Terming disclosures of financial wrong-doings at Satyam as an event of “horrifying magnitude,” market regulator Sebi on Wednesday said it would take all steps under the law for which it has started discussions with government and bourses.
“We are in touch with Ministry of Corporate Affairs... we are also in discussion with them as to what steps need to be taken from the perspective of power they have under the law and SEBI has under the law,” Sebi Chairman C B Bhave said.
SEBI was also forwarded the letter written by Satyam’s chairman Ramalinga Raju on his stepping down with the confession that the profits in the company were inflated over the years, leading to wide gap between real and imaginary assets.
Bhave said the development would have serious implications for the market. Jurisdictions in this case lies with various authorities and accordingly, “we are in touch with Ministry of Corporate Affairs for coordinated action”.
He also emhpasised on the need to go beyond the letter and “decide the course of action.”
Bewildered by the disclosures made by Raju in his letter to Sebi and the Board, which was also sent to stock exchange authorities, Bhave said it was “most surprising” that cash balance that was non-existent got certified. The case also raises the issue of “authenticity of accounts” that have been audited.
“Our main effort is to see that whatever facts are available with any regulatory agency, those are put out and investors know the truth... I am sure we will have to learn few lessons from this as we get through the facts,” he said.
“We are also in touch with stock exchanges to see what will be the appropriate action,” he said.
Asked about the action that the company, also listed in New York Stock Exchange, could face in the US, Bhave said: “This is probably not the time when SEC would be available. My guess is that Satyam will have to make similar disclosures there as well. I am not entirely familiar with their law with regard to areas as to what actions they would be taking.”
Commenting on the unfolding development that began with the fiasco of the USD 1.6 billion dollar acquisition of two Maytas firms promoted by Raju’s family, he said: “This is an event of horrifying magnitude and it’s first of its kind.”
On whether Sebi would be making a special request to the Satyam Board that is to meet on 10 January, he said all these things are being considered and it is being made sure that the Ministry of Corporate Affairs and Sebi act in coordination on this matter.
Wednesday, January 7, 2009
Satyam chief Raju resigns, says profits inflated
The chairman of embattled Satyam Computer Services resigned on Wednesday and said the company’s profits had been inflated over the last several years, sending the stock down 60%.
The shocking revelation comes after India’s fourth-largest outsourcer’s botched attempt last month to buy two construction firms in which the company’s founders held stakes and key customer World Bank dropping its ties with the outsourcing company.
“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years,” Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.
Satyam’s woes make it one of India’s most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay’s main benchmark index falling 3.9%.
Raju has written: “It is with deep regret and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice: The Balance Sheet carries as of 30 September, 2008, a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books); b) An accrued interest of Rs 376 crore, which is non-existent.
Satyam, which specialises in business software and back-office services for clients such as General Electric, and Nestle, was due to hold a board meeting on 10 January to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.
“I think there is no future for this stock. This case for India is similar to what happened to Enron in the US,” said Jigar Shah, senior vice-president at Kim Eng Securities.
“It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected,” he said.
Raju has admitted that the Maytas acquisition deal was the promoters’ last attempt to fill the gaps on company’s balance sheets.
“I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation,” B Ramalinga Raju said in a notice sent to the stock exchanges.
“I am now prepared to subject myself to the laws of the land and face consequences thereof,” Raju said.
He will continue in the position till the company’s board is expanded, according to a statement sent to BSE. Meanwhile, Ram Myanpati will act as interim CEO.
Also while Raju recommended DSP Merrill Lynch be entrusted the task of “quickly exploring some merger opportunities,” the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam
The shocking revelation comes after India’s fourth-largest outsourcer’s botched attempt last month to buy two construction firms in which the company’s founders held stakes and key customer World Bank dropping its ties with the outsourcing company.
“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years,” Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.
Satyam’s woes make it one of India’s most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay’s main benchmark index falling 3.9%.
Raju has written: “It is with deep regret and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice: The Balance Sheet carries as of 30 September, 2008, a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books); b) An accrued interest of Rs 376 crore, which is non-existent.
Satyam, which specialises in business software and back-office services for clients such as General Electric, and Nestle, was due to hold a board meeting on 10 January to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.
“I think there is no future for this stock. This case for India is similar to what happened to Enron in the US,” said Jigar Shah, senior vice-president at Kim Eng Securities.
“It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected,” he said.
Raju has admitted that the Maytas acquisition deal was the promoters’ last attempt to fill the gaps on company’s balance sheets.
“I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation,” B Ramalinga Raju said in a notice sent to the stock exchanges.
“I am now prepared to subject myself to the laws of the land and face consequences thereof,” Raju said.
He will continue in the position till the company’s board is expanded, according to a statement sent to BSE. Meanwhile, Ram Myanpati will act as interim CEO.
Also while Raju recommended DSP Merrill Lynch be entrusted the task of “quickly exploring some merger opportunities,” the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam
Rupee ends flat ends at 48.66
The Indian Rupee on Jan 6 closed almost flat after spending most of the day in a tight range. The rupee for most of the day moved in a narrow 48.55-48.79 band and ended at 48.66/69 per dollar from Monday''s close of 48.56/58.
Godrej Consumer fixes Record Date for third interim dividend
Godrej Consumer Products Ltd has informed that January 30, 2009 has been fixed as the Record Date for the purpose of payment of third interim dividend for the financial year 2008-09, if declared.
Nava Bharat - Update on Buy Back Offer
JM Financial Consultants Pvt. Ltd (Manager to the Buy Back) on behalf of Nava Bharat Ventures Ltd (Target Company), has issued this Corrigendum to the Public Announcement for Buy back of equity shares, to the Shareholders / Beneficial Owners of the Equity Shareholder of Target Company, which is in continuation of & should be read in conjunction with the PA dated December 22, 2008 Published on December 23, 2008, is in compliance with the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998 (the Regulations), as amended. The shareholders of Target Company are requested to note the following developments / amendments with respect to and in connection with the PA.
The terms and abbreviations used in this Corrigendum have the same meaning as ascribed to them in the PA, unless otherwise specified.
The following modifications / changes have been made to the PA.
Point 1.1 has been modified as
The Target Company hereby announces the Buy-back of its fully paid-up equity shares of the face value Rs. 2 each (Equity Shares) from the open market using the electronic trading facilities of the Bombay Stock Exchange Ltd (BSE) and the National Stock Exchange of India Ltd (NSE) in accordance with the provisions of Sections 77A, 77AA and 77B of the Companies Act, 1956 (the Act) and the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998 (the Buy-Back Regulations) for a minimum of 735,295 Equity Shares (Minimum Offer Shares) and a maximum of 5,000,000 Equity Shares (Maximum Offer Shares) at a price not exceeding Rs. 170 per Equity Share (Maximum Offer Price) payable in cash, for an aggregate amount not exceeding Rs. 5,000 lakhs (Maximum Offer Size) from the existing owners of Equity Shares (the Buy-back) other than those who are promoters, promoter group, directors of promoters, persons in control, persons acting in concert holding Equity shares of Company. The Maximum Offer Size represents 6.29% of the aggregate of the Companys total paid-up equity capital and free reserves as on March 31, 2008.
Point 1.4 has been modified as
The Company shall place buy orders so long as the price is below the Maximum Offer Price and the Buyback will close in terms with the timetable mentioned herein. However, it is being clarified that the Company shall have the flexibility to close the Buy-back at an earlier date in the event the Minimum Offer Shares have been purchased.
The fact that the Board Resolution provides for the Maximum Offer Price does not indicate that the Company will or is obliged to buy or continue to buy Equity Shares, so long as the market price is below the Maximum Offer Price. Similarly, the fact that this announcement mentions the Maximum Offer Size and Maximum Offer Shares that may be bought back at a price per Equity Share not exceeding Rs. 170 per share does not indicate that the Company will utilize or is obliged to utilize, the entire amount of Rs. 5,000 Lakhs (being the Maximum Offer Size) in the Buy-back or that the Company will buy or is obliged to buy all the Maximum Offer Shares.
Point 1.5 has been modified as
Further, the maximum number of Equity Shares bought back shall be subject to (i) the Buy-back not causing the Company to be in violation of the conditions for continuous listing prescribed in terms of Clause 40A of the listing agreement between the Company and the Stock Exchanges (ii) the aggregate consideration payable pursuant to the Buy-back not exceeding the Maximum Offer Size and (iii) the number of shares to be bought back not exceeding Maximum Offer Shares.
Point 12.7 has been modified as
It may be noted that all the equity shares bought back by the Company may not be at a uniform price. The Company will place buy order at least once a week and such order will be placed both in odd lot as well as the normal trading segments of the Stock Exchanges, as applicable.
The terms and abbreviations used in this Corrigendum have the same meaning as ascribed to them in the PA, unless otherwise specified.
The following modifications / changes have been made to the PA.
Point 1.1 has been modified as
The Target Company hereby announces the Buy-back of its fully paid-up equity shares of the face value Rs. 2 each (Equity Shares) from the open market using the electronic trading facilities of the Bombay Stock Exchange Ltd (BSE) and the National Stock Exchange of India Ltd (NSE) in accordance with the provisions of Sections 77A, 77AA and 77B of the Companies Act, 1956 (the Act) and the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 1998 (the Buy-Back Regulations) for a minimum of 735,295 Equity Shares (Minimum Offer Shares) and a maximum of 5,000,000 Equity Shares (Maximum Offer Shares) at a price not exceeding Rs. 170 per Equity Share (Maximum Offer Price) payable in cash, for an aggregate amount not exceeding Rs. 5,000 lakhs (Maximum Offer Size) from the existing owners of Equity Shares (the Buy-back) other than those who are promoters, promoter group, directors of promoters, persons in control, persons acting in concert holding Equity shares of Company. The Maximum Offer Size represents 6.29% of the aggregate of the Companys total paid-up equity capital and free reserves as on March 31, 2008.
Point 1.4 has been modified as
The Company shall place buy orders so long as the price is below the Maximum Offer Price and the Buyback will close in terms with the timetable mentioned herein. However, it is being clarified that the Company shall have the flexibility to close the Buy-back at an earlier date in the event the Minimum Offer Shares have been purchased.
The fact that the Board Resolution provides for the Maximum Offer Price does not indicate that the Company will or is obliged to buy or continue to buy Equity Shares, so long as the market price is below the Maximum Offer Price. Similarly, the fact that this announcement mentions the Maximum Offer Size and Maximum Offer Shares that may be bought back at a price per Equity Share not exceeding Rs. 170 per share does not indicate that the Company will utilize or is obliged to utilize, the entire amount of Rs. 5,000 Lakhs (being the Maximum Offer Size) in the Buy-back or that the Company will buy or is obliged to buy all the Maximum Offer Shares.
Point 1.5 has been modified as
Further, the maximum number of Equity Shares bought back shall be subject to (i) the Buy-back not causing the Company to be in violation of the conditions for continuous listing prescribed in terms of Clause 40A of the listing agreement between the Company and the Stock Exchanges (ii) the aggregate consideration payable pursuant to the Buy-back not exceeding the Maximum Offer Size and (iii) the number of shares to be bought back not exceeding Maximum Offer Shares.
Point 12.7 has been modified as
It may be noted that all the equity shares bought back by the Company may not be at a uniform price. The Company will place buy order at least once a week and such order will be placed both in odd lot as well as the normal trading segments of the Stock Exchanges, as applicable.
BSEL Infrastructure - Sale of Stake from Hotel Project at Balewadi, Pune
BSEL Infrastructure Realty Ltd has informed that the company has made exit from B W
Highway Star Hotel project at Balewadi, Pune. The Company, having 2,000,000 Shares representing approximately 17% shares of the B W Highway Star Pvt. Ltd. - SPV incorporated in Joint Venture for the project. The Company has sold 1,058,824 Shares of Rs 10/- each in favour of Kamat Hotels (India) Ltd for Rs 79,411,800/- and rest 941,176 Shares of Rs 10/- each to Unity Realty and Developers Ltd (subsidiary of Unity Infraprojects Ltd) for Rs
70,588,200/-.
The project being developed by the Company in the Joint Venture with Unity Infraprojects Ltd and Kamat Hotel (India) Ltd. Clearwater Capital Pvt Ltd, Cyprus is a major shareholder of the SPV Company.
Highway Star Hotel project at Balewadi, Pune. The Company, having 2,000,000 Shares representing approximately 17% shares of the B W Highway Star Pvt. Ltd. - SPV incorporated in Joint Venture for the project. The Company has sold 1,058,824 Shares of Rs 10/- each in favour of Kamat Hotels (India) Ltd for Rs 79,411,800/- and rest 941,176 Shares of Rs 10/- each to Unity Realty and Developers Ltd (subsidiary of Unity Infraprojects Ltd) for Rs
70,588,200/-.
The project being developed by the Company in the Joint Venture with Unity Infraprojects Ltd and Kamat Hotel (India) Ltd. Clearwater Capital Pvt Ltd, Cyprus is a major shareholder of the SPV Company.
Winsome Textile - Implementation of Power Project of the Company
Winsome Textile Industries Ltd has informed that as a step towards cost effectiveness, the Company undertook Mini Hydro Power Project near Dharamshala in Himachal Pradesh with total power potential of 2500 KW. All Project clearances have been taken by the Company.
Infrastructure work i.e. construction of approach road to power house has already been completed. Bid processing and award of works is in progress.
Infrastructure work i.e. construction of approach road to power house has already been completed. Bid processing and award of works is in progress.
Pre market 07 Jan 2009
The market may extend strong gains of the past few days on firm Asian stocks, resumption of buying by foreign funds and on reports that state run banks are likely cut lending rates further next month. But concerns about Q3 results may keep a lid on prices.
Asia-Pacific stocks extended recent gains on Wednesday, 7 January 2009, on hopes for a US economic stimulus package. Key benchmark indices in Japan, Hong Kong, Singapore, South Korea, Australia and Taiwan were up by between 0.07% to 1.89%
US stocks gained on Tuesday, 6 January 2009, on the increased likelihood of a government stimulus package after the release of minutes from the last Federal Reserve policy meeting painted a dismal picture of the US economy. The Dow Jones industrial average was up 62.21 points, or 0.69%, to 9,015.10. The Standard & Poor's 500 Index gained 7.25 points, or 0.78%, to 934.70. The Nasdaq Composite Index added 24.35 points, or 1.5%, to 1,652.38.
US President-elect Barack Obama's proposed package of spending and tax-cut measures is estimated at nearly $775 billion over the next two years.
Closer home, foreign institutional investors (FIIs) have resumed buying. As per provisional data released by the stock exchanges after trading hours, foreign funds on Tuesday, 6 January 2009, bought shares worth a net Rs 374.02 crore. Foreign funds had bought shares worth a net Rs 530 crore in three trading sessions from 1 January 2009 to 5 January 2009. After a sustained inflows earlier in the month in December 2008, FIIs had turned sellers towards end of that month.
Coordinated policy measures from the central bank and the government to boost sagging growth has boosted the bourses. The BSE Sensex jumped 1,007.01 points or 10.79% to 10,335.93 on 6 January 2009 from a recent low of 9,328.92 on 26 December 2008.
The Reserve Bank of India (RBI) on Friday, 5 January 2009, cut the repo rate and the reverse repo rate by 100 basis points each, with immediate effect. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks. After the latest cuts, the repo rate is now at 5.5% and the reverse repo is now at 4%, the lowest ever.
The RBI also announced a cut in cash reserve ratio, the proportion of deposits banks must keep with the central bank, by 50 basis points to 5% with effect from 17 January 2009. Lower interest rates may revive the domestic economy which has been slowing faster than expected due to high interest rates and the global financial crisis.
Complementing monetary easing by the RBI, the government enhanced the spending power of states with specific measures to boost credit availability in the second fiscal stimulus package. It offered additional sops to exporters and the small-scale sector, besides raising the level of protection for cement and steel sectors a tad. It has also incentivised purchase of commercial vehicles. Both the RBI and the government measures were announced after trading hours on Friday, 2 January 2009.
Asia-Pacific stocks extended recent gains on Wednesday, 7 January 2009, on hopes for a US economic stimulus package. Key benchmark indices in Japan, Hong Kong, Singapore, South Korea, Australia and Taiwan were up by between 0.07% to 1.89%
US stocks gained on Tuesday, 6 January 2009, on the increased likelihood of a government stimulus package after the release of minutes from the last Federal Reserve policy meeting painted a dismal picture of the US economy. The Dow Jones industrial average was up 62.21 points, or 0.69%, to 9,015.10. The Standard & Poor's 500 Index gained 7.25 points, or 0.78%, to 934.70. The Nasdaq Composite Index added 24.35 points, or 1.5%, to 1,652.38.
US President-elect Barack Obama's proposed package of spending and tax-cut measures is estimated at nearly $775 billion over the next two years.
Closer home, foreign institutional investors (FIIs) have resumed buying. As per provisional data released by the stock exchanges after trading hours, foreign funds on Tuesday, 6 January 2009, bought shares worth a net Rs 374.02 crore. Foreign funds had bought shares worth a net Rs 530 crore in three trading sessions from 1 January 2009 to 5 January 2009. After a sustained inflows earlier in the month in December 2008, FIIs had turned sellers towards end of that month.
Coordinated policy measures from the central bank and the government to boost sagging growth has boosted the bourses. The BSE Sensex jumped 1,007.01 points or 10.79% to 10,335.93 on 6 January 2009 from a recent low of 9,328.92 on 26 December 2008.
The Reserve Bank of India (RBI) on Friday, 5 January 2009, cut the repo rate and the reverse repo rate by 100 basis points each, with immediate effect. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks. After the latest cuts, the repo rate is now at 5.5% and the reverse repo is now at 4%, the lowest ever.
The RBI also announced a cut in cash reserve ratio, the proportion of deposits banks must keep with the central bank, by 50 basis points to 5% with effect from 17 January 2009. Lower interest rates may revive the domestic economy which has been slowing faster than expected due to high interest rates and the global financial crisis.
Complementing monetary easing by the RBI, the government enhanced the spending power of states with specific measures to boost credit availability in the second fiscal stimulus package. It offered additional sops to exporters and the small-scale sector, besides raising the level of protection for cement and steel sectors a tad. It has also incentivised purchase of commercial vehicles. Both the RBI and the government measures were announced after trading hours on Friday, 2 January 2009.
Oil steady under $49, eyes US inventory
Oil was steady under $49 on Wednesday, after weak US economic data sparked a bout of profit-taking overnight, outweighing escalating tensions in the Middle East and widening supply cuts from the Russian gas row.
The market will be watching for weekly inventory data from the US energy department due later on Wednesday, which are forecast to show a jump in stockpiles, and US December employment data, to be released on Friday.
“The EIA weekly inventory numbers and the U.S. unemployment data will be key for near-term price direction,” said Jim Ritterbusch, president of Ritterbusch & Associates.
US crude for February delivery was up 6 cents a barrel at $48.64 by 8:30am, while London Brent was up 7 cents at $50.60.
Data released on Tuesday showed that pending sales of US homes dropped in November to their lowest level in at least seven years and that the country’s services sector shrank for the third consecutive month in December.
A report from the US Energy Information Administration due later is likely to show fuel stocks rising as demand slows, with crude oil inventories seen up 900,000 barrels last week, and distillates and gasoline supplies also expected to have increased.
Further clues about future demand from the world’s largest oil consumer will come when US Labour Department unveils December non-farm payroll and unemployment data on Friday.
Oil prices have risen nearly 50% since the intraday low of $32.40 reached on 19 December, boosted by worries over supply disruptions from Israel’s deepening incursion into Gaza, Russia’s gas row with Ukraine, and mounting evidence of Opec’s compliance with production cuts.
Israel and Hamas studied a proposal by Egypt for a ceasefire in the Gaza Strip on Wednesday that won immediate backing from the United States and Europe.
But Israeli officials also said ministers would discuss a major escalation of their 12-day-old offensive that would push troops deep inside Gaza’s cities and refugee camps in their bid to end rocket fire into Israel by Islamist militant groups.
While the conflict does not directly threaten any oil supplies, unrest in the Middle East can bolster prices because countries in the region pump about a third of the world’s oil.
Also adding support was Russia’s deepening dispute with Ukraine over natural gas prices, which triggered supply disruptions to parts of Europe. This echoed a similar spat three years ago that raised questions about Russia’s reliability as an energy exporter. Evidence of Opec members implementing the group’s biggest ever output cuts also grew on Tuesday as Kuwait and Iran told customers of bigger supply curbs this month in a bid to prop up prices.
The producer cartel has cut output three times since September, in a bid to halt the market’s slide.
But analysts said oil’s rally was likely to be short-lived, especially once the February contract expires later this month.
The market will be watching for weekly inventory data from the US energy department due later on Wednesday, which are forecast to show a jump in stockpiles, and US December employment data, to be released on Friday.
“The EIA weekly inventory numbers and the U.S. unemployment data will be key for near-term price direction,” said Jim Ritterbusch, president of Ritterbusch & Associates.
US crude for February delivery was up 6 cents a barrel at $48.64 by 8:30am, while London Brent was up 7 cents at $50.60.
Data released on Tuesday showed that pending sales of US homes dropped in November to their lowest level in at least seven years and that the country’s services sector shrank for the third consecutive month in December.
A report from the US Energy Information Administration due later is likely to show fuel stocks rising as demand slows, with crude oil inventories seen up 900,000 barrels last week, and distillates and gasoline supplies also expected to have increased.
Further clues about future demand from the world’s largest oil consumer will come when US Labour Department unveils December non-farm payroll and unemployment data on Friday.
Oil prices have risen nearly 50% since the intraday low of $32.40 reached on 19 December, boosted by worries over supply disruptions from Israel’s deepening incursion into Gaza, Russia’s gas row with Ukraine, and mounting evidence of Opec’s compliance with production cuts.
Israel and Hamas studied a proposal by Egypt for a ceasefire in the Gaza Strip on Wednesday that won immediate backing from the United States and Europe.
But Israeli officials also said ministers would discuss a major escalation of their 12-day-old offensive that would push troops deep inside Gaza’s cities and refugee camps in their bid to end rocket fire into Israel by Islamist militant groups.
While the conflict does not directly threaten any oil supplies, unrest in the Middle East can bolster prices because countries in the region pump about a third of the world’s oil.
Also adding support was Russia’s deepening dispute with Ukraine over natural gas prices, which triggered supply disruptions to parts of Europe. This echoed a similar spat three years ago that raised questions about Russia’s reliability as an energy exporter. Evidence of Opec members implementing the group’s biggest ever output cuts also grew on Tuesday as Kuwait and Iran told customers of bigger supply curbs this month in a bid to prop up prices.
The producer cartel has cut output three times since September, in a bid to halt the market’s slide.
But analysts said oil’s rally was likely to be short-lived, especially once the February contract expires later this month.
Bharati up on Great Offshore share pledge
Shares of Bharati Shipyard Ltd rose nearly 10% while Great Offshore Ltd was up as much as 6.7% on Tuesday after the latter’s founder pledged more shares with a Bharati unit, triggering talk of a likely open offer.
Great Offshore founder and managing director Vijay Sheth pledged an additional 2.15% on 2 January, a stock exchange notice late on Monday showed, taking the total amount pledged with two Bharati Shipyard units since December to 14.87%.
Sheth, who owns 15.73% of Great Offshore, pledged the shares for a loan of about Rs200 crore, a spokesman for shipbuilder Bharati said.
Dealers said the shares rose amid speculation the transaction exposed Great Offshore to a takeover bid if the loan is not repaid, but analysts doubted whether Bharati had the resources for such a move.
“I don’t think they can go for an open offer because they don’t have that kind of cash,” a Mumbai-based analyst, who didn’t want to be named, said.
“The open offer, if at all, would come in at Rs360 or so, and they don’t have that kind of money to buy another 20% in the company.” Indian takeover regulations require an open offer to be made if 15% of a company’s shares are acquired by someone else.
The Daily News and Analysis newspaper on Tuesday quoted the managing director of Bharati Shipyard, P.C. Kapoor, as saying an open offer could not be ruled out if the loan was not repaid, though no such decision had been taken.
Reuters was unable to reach Kapoor. But a Bharati spokesman said talk of a takeover was speculative at this stage.
“This happened because the promoters are very close to each other and there are good business interests,” the Bharati spokesman said, referring to the loan against shares.
Bharati Shipyard has about $230 million (Rs1,120 crore) worth of orders from Great Offshore for a rig due for delivery in May next year and a multi-purpose supply vessel to be delivered in September.
“Out of this, as of 30 September, already $105 million has been advanced towards the orders,” Great Offshore’s spokesman said.
Media reports said Sheth’s 15.73% stake had earlier been pledged with creditors, including IL&FS and Motilal Oswal in June 2007, but he came under pressure following a plunge in the shares of Great Offshore, prompting the move to borrow from Bharati.
Dealers said the acquisition would be beneficial for Bharati Shipyard as Great Offshore is an asset-rich firm.
“Great Offshore is a good company to have in your portfolio. There’s good amount of value in the company but it would be slightly heavy for Bharati’s balance sheet,” another analyst said.
Shares of both companies came off highs as the market eased.
Bharati Shipyard’s shares were up 5.41% at Rs84.75 while Great Offshore shares were down 1.54% at Rs274.60 at close on the Bombay Stock Exchange on Tuesday.
Great Offshore founder and managing director Vijay Sheth pledged an additional 2.15% on 2 January, a stock exchange notice late on Monday showed, taking the total amount pledged with two Bharati Shipyard units since December to 14.87%.
Sheth, who owns 15.73% of Great Offshore, pledged the shares for a loan of about Rs200 crore, a spokesman for shipbuilder Bharati said.
Dealers said the shares rose amid speculation the transaction exposed Great Offshore to a takeover bid if the loan is not repaid, but analysts doubted whether Bharati had the resources for such a move.
“I don’t think they can go for an open offer because they don’t have that kind of cash,” a Mumbai-based analyst, who didn’t want to be named, said.
“The open offer, if at all, would come in at Rs360 or so, and they don’t have that kind of money to buy another 20% in the company.” Indian takeover regulations require an open offer to be made if 15% of a company’s shares are acquired by someone else.
The Daily News and Analysis newspaper on Tuesday quoted the managing director of Bharati Shipyard, P.C. Kapoor, as saying an open offer could not be ruled out if the loan was not repaid, though no such decision had been taken.
Reuters was unable to reach Kapoor. But a Bharati spokesman said talk of a takeover was speculative at this stage.
“This happened because the promoters are very close to each other and there are good business interests,” the Bharati spokesman said, referring to the loan against shares.
Bharati Shipyard has about $230 million (Rs1,120 crore) worth of orders from Great Offshore for a rig due for delivery in May next year and a multi-purpose supply vessel to be delivered in September.
“Out of this, as of 30 September, already $105 million has been advanced towards the orders,” Great Offshore’s spokesman said.
Media reports said Sheth’s 15.73% stake had earlier been pledged with creditors, including IL&FS and Motilal Oswal in June 2007, but he came under pressure following a plunge in the shares of Great Offshore, prompting the move to borrow from Bharati.
Dealers said the acquisition would be beneficial for Bharati Shipyard as Great Offshore is an asset-rich firm.
“Great Offshore is a good company to have in your portfolio. There’s good amount of value in the company but it would be slightly heavy for Bharati’s balance sheet,” another analyst said.
Shares of both companies came off highs as the market eased.
Bharati Shipyard’s shares were up 5.41% at Rs84.75 while Great Offshore shares were down 1.54% at Rs274.60 at close on the Bombay Stock Exchange on Tuesday.
LyondellBasell filed for bankruptcy
The US operations of LyondellBasell, the world’s third-largest petrochemical company, filed for bankruptcy protection under the weight of a massive debt load and slumping demand for its products.
The company had taken on billions of dollars in debt obligations a year ago, when billionaire Len Blavatnik led a $12.7 billion leveraged buyout of US firm Lyondell by Basell of the Netherlands.
The New York bankruptcy filing on Tuesday included almost 80 units of the company and encompassed its US operations and a European financing arm. The company’s non-US operations are not included in the Chapter 11 bankruptcy and are continuing to operate as usual.
LyondellBasell Industries, whose products range from fuels to chemicals and plastics, is owned by the Russian- born Blavatnik through New York-based Access Industries and is based in the Netherlands.
The US operations have obtained $8 billion in debtor-in-possession financing to help fund operations, including $750 million from Access Industries.
The privately held company, which operates a massive refining and processing plant in Houston, has suffered from plunging demand for chemicals as industries such as autos, housing and electronics weakened. Tight credit markets have made renegotiating debt difficult.
The company is not alone in its struggles.
“We’re getting back to the kind of scenario that played out earlier this decade when we had five or six defaults per year,” said Kyle Loughlin, analyst with Standard & Poor’s.
Among LyondellBasell’s largest creditors were Venezuelan oil company Petroleos de Venezuela (PDVSA), Algerian energy group Sonatrach, Exxon Mobil Corp and Dow Chemical Co.
LyondellBasell’s lenders include Merrill Lynch, Goldman Sachs Group Inc, Citigroup Inc, ABN AMRO and UBS Securities LLC, according to filings.
LyondellBasell, which employs 17,000 workers and had revenue of $44.7 billion in 2007, has seen its liquidity drop to $639 million currently from $1.67 billion at the end of the third quarter, falling short of its quarterly interest and maintenance costs.
Its products are used in numerous products including fuels, rigid and flexible packaging, plastic pipe, detergents, cosmetics, electronics and appliances.
The bankruptcy filing was made in the US Bankruptcy Court for the Southern District of New York.
The company had taken on billions of dollars in debt obligations a year ago, when billionaire Len Blavatnik led a $12.7 billion leveraged buyout of US firm Lyondell by Basell of the Netherlands.
The New York bankruptcy filing on Tuesday included almost 80 units of the company and encompassed its US operations and a European financing arm. The company’s non-US operations are not included in the Chapter 11 bankruptcy and are continuing to operate as usual.
LyondellBasell Industries, whose products range from fuels to chemicals and plastics, is owned by the Russian- born Blavatnik through New York-based Access Industries and is based in the Netherlands.
The US operations have obtained $8 billion in debtor-in-possession financing to help fund operations, including $750 million from Access Industries.
The privately held company, which operates a massive refining and processing plant in Houston, has suffered from plunging demand for chemicals as industries such as autos, housing and electronics weakened. Tight credit markets have made renegotiating debt difficult.
The company is not alone in its struggles.
“We’re getting back to the kind of scenario that played out earlier this decade when we had five or six defaults per year,” said Kyle Loughlin, analyst with Standard & Poor’s.
Among LyondellBasell’s largest creditors were Venezuelan oil company Petroleos de Venezuela (PDVSA), Algerian energy group Sonatrach, Exxon Mobil Corp and Dow Chemical Co.
LyondellBasell’s lenders include Merrill Lynch, Goldman Sachs Group Inc, Citigroup Inc, ABN AMRO and UBS Securities LLC, according to filings.
LyondellBasell, which employs 17,000 workers and had revenue of $44.7 billion in 2007, has seen its liquidity drop to $639 million currently from $1.67 billion at the end of the third quarter, falling short of its quarterly interest and maintenance costs.
Its products are used in numerous products including fuels, rigid and flexible packaging, plastic pipe, detergents, cosmetics, electronics and appliances.
The bankruptcy filing was made in the US Bankruptcy Court for the Southern District of New York.
Wednesday, December 17, 2008
Shaking off US blues, Ford pads up for India
In 1995, whenFord Motor Co. entered the Indian market, two of India’s top three car makers today— Hyundai Motor Co.‘s local unit and homebred Tata Motors Ltd, then a truck maker—had not even started making cars in India. On the face of it, the company had everything going: a global brand name not unfamiliar to many Indians and a reliable joint venture partner, Mahindra and Mahindra Ltd.
Today, Hyundai Motor India Ltd, which launched the Santro in 1998, and Tata Motors that started accepting bookings for its Indica model in January 1999, are safely ensconced in the second and third spot in the India car hustings. Ford, meanwhile, finds itself in sixth place, behind its counterpart General Motors Corp., with a 2.1% market share.
Ford is trying hard to change that.
With recent events in the US—where Ford together with General Motors Corp. (GM) and Chrysler Llc. is seeking government bailouts—India may not figure on its Michigan, US-based parent’s to-do list but Ford India is still pushing ahead with its ambitious $500 million, or Rs2,390 crore, investments in India, restructuring operations and recasting its product portfolio.
“We’re a cash-positive business,” says Michael Boneham, president and managing director of Ford India Pvt. Ltd. He also points out that unlike GM and Chrysler, Ford is not facing a short-term liquidity issue.
On the initial years of Ford in India, John Parker, who was the first chief executive of the joint venture Mahindra Ford India Ltd, says, “One of the key issues we had then was a corporate product plan that was not ideally suited to India. We didn’t have, in our armoury, those small car products that were going to drive us into India.” Based in Thailand, Parker is now Ford’s executive vice- president for Asia and Africa.
Ford India, Parker says, has now been integrated into the global decision-making structure. This is unlike in the 1990s when plans were made separately for each region and India was mostly seen as a sleepy backwater.
As car markets in America, Europe and Japan slow significantly, all car makers are increasingly pinning their hopes on the developing world to ride them out of the slump. Car sales in America saw a 37% monthly drop in November. Europe and Japan fared only a little better. As a result, China, Russia, India and to a lesser extent Brazil are seen as key to reviving their flagging fortunes.
In India, Ford plans to shift gears and aims to grow at a much faster clip. The company has committed $500 million worth of investments in its Indian operations and plans to launch a small car in 2010 and drive into this fast growing segment.
Today, Hyundai Motor India Ltd, which launched the Santro in 1998, and Tata Motors that started accepting bookings for its Indica model in January 1999, are safely ensconced in the second and third spot in the India car hustings. Ford, meanwhile, finds itself in sixth place, behind its counterpart General Motors Corp., with a 2.1% market share.
Ford is trying hard to change that.
With recent events in the US—where Ford together with General Motors Corp. (GM) and Chrysler Llc. is seeking government bailouts—India may not figure on its Michigan, US-based parent’s to-do list but Ford India is still pushing ahead with its ambitious $500 million, or Rs2,390 crore, investments in India, restructuring operations and recasting its product portfolio.
“We’re a cash-positive business,” says Michael Boneham, president and managing director of Ford India Pvt. Ltd. He also points out that unlike GM and Chrysler, Ford is not facing a short-term liquidity issue.
On the initial years of Ford in India, John Parker, who was the first chief executive of the joint venture Mahindra Ford India Ltd, says, “One of the key issues we had then was a corporate product plan that was not ideally suited to India. We didn’t have, in our armoury, those small car products that were going to drive us into India.” Based in Thailand, Parker is now Ford’s executive vice- president for Asia and Africa.
Ford India, Parker says, has now been integrated into the global decision-making structure. This is unlike in the 1990s when plans were made separately for each region and India was mostly seen as a sleepy backwater.
As car markets in America, Europe and Japan slow significantly, all car makers are increasingly pinning their hopes on the developing world to ride them out of the slump. Car sales in America saw a 37% monthly drop in November. Europe and Japan fared only a little better. As a result, China, Russia, India and to a lesser extent Brazil are seen as key to reviving their flagging fortunes.
In India, Ford plans to shift gears and aims to grow at a much faster clip. The company has committed $500 million worth of investments in its Indian operations and plans to launch a small car in 2010 and drive into this fast growing segment.
Nikkei rises 2.0 pct after big Fed rate cut
The benchmark Nikkei average .N225 rose 2.0 percent to 8,741.24 in early trade on Wednesday, after the U.S. Federal Reserve slashed borrowing costs to a record low the previous day.
The broader Topix index .TOPX climbed 1.9 percent to 844.77. (Reporting by Rika Otsuka)
The broader Topix index .TOPX climbed 1.9 percent to 844.77. (Reporting by Rika Otsuka)
US Stocks surge as Fed pledges broad economic support
A surprised Wall Street bolted higher Tuesday after the Federal Reserve's historic decision to further slash interest rates and provide broad support to revive the troubled economy.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
Demand for long-term government bonds increased and pushed yields to record lows.
The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."
"What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy."
The Fed's unprecedented move to lower its fed funds target rate to a range of zero to 0.25 percent rather than a fixed point was a surprise. The move is an acknowledgment that rates in the marketplace had been well below the Fed's 1 percent target, which it set at its previous meeting on Oct. 29. The central bank also cut the lending rate for loans directly to banks.
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
"In some senses the whole point of this meeting was to say 'Quit watching interest rates, watch the other things that we can and will do,'" said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policy makers did not want to bring the rate all the way to zero. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The Dow rose 359.61, or 4.20 percent, to 8,924.14 after having been up about 100 in subdued trading ahead of the Fed's announcement.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.
The Russell 2000 index of smaller companies rose 30.28, or 6.69 percent, to 482.85.
The number of stocks advancing outnumbered those declining by 5-to-1 on the New York Stock Exchange, where consolidated volume came to 5.81 billion shares, up from 4.37 billion on Monday.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday.
The yield on the three-month T-bill -- whose yield has at times gone negative due to frenzied buying -- was at 0.02, flat with late Monday.
The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.
Light, sweet crude fell 91 cents to settle at $43.60 a barrel on the New York Mercantile Exchange.
Battered financial stocks led the market's advance. Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter. But investors were apparently relieved that the loss wasn't wider and sent the stock up $9.54, or 14 percent, to $76.
Other financial names jumped. JPMorgan Chase & Co. rose $3.72, or 13 percent, to $32.35, while Wells Fargo & Co. gained $3.71, or 14 percent, to $29.78.
For the gains in stocks to hold, McDonald said the credit markets need to show signs that fear is dissipating.
"The credit markets now need to show some improvement," he said.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
The rate decision came on a day when investors received two more pieces of evidence on Tuesday that the economy was worsening: The Commerce Department reported a 18.9 percent drop in new home construction in November, while the Labor Department said consumer prices sank by 1.7 percent.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the recent string of downbeat economic readings could eventually convince Wall Street that the economy has hit a bottom and could be poised for a modest recovery. In past downturns, the data remain weak long after the economy has began to recover.
"The idea is it's so bad that maybe it doesn't take much to go up from here," he said.
Wall Street remained nervous about the growing list of firms and individual investors affected by investment manager Bernard Madoff, who is accused of scamming investors.
Madoff, former chairman of the Nasdaq stock market, was arrested Thursday in what the Securities and Exchange Commission is calling one of the biggest Ponzi schemes on record. Investors of all sizes -- from major banks to small charities -- may record losses of more than $50 billion. Firms invested in his fund include such major European banks as HSBC Holdings PLC, Banco Santander, BNP Paribas, and Royal Bank of Scotland Group PLC.
Markets overseas were mixed. Japan's Nikkei stock average fell 1.12 percent, while Hong Kong's Hang Seng index rose 0.55 percent. Britain's FTSE 100 rose 0.74 percent, Germany's DAX index rose 1.61 percent, and France's CAC-40 rose 2.07 percent.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
Demand for long-term government bonds increased and pushed yields to record lows.
The promise of further government action and a Swiss-army-knife approach for mending the economy damped concerns that policymakers were running low on tools to fan the economy by further lowering interest rates.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."
"What we heard today was not revolutionarily different but it was a reminder that they are committed to using their balance sheet to the fullest extent to repair the financial markets and stimulate the economy."
The Fed's unprecedented move to lower its fed funds target rate to a range of zero to 0.25 percent rather than a fixed point was a surprise. The move is an acknowledgment that rates in the marketplace had been well below the Fed's 1 percent target, which it set at its previous meeting on Oct. 29. The central bank also cut the lending rate for loans directly to banks.
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
"In some senses the whole point of this meeting was to say 'Quit watching interest rates, watch the other things that we can and will do,'" said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
Jack A. Ablin, chief investment officer at Harris Private Bank, said the fact that the Fed targeted a range for its fed fund rate indicates that policy makers did not want to bring the rate all the way to zero. Such a move could have had problematic implications for money market funds, whose fees could then outpace yields.
The Dow rose 359.61, or 4.20 percent, to 8,924.14 after having been up about 100 in subdued trading ahead of the Fed's announcement.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 44.61, or 5.14 percent, to 913.18, and the Nasdaq composite index rose 81.55, or 5.41 percent, to 1,589.89.
The Russell 2000 index of smaller companies rose 30.28, or 6.69 percent, to 482.85.
The number of stocks advancing outnumbered those declining by 5-to-1 on the New York Stock Exchange, where consolidated volume came to 5.81 billion shares, up from 4.37 billion on Monday.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday.
The yield on the three-month T-bill -- whose yield has at times gone negative due to frenzied buying -- was at 0.02, flat with late Monday.
The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.
Light, sweet crude fell 91 cents to settle at $43.60 a barrel on the New York Mercantile Exchange.
Battered financial stocks led the market's advance. Goldman Sachs Group Inc. reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter. But investors were apparently relieved that the loss wasn't wider and sent the stock up $9.54, or 14 percent, to $76.
Other financial names jumped. JPMorgan Chase & Co. rose $3.72, or 13 percent, to $32.35, while Wells Fargo & Co. gained $3.71, or 14 percent, to $29.78.
For the gains in stocks to hold, McDonald said the credit markets need to show signs that fear is dissipating.
"The credit markets now need to show some improvement," he said.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
The rate decision came on a day when investors received two more pieces of evidence on Tuesday that the economy was worsening: The Commerce Department reported a 18.9 percent drop in new home construction in November, while the Labor Department said consumer prices sank by 1.7 percent.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the recent string of downbeat economic readings could eventually convince Wall Street that the economy has hit a bottom and could be poised for a modest recovery. In past downturns, the data remain weak long after the economy has began to recover.
"The idea is it's so bad that maybe it doesn't take much to go up from here," he said.
Wall Street remained nervous about the growing list of firms and individual investors affected by investment manager Bernard Madoff, who is accused of scamming investors.
Madoff, former chairman of the Nasdaq stock market, was arrested Thursday in what the Securities and Exchange Commission is calling one of the biggest Ponzi schemes on record. Investors of all sizes -- from major banks to small charities -- may record losses of more than $50 billion. Firms invested in his fund include such major European banks as HSBC Holdings PLC, Banco Santander, BNP Paribas, and Royal Bank of Scotland Group PLC.
Markets overseas were mixed. Japan's Nikkei stock average fell 1.12 percent, while Hong Kong's Hang Seng index rose 0.55 percent. Britain's FTSE 100 rose 0.74 percent, Germany's DAX index rose 1.61 percent, and France's CAC-40 rose 2.07 percent.
Fed reduces benchmark rate to as low as zero
The Federal Reserve, urgently rewriting its playbook to fight a deepening recession, cut its benchmark interest rate to as low as zero Tuesday, a surprisingly strong step that should make it cheaper for Americans to borrow on credit cards and pay their mortgages.
Wells Fargo, Wachovia and U.S. Bancorp immediately lowered their prime lending rates from 4 percent to 3.25 percent, and other banks will probably follow suit. Economists cautioned, though, that people frightened by the economy and worried about their own jobs may not feel like taking on more debt.
The Fed's action was unprecedented in the central bank's 95-year history, and Wall Street embraced it. The Dow Jones industrials, which had been up about 120 points ahead of the Fed announcement, finished the day up nearly 360, a gain of more than 4 percent.
For the first time, the Fed created a target range for its funds rate, putting it at zero to 0.25 percent. That was a dramatic reduction from the previous rate, which was an already low 1 percent. The federal funds rate is the interest that banks charge each other for overnight loans.
The radical action underscores the breathtaking deterioration in the U.S. economy and the stability of the financial system this fall, and even since Fed policymakers last gathered in late October.
For years, cutting the funds rate had been the Fed's most potent weapon for snapping an economy out of trouble. But the recession, which economists say began a year ago, seems to be worsening despite all the steps taken so far.
The move "will go down in the annals of Fed history," declared Stephen Stanley, chief economist at RBS Greenwich Capital. "I nominate this one to be called the `Who Could Ask for Anything More?' statement. The Fed is throwing everything in its arsenal."
There was fresh evidence of the economic danger Tuesday before the Fed announcement. Housing starts for November plunged by almost 19 percent, the most in a quarter-century.
And consumer prices fell by a record 1.7 percent in November, the second straight monthly decline, raising fears the nation is in a dangerous bout of deflation -- a widespread, prolonged decline in prices that would take a bite out of personal income and corporate profits and do further damage to the already pummeled housing market. The Fed's lower rates could help prevent deflation from taking hold.
At the heart of the economic crisis are credit and financial problems that have made worried banks reluctant to lend to customers -- regardless of how cheap money has become.
At the same time, fearful Americans, watching jobs evaporate and their investments crumble, have sharply cut back on spending, including on big-ticket purchases such as homes and cars that typically require financing.
The Fed hopes lower borrowing costs will entice people and businesses to spend more, helping the economy. Citing "weak economic conditions," the Fed said it expected to keep its funds rate at "exceptionally low levels ... for some time."
The bold move on rates surprised not just Wall Street investors but also economists, most of whom were predicting the Fed would cut its funds rate in half, to 0.5 percent.
With the Fed's key rate sinking to near zero, the central bank moved into uncharted territory. Still, Fed Chairman Ben Bernanke and his colleagues insisted the central bank isn't running out of ammunition to fight the crisis.
"The Fed will employ all available tools to promote the resumption of sustainable economic growth," the Fed said.
It said, for example, that it is weighing the benefits of buying longer-term Treasury securities on the open market in substantial quantities. Doing so might lower rates on those securities and help energize the economy.
The Fed also cited a program it announced late last month to buy $600 billion in debt and mortgage-backed securities from mortgage giants Fannie Mae and Freddie Mac. That has already helped push mortgage rates down.
And early next year the Fed, in another previously announced program, plans to roll out a $200 billion program to boost the availability of auto loans, student loans, credit card loans and other lending to consumers.
The Fed's statement provided a far more gloomy assessment of the economy than the central bank made after its October meeting, citing deterioration in the labor market, consumer spending, business investment and industrial production.
"It is a reflection of an utterly desolate economic picture, which will persist for the foreseeable future," said Ian Shepherdson, chief economist at High Frequency Economics.
Even Goldman Sachs Group, reported a loss Tuesday for the first time since it went public in 1999 -- $2.3 billion for the quarter. Investors bought up stock in the company anyway.
And rates on 30-year Treasury bonds have dipped to a record low as investors look for a safe place to park their money. Yields on shorter-term Treasury bills even dipped into negative territory for a time last week.
Since the start of the recession, the economy has shed nearly 2 million jobs. Analysts predict 3 million more will be lost between now and the spring of 2010. The recession is shaping up to be the longest since the Great Depression.
President-elect Barack Obama is pushing an economic recovery plan that includes spending on big public works projects to create jobs, in addition to an economic stimulus package aimed at getting people to spend more money.
Obama met said Tuesday other branches of government should to "step up" because the Fed is "running out of the traditional ammunition" in the form of rate reductions.
For consumers, the Fed move essentially means money is now on sale. Experts predict mortgage rates will fall to 5 percent or lower and home equity loans will get cheaper. The result could be billions of additional dollars in Americans' pockets.
Even for people who have been laid off, credit card defaults will be less likely "because interest rates are at massively historical lows," said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
Still, some economists say there are two problems that lower rates don't address: the reluctance of people worried about their jobs to take on more debt, even at low rates, and the unwillingness of banks to lend to some people who do want to borrow.
"When you think about someone giving you a loan, it's not just the rate, it's lenders' expectations of your ability to repay that loan," said John Silvia, chief economist at Wachovia. "This is not the environment to go speculating on making loans to people who may be unemployed in two or three weeks."
And even though gas prices have dropped and inflation has ceased to be a worry, "consumers' behavior has changed," said Scott Anderson, senior economist at Wells Fargo. "People aren't spending that windfall, they're saving it."
Wells Fargo, Wachovia and U.S. Bancorp immediately lowered their prime lending rates from 4 percent to 3.25 percent, and other banks will probably follow suit. Economists cautioned, though, that people frightened by the economy and worried about their own jobs may not feel like taking on more debt.
The Fed's action was unprecedented in the central bank's 95-year history, and Wall Street embraced it. The Dow Jones industrials, which had been up about 120 points ahead of the Fed announcement, finished the day up nearly 360, a gain of more than 4 percent.
For the first time, the Fed created a target range for its funds rate, putting it at zero to 0.25 percent. That was a dramatic reduction from the previous rate, which was an already low 1 percent. The federal funds rate is the interest that banks charge each other for overnight loans.
The radical action underscores the breathtaking deterioration in the U.S. economy and the stability of the financial system this fall, and even since Fed policymakers last gathered in late October.
For years, cutting the funds rate had been the Fed's most potent weapon for snapping an economy out of trouble. But the recession, which economists say began a year ago, seems to be worsening despite all the steps taken so far.
The move "will go down in the annals of Fed history," declared Stephen Stanley, chief economist at RBS Greenwich Capital. "I nominate this one to be called the `Who Could Ask for Anything More?' statement. The Fed is throwing everything in its arsenal."
There was fresh evidence of the economic danger Tuesday before the Fed announcement. Housing starts for November plunged by almost 19 percent, the most in a quarter-century.
And consumer prices fell by a record 1.7 percent in November, the second straight monthly decline, raising fears the nation is in a dangerous bout of deflation -- a widespread, prolonged decline in prices that would take a bite out of personal income and corporate profits and do further damage to the already pummeled housing market. The Fed's lower rates could help prevent deflation from taking hold.
At the heart of the economic crisis are credit and financial problems that have made worried banks reluctant to lend to customers -- regardless of how cheap money has become.
At the same time, fearful Americans, watching jobs evaporate and their investments crumble, have sharply cut back on spending, including on big-ticket purchases such as homes and cars that typically require financing.
The Fed hopes lower borrowing costs will entice people and businesses to spend more, helping the economy. Citing "weak economic conditions," the Fed said it expected to keep its funds rate at "exceptionally low levels ... for some time."
The bold move on rates surprised not just Wall Street investors but also economists, most of whom were predicting the Fed would cut its funds rate in half, to 0.5 percent.
With the Fed's key rate sinking to near zero, the central bank moved into uncharted territory. Still, Fed Chairman Ben Bernanke and his colleagues insisted the central bank isn't running out of ammunition to fight the crisis.
"The Fed will employ all available tools to promote the resumption of sustainable economic growth," the Fed said.
It said, for example, that it is weighing the benefits of buying longer-term Treasury securities on the open market in substantial quantities. Doing so might lower rates on those securities and help energize the economy.
The Fed also cited a program it announced late last month to buy $600 billion in debt and mortgage-backed securities from mortgage giants Fannie Mae and Freddie Mac. That has already helped push mortgage rates down.
And early next year the Fed, in another previously announced program, plans to roll out a $200 billion program to boost the availability of auto loans, student loans, credit card loans and other lending to consumers.
The Fed's statement provided a far more gloomy assessment of the economy than the central bank made after its October meeting, citing deterioration in the labor market, consumer spending, business investment and industrial production.
"It is a reflection of an utterly desolate economic picture, which will persist for the foreseeable future," said Ian Shepherdson, chief economist at High Frequency Economics.
Even Goldman Sachs Group, reported a loss Tuesday for the first time since it went public in 1999 -- $2.3 billion for the quarter. Investors bought up stock in the company anyway.
And rates on 30-year Treasury bonds have dipped to a record low as investors look for a safe place to park their money. Yields on shorter-term Treasury bills even dipped into negative territory for a time last week.
Since the start of the recession, the economy has shed nearly 2 million jobs. Analysts predict 3 million more will be lost between now and the spring of 2010. The recession is shaping up to be the longest since the Great Depression.
President-elect Barack Obama is pushing an economic recovery plan that includes spending on big public works projects to create jobs, in addition to an economic stimulus package aimed at getting people to spend more money.
Obama met said Tuesday other branches of government should to "step up" because the Fed is "running out of the traditional ammunition" in the form of rate reductions.
For consumers, the Fed move essentially means money is now on sale. Experts predict mortgage rates will fall to 5 percent or lower and home equity loans will get cheaper. The result could be billions of additional dollars in Americans' pockets.
Even for people who have been laid off, credit card defaults will be less likely "because interest rates are at massively historical lows," said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
Still, some economists say there are two problems that lower rates don't address: the reluctance of people worried about their jobs to take on more debt, even at low rates, and the unwillingness of banks to lend to some people who do want to borrow.
"When you think about someone giving you a loan, it's not just the rate, it's lenders' expectations of your ability to repay that loan," said John Silvia, chief economist at Wachovia. "This is not the environment to go speculating on making loans to people who may be unemployed in two or three weeks."
And even though gas prices have dropped and inflation has ceased to be a worry, "consumers' behavior has changed," said Scott Anderson, senior economist at Wells Fargo. "People aren't spending that windfall, they're saving it."
Tuesday, December 9, 2008
Democrats propose $15 bn automakers bailout
Democrats proposed a $15 billion bailout package for the troubled US auto industry Monday in a compromise that sources say may still not gain approval from the White House.
The proposal offers less than half of the $34 billion General Motors, Chrysler and Ford said they would need to stave off a “catastrophic collapse” of the nation’s automotive industry.
The low-cost, government-backed loans are intended to sustain them through March, which will give president-elect Barack Obama time to address the problem after he takes office on 20 January.
“Fifteen billion is the maximum that’s available, given the president’s threat to veto anything else,” said US Representative Barney Frank, one of the lawmakers spearheading talks on the rescue plan.
Officials close to the talks said earlier Monday that the US legislature could authorize the rescue package, which calls for massive restructuring and tough government oversight, by mid-week.
But a senior Bush administration official who requested anonymity said a deal on Monday was unlikely because the White House and the Democrats who control the US Congress were at odds on the issue of the long-term viability of the Big Three US automakers.
US President George W. Bush said that “the definition of viability is open to discussion,” and that “viability means that all aspects of the companies need to be re-examined to make sure that they can survive in the long term.”
White House spokeswoman Dana Perino, who earlier had said a deal was “likely” on Monday, responded to the proposed bill by saying the administration was “reviewing draft legislation we received this afternoon and are continuing our discussions with Congress.”
The proposal calls for a presidential designee, or “car czar” to oversee the restructuring of the Big Three US automakers, distribute the funds and report to Congress on their progress in achieving “long-term viability,” according to a copy of the bill obtained by AFP.
Automakers will have to continue to improve the fuel-efficiency of their fleets and also look into using their excess capacity to build bus and rail cars for public transit.
The bill also requires the automakers to sell their private jets and places strict limits on executive compensation.
Senate Majority Leader Harry Reid said the blueprint aimed to “give the automakers the chance to clean house and return to a responsible path toward profitability.”
“The jobs of millions of American workers are at stake, along with the financial security of millions of families. So while we take no satisfaction in loaning taxpayer money to these companies, we know it must be done,” he said.
General Motors, which had warned it could run out of cash as early as January, urged swift passage of the bill and vowed it will “abide by the conditions proposed in the bill and will continue our restructuring with great urgency.”
Chrysler said it was “pleased that progress is being made” and that it looked forward to working with lawmakers and “to completing our restructuring in an orderly fashion.”
Ford, which has said it has enough cash on hand to weather the current downturn but requested a $9 billion line of credit to hedge against worsening conditions or the bankruptcy of one of its competitors, said it would not “not be seeking a short term bridge loan” under the bill.
Obama has called a collapse of the auto industry “unacceptable,” and said Sunday he wanted a supervisory process that would keep the companies’ “feet to the fire.”
The proposal offers less than half of the $34 billion General Motors, Chrysler and Ford said they would need to stave off a “catastrophic collapse” of the nation’s automotive industry.
The low-cost, government-backed loans are intended to sustain them through March, which will give president-elect Barack Obama time to address the problem after he takes office on 20 January.
“Fifteen billion is the maximum that’s available, given the president’s threat to veto anything else,” said US Representative Barney Frank, one of the lawmakers spearheading talks on the rescue plan.
Officials close to the talks said earlier Monday that the US legislature could authorize the rescue package, which calls for massive restructuring and tough government oversight, by mid-week.
But a senior Bush administration official who requested anonymity said a deal on Monday was unlikely because the White House and the Democrats who control the US Congress were at odds on the issue of the long-term viability of the Big Three US automakers.
US President George W. Bush said that “the definition of viability is open to discussion,” and that “viability means that all aspects of the companies need to be re-examined to make sure that they can survive in the long term.”
White House spokeswoman Dana Perino, who earlier had said a deal was “likely” on Monday, responded to the proposed bill by saying the administration was “reviewing draft legislation we received this afternoon and are continuing our discussions with Congress.”
The proposal calls for a presidential designee, or “car czar” to oversee the restructuring of the Big Three US automakers, distribute the funds and report to Congress on their progress in achieving “long-term viability,” according to a copy of the bill obtained by AFP.
Automakers will have to continue to improve the fuel-efficiency of their fleets and also look into using their excess capacity to build bus and rail cars for public transit.
The bill also requires the automakers to sell their private jets and places strict limits on executive compensation.
Senate Majority Leader Harry Reid said the blueprint aimed to “give the automakers the chance to clean house and return to a responsible path toward profitability.”
“The jobs of millions of American workers are at stake, along with the financial security of millions of families. So while we take no satisfaction in loaning taxpayer money to these companies, we know it must be done,” he said.
General Motors, which had warned it could run out of cash as early as January, urged swift passage of the bill and vowed it will “abide by the conditions proposed in the bill and will continue our restructuring with great urgency.”
Chrysler said it was “pleased that progress is being made” and that it looked forward to working with lawmakers and “to completing our restructuring in an orderly fashion.”
Ford, which has said it has enough cash on hand to weather the current downturn but requested a $9 billion line of credit to hedge against worsening conditions or the bankruptcy of one of its competitors, said it would not “not be seeking a short term bridge loan” under the bill.
Obama has called a collapse of the auto industry “unacceptable,” and said Sunday he wanted a supervisory process that would keep the companies’ “feet to the fire.”
Oil steady near $44 as investors eye Opec cuts
Oil prices were steady near $44 a barrel Tuesday in Asia as investors anticipated that Opec will announce a big production cut next week to stabilize crude prices that have fallen about 70% in five months.
Light, sweet crude for January delivery was up 19 cents to $43.90 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight $2.90 to settle at $43.71.
Prices fell last week to an intraday low of $40.50, the lowest since December 2004.
“Oil should find support around $40 a barrel and should form a bottom there,” said Aaron Smith, who helps manage about $1.7 billion as managing director at Superfund Financial in Singapore.
Smith, who uses technical analysis to help guide his investment decisions, has recently reduced bets that the price of oil will go down, known as shorting.
Investors are watching for signs of how much the Organization of Petroleum Exporting Countries may reduce output quotas at the group’s meeting next week in Algeria.
Opec President Chakib Khelil said on Saturday the group could announce a “severe” production cut and suggested the cartel could seek to surprise the market with the size of the reduction in a bid to bolster prices.
Opec, which controls about 40% of world crude supplies, announced a production cut of 1.5 million barrels a day in October and 500,000 barrels in September, moves investors brushed off as a global economic slowdown worsened.
Opec will have to adhere to any promised output cut if it hopes to help reverse the fall in oil prices, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Investors were also encouraged by news that President-elect Barack Obama plans to implement a major infrastructure program to help boost employment in the weakening US economy.
Light, sweet crude for January delivery was up 19 cents to $43.90 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight $2.90 to settle at $43.71.
Prices fell last week to an intraday low of $40.50, the lowest since December 2004.
“Oil should find support around $40 a barrel and should form a bottom there,” said Aaron Smith, who helps manage about $1.7 billion as managing director at Superfund Financial in Singapore.
Smith, who uses technical analysis to help guide his investment decisions, has recently reduced bets that the price of oil will go down, known as shorting.
Investors are watching for signs of how much the Organization of Petroleum Exporting Countries may reduce output quotas at the group’s meeting next week in Algeria.
Opec President Chakib Khelil said on Saturday the group could announce a “severe” production cut and suggested the cartel could seek to surprise the market with the size of the reduction in a bid to bolster prices.
Opec, which controls about 40% of world crude supplies, announced a production cut of 1.5 million barrels a day in October and 500,000 barrels in September, moves investors brushed off as a global economic slowdown worsened.
Opec will have to adhere to any promised output cut if it hopes to help reverse the fall in oil prices, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Investors were also encouraged by news that President-elect Barack Obama plans to implement a major infrastructure program to help boost employment in the weakening US economy.
US job cuts mount as economy worsens
The United States suffered a grim roll call of job losses on Monday as a number of major manufacturing and service companies said they would slash costs to cope with the deepening economic crisis.
The cuts come three days after government figures showed that US employers axed 533,000 jobs from payrolls in November, the most in 34 years, and that the nation’s unemployment rate hit 6.7%, the highest since 1993.
Economists expect the unemployment rate to rise to as much as 8% by late next year.
Jobs data for December looks to be bleak as Dow Chemical Co , the largest US chemical maker, said it would close 20 facilities, divest several businesses, and cut 5,000 jobs. Dow said it was planning to drop the number of outside contractors by 6,000 and temporarily idle 180 plants.
Hotels and timeshare company Wyndham Worldwide Corp said it would cut 4,000 jobs as it shrinks its timeshare business.
Others taking the scythe to their workforces included diversified manufacturer 3M Co, which said it would cut a total of 2,300 jobs in the fourth quarter. The company said it had already cut 1,800 of those positions and that it would cut another 500 in the fourth quarter. The job losses will occur mainly in the United States, Western Europe and Japan.
The world’s largest brewer, Anheuser-Busch InBev, said it was cutting 1,400 jobs, or 6% of its workforce in the United States. InBev acquired Anheuser-Busch earlier this year.
In the telecom sector, Level 3 Communications Inc said it would cut about 450 jobs, or 8% of its workforce, in North America and Sprint Nextel Corp said it planned to cut costs and warned that could include layoffs.
Danaher Corp, a US conglomerate whose products include Craftsmen tools and dental equipment, said it was eliminating 1,700 jobs, shuttering 13 facilities and freezing salaries.
Tribune Co, the privately held publisher of newspapers including the Los Angeles Times and the Chicago Tribune, filed for Chapter 11 bankruptcy protection as it struggles with its debt load and large losses, including a $124 million third quarter loss posted in November.
The move is expected to lead to job cuts at the media company.
Job losses in November were the steepest since December 1974, when 602,000 jobs were shed, and much worse than the consensus on Wall Street for a 340,000 reduction.
The cuts come three days after government figures showed that US employers axed 533,000 jobs from payrolls in November, the most in 34 years, and that the nation’s unemployment rate hit 6.7%, the highest since 1993.
Economists expect the unemployment rate to rise to as much as 8% by late next year.
Jobs data for December looks to be bleak as Dow Chemical Co , the largest US chemical maker, said it would close 20 facilities, divest several businesses, and cut 5,000 jobs. Dow said it was planning to drop the number of outside contractors by 6,000 and temporarily idle 180 plants.
Hotels and timeshare company Wyndham Worldwide Corp said it would cut 4,000 jobs as it shrinks its timeshare business.
Others taking the scythe to their workforces included diversified manufacturer 3M Co, which said it would cut a total of 2,300 jobs in the fourth quarter. The company said it had already cut 1,800 of those positions and that it would cut another 500 in the fourth quarter. The job losses will occur mainly in the United States, Western Europe and Japan.
The world’s largest brewer, Anheuser-Busch InBev, said it was cutting 1,400 jobs, or 6% of its workforce in the United States. InBev acquired Anheuser-Busch earlier this year.
In the telecom sector, Level 3 Communications Inc said it would cut about 450 jobs, or 8% of its workforce, in North America and Sprint Nextel Corp said it planned to cut costs and warned that could include layoffs.
Danaher Corp, a US conglomerate whose products include Craftsmen tools and dental equipment, said it was eliminating 1,700 jobs, shuttering 13 facilities and freezing salaries.
Tribune Co, the privately held publisher of newspapers including the Los Angeles Times and the Chicago Tribune, filed for Chapter 11 bankruptcy protection as it struggles with its debt load and large losses, including a $124 million third quarter loss posted in November.
The move is expected to lead to job cuts at the media company.
Job losses in November were the steepest since December 1974, when 602,000 jobs were shed, and much worse than the consensus on Wall Street for a 340,000 reduction.
Sony to cut 8,000 jobs amid global downturn
Sony is slashing 8,000 jobs, or 5% of its global electronics work force, aiming to cut costs by $1.1 billion a year as a global downturn batters profits.
Sony Corp. has said that it will cut the jobs from its electronics operations, which employ about 160,000 workers, by the end of March, 2010. It did not give a country breakdown for the layoffs.
Sony has already cut production and lowered inventories, but tough times demand more drastic efforts, the company said in a statement.
The electronics industry has been hurt by plunging prices, currency fluctuations, intense competition and a global slowdown in consumer spending.
Sony will end production at some plants, including one in France that makes tape and other recording media, and will continue moving electronics production to lower-cost areas. Manufacturing sites will be reduced by about 10% from 57%, it said.
These initiatives are in response to the sudden and rapid changes in the global economic environment, Sony said.
The new business plan will deliver more than ¥100 billion ($1.1. billion) in cost savings a year by March 2010, according to Sony.
The company will also postpone a planned investment to boost production of liquid crystal display TVs in Slovakia because of a plunge in European demand for flat-panel TVs.
The company will trim spending in semiconductors, and will outsource a portion of the production it had planned for image sensors for mobile phones.
Sony Corp. has said that it will cut the jobs from its electronics operations, which employ about 160,000 workers, by the end of March, 2010. It did not give a country breakdown for the layoffs.
Sony has already cut production and lowered inventories, but tough times demand more drastic efforts, the company said in a statement.
The electronics industry has been hurt by plunging prices, currency fluctuations, intense competition and a global slowdown in consumer spending.
Sony will end production at some plants, including one in France that makes tape and other recording media, and will continue moving electronics production to lower-cost areas. Manufacturing sites will be reduced by about 10% from 57%, it said.
These initiatives are in response to the sudden and rapid changes in the global economic environment, Sony said.
The new business plan will deliver more than ¥100 billion ($1.1. billion) in cost savings a year by March 2010, according to Sony.
The company will also postpone a planned investment to boost production of liquid crystal display TVs in Slovakia because of a plunge in European demand for flat-panel TVs.
The company will trim spending in semiconductors, and will outsource a portion of the production it had planned for image sensors for mobile phones.
Japan sinks deeper into recession in 3Q
Japan fell into a deeper recession in the third quarter than first thought, the government said on Tuesday, as exports weakened, domestic demand fell and companies bracing for a prolonged downturn pared inventories.
The Cabinet Office said that Japan’s economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction.
The figure was much worse than market expectations for a 0.9% decline in gross domestic product, underscoring the severity of the slump that the world’s second largest economy is mired in.
The data also confirms that Japan slipped into recession in the third quarter after GDP contracted an annualized 3.7 percent in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.
“The revision was large, but the implication is limited, as there is no need to change our assessment of the economy, which has been in recession since (the) end of last year,” said Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, in a report Tuesday.
With business conditions deteriorating, companies likely reduced their inventories to cut running costs, the Cabinet Office said, according to Kyodo news agency.
Overall weakness in the third quarter stemmed largely from a sharp pullback in corporate investment amid the unfolding global financial crisis. For export-reliant Japan, the deep slump in global demand for its cars and gadgets has taken a particularly heavy toll
A growing number of exporters big and small also hurt by a stronger yen are slashing their expectations for profit, sales and spending.
Toyota Motor Corp. has cut its full-year net profit forecast to $5.5 billion about a third of last year’s earnings.
Indeed, the worst may be yet to come, since the third-quarter data do not fully reflect the global reverberations from the collapse of US investment bank Lehman Brothers in mid-September.
The Bank of Japan recently slashed its projection for economic growth to just 0.1% for the year through March, compared with the 1.2% growth projected in July.
Economists expect the central bank’s closely watched “tankan” survey, due out Monday, to show a dramatic plunge in corporate confidence.
The Cabinet Office said that Japan’s economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction.
The figure was much worse than market expectations for a 0.9% decline in gross domestic product, underscoring the severity of the slump that the world’s second largest economy is mired in.
The data also confirms that Japan slipped into recession in the third quarter after GDP contracted an annualized 3.7 percent in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.
“The revision was large, but the implication is limited, as there is no need to change our assessment of the economy, which has been in recession since (the) end of last year,” said Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, in a report Tuesday.
With business conditions deteriorating, companies likely reduced their inventories to cut running costs, the Cabinet Office said, according to Kyodo news agency.
Overall weakness in the third quarter stemmed largely from a sharp pullback in corporate investment amid the unfolding global financial crisis. For export-reliant Japan, the deep slump in global demand for its cars and gadgets has taken a particularly heavy toll
A growing number of exporters big and small also hurt by a stronger yen are slashing their expectations for profit, sales and spending.
Toyota Motor Corp. has cut its full-year net profit forecast to $5.5 billion about a third of last year’s earnings.
Indeed, the worst may be yet to come, since the third-quarter data do not fully reflect the global reverberations from the collapse of US investment bank Lehman Brothers in mid-September.
The Bank of Japan recently slashed its projection for economic growth to just 0.1% for the year through March, compared with the 1.2% growth projected in July.
Economists expect the central bank’s closely watched “tankan” survey, due out Monday, to show a dramatic plunge in corporate confidence.
Morgan Stanley, Merrill chiefs give up bonuses
The chief executives of Morgan Stanley and Merrill Lynch & Co. are going without bonuses for a year that has seen Wall Street ravaged by staggering losses, mass layoffs and the collapse of storied firms.
Morgan Stanley’s CEO John J Mack is giving up a bonus for the second straight year, while Merrill Lynch & Co. said its CEO John Thain also asked to go without the extra compensation for 2008 after reports surfaced he had sought as much as $10 million.
Mack told employees Monday in a memo that he and the firm’s two presidents, James Gorman and Walid Chammah, informed the board’s compensation committee of their decision to forgo 2008 bonuses, and the committee accepted.
Mack who did not receive a bonus for 2007, either said the company is changing year-end compensation for other employees, too.
The executives, however, are still being paid. Last year, Mack earned a salary of $800,000 as well as nearly $400,000 in other compensation, including personal use of a corporate jet.
Compensation for the 14 members of the firm’s operating committee will be down an average of 75%, and down 65% for the 35 members of the management committee.
Morgan Stanley plans to tie compensation for all employees eligible for bonuses more closely to performance. It will also allow for “clawbacks” where the company could reclaim any bonus paid to an employee if his or her actions led to “the need for a restatement of results, a significant financial loss or other reputational harm,” the memo said.
The CEO compensation debate comes as global banks have lost billions of dollars amid a credit crisis that still has yet to be contained. In the last few months, major US banks have taken advantage of a $700 billion government bailout program to help them avoid fates similar to that of investment bank Lehman Brothers Holdings Inc., which declared Chapter 11 bankruptcy in October.
Goldman Sachs CEO Lloyd Blankfein _ and six of his top lieutenants _ announced last month that they won’t take cash or stock bonuses for 2008.
Merrill Lynch said Thain and four other top executives President and COO Greg Fleming, Chief Financial Officer Nelson Chai, President of Global Wealth Management Robert McCann, and General Counsel Rosemary Berkery have all requested that they do not receive bonuses for 2008. According to a statement by the bank, the executives cited “current economic and market conditions” for their request. Directors at the regularly scheduled board meeting Monday accepted the offer.
The Wall Street Journal reported that Thain previously sought a multimillion dollar bonus, which raised the ire of some regulators.
New York State Attorney General Andrew Cuomo, who is conducting an ongoing inquiry into executive compensation at Wall Street firms, has been asking firms to scrap their bonuses this year.
Merrill Lynch shareholders on Friday approved the brokerage’s acquisition by Bank of America Corp., creating the largest US financial services company. Thain ushered through the combination in September at fire sale prices to avoid a collapse similar to that of Lehman Brothers.
Morgan Stanley’s CEO John J Mack is giving up a bonus for the second straight year, while Merrill Lynch & Co. said its CEO John Thain also asked to go without the extra compensation for 2008 after reports surfaced he had sought as much as $10 million.
Mack told employees Monday in a memo that he and the firm’s two presidents, James Gorman and Walid Chammah, informed the board’s compensation committee of their decision to forgo 2008 bonuses, and the committee accepted.
Mack who did not receive a bonus for 2007, either said the company is changing year-end compensation for other employees, too.
The executives, however, are still being paid. Last year, Mack earned a salary of $800,000 as well as nearly $400,000 in other compensation, including personal use of a corporate jet.
Compensation for the 14 members of the firm’s operating committee will be down an average of 75%, and down 65% for the 35 members of the management committee.
Morgan Stanley plans to tie compensation for all employees eligible for bonuses more closely to performance. It will also allow for “clawbacks” where the company could reclaim any bonus paid to an employee if his or her actions led to “the need for a restatement of results, a significant financial loss or other reputational harm,” the memo said.
The CEO compensation debate comes as global banks have lost billions of dollars amid a credit crisis that still has yet to be contained. In the last few months, major US banks have taken advantage of a $700 billion government bailout program to help them avoid fates similar to that of investment bank Lehman Brothers Holdings Inc., which declared Chapter 11 bankruptcy in October.
Goldman Sachs CEO Lloyd Blankfein _ and six of his top lieutenants _ announced last month that they won’t take cash or stock bonuses for 2008.
Merrill Lynch said Thain and four other top executives President and COO Greg Fleming, Chief Financial Officer Nelson Chai, President of Global Wealth Management Robert McCann, and General Counsel Rosemary Berkery have all requested that they do not receive bonuses for 2008. According to a statement by the bank, the executives cited “current economic and market conditions” for their request. Directors at the regularly scheduled board meeting Monday accepted the offer.
The Wall Street Journal reported that Thain previously sought a multimillion dollar bonus, which raised the ire of some regulators.
New York State Attorney General Andrew Cuomo, who is conducting an ongoing inquiry into executive compensation at Wall Street firms, has been asking firms to scrap their bonuses this year.
Merrill Lynch shareholders on Friday approved the brokerage’s acquisition by Bank of America Corp., creating the largest US financial services company. Thain ushered through the combination in September at fire sale prices to avoid a collapse similar to that of Lehman Brothers.
Cognizant posts good results, but weak forecast
Technology and outsourcing services company, Cognizant Technology Solutions Corp., reported good results for the September quarter, with revenues increasing by 7.2% compared with the previous three months, and operating profit rising by as much as 19.2%.
The growth in profit was aided by a favourable foreign exchange movement and sharp increase in employee utilization. But that doesn’t take away from the fact that underlying business growth has also been decent. Much has been said about the company’s high exposure (46%) to banking and financial services, but this segment continues to grow at a rate that’s higher than the company average.
But the good news stops with the September quarter results. The guidance for the December quarter, in fact, has been lowered.
Based on the forecast three months ago, the company had estimated revenues of $723 million (Rs3,449 crore today) in the September quarter and $758.5 million in the December quarter.
While it easily beat its guidance for the September quarter by reporting revenues of $734.7 million, the target for the December quarter has been lowered to $746.7 million.
The management told analysts in a conference call that “we want to maintain some caution on expectations for growth next quarter”.
While the current economic environment is the main reason for caution, the company is also facing other headwinds such as adverse currency movements relating to revenues it earns in Europe. Because of the sharp fall of European currencies, revenues from this region get impacted when converted into dollars, the functional currency for the US-headquartered company.
Still, some analysts tracking the firm are worried about the low growth guidance for the December quarter. The forecast assumes year-on-year revenue growth rate of just 24.4%, the lowest since the second quarter of fiscal year 2001-02, or the worst since the technology bust.
The company has also said clients’ budget-making process should get postponed by two-three months, and the pick-up in spending it normally sees during the December quarter is not expected to happen this time around.
Some analysts have lowered forecasts for the next year based on these statements and the negative news on the economic environment. They are now talking of a revenue growth rate of about 15% for next year. Bank of America Securities, for instance, has lowered revenue growth estimate for 2009 to 15.8%, from 25.8% earlier.
In the past few years, Cognizant has been growing at a rate that’s about 10 percentage points higher than the industry. Even this year, while the industry is expected to grow by about 20%, Cognizant is all set to achieve a growth of 32%.
The moot question is if Cognizant grows at just 15% next year, as some US analysts are now predicting, how low could other Indian IT players go?
The growth in profit was aided by a favourable foreign exchange movement and sharp increase in employee utilization. But that doesn’t take away from the fact that underlying business growth has also been decent. Much has been said about the company’s high exposure (46%) to banking and financial services, but this segment continues to grow at a rate that’s higher than the company average.
But the good news stops with the September quarter results. The guidance for the December quarter, in fact, has been lowered.
Based on the forecast three months ago, the company had estimated revenues of $723 million (Rs3,449 crore today) in the September quarter and $758.5 million in the December quarter.
While it easily beat its guidance for the September quarter by reporting revenues of $734.7 million, the target for the December quarter has been lowered to $746.7 million.
The management told analysts in a conference call that “we want to maintain some caution on expectations for growth next quarter”.
While the current economic environment is the main reason for caution, the company is also facing other headwinds such as adverse currency movements relating to revenues it earns in Europe. Because of the sharp fall of European currencies, revenues from this region get impacted when converted into dollars, the functional currency for the US-headquartered company.
Still, some analysts tracking the firm are worried about the low growth guidance for the December quarter. The forecast assumes year-on-year revenue growth rate of just 24.4%, the lowest since the second quarter of fiscal year 2001-02, or the worst since the technology bust.
The company has also said clients’ budget-making process should get postponed by two-three months, and the pick-up in spending it normally sees during the December quarter is not expected to happen this time around.
Some analysts have lowered forecasts for the next year based on these statements and the negative news on the economic environment. They are now talking of a revenue growth rate of about 15% for next year. Bank of America Securities, for instance, has lowered revenue growth estimate for 2009 to 15.8%, from 25.8% earlier.
In the past few years, Cognizant has been growing at a rate that’s about 10 percentage points higher than the industry. Even this year, while the industry is expected to grow by about 20%, Cognizant is all set to achieve a growth of 32%.
The moot question is if Cognizant grows at just 15% next year, as some US analysts are now predicting, how low could other Indian IT players go?
Home loans to be locked in at 9.5% for first 5 years
Public sector banks (PSBs) are set to offer home loans of up to Rs20 lakh at a concessional rate of 9.5% for a period of five years as part of the government’s fiscal stimulus package announced on Sunday to spur spending and bolster sagging economic growth.
All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.
A formal announcement of the scheme will be made soon by public sector banks. Two officials at two different ministries, who also didn’t want to be named, confirmed the plan.
Housing is one of the key areas on which the government is focusing to lift economic growth that’s slowing from an average annual pace of 8.9% in the past four years. Lower interest rates prop up the demand for homes, which in turn, creates demand for steel and cement and generates jobs in the construction sector.
Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.
Because the cost of funds for banks currently is higher than the rate at which they will offer loans under the new scheme, the government may work out an arrangement to compensate the lenders, analysts say.
It is not clear what will be the nature of the arrangement but “certainly not subvention”, said one banker. The government offers 3% subvention—or interest subsidy—on small agricultural loans, which are given at a concessional rate of 7%.
The Reserve Bank of India’s (RBI) decision on Saturday to include home loans of up to Rs20 lakh in so-called priority sector lending—targeted at segments such as agriculture, small industry and education—will come in handy for banks to offer mortgages at a concessional rate.
Under banking industry guidelines, 40% of advances are meant to be channelled to the priority sector. Banks that are not able to meet the target are required to park the shortfall with the National Bank for Agriculture and Rural Development at a low interest rate. The money is used for rural infrastructure projects. Analysts say the five-year fixed rate of 9.5% will dent banks’ profitability if the government doesn’t offer a support plan for lenders in case interest rates remain at this level or rise further. But if interest rates drop, consumers will lose out on the benefit of falling rates.
“If interest rates fall and home loan rates come down below 9.5%, we will have to watch what exit options this package would provide. Many questions of potential borrowers might have to be answered before they go ahead and avail of such loans,” said Ravi Sankar, a banking analyst at Antique Stock Broking Ltd, a Mumbai-based brokerage.
The asset quality of banks might be compromised if they try to push the scheme aggressively, Sankar said.
“This rate is quite attractive for borrowers at the moment,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd, another domestic brokerage. “However, if interest rates fall and home loan rates become cheaper, borrowers might start complaining. So, the banks will have to chalk out an exit plan. Converting fixed rate into floating rate (loans) may not be a good option as the penalty is heavy.”
Analysts are betting that interest rates will come down by 300 basis points in two years and home loan rates will be cheaper than 9.5%. One basis point is one-hundredth of a percentage point.
On Saturday, the RBI announced a special refinancing package of Rs4,000 crore to the National Housing Bank, which regulates housing finance firms, to help prop up the home loan market. Analysts say the refinancing facility is too small.
Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm, has a disbursal target of about Rs45,000 crore this year. While HDFC accounts for at least 40% of the housing loan market, public sector banks make up about 20%, limiting the scope of the stimulus package, analysts say. ICICI Bank Ltd, India’s largest private sector bank, is a prominent lender in the mortgage market.
All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.
A formal announcement of the scheme will be made soon by public sector banks. Two officials at two different ministries, who also didn’t want to be named, confirmed the plan.
Housing is one of the key areas on which the government is focusing to lift economic growth that’s slowing from an average annual pace of 8.9% in the past four years. Lower interest rates prop up the demand for homes, which in turn, creates demand for steel and cement and generates jobs in the construction sector.
Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.
Because the cost of funds for banks currently is higher than the rate at which they will offer loans under the new scheme, the government may work out an arrangement to compensate the lenders, analysts say.
It is not clear what will be the nature of the arrangement but “certainly not subvention”, said one banker. The government offers 3% subvention—or interest subsidy—on small agricultural loans, which are given at a concessional rate of 7%.
The Reserve Bank of India’s (RBI) decision on Saturday to include home loans of up to Rs20 lakh in so-called priority sector lending—targeted at segments such as agriculture, small industry and education—will come in handy for banks to offer mortgages at a concessional rate.
Under banking industry guidelines, 40% of advances are meant to be channelled to the priority sector. Banks that are not able to meet the target are required to park the shortfall with the National Bank for Agriculture and Rural Development at a low interest rate. The money is used for rural infrastructure projects. Analysts say the five-year fixed rate of 9.5% will dent banks’ profitability if the government doesn’t offer a support plan for lenders in case interest rates remain at this level or rise further. But if interest rates drop, consumers will lose out on the benefit of falling rates.
“If interest rates fall and home loan rates come down below 9.5%, we will have to watch what exit options this package would provide. Many questions of potential borrowers might have to be answered before they go ahead and avail of such loans,” said Ravi Sankar, a banking analyst at Antique Stock Broking Ltd, a Mumbai-based brokerage.
The asset quality of banks might be compromised if they try to push the scheme aggressively, Sankar said.
“This rate is quite attractive for borrowers at the moment,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd, another domestic brokerage. “However, if interest rates fall and home loan rates become cheaper, borrowers might start complaining. So, the banks will have to chalk out an exit plan. Converting fixed rate into floating rate (loans) may not be a good option as the penalty is heavy.”
Analysts are betting that interest rates will come down by 300 basis points in two years and home loan rates will be cheaper than 9.5%. One basis point is one-hundredth of a percentage point.
On Saturday, the RBI announced a special refinancing package of Rs4,000 crore to the National Housing Bank, which regulates housing finance firms, to help prop up the home loan market. Analysts say the refinancing facility is too small.
Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm, has a disbursal target of about Rs45,000 crore this year. While HDFC accounts for at least 40% of the housing loan market, public sector banks make up about 20%, limiting the scope of the stimulus package, analysts say. ICICI Bank Ltd, India’s largest private sector bank, is a prominent lender in the mortgage market.
US media giant Tribune files for bankruptcy
The Tribune Co., owner of the Los Angeles Times, The Chicago Tribune and other dailies, filed for bankruptcy on Monday, in the latest blow to a newspaper industry reeling from a drop in advertising and the rise of online media.
The Chicago-based company said it was forced to seek bankruptcy protection because of a sharp drop in revenue and a $13 billion debt load but has enough cash to sustain operations while it restructures.
It said the Chicago Cubs baseball franchise and its iconic stadium, Wrigley Field, were not included in the Chapter 11 bankruptcy filing, which protects the company from its creditors while it restructures, and the Tribune would continue to try to find a buyer for the team.
The Tribune’s eight newspapers, 23 television stations and interactive properties will continue to operate during the reorganization, the company stressed, adding that it “has sufficient cash to do so.”
“This restructuring focuses on our debt, not on our operations,” said Tribune chairman and chief executive Sam Zell, the Chicago real-estate titan who led the 2007 private equity buyout of the Tribune Co.
Tribune is the second-largest US newspaper publisher in terms of revenue and the third in terms of circulation.
Besides the Los Angeles Times, which has slashed its editorial staff from 1,200 in 2001 to 660 today, it owns the Chicago Tribune, Baltimore Sun, Orlando Sentinel, Hartford Courant and several other papers.
According to US media reports, its cash flow is not enough to cover one billion dollars in interest payments due this year and a $512 million debt payment due in June.
The Tribune said that in the year since it went private it has repaid approximately $1 billion of its senior credit facility and has been “rewriting the business model for its media assets.”
Like many US newspapers, the Tribune has been grappling with declining circulation, a loss of readership to online media, and a steep drop in print advertising revenue.
Many advertisers have been shifting their dollars to the Web but gains in online advertising revenue have failed to keep pace with losses on the print side.
According to the Audit Bureau of Circulations, circulation for 507 daily US newspapers fell 4.64% in the six months to September.
US media company EW Scripps Co., which owns newspapers in 15 US markets and 10 television stations, announced 400 job cuts last month and has put one of its flagship papers, the Rocky Mountain News, up for sale.
Another debt-ridden major newspaper chain, McClatchy Co., has carried out a series of layoffs this year and, according to the New York Times, is seeking to sell one of its flagship newspapers, The Miami Herald.
Gannett Co., the largest US newspaper chain, publishing USA Today and 84 other newspapers, announced 1,000 job cuts in August and is currently laying off another 10% of its workforce.
The prestigious New York Times itself has not been immune to the crisis gripping the newspaper industry.
The paper reported Monday that the New York Times Co. plans to borrow up to $225 million against its mid-Manhattan headquarters building to ease a potential cash flow squeeze.
Tribune Co. reported a loss of $124 million in the third quarter, compared with a net profit of 84 million dollars a year earlier.
The company has undertaken a series of moves in a bid to ease its debt burden in addition to seeking a buyer for the Chicago Cubs.
In May, it sold its stake in the New York newspaper Newsday for $650 million and in October it said it had informed the Associated Press it plans to terminate its contract with the US news agency in two years.
The Chicago firm traces its history to 1847 with the birth of the Chicago Tribune. It became a publicly traded company only in 1983.
In 2000, the Tribune bought the Times-Mirror group, including the flagship Los Angeles Times, for $8.3 billion in what was then the largest acquisition ever in the US newspaper industry.
The Chicago-based company said it was forced to seek bankruptcy protection because of a sharp drop in revenue and a $13 billion debt load but has enough cash to sustain operations while it restructures.
It said the Chicago Cubs baseball franchise and its iconic stadium, Wrigley Field, were not included in the Chapter 11 bankruptcy filing, which protects the company from its creditors while it restructures, and the Tribune would continue to try to find a buyer for the team.
The Tribune’s eight newspapers, 23 television stations and interactive properties will continue to operate during the reorganization, the company stressed, adding that it “has sufficient cash to do so.”
“This restructuring focuses on our debt, not on our operations,” said Tribune chairman and chief executive Sam Zell, the Chicago real-estate titan who led the 2007 private equity buyout of the Tribune Co.
Tribune is the second-largest US newspaper publisher in terms of revenue and the third in terms of circulation.
Besides the Los Angeles Times, which has slashed its editorial staff from 1,200 in 2001 to 660 today, it owns the Chicago Tribune, Baltimore Sun, Orlando Sentinel, Hartford Courant and several other papers.
According to US media reports, its cash flow is not enough to cover one billion dollars in interest payments due this year and a $512 million debt payment due in June.
The Tribune said that in the year since it went private it has repaid approximately $1 billion of its senior credit facility and has been “rewriting the business model for its media assets.”
Like many US newspapers, the Tribune has been grappling with declining circulation, a loss of readership to online media, and a steep drop in print advertising revenue.
Many advertisers have been shifting their dollars to the Web but gains in online advertising revenue have failed to keep pace with losses on the print side.
According to the Audit Bureau of Circulations, circulation for 507 daily US newspapers fell 4.64% in the six months to September.
US media company EW Scripps Co., which owns newspapers in 15 US markets and 10 television stations, announced 400 job cuts last month and has put one of its flagship papers, the Rocky Mountain News, up for sale.
Another debt-ridden major newspaper chain, McClatchy Co., has carried out a series of layoffs this year and, according to the New York Times, is seeking to sell one of its flagship newspapers, The Miami Herald.
Gannett Co., the largest US newspaper chain, publishing USA Today and 84 other newspapers, announced 1,000 job cuts in August and is currently laying off another 10% of its workforce.
The prestigious New York Times itself has not been immune to the crisis gripping the newspaper industry.
The paper reported Monday that the New York Times Co. plans to borrow up to $225 million against its mid-Manhattan headquarters building to ease a potential cash flow squeeze.
Tribune Co. reported a loss of $124 million in the third quarter, compared with a net profit of 84 million dollars a year earlier.
The company has undertaken a series of moves in a bid to ease its debt burden in addition to seeking a buyer for the Chicago Cubs.
In May, it sold its stake in the New York newspaper Newsday for $650 million and in October it said it had informed the Associated Press it plans to terminate its contract with the US news agency in two years.
The Chicago firm traces its history to 1847 with the birth of the Chicago Tribune. It became a publicly traded company only in 1983.
In 2000, the Tribune bought the Times-Mirror group, including the flagship Los Angeles Times, for $8.3 billion in what was then the largest acquisition ever in the US newspaper industry.
Sunday, December 7, 2008
Govt unveils Rs 20,000 cr plan to boost economy
In a virtual mini-budget, the government on Sunday slashed Cenvat by
four per cent across the board to boost demand and announced Rs 20,000
crore additional non-plan expenditure as part of package to stimulate
the economy, hit hard by the global financial crisis.
The much anticipated package, set rolling by Prime Minister Manmohan
singh who is also the Finance Minister, targets to power exports,
housing, auto, small and medium industries and infrastructure sectors
through additional funding and guarantees that a total amount of about
Rs 35,000 crore.
The 10-point package contains substantial incentives for the sectors
that have been hit by the global slowdown and recession in the west,
besides allowing India Infrastructure Finance Company Ltd to raise Rs
10,000 crore through tax free bonds by March as part of efforts to
support Rs 1,00,000 crore programme in the high-way sector.
"The government has been concerned about the impact of the global
financial crisis on the Indian economy and a number of steps have been
taken to deal with this problem," an official statement said in New
Delhi.
The steps taken by the RBI to pump sufficient liquidity in the
financial system are being "supplemented by fiscal measures designed
to stimulate the economy. In recognition of the need for a fiscal
stimulus the government had consciously allowed the fiscal deficit to
expand beyond the originally targeted level".
As part of steps to create demand in the economy that is expected to
grow by over seven per cent, "the total spending programme in the
balance four months of the current fiscal year, taking plan and non-
plan expenditure together is expected to be Rs 3,00,000 crore."
Reflecting high priority for the exports, which for the first time in
five years recorded a negative growth at 12 per cent, the government
provided Rs 1,450 crore toward refund of excise duty and incentives,
besides giving a guarantee of Rs 350 crore for difficult market and
product exports.
To bring down the cost of exports, hit by a sharp devaluation of rupee
in the recent months, the government also offered a two per cent
interest subsidy for labour intensive products like textiles, leather
and SMEs, subject to a minimum interest of seven per cent.
It said, "As an immediate measure to spur additional spending, an
across-the-board cut of four per cent in the ad-valorem Cenvat rate
will be effected for the balance part of the current fiscal on all
products other than petroleum and those where the current rate is less
four per cent."
The public sector banks will soon announce a package for borrowers of
home loans up to Rs five lakh and between Rs five lakhs to Rs 20
lakhs, the statement said adding that additional measures would be
taken as necessary to promote an accelerated growth trajectory in the
housing sector.
Stating that RBI has already announced a Rs 4,000 crore refinance
facility for the National Housing Bank, government said that the low
cost Indira Awas Yojna is another area where plan expenditure can be
increased easily.
Terming as "critical" the medium, small and micro enterprises (MSMEs)
for job creation, the government sought to boost the collateral-free
lending on loans from Rs fifty lakh to Rs one crore with guarantee
cover of 50 per cent.
Besides, the lock in period for loans under existing credit guarantee
scheme are being cut from 24 to 18 months, a move that would encourage
banks to give more loans to the sector, the government said, adding
that PSUs are being asked to ensure prompt payment of bills to MSMEs.
four per cent across the board to boost demand and announced Rs 20,000
crore additional non-plan expenditure as part of package to stimulate
the economy, hit hard by the global financial crisis.
The much anticipated package, set rolling by Prime Minister Manmohan
singh who is also the Finance Minister, targets to power exports,
housing, auto, small and medium industries and infrastructure sectors
through additional funding and guarantees that a total amount of about
Rs 35,000 crore.
The 10-point package contains substantial incentives for the sectors
that have been hit by the global slowdown and recession in the west,
besides allowing India Infrastructure Finance Company Ltd to raise Rs
10,000 crore through tax free bonds by March as part of efforts to
support Rs 1,00,000 crore programme in the high-way sector.
"The government has been concerned about the impact of the global
financial crisis on the Indian economy and a number of steps have been
taken to deal with this problem," an official statement said in New
Delhi.
The steps taken by the RBI to pump sufficient liquidity in the
financial system are being "supplemented by fiscal measures designed
to stimulate the economy. In recognition of the need for a fiscal
stimulus the government had consciously allowed the fiscal deficit to
expand beyond the originally targeted level".
As part of steps to create demand in the economy that is expected to
grow by over seven per cent, "the total spending programme in the
balance four months of the current fiscal year, taking plan and non-
plan expenditure together is expected to be Rs 3,00,000 crore."
Reflecting high priority for the exports, which for the first time in
five years recorded a negative growth at 12 per cent, the government
provided Rs 1,450 crore toward refund of excise duty and incentives,
besides giving a guarantee of Rs 350 crore for difficult market and
product exports.
To bring down the cost of exports, hit by a sharp devaluation of rupee
in the recent months, the government also offered a two per cent
interest subsidy for labour intensive products like textiles, leather
and SMEs, subject to a minimum interest of seven per cent.
It said, "As an immediate measure to spur additional spending, an
across-the-board cut of four per cent in the ad-valorem Cenvat rate
will be effected for the balance part of the current fiscal on all
products other than petroleum and those where the current rate is less
four per cent."
The public sector banks will soon announce a package for borrowers of
home loans up to Rs five lakh and between Rs five lakhs to Rs 20
lakhs, the statement said adding that additional measures would be
taken as necessary to promote an accelerated growth trajectory in the
housing sector.
Stating that RBI has already announced a Rs 4,000 crore refinance
facility for the National Housing Bank, government said that the low
cost Indira Awas Yojna is another area where plan expenditure can be
increased easily.
Terming as "critical" the medium, small and micro enterprises (MSMEs)
for job creation, the government sought to boost the collateral-free
lending on loans from Rs fifty lakh to Rs one crore with guarantee
cover of 50 per cent.
Besides, the lock in period for loans under existing credit guarantee
scheme are being cut from 24 to 18 months, a move that would encourage
banks to give more loans to the sector, the government said, adding
that PSUs are being asked to ensure prompt payment of bills to MSMEs.
Friday, December 5, 2008
Pre Market Report 05/12/2008
The market may extend Thursdayâ€(TM)s (4 December 2008) solid gains on expectations of a stimulus package from the government and the Reserve Bank of India (RBI). However, Indo-Pak tension after the major terror strikes in Mumbai last week, will cap the upside.
The BSE Sensex rose 5.5% on Thursday to its highest close in more than two weeks as expectations for an interest rate cut received a boost from slower-than-expected rise in inflation. As per the provisional data released by the stock exchanges, foreign funds bought shares worth a net Rs 307.14 crore and domestic funds purchases shares worth a net Rs 79.24 crore on Thursday.
As per the market buzz, the Reserve Bank of India (RBI) is expected to cut repo and reverse repo rates to the extent of 200 basis points and 125 basis points respectively on Saturday, 6 December 2008, in an attempt to shield the domestic economy from the global economic slowdown. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks.
Inflation based on the wholesale price index rose 8.4% in the year through 22 November 2008, lower than previous week's 8.84% rise, data released by the government on Thursday, showed. Inflation had surged into double digits in early June this year after an increase in state-set retail fuel prices, and peaked at 12.91% on, 2 August 2008, the highest reading since annual numbers in the current data series became available in April 1995.
Meanwhile, the Indian government is slated to announce a slew of measures on Saturday to pump prime the economy. The likely measures include a Rs 2000-crore export package, a further relaxation in external commercial borrowings norms and Rs 15,000-crore budgetary support for infrastructure.
The Indian government is reportedly considering various options including a strike on Pakistan to dismantle its terror bases in response to the recent Mumbai terror attacks. As a strike on Pakistan could lead to a full scale war between the two nuclear armed countries, India is maintaining a cautious approach and wants to gauge every possible ramification of its decision, reports suggest.
Tension between India and Pakistan have mounted after the Mumbai attacks. India has blamed Islamist militants based in Pakistan for the attacks.
Asian stocks were mostly in the green on Friday, 5 December 2008 following record rate cuts by central banks in Europe. But caution prevail ahead of what is expected to be dismal US employment data due later in the day.
The BSE Sensex rose 5.5% on Thursday to its highest close in more than two weeks as expectations for an interest rate cut received a boost from slower-than-expected rise in inflation. As per the provisional data released by the stock exchanges, foreign funds bought shares worth a net Rs 307.14 crore and domestic funds purchases shares worth a net Rs 79.24 crore on Thursday.
As per the market buzz, the Reserve Bank of India (RBI) is expected to cut repo and reverse repo rates to the extent of 200 basis points and 125 basis points respectively on Saturday, 6 December 2008, in an attempt to shield the domestic economy from the global economic slowdown. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks.
Inflation based on the wholesale price index rose 8.4% in the year through 22 November 2008, lower than previous week's 8.84% rise, data released by the government on Thursday, showed. Inflation had surged into double digits in early June this year after an increase in state-set retail fuel prices, and peaked at 12.91% on, 2 August 2008, the highest reading since annual numbers in the current data series became available in April 1995.
Meanwhile, the Indian government is slated to announce a slew of measures on Saturday to pump prime the economy. The likely measures include a Rs 2000-crore export package, a further relaxation in external commercial borrowings norms and Rs 15,000-crore budgetary support for infrastructure.
The Indian government is reportedly considering various options including a strike on Pakistan to dismantle its terror bases in response to the recent Mumbai terror attacks. As a strike on Pakistan could lead to a full scale war between the two nuclear armed countries, India is maintaining a cautious approach and wants to gauge every possible ramification of its decision, reports suggest.
Tension between India and Pakistan have mounted after the Mumbai attacks. India has blamed Islamist militants based in Pakistan for the attacks.
Asian stocks were mostly in the green on Friday, 5 December 2008 following record rate cuts by central banks in Europe. But caution prevail ahead of what is expected to be dismal US employment data due later in the day.
Oil slips below $44, lowest in 4 years
Oil was steady below $44 on Friday, at its lowest in almost four years, with eyes turning to the psychologically important $40 level as a widening economic slowdown gnaws into oil demand.
Prices have lost nearly 20%, or almost $11, from their settlement a week ago following the release of weak US economic indicators, with lower retail sales and a 26-year high in jobless benefits rolls the latest to add pressure to prices.
US light crude for January delivery fell 4 cents to $43.63 a barrel, having lost more than 6% on Thursday to settle at $43.67, the lowest since 5 January, 2005.
London Brent crude dipped 8 cents to $42.20.
The number of US workers collecting jobless benefits hit a 26-year high last month, data showed on Thursday, and may head higher as a growing economic slump forces a broad range of firms to cut jobs.
US and European companies announced further job cuts, with US phone company AT&T Inc saying it would eliminate 12,000 jobs, while chemical maker DuPont Co planned to drop 2,500.
Leading US retailers also reported dismal November sales on Thursday. Totting up the results, the International Council of Shopping Centers said sales fell by a record 2.7% compared to the same period last year.
To try and ginger up their feeble economies, European central banks cut interest rates on Thursday.
Sweden’s central bank cut by a record 175 basis points, the European Central Bank cut by 75 points and the Bank of England cut by 100 points.
The price fall to nearly four-year lows has prompted Opec members to call for increasingly strong action when the Organization of the Petroleum Exporting Countries meets next, on 17 December in Algeria.
But analysts say another Opec cut, the third since September, would need to be drastic to provoke a price reaction.
Prices have lost nearly 20%, or almost $11, from their settlement a week ago following the release of weak US economic indicators, with lower retail sales and a 26-year high in jobless benefits rolls the latest to add pressure to prices.
US light crude for January delivery fell 4 cents to $43.63 a barrel, having lost more than 6% on Thursday to settle at $43.67, the lowest since 5 January, 2005.
London Brent crude dipped 8 cents to $42.20.
The number of US workers collecting jobless benefits hit a 26-year high last month, data showed on Thursday, and may head higher as a growing economic slump forces a broad range of firms to cut jobs.
US and European companies announced further job cuts, with US phone company AT&T Inc saying it would eliminate 12,000 jobs, while chemical maker DuPont Co planned to drop 2,500.
Leading US retailers also reported dismal November sales on Thursday. Totting up the results, the International Council of Shopping Centers said sales fell by a record 2.7% compared to the same period last year.
To try and ginger up their feeble economies, European central banks cut interest rates on Thursday.
Sweden’s central bank cut by a record 175 basis points, the European Central Bank cut by 75 points and the Bank of England cut by 100 points.
The price fall to nearly four-year lows has prompted Opec members to call for increasingly strong action when the Organization of the Petroleum Exporting Countries meets next, on 17 December in Algeria.
But analysts say another Opec cut, the third since September, would need to be drastic to provoke a price reaction.
Post Market Report:04/12/2008
Likely government measures to pump prime the economy, hopes of a
further cut in interest rates, firm European stocks and rebound in
US index futures boosted the domestic bourses today. The BSE
30-share Sensex jumped 482.32 points, or 5.51%, led by a surge in
realty, metal, banking shares and index heavyweight Reliance
Industries (RIL). The barometer index breached the psychological
9,000 mark. All the sectoral indices on BSE were in the green.
Bank shares were in demand on as falling inflation heightened
expectations for an interest rate cute by the Reserve Bank of India
(RBI). As per the market buzz, the Reserve Bank of India (RBI) is
expected to cut repo and reverse repo rates to the extent of 200
basis points and 125 basis points respectively at the weekend, in
an attempt to shield the domestic economy from the global economic
slowdown. Repo rate is the rate at which RBI lends to commercial
banks and reverse repo rate is the rate at which RBI accepts
deposits from banks.
Inflation based on the wholesale price index rose 8.4% in the year
through 22 November 2008, lower than previous week's 8.84% rise,
data released by the government at about 13:15 IST showed.
Inflation had surged into double digits in early June this year
after an increase in state-set retail fuel prices, and peaked at
12.91% on, 2 August 2008, the highest reading since annual numbers
in the current data series became available in April 1995.
Reserve Bank of India (RBI) governor D Subbarao today, 4 December
2008, said India remains vulnerable to global financial and
economic developments and a period of painful adjustment was
inevitable. The RBI governor said India's economic fundamentals
were strong. He added that the outlook for India was mixed and
there was evidence of activity slowing down.
Meanwhile, the Indian government is slated to announce a slew of
measures at the weekend to pump prime the economy. The likely
measures include a Rs 2000-crore export package, a further
relaxation in external commercial borrowings norms and Rs
15,000-crore budgetary support for infrastructure.
A bout of volatility was witnessed earlier in the day. Likely
government measures to pump prime the economy and hopes of further
rate cuts by the Reserve bank of India gave a positive start to the
domestic bourses. But the market soon slipped into the red due to
lower US index futures, concerns about the weakening global economy
and due to tension between Indian and Pakistan following last
week's terror attacks in Mumbai may cap the upside. The market
firmed up again in early trade. After the recovery, the market
pared gains before bouncing back again. Sensex swung 518.35 points
between the day's high and low.
European stocks reversed early losses to rally on Thursday, 4
December 2008, rising for the third session in a row as investors
hoped deep interest rate cuts would help soothe the global economic
slump. The key benchmark indices in France, Germany and UK were up
by between 0.54% to 2.62%.
The Bank of England slashed interest rates by a full percentage
point today to shore up Britain's crumbling economy and head off
the threat of deflation. The cut took rates to 2% their lowest
level since 1951. The central bank in Sweden slashed its key
interest rate by a record 175 basis points to 2% on Thursday, a
shock move to try and prevent the economy from sliding deeper into
recession.
At its policy meeting later in the day, the European Central Bank
(ECB) is expected to cut rates by at least 75 basis points.
Meanwhile, economic, corporate and industry data continues to be
weak in major economies. Japan said on Thursday, 4 December 2008,
it may be in a deeper recession than first thought, in the latest
signal that the global economic downturn is sparing few corners of
the world. Earlier, a corporate survey in Japan signaled the
country's economic performance in the third quarter may have been
even worse than first reported. Australia's vehicle sales slumped
in November 2008.
US data on Wednesday, 3 December 2008, showed large job losses by
US employers and a slumping service sector. The US economy is
already in recession for a year.
Swiss Bank Credit Suisse today, 4 December 2008, reported a net
loss of about 3 billion Swiss francs ($2.5 billion) in the two
months to end-November 2008 and cut another 5,300 jobs.
Trading in US index futures indicated the Dow could rise 23 points
at the opening bell. The US index futures bounced back from steep
losses earlier in the day.
Closer home, the Indian government is reportedly considering
various options including a strike on Pakistan to dismantle its
terror bases in response to the recent Mumbai terror attacks. As a
strike on Pakistan could lead to a full scale war between the two
nuclear armed countries, India is maintaining a cautious approach
and wants to gauge every possible ramification of its decision,
reports suggest.
Tension between India and Pakistan have mounted after the Mumbai
attacks. India has blamed Islamist militants based in Pakistan for
the attacks.
The BSE 30-share Sensex was up 482.32 points, or 5.51%, to
9,229.75. At the day's high of 9,245.06 hit in late trade, the
Sensex rose 497.63 points. The Sensex lost 20.72 points at the
day's low of 8,726,71 hit in early trade.
The S&P CNX Nifty was up 131.55 points, or 4.95%, to 2,788.
The market breadth, indicating the overall health of the market,
was strong. On BSE, 1,503 shares rose as compared with 668 that
declined. 60 shares remained unchanged.
The BSE clocked a turnover of Rs 3727 crore today, higher than Rs
2,955.08 crore on Wednesday, 3 December 2008.
Nifty December 2008 futures were at 2796, at a premium of 8 points
as compared to the spot closing of 2788. Turnover in NSE's futures
& options (F&O) segment rose to Rs 34,123.92 crore from Rs
33,606.23 crore on Wednesday, 3 December 2008.
The barometer index BSE Sensex is down 11,057.24 points or 54.5% in
the calendar year 2008 so far from its close of 20,286.99 on 31
December 2007. It is 11,977.02 points or 56.47% below its all-time
high of 21,206.77 struck on 10 January 2008.
The BSE Realty index (up 12.44% to 1,753.65), the BSE Metal index
(up 7.93% to 4,803.91), the BSE Capital Goods index (up 6.91% to
6,506.98), the BSE Oil & Gas index (up 5.86% to 5,682.68), the BSE
Power index (up 5.7% to 1,676.43), the BSE Bankex (up 5.64% to
4,803.37) outperformed the Sensex.
The BSE HealthCare index (up 0.92% to 2,849.12), the BSE Consumer
Durables index (up 1.21% to 1,734.53), the BSE IT index (up 2.69%
to 2,464.74), the BSE FMCG index (up 2.8% to 1,954.75), the BSE
Auto index (up 3.22% to 2,243.11), the BSE Teck index (up 3.32% to
1,982.39) and the BSE PSU index (up 3.71% to 4,667.57),
underperformed the Sensex.
India's largest private sector company by market capitalization and
oil refiner Reliance Industries (RIL) surged 8.4% to Rs 1,159.30 on
recent reports it intends to restart retailing of petrol and diesel
soon after margins on the two fuels turned positive.
Realty stocks rose on reports the government will next week unveil
measures for the realty sector, which may include incentives for
low-cost housing and lower loan rates. Indiabulls Real Estate, DLF,
Unitech rose by between 11.28% to 17.17%.
Metal stocks rebounded from earlier slide on recovery in metal
prices on the London Metal Exchange (LME). Tata Steel, Hindalco
Industries, Sterlite Industries, Steel Authority of India, National
aluminum Company rose by between 2.65% to 13.84%.
Banking stocks edged higher on rate cut hopes. India's largest
private sector bank by net profit ICICI Bank rose 8.75% as American
depository receipt (ADR) gained 5.64% on Wednesday, 3 December
2008. India's largest commercial bank State Bank of India (SBI)
jumped 6.55%. India's second largest private sector bank by net
profit HDFC Bank gained 3.52% as ADR rose 2.6% on Wednesday.
Shares of housing finance firms rose on likely sops for the realty
sector, which may include incentives for low-cost housing and lower
loan rates. India's top mortgage lender by market capitalisation
Housing Development Finance Corporation (HDFC) rose 6.76% and
India's second-biggest mortgage lender by market capitalisation LIC
Housing Finance rose 10.37%.
Infrastructure Development Finance Company jumped 14.29% after a
block deal of 17.01 lakh shares was executed on BSE at Rs 58.50 per
share.
Indian Overseas Bank rose 3.04% after a block deal of ten lakh
shares was executed on BSE at Rs 67 per share.
IT stocks shrugged off a stronger rupee after India's second
largest IT exporter by sales Infosys' chief executive S.
Gopalakrishnan today, 4 December 2008, said though the company has
seen delays in orders there is no change in its third quarter
December 2008 guidance. Infosys rose 3.12%, recovering from a 4.29%
fall in the previous trading session.
India's fourth largest IT exporter by sales Wipro gained 4.71% as
ADR rose 1.95%. India's third largest IT exporter by sales Satyam
Computer Services rose 1.04% as ADR gained 2.43% on Wednesday, 3
December 2008. India's largest IT exporter by sales Tata
Consultancy Services rose 2.82%.
The Indian rupee was stronger in afternoon trade on Thursday as
hefty gains in the domestic share market raised expectations of
fresh capital inflows while a drop in oil prices also eased
concerns of a widening trade deficit. The partially convertible
rupee was at 49.78/80 per dollar, stronger than its Wednesday's
close of 49.99/50.01. On Tuesday, the rupee had hit a record low of
50.65. A stronger rupee affects IT firms negatively as they earn
most of their revenues from exports.
Auto stocks rose on hopes lower interest rates will spur demand
which is mainly driven by finance and on possible measures by the
government to boost the commercial vehicles sector. Mahindra &
Mahindra, Maruti Suzuki India and Hero Honda Motors rose by between
0.56% to 4.74%.
India's largest commercial vehicle maker by sales Tata Motors up
13.29% on reports of possible excise duty cut on commercial
vehicles as a part of the government's package to boost the
economy.
Capital goods stocks rose on hopes government efforts to boost
economy will lift orders. Larsen & Toubro, Suzlon Energy, Bharat
Heavy Electricals, Crompton Greaves and Thermax rose by between
2.87% to 10.24%.
Power stocks rose on reports the likely government measures to
boost the economy may include special credit window for the power
sector. Tata Power Company, Reliance Infrastructure, Reliance
Power, Power Grid Corporation of India jumped by between 3.21% to
7.46%.
India's largest drug maker by sales Ranbaxy Laboratories rose 3.57%
on signing a pact with a US drug firm.
Orchid Chemicals & Pharmaceuticals rose 2.51% on receiving US
approval for a new drug.
Infrastructure stocks extended gains for the second day in a row on
hopes a likely government package to boost the economy will give
thrust to the infrastructure sector. Hindustan Construction
Company, Nagarjuna Construction Company, and IVRCL Infrastructure &
Projects rose by between 5.46% to 11.88%.
Marg was locked at 5% upper limit at Rs 34.45 at 12:54 IST on BSE,
on bagging a contract for developing an airport at Bijapur in
Karnataka.
PSU OMCs rose on fall in crude oil prices. BPCL, HPCL and Indian
Oil Corporation rose by between 0.66% to 1.28%. Crude oil fell for
a fifth day to the lowest in almost four years after a report
showed US fuel demand extended declines because of the country's
deepening economic slump. Crude oil for January 2008 delivery
dropped as much as $1.49, or 3.2%, to $45.30 a barrel on the New
York Mercantile Exchange. Lower oil prices will reduce
underrecoveries at the state-run oil firms on domestic sale of
petrol, diesel, LPG and kerosene at a controlled price.
Hindustan Oil Exploration Company rose 6.12% on bagging two oil and
gas blocks.
Consumer durables stocks rose on hopes further rate cuts by the
Reserve Bank of India would spur demand which is mainly driven by
finance. Videocon Indusries, Blue Star,Titan Industries, Lloyd
Electric and Rajesh Exports rose by between 1.52% to 3.56%.
Cement stocks rose on hopes likely government measures to boost the
infrastructure sector will spurt demand. ACC, Birla Corporation of
India, Ultratech Cement, Ambuja Cements and Grasim Industries rose
by between 1.13% to 6.6%.
Unitech clocked the highest volume of 3.19 crore shares on BSE.
Suzlon Energy (2.46 crore shares), GVK Power & Infrastructure (1.82
crore shares), Housing Development & Infrastructure (1.1 crore
shares) and Jaiprakash Associates (82.64 lakh shares) were the
other volume toppers in that order.
Reliance Industries clocked the highest turnover of Rs 404.61 crore
on BSE. State Bank of India (Rs 203.61 crore), Educomp Solutions
(Rs 178.33 crore), Reliance Infrastructure (Rs 153.18 crore) and
DLF (Rs 132.49 crore) were the other turnover toppers in that
order.
Haldyn Glass Gujarat spurted 8.51% on increase in the promoters'
stake in the company.
Nava Bharat Ventures jumped 20.28% on share buyback plan.
PVR galloped 4.88% on reports it plans to set up entertainment
centres across the country.
Chinese stocks rose after the government on Wednesday, 3 December
2008, announced measures whereby it will use financial policy to
support the economy. The Shanghai Composite was up 1.84%. But most
Asian shares weakened after earlier gains. Key benchmark indices in
South Korea, Hong Kong, Japan and Taiwan were down by between 0.58%
to 1.58%.
China will make use of required reserves as well as interest rates
and the exchange rate to ensure ample liquidity in the banking
system, the government said on Wednesday. The State Council,
China's cabinet, also approved measures aimed at stabilising the
domestic stock market, boosting bond issuance and increasing the
supply of credit.
further cut in interest rates, firm European stocks and rebound in
US index futures boosted the domestic bourses today. The BSE
30-share Sensex jumped 482.32 points, or 5.51%, led by a surge in
realty, metal, banking shares and index heavyweight Reliance
Industries (RIL). The barometer index breached the psychological
9,000 mark. All the sectoral indices on BSE were in the green.
Bank shares were in demand on as falling inflation heightened
expectations for an interest rate cute by the Reserve Bank of India
(RBI). As per the market buzz, the Reserve Bank of India (RBI) is
expected to cut repo and reverse repo rates to the extent of 200
basis points and 125 basis points respectively at the weekend, in
an attempt to shield the domestic economy from the global economic
slowdown. Repo rate is the rate at which RBI lends to commercial
banks and reverse repo rate is the rate at which RBI accepts
deposits from banks.
Inflation based on the wholesale price index rose 8.4% in the year
through 22 November 2008, lower than previous week's 8.84% rise,
data released by the government at about 13:15 IST showed.
Inflation had surged into double digits in early June this year
after an increase in state-set retail fuel prices, and peaked at
12.91% on, 2 August 2008, the highest reading since annual numbers
in the current data series became available in April 1995.
Reserve Bank of India (RBI) governor D Subbarao today, 4 December
2008, said India remains vulnerable to global financial and
economic developments and a period of painful adjustment was
inevitable. The RBI governor said India's economic fundamentals
were strong. He added that the outlook for India was mixed and
there was evidence of activity slowing down.
Meanwhile, the Indian government is slated to announce a slew of
measures at the weekend to pump prime the economy. The likely
measures include a Rs 2000-crore export package, a further
relaxation in external commercial borrowings norms and Rs
15,000-crore budgetary support for infrastructure.
A bout of volatility was witnessed earlier in the day. Likely
government measures to pump prime the economy and hopes of further
rate cuts by the Reserve bank of India gave a positive start to the
domestic bourses. But the market soon slipped into the red due to
lower US index futures, concerns about the weakening global economy
and due to tension between Indian and Pakistan following last
week's terror attacks in Mumbai may cap the upside. The market
firmed up again in early trade. After the recovery, the market
pared gains before bouncing back again. Sensex swung 518.35 points
between the day's high and low.
European stocks reversed early losses to rally on Thursday, 4
December 2008, rising for the third session in a row as investors
hoped deep interest rate cuts would help soothe the global economic
slump. The key benchmark indices in France, Germany and UK were up
by between 0.54% to 2.62%.
The Bank of England slashed interest rates by a full percentage
point today to shore up Britain's crumbling economy and head off
the threat of deflation. The cut took rates to 2% their lowest
level since 1951. The central bank in Sweden slashed its key
interest rate by a record 175 basis points to 2% on Thursday, a
shock move to try and prevent the economy from sliding deeper into
recession.
At its policy meeting later in the day, the European Central Bank
(ECB) is expected to cut rates by at least 75 basis points.
Meanwhile, economic, corporate and industry data continues to be
weak in major economies. Japan said on Thursday, 4 December 2008,
it may be in a deeper recession than first thought, in the latest
signal that the global economic downturn is sparing few corners of
the world. Earlier, a corporate survey in Japan signaled the
country's economic performance in the third quarter may have been
even worse than first reported. Australia's vehicle sales slumped
in November 2008.
US data on Wednesday, 3 December 2008, showed large job losses by
US employers and a slumping service sector. The US economy is
already in recession for a year.
Swiss Bank Credit Suisse today, 4 December 2008, reported a net
loss of about 3 billion Swiss francs ($2.5 billion) in the two
months to end-November 2008 and cut another 5,300 jobs.
Trading in US index futures indicated the Dow could rise 23 points
at the opening bell. The US index futures bounced back from steep
losses earlier in the day.
Closer home, the Indian government is reportedly considering
various options including a strike on Pakistan to dismantle its
terror bases in response to the recent Mumbai terror attacks. As a
strike on Pakistan could lead to a full scale war between the two
nuclear armed countries, India is maintaining a cautious approach
and wants to gauge every possible ramification of its decision,
reports suggest.
Tension between India and Pakistan have mounted after the Mumbai
attacks. India has blamed Islamist militants based in Pakistan for
the attacks.
The BSE 30-share Sensex was up 482.32 points, or 5.51%, to
9,229.75. At the day's high of 9,245.06 hit in late trade, the
Sensex rose 497.63 points. The Sensex lost 20.72 points at the
day's low of 8,726,71 hit in early trade.
The S&P CNX Nifty was up 131.55 points, or 4.95%, to 2,788.
The market breadth, indicating the overall health of the market,
was strong. On BSE, 1,503 shares rose as compared with 668 that
declined. 60 shares remained unchanged.
The BSE clocked a turnover of Rs 3727 crore today, higher than Rs
2,955.08 crore on Wednesday, 3 December 2008.
Nifty December 2008 futures were at 2796, at a premium of 8 points
as compared to the spot closing of 2788. Turnover in NSE's futures
& options (F&O) segment rose to Rs 34,123.92 crore from Rs
33,606.23 crore on Wednesday, 3 December 2008.
The barometer index BSE Sensex is down 11,057.24 points or 54.5% in
the calendar year 2008 so far from its close of 20,286.99 on 31
December 2007. It is 11,977.02 points or 56.47% below its all-time
high of 21,206.77 struck on 10 January 2008.
The BSE Realty index (up 12.44% to 1,753.65), the BSE Metal index
(up 7.93% to 4,803.91), the BSE Capital Goods index (up 6.91% to
6,506.98), the BSE Oil & Gas index (up 5.86% to 5,682.68), the BSE
Power index (up 5.7% to 1,676.43), the BSE Bankex (up 5.64% to
4,803.37) outperformed the Sensex.
The BSE HealthCare index (up 0.92% to 2,849.12), the BSE Consumer
Durables index (up 1.21% to 1,734.53), the BSE IT index (up 2.69%
to 2,464.74), the BSE FMCG index (up 2.8% to 1,954.75), the BSE
Auto index (up 3.22% to 2,243.11), the BSE Teck index (up 3.32% to
1,982.39) and the BSE PSU index (up 3.71% to 4,667.57),
underperformed the Sensex.
India's largest private sector company by market capitalization and
oil refiner Reliance Industries (RIL) surged 8.4% to Rs 1,159.30 on
recent reports it intends to restart retailing of petrol and diesel
soon after margins on the two fuels turned positive.
Realty stocks rose on reports the government will next week unveil
measures for the realty sector, which may include incentives for
low-cost housing and lower loan rates. Indiabulls Real Estate, DLF,
Unitech rose by between 11.28% to 17.17%.
Metal stocks rebounded from earlier slide on recovery in metal
prices on the London Metal Exchange (LME). Tata Steel, Hindalco
Industries, Sterlite Industries, Steel Authority of India, National
aluminum Company rose by between 2.65% to 13.84%.
Banking stocks edged higher on rate cut hopes. India's largest
private sector bank by net profit ICICI Bank rose 8.75% as American
depository receipt (ADR) gained 5.64% on Wednesday, 3 December
2008. India's largest commercial bank State Bank of India (SBI)
jumped 6.55%. India's second largest private sector bank by net
profit HDFC Bank gained 3.52% as ADR rose 2.6% on Wednesday.
Shares of housing finance firms rose on likely sops for the realty
sector, which may include incentives for low-cost housing and lower
loan rates. India's top mortgage lender by market capitalisation
Housing Development Finance Corporation (HDFC) rose 6.76% and
India's second-biggest mortgage lender by market capitalisation LIC
Housing Finance rose 10.37%.
Infrastructure Development Finance Company jumped 14.29% after a
block deal of 17.01 lakh shares was executed on BSE at Rs 58.50 per
share.
Indian Overseas Bank rose 3.04% after a block deal of ten lakh
shares was executed on BSE at Rs 67 per share.
IT stocks shrugged off a stronger rupee after India's second
largest IT exporter by sales Infosys' chief executive S.
Gopalakrishnan today, 4 December 2008, said though the company has
seen delays in orders there is no change in its third quarter
December 2008 guidance. Infosys rose 3.12%, recovering from a 4.29%
fall in the previous trading session.
India's fourth largest IT exporter by sales Wipro gained 4.71% as
ADR rose 1.95%. India's third largest IT exporter by sales Satyam
Computer Services rose 1.04% as ADR gained 2.43% on Wednesday, 3
December 2008. India's largest IT exporter by sales Tata
Consultancy Services rose 2.82%.
The Indian rupee was stronger in afternoon trade on Thursday as
hefty gains in the domestic share market raised expectations of
fresh capital inflows while a drop in oil prices also eased
concerns of a widening trade deficit. The partially convertible
rupee was at 49.78/80 per dollar, stronger than its Wednesday's
close of 49.99/50.01. On Tuesday, the rupee had hit a record low of
50.65. A stronger rupee affects IT firms negatively as they earn
most of their revenues from exports.
Auto stocks rose on hopes lower interest rates will spur demand
which is mainly driven by finance and on possible measures by the
government to boost the commercial vehicles sector. Mahindra &
Mahindra, Maruti Suzuki India and Hero Honda Motors rose by between
0.56% to 4.74%.
India's largest commercial vehicle maker by sales Tata Motors up
13.29% on reports of possible excise duty cut on commercial
vehicles as a part of the government's package to boost the
economy.
Capital goods stocks rose on hopes government efforts to boost
economy will lift orders. Larsen & Toubro, Suzlon Energy, Bharat
Heavy Electricals, Crompton Greaves and Thermax rose by between
2.87% to 10.24%.
Power stocks rose on reports the likely government measures to
boost the economy may include special credit window for the power
sector. Tata Power Company, Reliance Infrastructure, Reliance
Power, Power Grid Corporation of India jumped by between 3.21% to
7.46%.
India's largest drug maker by sales Ranbaxy Laboratories rose 3.57%
on signing a pact with a US drug firm.
Orchid Chemicals & Pharmaceuticals rose 2.51% on receiving US
approval for a new drug.
Infrastructure stocks extended gains for the second day in a row on
hopes a likely government package to boost the economy will give
thrust to the infrastructure sector. Hindustan Construction
Company, Nagarjuna Construction Company, and IVRCL Infrastructure &
Projects rose by between 5.46% to 11.88%.
Marg was locked at 5% upper limit at Rs 34.45 at 12:54 IST on BSE,
on bagging a contract for developing an airport at Bijapur in
Karnataka.
PSU OMCs rose on fall in crude oil prices. BPCL, HPCL and Indian
Oil Corporation rose by between 0.66% to 1.28%. Crude oil fell for
a fifth day to the lowest in almost four years after a report
showed US fuel demand extended declines because of the country's
deepening economic slump. Crude oil for January 2008 delivery
dropped as much as $1.49, or 3.2%, to $45.30 a barrel on the New
York Mercantile Exchange. Lower oil prices will reduce
underrecoveries at the state-run oil firms on domestic sale of
petrol, diesel, LPG and kerosene at a controlled price.
Hindustan Oil Exploration Company rose 6.12% on bagging two oil and
gas blocks.
Consumer durables stocks rose on hopes further rate cuts by the
Reserve Bank of India would spur demand which is mainly driven by
finance. Videocon Indusries, Blue Star,Titan Industries, Lloyd
Electric and Rajesh Exports rose by between 1.52% to 3.56%.
Cement stocks rose on hopes likely government measures to boost the
infrastructure sector will spurt demand. ACC, Birla Corporation of
India, Ultratech Cement, Ambuja Cements and Grasim Industries rose
by between 1.13% to 6.6%.
Unitech clocked the highest volume of 3.19 crore shares on BSE.
Suzlon Energy (2.46 crore shares), GVK Power & Infrastructure (1.82
crore shares), Housing Development & Infrastructure (1.1 crore
shares) and Jaiprakash Associates (82.64 lakh shares) were the
other volume toppers in that order.
Reliance Industries clocked the highest turnover of Rs 404.61 crore
on BSE. State Bank of India (Rs 203.61 crore), Educomp Solutions
(Rs 178.33 crore), Reliance Infrastructure (Rs 153.18 crore) and
DLF (Rs 132.49 crore) were the other turnover toppers in that
order.
Haldyn Glass Gujarat spurted 8.51% on increase in the promoters'
stake in the company.
Nava Bharat Ventures jumped 20.28% on share buyback plan.
PVR galloped 4.88% on reports it plans to set up entertainment
centres across the country.
Chinese stocks rose after the government on Wednesday, 3 December
2008, announced measures whereby it will use financial policy to
support the economy. The Shanghai Composite was up 1.84%. But most
Asian shares weakened after earlier gains. Key benchmark indices in
South Korea, Hong Kong, Japan and Taiwan were down by between 0.58%
to 1.58%.
China will make use of required reserves as well as interest rates
and the exchange rate to ensure ample liquidity in the banking
system, the government said on Wednesday. The State Council,
China's cabinet, also approved measures aimed at stabilising the
domestic stock market, boosting bond issuance and increasing the
supply of credit.
Thursday, December 4, 2008
Sensex regains 9k level on falling inflation
The benchmark Sensex regained the 9,000-point level on Thursday, 4 December, surging 400 points on renewed investor confidence after government data showed inflation much lower than expected at 8.4%.
India’s inflation hit a seven-month-low of 8.4% for week ended 22 November, against 8.84% the preceding week. Sliding inflation along with expected RBI rate cuts raised hopes of investors.
The Bombay Stock Exchange barometer surged 482.32 points to close at 9,229.75 with banking and realty sectors leading the rally. Unitech, the top gainer, rose 14.67% to Rs30.10.
The wide-based National Stock Exchange index Nifty rose 131.55 points at 2,788.
Tata group companies were important gainers in the day’s trading— Tata Motors surged 14.07% to Rs152, followed by Tata Communication (13.03%, Rs428) and Tata Steel (12.54%, Rs185.35).
Meanwhile Asian markets retreated from the opening gains as global economic fears grew among investors. Hang Seng and Nikkei fell by 1% at closing.
India’s inflation hit a seven-month-low of 8.4% for week ended 22 November, against 8.84% the preceding week. Sliding inflation along with expected RBI rate cuts raised hopes of investors.
The Bombay Stock Exchange barometer surged 482.32 points to close at 9,229.75 with banking and realty sectors leading the rally. Unitech, the top gainer, rose 14.67% to Rs30.10.
The wide-based National Stock Exchange index Nifty rose 131.55 points at 2,788.
Tata group companies were important gainers in the day’s trading— Tata Motors surged 14.07% to Rs152, followed by Tata Communication (13.03%, Rs428) and Tata Steel (12.54%, Rs185.35).
Meanwhile Asian markets retreated from the opening gains as global economic fears grew among investors. Hang Seng and Nikkei fell by 1% at closing.
Inflation slips further to 8.4% from 8.84%
India’s wholesale price index rose 8.4 % in the 12 months to 22 November, below the previous week’s annual rise of 8.84%, government data showed on Thursday.
The rate was also below a median forecast of 8.91% in a Reuters poll of analysts.
The annual inflation rate was 3.11% during the corresponding week of the previous year.
The wholesale price index is more closely watched than the consumer price index, which is published monthly, because it covers a higher number of products and is released weekly.
The rate was also below a median forecast of 8.91% in a Reuters poll of analysts.
The annual inflation rate was 3.11% during the corresponding week of the previous year.
The wholesale price index is more closely watched than the consumer price index, which is published monthly, because it covers a higher number of products and is released weekly.
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