies whose profit could decline cyclically.

Clearly thus, a market call on corporate profitability alone is not prudent. Hence, if oil prices stay low the corporate profit aggregates may not be a good indicator of the economy for 2009-2010. A reliable indicator would be profitability analysis of the mid-cap segment.

Corporate results are mixed, not unidirectional

It is premature at this stage to declare that corporate results in general indicate bottoming out as the performance announcements so far have been mixed rather than unidirectional.

The performance of many sectors, including automobile components, construction equipment, real estate, airlines, hospitality, and textiles, continues to bear the brunt of a significant demand slowdown.

The financial results seem better than expectations for a few corporates as, possibly, the expectations themselves were low in the first place; moreover, for a few corporates exposed to foreign currency/derivative losses, accounting related forbearance (revised AS-11, which permits amortisation of losses rather than direct charge-offs) would also have contributed to alleviating profitability related pressures.

Having said this, it is reasonable to suggest that while the operating environment remains difficult, the intensity of stress we had witnessed particularly during the last quarter of 2008 has eased following the considerable improvement in systemic liquidity, thanks to various measures taken by the RBI.

However, access to cost-effective funding remains a challenge for most corporates, with most sources drying up-with the exception of domestic bank credit, which remains expensive. We believe domestic demand for both consumption and investments is likely to remain subdued in the near term, given the uncertain economic prospects and limited funding options.

Demand prospects for business dependent on international businesses continue to remain lacklustre and appear unlikely to witness a real turnaround at least in the next 18 months or so. Thus, given the moderate to weak demand conditions, it will be unreasonable to expect a turnaround in corporate profitability in the near term.

On the positive side, recent performance trends for a few sectors like automobile OEMs, FMCG, cement, and steel augur well for the future. However, the trend of increasing role of government, as has been seen even in some of the most market oriented economies, would suggest that the outcome of the elections will be an important factor for the prospects of Indian businesses.

Stocks to buy now

Crude oil prices rose Friday on hopes of rise in demand after the US jobs data showed new claims for jobless benefits fell for a third straight week. US. crude for July delivery was higher at $69.18 per barrel after peaking at $69.45 and London Brent gained to $68.92.

Rupee was firm in opening trade on expectations of inflows in the capital market. AT 9:15 am, partially convertible rupee was at 47.11 up 0.09 paise against the dollar.

GMR Infra’s consolidate net profit for quarter ended March rose to Rs 53.24 crore against Rs 50.02 crore in the same quarter a year agao. Total income was at Rs 13,27.07 crore in March quarter as compared to Rs 905.19 in same period a year ago.

Oil services firm Aban Offshore has told its bankers to moderate or change its huge debt repayment schedule and terms, as the massive loan taken for an overseas acquisition becomes an albatross around its neck. CDR is a process by which banks soften the terms of debt repayment in order to help a company tide over a crisis caused by huge loans and weak financial performance.

In a bid to broad-base company activities and access new coal resources, Gujarat NRE Minerals, the Australian subsidiary of Gujarat NRE Coke, is aiming to acquire an Australian Securities Exchange-listed company Rey Resources. On Thursday, GNM made an off-market takeover offer to the shareholders of Rey Resources to acquire all the shares issued by the target company.

The Company Law Board has directed Orissa Sponge Iron & Steel to consider Bhushan Group’s right to convert warrants owned by it in the sponge iron company into equity shares. Bhushan Group, which owns 15 per cent in Orissa Sponge, is one of the suitors in the three-way takeover battle of Orissa Sponge.

Nitin Fire Protection plans to raise $50 million through QIP / FCCB / GDR / preferential allotment.

Dewan Housing Finance plans to raise Rs 300 via qualified institutional buyers placement subject to the approval of the members of the company.

Stocks to buy : Banking

The indices improved for the thirteenth successive week, as the indices closed past the highs attained after the election result day as the Sensex (^BSESN : 15103.55 +94.87) gained 3.27% and the Nifty (^NSEI : 4586.9 +14.25) ended 3.10% in the last week. The Sensex closed past the earlier minor top of 14,931 and the Nifty has moved past the minor top of 4,509.40 and are now headed towards the next important resistance zone of 15,300-15,700 for the Sensex and 4,650-4,800 for the Nifty. The resistance zone of 15,300-15,700 has been derived from the Gann Fan line drawn from the 2008 highs on the Sensex. This is the last Gann Fan line and this is the last important resistance zone. Like wise the zone between 4,650-4,800 is an important resistance for the Nifty. The current intermediate rise has been intact since March 6 and is quite mature. The indices and scores of stocks have closed past their earlier intermediate tops in the current intermediate uptrend, confirming that the major trend is up.

Of the sectors, the BSE Consumer Durable sector was the largest gainer, ending 9.89% higher and was followed by the BSE Capital Goods index, which gained 8.40%. On the weaker side, the BSE Oil and Gas sector ended 0.92% lower and was the weakest. The next to follow was the BSE Bankex, which lost 0.92%. Bullish activity was seen in the mid cap and small cap stocks and the CNX Mid Cap index ended 6.15% higher and the BSE Small cap index gained 7.88%. As the indices have moved up on almost all the days in the last week, the targets for the Sensex and the Nifty to drop into an intermediate downtrend are far away and are at 13,518 and 4,092 respectively. The equivalent target for the CMX Mid Cap index to drop into a fresh intermediate downtrend is at 4,954. These targets are far away and a minor decline followed by a minor rise will raise these targets.

The strong intermediate rise was totally unexpected and a majority of the traders and investors were left out and are currently waiting for the indices to correct before they look for long positions. In such a case, we could see a sideways correction at resistance zones suggested above and a breakout from this resistance zone will result in higher levels. Usually in an intermediate correction, the indices correct by 38.2% to 50.0% and once this correction is over and the indices start a fresh intermediate uptrend, position traders and investors can get scores of opportunities, especially in stocks, which have exhibited good relative strength. If this happens, the next target for the indices will be the highs made in 2008. On the other hand, as expected in the budget, investors and traders are disappointed. The intermediate correction could continue and the indices could exhibit a correction from 50% to 61.8% of the recent rise.

Under these conditions, it is important for investors to wait for a correction, which could be a sideways correction or a bigger intermediate decline, as suggested and get into stocks and sectors, which have exhibited strength in the current intermediate rise. I will discuss some of the stocks, which have exhibited strength and investors must look to buy when the next intermediate correction in these stocks ends.

Bank of Baroda

Bank of Baroda has retraced more than 70% of the earlier decline in the bear market and is consolidating sideways between 400 and 450. A drop below 400 will result in the start of an intermediate correction and will result in the stock pulling back towards the support of 350, which was the gap created between 348 and 396 on the election result day. This gap will act as a support to the decline for the stock and also for the indices. A higher intermediate bottom in such stocks, which are exhibiting a strong relative strength, must be used by investors to pick up long positions.

PNB

PNB is one of the few stocks, which has retraced all the declines seen in 2008 and has made a high of 717 while in 2008, the highs made by the stock was 721. This is the sign of strength and a higher intermediate bottom by the stock in the next intermediate correction must be used by investors to pick up long positions in the stock as the next intermediate rise by the stock will result in a new high by the stock. The stock is currently moving just above its 20 DMA and a drop below 628 will result in the stock drifting towards the support of 585. Use the next intermediate correction to pick up long positions in such stocks.

Union Bank

Union Bank is another stock in the PSU banking sector, which has exhibited strength and has retraced more than 75% of the earlier bear market decline. The indices have retraced just above the 50% mark and hence the stock is exhibiting a bullish strength. The stock has a support at 201 and 195 and a drop below 195 will result in the stock drifting towards the support of 175. Use the next intermediate correction to pick up such stocks, which are exhibiting strength.

BSNL to go for single vendor contract system

In a radical move that could transform public sector tendering, state-owned Bharat Sanchar Nigam Ltd (BSNL) plans to scrap multiple tendering, and follow the private sector practice of long-term tendering with a selected bidder.

The new thinking at BSNL is an attempt to avert a repeat of the tendering delays that held up its many projects.

Under the new scheme, each time the company wants to expand its GSM mobile capacity it wouldn't have to float a fresh tender as it does now. Instead, the selected lowest bidder would be awarded all subsequent projects for several years. Incremental payments would be made on the basis of per line capacity expansion, which would be negotiated according to the prevalent market price.

The long-term tendering scheme, the modalities of which are being worked out, would be similar to what Bharti Airtel (BHARTIARTL.BO : 824.8 +12.65) has done with Ericsson and Nokia Siemens. Bharti has outsourced its mobile network erection and operations to the two equipment vendors and each year negotiates the price with them. Most other private operators also follow the same system for awarding equipment contracts.

BSNL's new tendering system, however, needs to be first approved by its board, and later by the government.

BSNL officials said that a change in the tendering scheme has become inevitable, as the present system of frequent tendering causes delays in awarding the contract, as vendors often dispute the selection process and move courts, which costs the company in terms of marketshare. For instance, the 45.5-million GSM line expansion tender floated in mid-2006 was awarded only a year later, by when the company lost its second position in the GSM segment to Vodafone-Essar, which it has not been able to wrest since. The delay also led to the order being finally halved to around 25 million lines.

"We cannot compete with private operators in a tough competitive market if we stick to floating a tender each time we want to add capacity to our network. We have to move to a long-term pact with equipment vendors so that capacity expansion can be planned and implemented in a timely manner," a BSNL official told FE.

The process of floating separate tenders for subsequent expansion had created trouble for the company last year, when it floated a 93-million lines GSM tender. In that, Ericsson emerged L1 for the north and east zones while Chinese vendor Huawei was short-listed for the southern and western zone. Nokia Siemens was disqualified due to technical shortcomings.

Unhappy over it, Nokia Siemens moved the Competition Commission of India, Central Vigilance Commission and the Delhi High Court. Though CCI and the Delhi High Court have dismissed the plea, the matter is yet to be sorted out as some other state high courts are hearing the matter.

In an earlier tender too, a disqualified vendor, Motorola, had moved the Delhi High Court where several months later it withdrew the case, but by then the damage had been done.

BSNL has a subscriber base of over 47.7 million and a marketshare of 16%. It is growing at 3.5% on a monthly basis while Bharti Airtel and Vodafone-Essar are growing at more than 4%.

Downturn creates new M & A wave for India

MandA deals emanating from the country are getting bigger and better. At least, that is what would seem from the proposed merger of Indian telecom major Bharti and South African company MTN. The merger will create the fourth largest telecom company in the world in terms of market capitalisation. Given that the country is better placed than many other countries to weather the downturn, Indian companies are in a strong position to strike the right chord.

"This is due to the fact that the Indian banking system is primarily government owned and was not very exposed to the global derivatives credit crisis. India's relative economic strength during the global downturn hasn't driven a lot of consolidation. There are some strong Indian firms that are well positioned and taking advantage of their strength to acquire other firms, like the Tatas," said Timothy Galpink, author of The Complete Guide to Mergers and Acquisitions: Process Tools to Support MandA Integration at Every Level reasons.

Given that the potential targets are at an all time low, Gautam Ahuja, professor of strategy, Ross School of Business, University of Michigan, opines, "Companies in strong financial positions, whether in India or abroad, will find this a great opportunity. It actually makes more sense to do an acquisition at these prices than at the prices of the last few years. So, if a company has a solid business model and good cash flow, this is the right time for an MandA."

Experts feel that non-cyclical sectors such as pharmaceuticals, healthcare, utilities, basic consumer goods, telecom and education to be relatively less impacted by the slowdown. Ranjan Biswas, national director, Transaction Advisory Services, Ernst and Young, affirms, "Typically, the peak-to-trough variation in these sectors is smaller than in others and these are considered to be more resilient to changes in the economic cycles. Cyclical and certain export-oriented sectors such as manufacturing (specifically automotive, textiles and capital goods), metals and mining; oil and gas; and retail could witness decline in deal volumes. This is driven by the fact that there are few buyers who have the ability to raise finances for a transaction."

However, Lauro Vives, chief executive officer, XMG Global ICT Research and Advisory, Canada, predicts that the second half of 2009 will see the next wave for MandAs. "Indian companies will participate without an exception despite the Satyam fiasco. We live in a forgiving world, especially when commercial opportunity and future potential benefit is at stake." He anticipates more in the horizon through 2010. "As compared to the 1990's frenzy and MandA explosion that was focused on fast, speculative growth, we will witness a rather gradual consolidation movement in various industry sectors in a feebly recovering economy. As the market recalibrates itself, there will be an increase in a number of 'good deals' as acquisition targets, as numerous companies will experience poor sales results and less support from investors," he added. And this for sure makes for a good Indian deal making.

Tech Mahindra changes Stayam open offer

IT firm Tech Mahindra has extended the date for approaching the shareholders of Satyam Computer regarding its Rs 1,154-crore open offer for the purchase of a 20 per cent stake in the scam-hit firm, a move which comes days after market regulator SEBI cleared the open offer.

In a filing to the Bombay Stock Exchange, Satyam Computer said the last date by which letter of offer will be dispatched to the shareholders has been revised to June nine, from the earlier scheduled date of June three.

Further, the last date of withdrawal by shareholders has also been revised to June 26, from the earlier June 27.

"Dates for all other activities of the schedule remains unchanged," the filing added.

The Securities and Exchange Board of India (SEBI) had received the open offer for its consideration on May 6, and issued its 'observations' on May 27.

Through Venturbay Consultant, its acquisition vehicle for the Satyam Computer purchase, Tech Mahindra had announced an open offer on April 22 for buying an additional 20 per cent from the shareholders of the IT firm.

The open offer was made pursuant to Tech Mahindra buying a 31 per cent stake in Satyam for Rs 1,756 crore through the issue of preferential shares after an auction process conducted by the government-appointed board of Satyam.

TCS cuts top management pay package by Rs 1 cr

The country's top IT firm, TCS, has enhanced total pay packages of its top management personnel and board members by over Rs 1 crore -- in the process giving a better hike to its incoming CEO than his predecessor.

The Tata group entity paid a total remuneration of Rs 12.80 crore to its key management personnel and board members during 2008-09, up from Rs 11.08 crore in the previous fiscal.

In terms of total package, CEO S Ramadorai was the highest paid executive with a total remuneration of Rs 4.1 crore in the fiscal, according to TCS' annual report.

Ramadorai's pay package grew by about 22 per cent from Rs 3.37 crore in 2007-08, but it was lower than a hike of 36 per cent for Chief Operating Officer N Chandrasekaran.

Chandrasekaran, who would replace Ramadorai as TCS CEO later this year, saw his remuneration rise from Rs 1.41 crore to Rs 1.92 crore.

Executive Director Phiroz Vandrevala got the highest pay hike of 41 per cent among the company's board members as his remuneration rose from Rs one crore to Rs 1.41 crore.

The hike in the remuneration for both Chandrasekaran and Vandrevala exceeded also the increase in the company's total employee cost of about 25 per cent.

At the same time, Ratan Tata, TCS's non-executive Chairman, saw his remuneration, comprising of a commission and sitting fees for board members, unchanged at Rs 55.60 lakh.

The seven non-executive directors, including Ratan Tata, together were paid total commission of Rs 3.6 crore, up from Rs 3 crore in the previous fiscal.

At the same time, the sitting fees of these seven directors rose to Rs 7 lakh from Rs 6 lakh.

In total, the non-executive directors were paid a total remuneration of Rs 3.67 crore, while key management personnel and whole-time directors were together paid Rs 9.13 crore.

Bharti, MTN deal : Government will not intervene

The government will not intervene in Bharti Airtel's proposed deal with South Africa's MTN but will provide legal support if needed, said Corporate Affairs Minister Salman Khurshid.

"What do we have to do with other people's deals? ... We are not empowered for asking people what they are doing," Khurshid was quoted as saying.

"But of course, if help is required in any aspect of corporate law or governance, we will come into the picture," Khurshid told the financial daily in an interview.

Regulatory approvals are key to closure of the deal that would create the world's No.3 wireless group with more than 200 million subscribers and combined revenue of $20 billion.

TATA's ASEAN strategic business hub possibly in Thailand

The TATA Group is actively considering using Thailand as a strategic marketing hub for promoting its products in the ASEAN region, revealed that country's Industry Minister, Chanchai Chairungruang, who is currently on a six-day visit to India.

Interacting with media after meeting with Indian businessmen here, Chairungruang said TATA Motors (TATAMOTORS.BO : 369.45 +7.45), one of India's best known automobile manufacturers, is looking to expand its export market in ASEAN countries, and plans included introducing the TATA Motor's truck range, an eco-car and possibly the TATA Nano (the world's most economically priced passenger car).

A TATA Motors, Thailand, representative said talks for the launch of the Nano were still at a very preliminary stage, but acknowledged that the project could form part of the Thailand-India Free Trade Agreement (FTA) expanded negotiations that are to take place later in the year.

For TATA Motors to think of Thailand as a future investment base does not come as a surprise, as the country has evolved into the largest vehicle producer in South East Asia since constructing its first automotive plant in 1961. Today, Thailand's automotive products are exported to 130 countries worldwide. The country is also the world's largest producer of one-ton pick-up trucks, the seventh largest automotive exporter and the 14th largest automotive producer overall.

TATA Motors appears interested in bidding for an eco-car project, as the Board of Investment of Thailand (BOI) and the Thai Ministry of Finance is offering the maximum incentives to manufacturers of eco-cars.

Under the new incentives program, the BOI will offer projects with a minimum investment value of five billion Baht (approximately 144 million USD), a corporate income tax holiday of eight years, regardless of location, and duty-free importation of machinery.

On its part, the Thai Finance Ministry will allow eco-car manufacturers to pay a reduced excise tax of 17 percent on cars with engines smaller than 1300 cc for petrol-powered cars and 1400 cc for diesel powered cars. This is significant in that the excise tax currently levied on standard passenger cars in Thailand ranges between 30 to 40 percent, and if reduced for eco-cars, it would be the equivalent of 2000 USD on the car's retail price.

The finance ministry is also offering a three-year exemption of import duties on auto parts used to make vehicles E85 ready and which cannot be produced in Thailand. Cars using E85 will have their excise taxes reduced to 25 to 35 percent depending on the size of the engine. Excise tax on petrol in this category of car will also be reduced from 3.6850 Baht per liter to 2.5795 Baht per liter.

Amul beats recession: turnover of Rs. 6700cr

Gujarat Co-operative Milk Marketing Federation Limited (Amul) has once again proved that efficiency of co-operatives can successfully counter the recessionary trends of the economy thereby ensuring consistent livelihood to the farmer producer and offering value for money products to its consumers.

For the third consecutive year, it has posted a double-digit growth turnover reaching Rs. 6700 crores.

The unduplicated turnover of the dairy co-operatives of Gujarat would be approximately Rs. 10000 crores.

Not resting on the laurels of the past, instead, learning that the foundations of successful organization are rooted in the process of systematic long term planning, GCMMF has chalked out a mission 2020, a long term plan which envisages that dairy co-operatives turnover will reach Rs.27000 crores by the year 2020.

This plan is backed up by relevant strategies in co-operative working, increasing productivity of milk cattle, higher processing infrastructure to handle the peak milk procurement of 195 lac ltrs per day. Special emphasis will also be given to capture liquid milk market of major metro cities.

This remarkable performance from Amul has come at a time when the International dairy markets are reeling under the impact of world-wide recession and slump in global demand. Pandemic economic turmoil has taken its toll, as international prices of all major dairy products have declined drastically in recent months.

However, with its sharp focus on domestic Indian market, Amul has successfully insulated Indian farmers from all the turbulence in global dairy trade. Amul is leading the dairy co-operative sector towards a pivotal role in alleviating the adverse impact of economic slowdown in India.

This co-operative has helped to appropriately diversify the rural economy, thereby shielding rural India from the worst impact of the current economic crisis. It is already providing the best employment option for displaced workers from urban manufacturing sector, who after losing their jobs due to recession, have started reverse migration from cities back to villages.

These displaced workers can sell milk to their village dairy co-operative society and thus generate regular income for themselves and their families. Amul has helped to provide a safety net to the most vulnerable and marginalized section of our population, which otherwise suffers the worst consequences of any economic crises.

Revenue inflow from dairy co-operatives led by Amul has contributed towards strengthening rural purchasing power, helping growth in rural economy to offset any slowdown in urban economy.

In an effort to interface directly with consumers and enhance visibility of brand 'Amul', GCMMF has expanded its network of Amul Parlors to more than 4000 parlors across various towns and cities of India.

This includes 50 Amul Parlors in major railway stations and more than 50 special Amul Ice-cream scooping parlors. GCMMF amply demonstrated its commitment towards sustainable ecological development of our nation, as its farmer members celebrated our 61st year of independence by planting 52.74 lakh saplings across 21 districts of Gujarat, on August 15, 2008. During the last two years, members of GCMMF have planted more than 71.65 lakh trees, demonstrating their resolve to preserve and improve our natural environment.

TARP Repay : what does it mean for the banks?

Tense negotiations over the value of warrants held by the Treasury Department could prevent some of the biggest U.S. banks from fully shaking off government ownership after they repay billions of dollars in bailout funds in coming days.

Some big banks, including JPMorgan Chase & Co, are wrangling with officials over the warrants they want to buy back from Treasury, which the government owns in addition to the banks' preferred stock. The banks argue they should get a discount on the warrants because they did not want the money in the first place.

The issue puts Treasury in the tough position of wanting to give the banks a fair deal while not shortchanging taxpayers, who financed the industry rescue plan at a time when the sector was extremely shaky.

The standoff means the warrants may remain in government hands for a while longer -- leaving the banks ensnared within a Treasury Department tentacle.

"There would be a huge political issue with pricing the warrants below what the market would pay," said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution, a Washington think tank.

Jamie Dimon, chief executive of JPMorgan -- which has taken $25 billion in federal funds and has chafed under the government's influence -- said earlier this week that the United States should cancel 50 percent of the warrants "out of fairness." Dimon has said the largest banks were strong-armed into taking bailout funds last October and should not continue to be punished.

The Federal Reserve will name next week the first batch of big banks given the green light to repay funds from the $700 billion Troubled Asset Relief Program. Repayment involves buying back the preferred stock the banks issued to the government, as well as the warrants.

The warrants come with a total price tag of almost $4 billion for eight of the largest U.S. banks seen as contenders to soon repay the TARP funds, some estimates show, with JPMorgan's warrants making up $1.5 billion of that total.

Once the banks bought back their preferred stock they would be free of many of the restrictions attached to TARP money, including limits on executive pay, according to legislative language recently approved by Congress.

But until the banks bought back the warrants, the government would still have an interest in them.

It would be "a very realistic scenario" that some banks could repay TARP for the preferred stock while still negotiating warrant buybacks, said Scott Talbott, an executive with the Financial Services Roundtable.

"Until the warrants are repurchased, the government still has an ownership stake in the banks," Talbott said, raising concerns that the rules of the rescue program could be changed again.

A FAIR DEAL

Valuing the government-held warrants is an inexact science because there is no directly comparable market price.

Fed Chairman Ben Bernanke on Wednesday highlighted the challenge, telling lawmakers that banks would have the option of buying back their own warrants before Treasury could publicly auction them. That means banks could negotiate with Treasury on the price because a market price is not clear, resulting in low-ball offers from banks.

But Bernanke said the government has a responsibility to honor its obligation to taxpayers.

"The point of the warrants was that as things turned around and got better, that the public would share in some of that gain, and I would say that TARP has been pretty successful in terms of stabilizing the banks," Bernanke said.

Herb Allison, the nominee to head the financial bailout program, told lawmakers on Thursday that Treasury is looking at valuation and will announce its policy "before too long."

The issue of fair valuation has already resulted in one dust-up.

Old National Bancorp, a small bank based in Evansville, Indiana, recently bought back its warrants for $1.2 million, when other estimates had indicated the warrants were worth as much as five times that amount.

Since then, lawmakers have urged Treasury to make deals that get taxpayers maximum value for their investments.

Linus Wilson, a finance professor at the University of Louisiana at Lafayette, said the banks got a "massive subsidy" through the capital infusions, which were good deals at the time, whether they asked for the money or not.

The private negotiation process tends to reward banks that low-ball the value of their warrants, Wilson said, but public scrutiny for fair prices could balance that concern.

"Treasury should be taking a very hard line in these negotiations," Wilson said.

LIC Mutual fund: Nomura to take 35% stake

Japan's Nomura is set to take a 35 percent stake in LIC Mutual Fund, the Business Standard reported on Wednesday, citing sources.

The board of the mutual funds parent, state-owned Life Insurance Corp (LIC), has already approved to induct Nomura as a strategic partner and has formed a four-member committee to decide the valuations and conditions, the newspaper said,

"We are in the middle of the process. Therefore we cannot give you a time line," LIC's managing director, Thomas Mathew, was quoted as saying in the paper.

LIC Mutual Fund is expected to be valued at about 15 billion rupees ($320 million) or 6 percent of its assets under management, the paper said, citing an unnamed industry expert.

Indian rupee to appreciate by 10% in a year

India’s rupee, which posted its best month on record in May, is set to rally 10 percent to 43 per dollar by mid-2010 as fund inflows from abroad pick up and lower oil prices improve the nation’s trade balance, Calyon said.

The rupee may outperform many Asian currencies as Prime Minister Manmohan Singh includes “some significant pro-market reforms” in his second term, helping attract investment, Sebastien Barbe, Calyon’s Hong Kong-based currency strategist, wrote in a research note today. The central bank may also favor a stronger rupee to combat inflation, which policy makers anticipate will accelerate later this year, he wrote.

“With risk appetite coming back gradually, and against the post-election backdrop, we believe the rupee should benefit from the oil-induced improvement in the trade balance,” wrote Barbe at the investment-banking unit of France’s Credit Agricole SA.

Calyon had earlier forecast the rupee will reach 43 by the end of 2010, and cited the “surprisingly good outcome from the elections” and a global rebound in risk appetite as the reasons for its revision. The median estimate in a survey of six analysts is for the rupee to trade at 47.50 by mid-2010.

The rupee surged 6.4 percent in May, the biggest monthly gain since at least 1973, on optimism Singh will revive stalled reforms as a resounding victory for his Congress party-led coalition eliminated the need to enlist the support of Communists to retain power.

Overseas Investment

The currency traded at 47.085 a dollar as of 12:14 p.m. in Mumbai, up 0.2 percent from yesterday and little changed on the week, according to data compiled . The price of crude oil in New York was recently $69.40 a barrel, less than half the record $147.27 set in July last year.

India may allow greater overseas investment, sell stakes in state-run companies and inject more capital into lenders to stoke economic growth, President Pratibha Devisingh Patil told lawmakers yesterday, as she unveiled Singh’s agenda to a joint session of parliament in New Delhi.

The Bombay Stock Exchange Sensitive Index jumped 28 percent last month, its best performance in 17 years, as overseas investors bought $4.3 billion more of the nation’s shares than they sold. That’s the most they’ve added to their holdings in a month since October 2007.

“Should the new administration deliver on reforms, there could be further portfolio inflows,” Barbe wrote.

The rupee may still “correct” back to 48 in the short term as the rebound in stocks may have overpriced the speed at which the likely policy changes will be implemented, according to Calyon.

Faster Growth

Stimulus spending, low borrowing costs and an easing global recession will help accelerate economic growth in the fiscal year that starts April 2010, Barbe wrote. Gross domestic product may increase 7 percent, after expanding 6 percent in the current year, he said.

The Reserve Bank of India may reduce its benchmark interest rate no more than a quarter-percentage point as it approaches the end of its rate-cutting cycle before the wholesale price index starts to rise, Barbe wrote. Inflation was below 1 percent in each of the 12 weeks through May 23, the latest data show.

Policy makers have slashed the overnight lending rate, or repurchase rate, six times since mid-October to 4.75 percent, the lowest level since it was introduced in 2000.

The difference between one- and five-year swap rates will narrow as the return of inflation and prospects of monetary tightening push up the short end of the curve, according to Barbe. Rates at the longer end may also increase, albeit at a slower pace as Singh “eventually shows a stronger commitment” to rein in the fiscal deficit, Barbe wrote.

The spread may narrow to between 1 and 1.2 percentage points toward the final months of this year, from 2.16 percentage points today, according to Calyon. The gap reached a record-high 2.3 points on May 28.

Dabhol project : news update

The beleagured Ratnagiri power project, formerly Dabhol Power Project, will achieve the full load of 1,850 mw by March next year from the present level of 900 mw. The project is expected to generate well over 13,000 million units annually once it achieves full load.

The Ratnagiri Gas and power Pvt Ltd (RGPPL) is also in the midst of signing contractual service agreement and rehabilitation agreement with GE for maintenance and rehabilitation of machines. GE, which was dillydallying over entering into such an agreement, has finally given its consent and this also resulted in the renewal of insurance by the national insurance companies.

NTPC chairman and managing director and RGPPL managing director AK Ahuja told reporters on Friday that the gas supply agreement with Reliance Industries gas from KG D6 field, which was approved by RGPPL board on May 8, is expected to be signed shortly. Financial restructuring under the aegis of the centre is already agreed by all stakeholders in March 2009 though it is subject to the approval of the Central Electricity Regulatory Commission. RGPPL has also approached the CERC for a rise in Dabhol project tariff to Rs 4.44 and the order is awaited for the same.

Ahuja said as the major issues have been resolved RGPPL will be in a position to achieve full load of 1,850 mw by March next year.

Moreover, Sharma informed that NTPC, which has an installed capacity of 30,144 mw, will achieve its capacity addition target of 22,430 mw by end of the 11th Five Year Plan. The installed capacity will rise to 50,000 mw by 2011-12 and the company plans to increase it 75,000 mw by 2016-17. NTPC aims to add 3,300 mw in the current fiscal itself.

Of the 22,430 mw, 2,740 mw capacity has already been commissioned, projects with capacity of 17,930 mw are under construction and 1,760 mw under bidding stage.

Sharma informed that against its requirement of Rs 17,700 crore, NTPC has already organised Rs 22,000 crore from the public sector banks, the state-run Power finance Corporation and the Life Insurance Corporation.

FDI in Insurance : increase in the limit

A day after the government announced its intent on allowing foreign direct investment (FDI) in insurance, the industry is upbeat. All companies with a foreign partner, whose shareholding is currently curbed at 26 per cent, have showed interest in increasing it to 49 per cent.

"We are contributing capital even today in the insurance companies," a senior AIG (American International Group) official said. In its home country, AIG is facing financial problems but said it will look at increasing stake in Tata-AIG Life and Tata-AIG General Insurance companies once the FDI norms are relaxed.

"AIG will consider increasing its stake subject to the agreement between both the partners. We will review the situation at that stage (when the insurance bill is passed)," he said. "Standard Life will be increasing stake to 49 per cent," said Paresh Parasnis, principal officer and executive director of HDFC Standard Life. "The first MoU that was signed between the promoters provided for that. Another agreement signed over a year-ago said that the valuation arrived would be at a fair value basis."

But he's not jumping the gun. "We will have to wait and see as to what the new provisions provide for. Will the foreign promoter be allowed to increase stake through FDI or through a combination of FDI and foreign institutional investment (FII)," he said.

"It does not depend on whether the foreign promoters are willing to increase their stake but whether they are capable of increasing their stake," said US Roy, CEO and MD, SBI. "The situation will differ from promoter to promoter. BNP Paribas has so far not indicated anything. It will be decided by the shareholders.""There is also a need to augment resources in the banking and insurance sectors in order to permit them to serve the needs of society better," President Prathibha Patil said on Thursday.

Infrastructure spending to double to 9% of GDP

The government is planning a raft of new measures to pitchfork investment in infrastructure to about 9 per cent of gross domestic product (GDP) over the next five years double the current level of 4.5 per cent.

The measures would include steps to make it attractive for banks to lend to long gestation infrastructure projects, develop a deeper bond market powered with tax breaks and incentivise insurance companies park funds in infrastructure firms by investing in debt instruments.

An estimated investment of $500 billion (Rs 23 lakh crore) is required to upgrade roads, highways, ports and airports in the next five years, about 10 times the current level. A senior government official, who did not wish to be identified, told Hindustan Times that the objective was to hit the 9 per cent figure by 2014."The objective is to ensure that banks lend at a stable rate for infrastructure projects," said the official. "There is an urgent need to ensure a stable lending regime for infrastcuture projects at about 12 per cent. The average effective rate of lending is currently at around 14 per cent," said Vinayak Chatterjee, Chairman, Feedback Ventures, an infrastructure consulting firm. The government is also planning to put in place an effective monitoring mechanism with stringent penal and regulatory powers to ensure timely execution of projects.

Bernanke's big deal for India

The massive liquidity infusion by the Federal Reserve, say its critics, has left the US economy awash with cash. So much so that when economic activity revives, the Fed won’t be able to mop up the surplus liquidity quickly enough and the US will have very high inflation, which it will dutifully export to the rest of the world. How true is this view? Let’s just say the jury is still out on this one.

Research by Michael R Rosenberg, a former head of fixed-income and foreign-exchange research at Merrill Lynch and Deutsche Bank, helps to put the challenge before Federal Reserve chairman Ben Bernanke in perspective.

In an analysis on financial conditions for financial-information provider Bloomberg, Rosenberg has broken down the US investment-grade credit spread — the difference in yields on Aaa-rated and Baa-rated bonds — into two parts. The first component, which he calls the “liquidity-risk premium”, is the excess yield demanded by investors to hold between Aaa-rated corporate bonds rather than US treasuries. The second component, which corresponds with what Rosenberg terms as the “default-risk premium”, is the additional reward investors want in order to hold Baa-rated bonds instead of those that are adjudged to be Aaa.

The liquidity-risk premium in the US hit a low of 62 basis points in June 2007. Then, as the mortgage crisis began unfolding, the premium started to climb up, hitting a high of almost 300 basis points in mid-March this year. After the Fed began buying treasuries directly from the government — a policy known as “quantitative easing” — the liquidity risk premium fell steadily. It stands at 200 basis points now. By historical standards, liquidity in the US bond markets is still fetching a substantial premium. But the rate at which the Aaa-treasury spread is falling does seem to indicate that return to ‘normal’ premiums for liquidity may not be far.

This does bolster a case for the Fed to start drawing up an exit plan. However, one must also consider the default-risk premium, which is where the story gets interesting because the excess yields that investors are currently demanding for holding Baa bonds — rather than Aaa bonds — is still at an elevated level and trending lower painfully slowly.

Bernanke has a vexing problem. If he withdraws liquidity too soon, the default-risk premium — which is currently at 217 basis points, compared with the average of just 85 basis points between 2004 and 2007 — could once again start rising toward the post-Lehman high of 350 basis points. And that might throw the US economy into the vortex of a deep depression. But if Bernanke prints a few more trillion dollars in crisp new dollar bills to force down the default-risk premium, then there’s a good chance that he’ll end up proving his critics right.

One of the staunchest critics of Fed’s policies is investor Jim Rogers, who sounded deeply pessimistic about both US bonds and currency in an interview he gave me in Mumbai this week. “I can’t understand why I am one of the few people who see this. Either I’m nuts, or they’re nuts,” said the chairman of Singapore-based Rogers Holdings. “You have huge amount of money being printed at a time when the supplies of everything are under duress — the inventories of food are the lowest they’ve been in decades; nobody can get to open a mine. This is the perfect scenario for higher prices and long-term inflation.”

Bernanke doesn’t buy this argument. In his testimony to the House Budget Committee this week, the Fed chairman said that he foresaw inflation to remain low. “The slack in resource utilisation remains sizeable, and notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued,” he said. “As a consequence, inflation is likely to move down some over the next year relative to its pace in 2008. That said, improving economic conditions and stable inflation expectations should limit further declines in inflation.”

What makes this debate very relevant to us in India is that we need to import both commodities and capital from the rest of the world. We would be hurt if oil went back up above $100 a barrel; we would suffer a great deal more from a premature withdrawal of US liquidity, especially if that were to lead to yet another spike in investors’ perception of default risk in the world’s biggest economy.

It’s instructive to see how the liquidity-risk premium shot up in India following the collapse of Lehman Brothers and the attendant jump in the default risk in the United States. The spread between Aaa-rated corporate bonds and Indian government bonds tripled to 420 basis points in just about a month. The liquidity shock has since then eased considerably: the Aaa spread is down to a little more than 200 basis points. But unlike in the US, the liquidity-risk premium in India has stopped falling. Domestic liquidity may get squeezed if finance minister Pranab Mukherjee decides to use the budget to ramp up government spending in a big way.

As Nobel-winning economist Paul Krugman has been pointing out, the risk that Obama administration’s big-spending ways will “crowd out” the private sector is minimal. Obama’s fiscal expansion is simply allowing excess household savings to get absorbed in the absence of private credit demand even at near-zero interest rates.

Our situation is different. “With every percentage-point increase in the fiscal deficit, maintaining adequate liquidity in the system becomes that much more difficult,” RBI governor Duvvuri Subbarao said at the Economic Times Financial Management Seminar last month.

Bernanke’s final choice will matter tremendously for equity investors in the Indian market. If the Fed chairman elects to ignore the inflation risk, the commodity producers that make up almost 30% of the sensex ought to continue to do well. But if Bernanke moves in quickly to withdraw liquidity, the worsening US unemployment outlook and the consequent increase in the default-risk premium may stamp out the worldwide equity rally.

India's growth : An inclusive agenda

The 2009 elections have attracted world-wide attention for the maturity displayed by the Indian electorate to give a decisive mandate to the UPA government. India clearly trusts the economist PM to lead as the economy faces the slowdown caused by the most severe global economic crisis since the 1930s. The PM and the finance minister have both stressed the importance of boosting the economy as their immediate priority.

The Indian economy has indeed been deeply hurt from the crisis with the GDP growth rate slowing down to 5.8% during the second half of 2008-09 compared to 9% achieved in the previous year. Even though a 6.7% growth recorded in full 2008-09 would put the Indian economy among the best performing, yet the damage has been extensive especially on SMEs, workers in the unorganised sector and other vulnerable groups. Exports have declined for seven months in a row especially in labour-intensive sectors such as handicrafts, apparel, gems and jewellery, resulting in job losses.

The previous government did take a number of steps including easing the monetary policy and fiscal steps such as subsidised home loans and incentives for exporters of labour-intensive goods. While these steps were in the right direction and were helpful, they need to be supplemented by many others to revive the growth momentum. The focus has to be on generation of additional demand to make up for the loss in the export markets and private investment activity.

Responses of most of the governments in the region have been on similar lines, although varying in terms of their relative magnitudes with the Chinese government’s fiscal package amounting to $586 billion (at 13% of GDP) being the most ambitious. The methods of distribution of fiscal impulses have varied, with most governments focusing on infrastructure investment while some have distributed cash among people (as in Japan).

In India’s case a stimulus package of the order of $50 billion (roughly 5% of GDP) spread over two financial years would be desirable. It would go a long way in reviving demand and restoring the growth sentiment. Additional spending of such a large sum also provides an opportunity to enhance the inclusiveness of resulting growth. The package should target the weaker sections of society to make the growth process more inclusive by paying special emphasis, for instance, on development of rural infrastructure such as rural roads and housing, primary and secondary education, health and sanitation. These would have high pay-offs in terms of growth and inclusiveness while having low import content.

A part of the package could be an adjustment fund for assisting the affected SMEs and workers. The national rural employment guarantee scheme should be extended to urban areas where most of the affected workers are likely to be found. With a much higher propensity to consume, a rural and pro-poor focus in the fiscal stimulus package would generate demand rapidly.

Sceptics would be concerned about the effects of such a large package on the fiscal balance and hence on inflation, keeping in mind the already stretched fiscal deficit in the current year. However, this is an exceptional year requiring an exceptional response. Most governments around the world are running huge fiscal deficits to revive demand. Furthermore, there is little risk of inflationary expectations in the present scenario of declining demand with inflation in India going down to under 1%.

The other steps the government could take include expediting the infrastructure projects. The national highway development programme could be expedited to make up for the lost time. Mr Kamal Nath, in his new role as the minister for surface transport, may push the highway construction with his customary zeal. The release of the sixth pay commission arrears to government employees could be frontloaded to get purchasing power in the market fast.

The Indian exporters need to be assisted by a cheap rupee policy especially when excess capacities are lurking on the horizon all around the country. However, as in 2007, rising FII inflows have begun to put upward pressure on rupee’s exchange rate. An 8% appreciation of rupee over a past few weeks puts a heavy adjustment burden on exporters while cheaper imports will further burden an already stretched current account deficit. Having witnessed the ill effects of the volatility caused by the FII inflows, India should take steps to moderate their inflows. Fortunately FDI inflows to India are growing robustly and should be relied upon for augmenting reserves, if at all.

To conclude, the time has come for taking bold steps to revive the growth momentum of the economy. India should seize the moment and inject a substantial stimulus while enhancing the inclusiveness of the growth process.

Tata Steel sales volume up 18 pc in May

Tata Steel on Saturday said its sales volume surged by 18 per cent to 4.69 lakh tonnes in May on the back of robust demand from auto and construction

sectors.

In the corresponding month last year, the company's sales stood at 3.97 lakh tonnes, the steel major said in a statement.

During the month under review, Tata Steel saw its saleable steel production surging by 23 per cent to 5.01 lakh tonnes as against 4.08 lakh tonnes.

The sale of long products, mainly used in construction industry, increased by 34 per cent while that of flat items, used by auto and consumer durable sectors, increased by nine per cent, over the year-ago period.

Tata Steel's crude steel output for the month went up by 17 per cent to 4.86 lakh tonnes from 4.16 lakh tonnes, while hot metal production rose by 19 per cent to 5.28 lakh tonnes from 4.43 lakh tonnes.

The company claimed that one of its steel melting shops in Jamshedpur achieved best-ever May production at 2.18 lakh tonnes. Also, a merchant mill recorded best-ever May production of 30,710 tonnes over 28,505 tonnes the same period last year.

The output of its hot strip mill and new bar mill also registered an impressive growth over May 2008, it said.

Sebi bars eight entities for rigging in RTS Power

Market regulator Sebi on Friday barred eight entities, including six individuals and two firms, from dealing in the stock market till
further notice, for allegedly rigging the share price of RTS Power Corporation.

Those barred are Mukesk G Konde, Ashok Narayan Waje, Nitesh Ashok Jadhav, Hetal Patel, Rajesh Patel, Chetan Shah, Om Associated and Bhavani Trading Company. Of these, Hetal Patel, Om Associated and Bhavani Trading Company figure on the list of entities banned by Sebi for their alleged involvement in the manipulation of the Pyramid Saimira stock.

Earlier this year, Networth Stock Broking, Geojit Financial Secs, Dawnay Day AV, and Tata Securities had complained to Sebi that Mr Konde, Mr Waje and Mr Jadhav had placed ‘buy’ orders in RTS Power and then disappeared without making any payment.

After consultation with Sebi, BSE had withheld the payout, amounting to Rs 9.85 crore, to the sellers of the block of RTS shares, that were bought by Mr Konde, Mr Waje and Mr Jadhav. It was suspected that the fake buy orders were placed with an aim to provide an exit to the sellers, who were part of the fraud.

However, the decision of BSE was challenged by Ms Hetal Patel — one of the sellere — before the SAT. SAT, in turn, directed BSE that Rs 3.44 crore should be deposited in a fixed deposit with a nationalised bank, till such time the appeal is finally disposed of by the Tribunal body.

"I find that Mr Konde, Mr Jadhav, Mr Waje and Ms Hetal Patel and Rajesh Patel prima facie colluded to misuse the stock exchange mechanism to profitably exit from their positions in the RTS scrip on February 11, 2009," Sebi whole-time member KM Abraham said in his order.

Private equity players set to infuse $8 bn

Venture capitalists and private equity players are now working overtime when it comes to new investments. Due diligence is taking more
time than before.

Anywhere between $5 to $ 8 billion is waiting to be pumped into the Indian market in the form of private equity. Slowdown-free sectors like healthcare and education are hot picks, besides those catering to domestic consumption.

"Right now, we are evaluating proposals in diagnostics, logistics and energy saving," says Srini Raju, co-founder of Peepul Capital. His fund has a war chest of $220 million of which $150 million has been invested in telecom and manufacturing companies.

The global slowdown and rupee appreciation has led to a shift of focus from exportoriented firms to ones meeting local demands. "Even foreign VC funds are keen to invest in local industries," says Srini Vudayagiri, long time private equity and angel investor. So much so that even micro finance related ventures is finding favour with foreign funds.

And with the new government coming into power, there is renewed interest in infrastructure projects as well. Retail and other consumption driven industries having a strong focus on tier II and tier III markets are also being favoured by private equity players.

In technology, VCs/PE players are looking at those companies which derive revenues from alternate markets instead of just America. "They are looking at a balanced play portfolio with multiple engines of growth," says Sameer Mehta of Atlas Advisory. Venture capitalists are now stringent on exit strategy. "Exit scenarios are more definitely spelt out in the term sheets than ever before. The documentation covers scenarios like what if the IPO doesn't happen within the stipulated time period. Earlier, such issues were relegated to the periphery," says Vudayagiri.

Fluctuating rupee has also forced many investors especially foreign funds to protect their dollar value and that is now clearly spelt out in term sheets. While private equity funds are normally known to take the company to the IPO stage, managers are exploring other exit options like selling stake to growth stage funds.

Maximise returns from long term investment

“Every investor is a long-term investor until the stock market tanks,’’ says Amar Pandit, certified financial planner (CFP) with My Financial Advisor, a wealth management firm. “You get to know his mental make up only by how he reacts to the market fall. If he stops or discontinues his regular investments, it becomes clear that he doesn’t have the stomach for risk. Also, he can’t think of his investments in the long term,’’ adds Pandit.

Financial experts have many such stories identify the so-called long-term investor from others. This is because most of them aver that planning investments with a long-term perspective is vital to one’s financial well being. Though one often comes across well meaning advice about long-term planning, people often fail to stick to it—especially when it comes to equity investments.

“It is not that equity is the only long-term investment. When one invests in real estate, public provident fund or employee’s provident fund, one knows they are long-term commitments. For example, PPF is a 15-year account and EPF can be of 30 years, depending on one’s working life. In all these, people have long-term view,’’ says Pandit.

“They wouldn’t quit these investments based on short-term trends, either due to emotional reasons or because they can’t be easily liquidated. However, when it comes to equity—an instrument only meant for long-term investors—people take decisions based on short-term trends in the market,’’ he adds.


However, advisors add that one shouldn’t conclude that people haven’t realised the importance of a long-term investment perspective. “People who have been investing for some time in the market realise the importance of long-term commitment.

For example, when the market was down, the impression was created that most people would discontinue their SIPs, but it was not the case,’’ says D Sundararajan, investment consultant, Trendy Investments, an investment advisory firm. “Most seasoned investors continued with their investment programme, as they perhaps realised that it was beneficial to buy stocks when the market was down,’’ he adds.

In short, if you haven’t taken a long-term view of your financial needs and planned your investments accordingly, you are very unlikely to achieve your goals.

“When we talk about a life goal like retirement or child’s education, we are talking about at least 10-15 years ahead. If you don’t include the possible return over that period or the impact of inflation on your corpus, you wouldn’t get a realistic picture,’’ says a wealth manager in private sector bank. “In such a scenario, a person will have to face unpleasant surprises in the last moment, when he wouldn’t be in a position to take remedial actions,’’ he adds.

Having a long-term perspective will also come handy when you reallocate assets in your portfolio to mitigate the volatility in a certain segment. Sundararajan offers an example of how having a long-term perspective could help prune the portfolio in times of uncertainties.

“When the stock market was down, we decided to include gold in the portfolio of many clients. We took this decision on the basis of our view that the stock market may take a long term to recover because of the uncertainties in the global economy and gold would add the much needed stability to the portfolio,’’ he says.

Forex reserves increase from tourism

Government has earned more foreign exchange from tourism in May this year as compared to the same period during 2008.

Foreign exchange earnings from tourism were Rs 3,249 crore in May this year as compared to Rs 2,988 crore in 2008, registering an increase of 8.7 per cent.

However, there is a marginal decline in foreign tourist arrival in May this year. 2,95,124 foreign tourists visited the country in May 2009 against 3,00,840 in 2008.

The decline is only 1.9 per cent which is marginal, said a senior Tourism Ministry official.

The fall in tourist arrival was more during the first three months of the current year as compared to the corresponding period of the previous year.

The Tourism Ministry has launched the Visit India Year 2009 scheme in April to woo foreign tourists. Airlines, hotels, and tour operators have joined hands with the ministry in offering various incentives to attract tourists.

There were roadshows in many countries including USA, UK, Ireland, Australia, Singapore, showcasing Indian destinations, said the official, adding that "we are hopeful that more tourists will arrive in coming months".

NEW CHANGES FOR eFILING OF INCOME-TAX RETURN FOR AY 2009-10

PRESS RELEASE

1. New Users can register their Digital Certificate during registration process

2. During Registration and Forgot Password, Captcha Image needs to be entered by the user for verification. If the image is not clear for the user, they can refresh and get a new image

3. After successful registration of user, User Activation URL sent through Email and user account gets activated only after the user clicks on the activation URL and login

4. User needs to activate his/her account within 10 days of time period. After that the user account gets expired and the user needs to re-register with the EFiling application

5. Secret Question and Answer has been added as part of Registration for more security

6. Existing users, can update their Secret Question and Answer after the Login.

7. Upload with the digital certificate has been mandated to register/update the digital certificate before upload. If the user wants to upload with the digital certificate, the user needs to go to My Account Menu -> Update Digital Certificate page.

8. My Account Menu have an addition of the followings:

1. Update Digital Certificate

2. Update Secret Question and Answer

9. Password – Strength & confirmation indicator provided for the registration, change password, forgot password functionalities

10. During XML file upload any error with the xml file will be displayed to the user at one shot. More than 5 errors will be given as a ‘.CSV’ file to the user for download

11. After successful upload, the user can download the ITR V / ITR Acknowledgement pdf in the success page itself. ITR V/ ITR Acknowledgement pdf zip needs to be saved in the users’ computer to open the file.

12. Users can download the utilities / schema for all the years

13. E-Filing News scroll over stops the text so that the user can read the full content

14. Know Your Jurisdiction has been moved to Services Menu.

Sectors and Stocks to buy

Stocks to buy, which we believe would benefit the most if the reelected Congress-led government succeeds in fulfilling its promises. But forget not, these are the long-term stocks to buy and hence are prone to the short-term fluctuations in stock markets!

CEMENT SECTOR
The cement sector during FY 09 had already benefited from rural housing and government-funded infrastructure projects, which helped total despatches rise 8% y - o-y to 181 million tonnes. And if the re-elected UPA government takes fresh steps to expand infrastructure and rural projects, cement companies will be the direct beneficiaries.

RECOMMENDED STOCKS TO BUY FROM CEMENT SECTOR
ACC (CMP: Rs 729, P/E: 11)
For instance, Holcim-controlled ACC, which is a pan India player and one of the leading players in the sectors, would benefit from such an infrastructural push by the government. During CY 08, this company had grown its despatches by 4.9 % y-o-y to 20.86 million tonnes.

BANKING SECTOR
The government's initiatives to infuse growth in rural infrastructure and to stabilise overall economy will have a trickle down effect on the banking sector. The government had earlier emphasised that public sector banks should have capital adequacy ratio of 12% to strengthen their operations.

RECOMMENDED STOCKS TO BUY FROM BANKING SECTOR
SBI (CMP: Rs 1731.7, P/E: 12.1)
Being the default banker to the government, State Bank of India (SBI) is expected to be a major beneficiary of the government's expansion plans. Also now that Congress led UPA government with other allies has a majority in the parliament, it will now be far easier for SBI to integrate its six associate banks with itself.

AUTO SECTOR
Companies in the auto sector that focus on entry level market of two and four wheelers meant for cost conscious customers would see buoyant demand scenario once the rural income gets a boost due to government's thrust on rural growth.

RECOMMENDED STOCKS TO BUY FROM AUTO SECTOR
Hero Honda (CMP: Rs 1294.1, P/E: 20.2), Maruti Suzuki (CMP: Rs 960, P/E: 22.8)

While Hero Honda leads the pack in the economical two wheeler segemts, Maruti Suzuki leads the market for entry level cars. Both the companies are expected to see higher demand from rural markets in near future.

TELECOM SECTOR
Mobile operators have been rapidly expanding their operations in rural India. The process will get a further boost given the government's focus on taking telecom services to the grass root level. UPA government has also promised in its manifesto to spread broadband services in the whole country in next three years. The sector can also expect further rationalisation in tariff rates and license fees, which may boost operational efficiencies.

RECOMMENDED STOCKS TO BUY FROM TELECOM SECTOR
Bharti Airtel (CMP: Rs 857.9, P/E: 21), Tata Comm (CMP: Rs 585.9, P/E: 61.3)

With over 60% share of rural penetration, Bharti is slated to be the biggest beneficiary of the government’s thrust on rural development. WiMax is a favoured technology to take broadband to rural areas. Tata Communications with its Wimax initiatives is likely to play a major role in this venture.

POWER SECTOR
Power sector is likely to get a big boost due to government's programme to electrify every nook and corner of the country. A thrust on nuclear energy and subsequent agreement with the US Department of energy to secure future fuel needs, suppliers to this segment would benefit.

RECOMMENDED STOCKS TO BUY FROM POWER SECTOR
Rural Electrification Corpn (CMP: Rs 138.6, P/E: 10.6)

Power Finance Corpn (CMP: Rs 200.3, P/E: 17)

NTPC (CMP: Rs 216.4, P/E: 24)

Areva T&D (CMP: Rs 317, P/E: 33.9)

CAPITAL GOODS SECTOR
The sector so far has been benefited by strong demand from government's infrastructure projects . This is likely to continue given the UPA's thrust on its 'Bharat Nirman' project, which includes development of roads, water resources, electricity and other nationwide infrastructure work.

RECOMMENDED STOCKS TO BUY FROM CAPITAL GOODS SECTOR
L&T (CMP: Rs 1301.4, P/E: 22.1)

Siemens (CMP: Rs 455.1, P/E: 16.1)

Bhel (CMP: Rs 1982, P/E: 33.4)

All the three companies are leaders in their segments . Being India's leading engineering and infrastructure company, L&T will gain from any government plans to expand infrastructure. The other two will be benefited from the reforms in the power generation sector.

PHARMA SECTOR
The sector will gain from government programme to aggressively expand healthcare facilities in the country. Moreover, improvement in infrastructure will also help in imporving the logistics and hence penetration of pharma companies in far flung areas.

RECOMMENDED STOCKS TO BUY FROM PHARMA SECTOR
Cipla (CMP: Rs 222.3, P/E: 22.5)

Glaxosmithkline Pharma (CMP: Rs 1094.4, P/E: 15.5)

These companies being leaders in domestic market are likely to be benefited with any government expenditure in the healthcare space.

FMCG SECTOR
The National Rural Employment Guarantee Scheme (NREGS) and Sixth Pay Commission have helped in boosting rural demand. This is likely to benefit the FMCG sector.

RECOMMENDED STOCKS TO BUY FROM FMCG SECTOR
Hindustan Unilever (CMP: Rs 231.9, P/E: 24.2)

Being India’s leading FMCG company, Hindustan Unilever will gain from any government expenditure.

AGRICULTURE SECTOR
The government has promised to achieve food security by enacting a ‘Right to Food’ Act. This will need a significant increase in food-grain production, which in turn will raise the demand for fertilisers and pesticides. UPA also expects to increase the total arable land area under irrigation over next few years. All such initiatives bode well for companies that cater to these segments.

RECOMMENDED STOCKS TO BUY FROM AGRICULTURE SECTOR
Coromandal Fertilisers (CMP: Rs 169.5, P/E: 4.5)

Rallis India (CMP: Rs 649.4, P/E: 10.9)

Jain Irrigation (CMP: Rs 567, P/E: 33.4)

Agro-chemicals manufacturer Rallies and fertilisers maker Coromandal are likely to be beneficiaries of UPA's food for all initatives. Jain Irrigation is well positioned to be benefited from the government's plan to bring more farm areas under micro irrigation.

STEEL SECTOR
The domestic steel demand seems to be intact and India is one of those few countries in the world which is expected to register a growth rate of 5-6 %. The UPA govt. initiatives in different rural development programs and higher spends on infrastructure would definitely boost the domestic steel demand.

RECOMMENDED STOCKS TO BUY FROM STEEL SECTOR
Sail (CMP: Rs 158.5, P/E: 9.3)

Sail is focused on domestic market where the demand is expected to remain stable. It has zero debt, no foreign operations, not expanded its capacity recently and is partially integrated. All these factors augur well for Sail during such challenging times.

RETAIL SECTOR
The retail sector's wait for opening up of the FDI route for foreign retailers seems to be coming to an end. As the UPA government would no longer need the support of the Left front, which was opposing the change in the FDI policy and allowing foreign players into the domestic industry, retail sector seems to be poised for growth.

RECOMMENDED STOCKS TO BUY FROM RETAIL SECTOR
Pantaloon (CMP: Rs 300.4, P/E: 38.5)

Being the largest player, Pantaloon Retail would benefit with the change in the FDI policy. Not only would this increase the fund flow into the sector but also help the industry gain from the experience of some of the established international player.

Indian bureaucracy : worst in Asia

A POLL of expatriates working in 12 Asian countries put Singapore on top for bureaucratic efficiency. This is the second consecutive year that Singapore makes it to top of the list. The survey was conducted by Hong Kong-based Political and Economic Risk Consultancy (PERC). Singapore had the most efficient bureaucrats, although they tended to be unhelpful when things went wrong it was revealed in the 12-page report which stated - “during difficult times - or when mistakes are made that reflect badly on the system - there is a tendency among bureaucrats to circle the wagons in ways that lack transparency and make accountability difficult.”

The survey ranked India lowest – with the least efficient bureaucracy.

The report stated that engaging with India's civil servants was “slow and painful.” The report went on to add about India's bureaucracy - “they are a power centre in their own right at both the national and state levels, and are extremely resistant to reform that affects them or the way they go about their duties”. Thailand came third in the report which went on to say that in spite of the country's recent troubles, “respondents to our survey were impressed with the way Thai civil servants have been carrying out their duties”. But the report also stated that corruption presented the greatest difficulties for Thai residents.

Hong Kong came second in the ranking while China ranked ninth.

Indian Industries that will do well in recession

AS EVERY business sector is affected by present global crisis and everybody is talking of slow down in business, still in India there are few sectors which will grow in this adverse situation. Lets have a look.

1. Food

No one can survive without basic food material like milk, vegetables and drinking water. Food processing companies will not be affected much and rather will earn profits by increasing the prices. These are the basic needs which we as a common man can not produce by our self.

According to Ministry of Food Processing Industry (MFPI), the food processing industry in India was seeing growth even as the world was facing economic recession. According to the minister, the industry is presently growing at 14 per cent against six to seven per cent growth in 2003–04.The Indian food market is estimated at over US$ 182 billion and accounts for about two thirds of the total Indian retail market. Further, the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025

2. Railway

As the aviation sector has been affect much badly and resulting in sharp rise in the air ticket rates the frequent travellers will prefer railways to cut the cost of travelling and this will result in increased traffic in railways and long queues at railway booking counters. The freight traffic of Indian Railways has continued to grow in the last few months, albeit at slow pace, indicating only marginal impact of the global recession on the Indian economy.

The railways registered 13.87 per cent growth in revenue to Rs 57,863.90 crore in the first nine months ended December 31, 2008. While total earnings from freight increased by 14.53 per cent at Rs 39,085.22 crore during the period, passenger revenue earnings were up 11.81 per cent at Rs 16,242.44 crore. The railways have enhanced freight revenue by increasing its axle loading, improving customer services and adopting an innovative pricing strategy.

3. PSU Banks

As seen in the private sector much of the job cuts due to global slowdown, its the public sector undertaking (PSU) banks which gained much confidence due to job safety and security. More and more people are likely to turn towards government institutions, particularly banks in the quest for safety and security.

A report "Opportunities in Indian Banking Sector", by market research company, RNCOS, forecasts that the Indian banking sector will grow at a healthy compound annual growth rate (CAGR) of around 23.3 per cent till 2011.

4. Education

As education is considered as the basic necessity and in India it is seen as a long term investment by parents and with respect to the demand still there is a huge supply gap. The craze to study in foreign university among the Indian youth still alive which will prompt foreign education institute to target India provided vast young population willing to join. We will see more and more foreign educational institutions coming up in India in recent coming years.

Huge government as well as private investment is likely to flow into the Indian educational system. D E Shaw, a US$ 36 billion, global private equity firm is planning to invest around US$ 200 million in the Indian education sector.

5. Telecom

People will not stop to communicate with each other due to global crises rather it has been seen that it will increase much particularly with mobile communication. With cheap cell phones available in the Indian market and cheaper call rates, the sector has become the necessity and primary need of everyday life.

Telecom sector, according to industry estimates, year 2008 started with a subscriber base of 228 million and will likely to end with a subscriber base of 332 million – a full century. The telecom industry expects to add at least another 90 million subscribers in 2009 despite of recession. The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010.

6. IT

Recent news shown that Indian IT sector will grow 30 to 40 per cent next year. And on the other side to survive in current slowdown, industries have to decrease the cost and for that they will resort to customised IT solutions which will further boost up the software solution demand.

India is fast becoming a hot destination for outsourced e-publishing work. As per a Confederation of Indian Industry (CII) report, the industry is growing at an annual rate of 35 per cent and India’s outsourcing opportunities in the value-added and core services such as copy editing, project management, indexing, media services and content deployment will help make the publishing BPO industry worth US$ 1.46 billion by 2010.

7. Health care

India in case of health care facilities still lakes the adequate supply. In health care sector also there is huge gap between demand and supply at all the levels of society. Still there are so many urban areas were you could hardly find any multi specialty hospital. And in case of metros the market sentiments itself created a need of psychological consultation.

Healthcare, which is a US$ 35 billion industry in India, is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017. The healthcare industry is interestingly poised as it strives to emerge as a global hub due to the distinct advantages it enjoys in clinical excellence and low costs.

8. Luxury products

The high and affluent class of society will not be affected much by this global crises even if their worth is reduced significantly. They will not change their lifestyle and will not stop spending on luxurious goods. So luxurious product market will not be affected and in fact to maintain the lifestyle those affluent will spend more for it. Luxury car makers are pouring in to woo the nouveau riche (Audi, BMW are the most recent entrants).

9. M&A & Marketing Consultants

As in the current business slow down survival will be the main focus, the marketing and management consultants will be called for to reduce the costs and to show the ways to survive and stay in market. Others may join hands to fight with this situation together will call for the Marketing & M&A consultants. In a booming market there are growth strategies and M&A opportunities to advise on. When businesses are cutting back, consultancies will be right there to help clients decide where to wield the axe.

According to Ministry of Commerce and Industry’s estimation, the current size of consulting industry in India is about Rs 10000 crores including exports and is expected to grow further at a CAGR of aproximately 25 per cent in next few years.

10.Media and Entertainment

In current bad times, where people are losing jobs and getting enough time to watch TV, they will seek entertainment at home and hence advertising revenues will increase for the commercial channels. Also businesses like production of religious texts and religious materials, religious channels will do well. The TRP of religious channels will increase compare to the other entertaining/commercial channels.

According to a report published by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Indian M&E industry is expected to grow at a compound annual growth rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According to the PWC report, the television industry was worth US$ 5. 48 billion in 2007, recording a growth of 18 per cent over 2006. It is further likely to grow by 22 per cent over the next five years and be worth US$ 12. 34 billion by 2012.

Forex reserves up

Forex reserves increased by USD 1,667 million to touch USD 262,306 billion as on May 29, 2009, mainly due to rise in foreign currency and assets collections on a weekly basis.

As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on Jun. 5, 2009, foreign currency assets rose by USD 1,291 million to stand at USD 251,456 million.

During the same period, the reserve position in the International Monetary Fund (IMF) increased by USD 3 million to stand at USD 1,245 million. The gold reserves increased by USD 373 million to stand at USD 9,604 million.

Foreign currency assets expressed in USD include the effect of appreciation or depreciation on non-US currencies (such as Euro, Sterling and Yen) held in reserves.

Sensex milestones

Here are the major milestones of BSE Sensex :

• 1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.

• 2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.

• 3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by Manmohan Singh.

• 4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.

• 5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the Bharatiya Janata Party-led coalition won the majority in the 13th Lok Sabha election.

• 6000, February 11, 2000 - On February 11, 2000, the information technology boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.

• 7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.

• 8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index – the Sensex - crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.

• 9000, December 9, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.

• 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10,000-mark on February 7, 2006.

• 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.

• 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.

• 13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 for the first time. It touched a peak of 13,039.36 and finally closed at 13,024.26.

• 14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000.

• 15,000, July 6, 2007 - The Sensex on July 6, 2007 crossed 15,000 mark.

• 16,000, September 19, 2007 - The Sensex on September 19, 2007 crossed the 16,000 mark.

• 17,000, September 26, 2007 - The Sensex on September 26, 2007 crossed the 17,000 mark for the first time.

• 18,000, October 9, 2007 - The Sensex on October 09, 2007 crossed the 18,000 mark for the first time.

• 19,000, October 15, 2007 - The Sensex on October 15, 2007 crossed the 19,000 mark for the first time.