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‘Interest rates to be eased’

Mar 292009

Will take up the issue of protectionism at G20 meet, PM tells industry.

Prime Minister Manmohan Singh today told leading businessmen in a meeting that the Reserve Bank of India (RBI) will take further steps to reduce key interest rates in order to boost economic demand, according to industry representatives present there. This was Singh’s second meeting with the captains of Indian industry in less than five months.

During the day, two state-owned banks, Central Bank of India and Andhra Bank, cut their prime lending rates by 50 basis points and 25 basis points, respectively.

Today’s meeting took place in the backdrop of near-zero inflation, though borrowing cost for companies still remains in double digits. “With ample liquidity and low inflation, there is scope perhaps for a further moderation in interest rates. Domestic credit flow for productive needs has to be definitely maintained at reasonable cost,” Singh said. RBI Governor D Subbarao was present at the meeting.

RBI has reduced the repo rate (at which it lends to banks) by 4 percentage points to 5 per cent in less than six months. However, the reduction has not translated into low borrowing cost for companies. State-owned banks have reduced prime lending rates by up to 2 percentage points in the last few months, but private and foreign banks have not done so.

Tata Sons Chairman Ratan Tata, Aditya Birla Group Chairman Kumar Mangalam Birla, ICICI Managing Director and CEO K V Kamath, Essar’s Shashi Ruia, RPG Group Chairman Ram Prasad Goenka, Adi Godrej, Sunil Mittal and Sunil Kant Munjal attended the meeting. Industry associations Federation of Indian Chambers of Commerce & Industry, Confederation of Indian Industry and Assocham were represented at the meeting. The two Ambani brothers, Mukesh and Anil, were not there. Planning Commission Deputy Chairman Montek Singh Ahluwalia and Cabinet Secretary K M Chandrasekhar were also present.

Singh’s statement assumes significance since the country’s industrial production has seen a decline for two consecutive months. In December 2008, production declined 0.63 per cent, while in January 2009 the output dipped 0.5 per cent. This has happened for the first time in 16 years.

Agenda for G20 meet in London
Singh also sought industry’s views on the forthcoming meeting of G20 nations in London starting from April 2 to address the global economic crisis in a collective effort. Singh, said industry representatives who attending the meeting, promised to raise the issues of global protectionism and restriction on visa issuance at the summit.

“We are concerned about global protectionism and dumping from China. We brought up the issue of how the western governments are becoming protectionist even in terms of capital inflows,” CII President Venu Srinivasan said. “Anti-dumping and safeguard duties must be brought in. The commerce secretary said steps are being taken,” added Assocham President Sajjan Jindal.

Singh expressed satisfaction that sectors like steel, cement and automobile are showing signs of a revival as a result of the various measures taken by the government. Rural demand for goods and services appears quite robust and the outlook in the agricultural sector gives room for optimism, he said.

After posting growth of over 9 per cent in the preceding three years, the Indian economy is projected to grow 7.1 per cent during the current financial year, 2008-09, according to the Central Statistical Organisation. “We are aware that a big push to infrastructure would have a counter-cyclical influence and have taken steps to ensure that this happens in 2009-10 and beyond”, Singh said.

Mar 292009

MUMBAI: Fund managers are opting to sit on cash or even raise it, ahead of a general election which poses a serious event risk to a choppy share
market, already spooked by a slowing economy.

The world’s largest democratic exercise between April 16 and May 13 comes amid a decline in the economy, expected to expand 7.1 percent in fiscal 2008/09, the slowest pace in six years, with analysts predicting even slower growth next year.

Demand has slumped and exports have dipped sharply and a widening fiscal deficit has many investors worried.

Adding to the fund managers’ concerns are doubts over the stability and composition of the new government, seen critical to fix the moderating economy, as allies of the two main coalitions bargain for more seats and as some old alliances fall apart.

In response, they are seeking safety in cash and cutting exposure to shares of medium and small-sized firms, seen as being more vulnerable to the market volatility expected before the new government takes oath by early June.

Until the elections end “it is a bit difficult for the market to really start moving up on a consistent basis,” Srividhya Rajesh, vice president for equity funds at Sundaram BNP Paribas Asset Management said in an interview last week.

Her firm, an unit of BNP Paribas, holds a fifth of its stock fund assets in cash and sees no major trigger for actively buying stocks ahead of the election.

This concern is shared by many fund firms who have raised the average cash levels held by stock funds to a multi-year high of 18 percent, at the end of February from about 14 per cent during the start of the year, according to data from fund tracker ICRA.

Allocation to relatively riskier mid- and small-cap stocks dropped to 31.43 per cent at end-February from 36.44 per cent during the start of the year.

Adding to these complexities is a burgeoning fiscal deficit, seen at 6 per cent of the gross domestic product in FY09, its highest since 2001/02, and sharply above the budget estimate of 2.5 per cent.

UNCERTAINTY “Most of these portfolio managers are acting very conservative… they want to protect the downside,” said Chintamani Dagade, a senior research analyst with the Indian arm of US fund research firm Morningstar, said.

Citing his interactions with domestic fund managers, he said “they are really uncertain” as they see a sharp downside risk ahead of the polls.

“It is certainly a big risk in this situation and they certainly don’t want to bet on that,” Dagade said. But he added that the jitters are limited to the short-term, and expects managers will resume taking long-term bets after the election.

“If you look at the current visible signals, they don’t give you a lot of conviction,” said Sanjay Sinha, chief executive of DBS Cholamandalam Asset Management.

But Sinha added that timing the market perfectly is an unwise exercise, and has consequently trimmed cash levels.

Cashing in money

Mar 292009

MUMBAI: Indian equities rose for the fifth-straight session on Friday, helping script their best weekly gains since early November. But gains in
benchmark indices were capped, as investors trimmed exposure to frontline shares fearing a reversal in the recent bullish trend, which drove up the Sensex by over 12% this week.

“The rally may be capped after 2-3% gains. We are expecting some solid profit-booking in large-cap stocks,” said Quantum Securities director Neeraj Dewan.

On Friday, the 30-share Sensex ended 45.3 points, or 0.4%, higher at 10,048.49 pts while the 50-share Nifty closed 26.4 pts, or 0.8%, higher at 3,108.65 pts. The lack of certainty about the direction of front-line shares resulted in investor focus shifting to mid- and small-cap shares. Gainers outnumbered losers 1527:1018 on the Bombay Stock Exchange (BSE).

Dewan expects the Sensex to face stiff resistance at 10,400 levels and sees the index finding strong support at 9,200 levels.

Brokers said the extended optimism on Friday was on account of better-than-expected US economic data and improved home sales there, easing concerns over a prolonged economic crisis. Optimists believe even if US markets weaken a bit from here, Indian equities would not be impacted much, as majority of the activity now is revolving around the general election results.

“Unless the election results do not reveal any negative surprise, the bottom of 8,160 pts is expected to hold,” said Vishal Jajoo, equity analyst, FCH Centrum Wealth Managers. “We feel for the moment, it would be prudent to trade on the long side wherever share prices correct and offer a buying opportunity,” he added.

According to a recent UBS report, Indian shares may rise 35% in the next 12 months, extending the rally in anticipation of a recovery in earnings the following year. The Sensex may climb to 13,500 pts by March 2010, the report said.

How to get out of debt in times of crisis

Mar 292009

One of the important lessons the current financial turmoil has taught us is to always avoid overreliance on debt, particularly for self indulgence. This lesson has assumed more significance in view of the fact that today – driven by easy availability of finance and plastic money- debt has become a way of our life, with very few of us being sure how to get out of it.

Actually, “one never knows when one really has been caught in the debt trap, until one has to start borrowing to make pressing interest payments and outstanding loans. This eventually leads to spiral from which it becomes difficult to get out of,” says Rajiv Deep Bajaj, VC & MD, Bajaj Capital Ltd.

In such a scenario where the delinquency rates are also increasing due to high interest rates and falling incomes, debt management becomes imperative. More because, “an efficient management of debt can not only save lots of money in your lifetime, but can also help in accumulating your wealth over a period of time,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

Here are a few tips to efficiently manage your debt and also get out of a debt trap:

China has made its agenda clear

Mar 292009

SHANGHAI: The only major economy still growing at a fast clip, China is being unusually forthright in challenging the US led global order ahead

In his second rebuke of US leadership this past week, the central bank governor, Zhou Xiaochuan, said China’s rapid response to the downturn — including a 4 trillion yuan ($586 billion) stimulus package — proved the superiority of its authoritarian, one-party political system.

“Facts speak volumes, and demonstrate that compared with other major economies, the Chinese government has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” Zhou said in remarks posted on the People’s Bank of China’s Web site.

In the approach to the London summit of 20 leading economies, Zhou called on foreign governments to give their finance ministers and central bankers broad authority so that they can “act boldly and expeditiously without having to go through a lengthy or even painful approval process.”

China has made its agenda clear: It wants a stable US dollar, and has even advocated the creation of another global currency altogether. It is leery of protectionism. And it is demanding a larger say in how financial systems are regulated and rescued, while holding back on any promises for new rescue or stimulus measures of its own.

“So far, China has been playing a game set up by other powers. Now China wants to be part of the agenda or rules-setting,” said Ding Xueliang, a China expert at Hong Kong’s University of Science and Technology.

Whether Beijing has a workable alternative vision for the future of world finance remains to be seen.

unepmloyed NRI are in Indian Real Estate business

Mar 292009

It looks unimaginable that the impact of economic slowdown will not affect the rental market of the capital. While it scotched the rental scene
Home loan rates may drop shortly |
Realty: Good news on its way
Real estate: Good hedge
Investment Tips
in posh areas for two-three months, the tide is now turning. As a large number of professionals, including Indians, lost jobs in the US and other European countries, many of them shifted back to India. And, quite a few of them have flocked to Delhi to start their own consultancy business or take up some other job here igniting the market dramatically.

Realtors say even though those who have shifted to Delhi are not admitting they have lost their overseas jobs due to the downturn, their body language clearly shows that all is not well for them. Anil Makhijani of Mak Realtors says they are getting two-three calls from either victims of meltdown or their relatives. “When they meet us, they claim they have quit their US or England-based jobs to return to India. However, fact of the matter is they are returning, as they have no jobs there. They are coming here as they feel they can ride through this crisis by doing something here,” says Makhijani.

Those who are coming back to India are more often than not in the age group of 32-35 years. They were working in banks, insurance and IT companies. As India is far cheaper than either the US or Europe, they are finding it far better to settle down here for a couple of years. These downturn victims are ready to pay a monthly rent of Rs 40,000 to Rs 50,000, and with this money they get good accommodation in areas like South Extension Part II, GK-I & II, Uday Park and Panchsheel Park.

Another realtor Pramod Kumar Chopra, however, claims these people are taking flats and floors even in nice societies and areas of trans-Yamuna. This is news considering the fact that such people, earlier on, used to avoid East Delh

Banks have to report their cash balances

Mar 292009

MUMBAI: Cash rates jumped on Thursday on higher demand for funds on the last borrowing

day for the current reporting cycle, but dealers said

rates are likely to ease later in the day.

At 10:35 a.m., the four-day money was trading at 4.50/75 per cent, off an early high of 4.90 per cent, and above Wednesday’s close of 4.00/10 percent.

The market is closed on Friday for a religious festival, making Thursday the last day of the two-week reporting period.

“Market is closed on the reporting Friday this time. So there may be last-minute demand from some banks who have not yet funded their needs. They are today borrowing for four days and that is why rates are up,” said a dealer at a private bank.

Banks have to report their cash balances to the central bank on alternate Fridays. Lenders usually demand higher rates for longer tenor call compared with overnight borrowing.

“But you will see rates coming down during the course the day,” he added.

Liquidity was adequate to meet the current level of demand and hence, such high rates are unlikely to sustain through the day, dealers said.

Banks parked 444.35 billion rupees with the central bank in its reverse repo auctions on Wedensday, much higher than 264.45 billion rupees on the previous day, reflecting comfortable cash conditions.

Wall Street undecided

Mar 292009

NEW YORK: The Wall Street resurgence of the past weeks has pundits pondering: Has a new bull market begun after 17 months of horrific losses? Or is this just another heartbreaking “bear market” rally?

Bulls and bears both claim evidence in their favor after three consecutive weekly gains for the main US indexes.

Over the week to Friday, the Dow Jones Industrial Average lifted 6.84 per cent to 7,776.18 and the Standard & Poor’s 500 index rallied 6.17 per cent to 815.94.

The technology-heavy Nasdaq posted a weekly gain of 6.03 per cent to end Friday at 1,545.20.

The major indexes have rallied at least 20 per cent from lows hit in early March, giving rise to claims that the bear is dead and a new bull market has arrived.

Robert Brusca at FAO Economics called the 20 per cent jump “a technical signal to kill the bear market.”

Not so fast, say the bears.

Even with hefty gains, the Dow index of blue chips and broad-market S&P 500 index remain down more than 40 per cent from all-time highs hit in October 2007. Hence, the bear is still alive, by these measures.

Bob Dickey at RBC Wealth Management said it is too soon to call a new bull market despite the snapback.

“In olden times, these moves may have qualified as a new bull market, but in this day of much higher volatility, it will take more of a gain to reverse the bear trend, which, according to our measures, would take a move above 8,500 on the Dow to become official,” he said.

“That would mean waiting for a move of over 30 per cent from the lows in order to create more bullish confidence.”

Still, he said the horrendous selloffs may have led to “major market lows,” in early March, “which makes us lean heavily in favor of a more meaningful uptrend than the bounce we have had so far.”

In the coming week, the market must grapple with grim economic realities: March US auto sales are expected to show more hefty declines, and Friday’s payrolls report is likely to reflect staggering new job losses, making it harder to sustain a recovery.

But many analysts say there are hopeful signs that the US economy may be stabilizing after a long and deep recession, which could mean the stock market will find its footing as well.

“Despite the doom and gloom outlook by some economists and the pessimistic feel on Main Street, recent economic data has shown signs of improvement,” says Kathy Lien at Global Forex Trading, citing upturns in consumer spending and several indicators on manufacturing.

Rs 700 cr benefit from cross margining

Mar 292009

MUMBAI: Trading members on the National Stock Exchange have pocketed around Rs 700 crore from cross margining so far and this new mechanism is

likely to result in a greater amount of trading depth.

The cross margining mechanism implemented by the National Stock Exchange last month has received good response in registrations and trading members have benefited around Rs 700 crore due to this facility so far, NSE said in a statement.

“This new mechanism would definitely help. As brokers can use their holding in the cash market as a margin for the F&O requirement. This would also help the volumes because it will help the trading members to use their limited resources for capital gains,” Nexgen Capital equity head Jagannadham Thunuguntla said.

Cross margining mechanism was implemented in February this year, and within a month of its implementation, over 20 per cent of members in the equity segment and 30 per cent of members in the equity derivatives segment have signed up for this facility for more than 3 lakh clients, NSE added.

Besides, registration for NSE’s cross margin mechanism is continuously rising and members have benefitted around Rs 700 crore due to this facility, the statement added.

In December 2008, the Securities and Exchange Board of India, permitted cross margining of positions in equities and equity derivatives.