the daily economic update

June 25, 2010

Top stories
1. AUTO INDUSTRY STALWART DUBEY DRIVES TO BIRLAS: Rajiv Dubey, who headed the passenger car division in Tata motors resigned on may17 and will join the aditya Birla group as a director tasked with devising manufacturing and marketing strategies for the metal to telecom conglomerate. Dubey is widely credited with building Tata motor’s $4-billion passenger car business from scratch and has been associated with the same for around 27 years.
2. BSNL LASHES OUT AT TRAI FOR TAKING ONLY PRIVATE CALLS: state owned BSNL has accused TRAI of attempting to destroy the company by conniving with the private operators. This was regarding trai’s latest recommendations where it has said that BSNL holds 12.4MHz of airwaves in most service areas and has been underutilizing them. The regulator also calls for a withdrawal of 2.4 MHz of BSNL from all service areas. BSNL however maintains that the maximum airwaves it has held was 7.6 MHz in any area and that trai was fully aware of this and has issued wrong information to support its recommendations so that it can take away the spectrum from it and give it away to the private regulators (unitech, swan, STel and datacom) it issued licenses in 2008.
3. RIL IN ITS FINAL BID FOR THE SHALE GAS ASSETS IN USA HAS DECIDED TO “SHELL OUT” $ 1.3 BILLION TO PIONEER NATURAL RESOURCES AND PARTNER NEWPECK. This will be RIL’s second purchase of the shale gas asset.
4. RBI DICTAT MAY QUEER FII PITCH: the central bank has said that from july1, all the irrevocable payment commitments (IPCs) issued by the custodian banks to institution funds shall be treated as capital market exposure. Deutsche bank, Citibank, HSBC, standard chartered bank JPMorgan are some on the banks acting as custodians for the FIIs and issue guarantees to stock exchanges on their behalf. The banks maintain that there is very little risk involved and they can easily recover their money back and also fear that this move from the RBI could increase capital needs, transaction costs and cause a temporary liquidity crises.
5. INSURERS MUST STICK TO NORMS ON PRICING OF UNLISTED COMPANIES: according to the latest RBI norms, shares of unlisted companies can not be transferred at a price that is less than its fair value which in turn has to be calculated by a SEBI registered merchant banker or a CA via the discounted free cash flow methods. This would cause a rise in the value of insurance companies’ shares implying that the foreign investors will now have to shell out more to their Indian counterparts. IRDA had issued a statement last Thursday saying that these RBI norms are not applicable to insurance companies. However with the central bank insisting that these norms do apply to insurance cos. IRDA is expected to come out with a clarification soon.
6. Sensex falls down by .14% closing at 17730.24 on Thursday.

7. Nifty falls down by .05% closing at 5320.6 on Thursday.

the daily economic update

June 24, 2010

Top stories

1. LANDMARK TERMINAL 3 TO BEGIN OPERATION IN IGIA: the landmark terminal 3 will begin operation on July 14 at the indira Gandhi international airport. They airport can handle a capacity of 34 million passengers in a year and is pegged to be the world’s sixth-largest airport terminal.

2. KHAZANAH MAY HAVE TO SWEETEN PARKWAY OFFER: the Malaysian fund khazanah has its eyes set on the Singapore based hospital chain parkway holdings and wants to increase its stake in it from 23.8% to 51.5%. However MORGAN STANLEY, independent advisors to directors of parkway holdings made a recommendation that though the offer made by khazanah seems reasonable it is not compelling. This recommendation hints khazanah to sweeten its offer made to parkway holdings. Fortis India also is a major stakeholder in parkway with 25.4% holding. Though they refuse to comment on the recommendation Fortis has previously issued a statement hinting at raising finances of up to 2750 crore through equity and increasing borrowing limit to 6000 crore.

3. MAULED BOLLYWOOD SEEKS SCRIP CHANGE: with two big bollywood productions KITES and RAAVAN tanking at the box-office the Indian film industry is beginning to consider changes in its business model. Both these films were bought by ADAG company big pictures for around 180-200 crore. The cold response towards these films brings to fore the fragility in the “acquisition” model. The tide is now shifting towards “co-production”. While acquisition means an outright purchase, a co-production would mean finance, responsibility of marketing, distributing the film and working out syndication rights on completion of the film. While acquisition turns out to be a high risk, high reward proposition, co-production seems more of a safer bet as they spread risk better( but somewhat temper returns )

4. TATA MOTORS SET TO MOP UP Ts 2500 CRORE TO PARE DEBT: Tata motors have decided to raise around 2500 crore equity or foreign currency convertible bonds in order to pare debt and improve the debt-equity ratio. Analysts also feel that the company would now like to shift the character of the debt from short to long term.

5. COAL India WOULD NOT ADHERE TO 25% PUBLIC FLOAT NORM: There seems to be a lot of disagreement between various wings of the govt. On the minimum public float norm for listing, the latest being coal India ltd (CIL). CIL is reluctant to sell more than 10% of its stake. Coal minister Mr. Sriprakash jaiswal maintains that the disinvestment in CIL can not exceed 10%, which was to be done only to get CIL navratna status.

6. INFRA BONDS FOR STATE BANKS, FIs ONLY: the plan to fund infrastructure project by tapping into household saving announced by finance minister pranob mukhrjee for budget 2010-11 would be limited to public sector banks and state owned financial institutions. The revenue loss that the government will have to bear due to tax free bonds will now be mitigated if the funds straight away flow to public sector companies. These bonds were earlier proposed for private as well as public sector banks, financial institutions and NBFCs.

7. Sensex up by .04% to close at 17755.94 on Wednesday.

8. Nifty up by .12% to close at 5323.15 on Wednesday.

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the daily economic update

June 23, 2010

Top stories

1. PIRAMAL TO SHARE ABOTT DEAL BOOTY WITH EMPLOTYEES: Piramal healthcare whose formulations business is taken over by Abbott Inc in a $3.7 billion deal will share the proceeds with its employees in form of cash bonus. This will be done when the deal is over by September and the bonus would come out as a cash payout to the employees in festive season of October-November. The bonus will be given to employees in proportion to their years of service up to six months of their fixed salary.
2. RIL TO PICK UP 45% IN TEXAS GAS FIELD: after buying a 40% share in Atlas Energies’ share in shale gas field in USA in April, RIL is all set to bid for another 45% share in pioneer natural resource’s eagle ford shale gas field. The chairman Mr. Mukesh ambani finds shale gas as the most promising development in the energy area in North America.
3. ROBOBANK SELLS 11% STAKE IN YES BANK: robobank has reduced its stake in yes bank from 11% to 4.9%. The industry experts believe that this is a strong hinting at the Dutch lender’s intention to enter Indian market via the wholly owned route. Robobank has always shown an interest in setting up its own banking business in India.
4. GOVT. TO INFUSE CAPITAL IN 5 PSU BANKS TO BOOST THEIR RATINGS: govt. has decided to further infuse rs.620 crore of capital into five public sector banks namely UCO bank, IDBI bank ,central bank , Bank of Maharashtra and union bank to boost their credit rating. This will be in addition to rs. 150 crore already pumped into these banks in May 2010. Credit rating agencies maintain that though these banks have a high Capital Adequacy Ratio the still would be needing further capital support from the government either directly or indirectly to maintain growth in their balance sheets. This hints to further such moves from the govt.’s side in future.
5. Sensex closes at 17749.67 on Tuesday (down by .71%)

6. Nifty closes at 5316.55 on Tuesday (down by .69%)

the daily economic update

June 22, 2010

Top stories

1. MARKETS RAISE TOAST TO FLEXIBLE CHINA: Indian markets joined the global equity markets in an upsurge after china pledged to let it currency appreciate. This would give a boost to global trade. However some still view it as a gimmick to avoid exchange rate reform discussions at the G20 meetings. What industries experts believe is that this move of china is only to buy some more time especially now when pressure has been building on the U.S.A. to label it as a “currency manipulator”.

2. TALENT- HIT IT COS. OPEN DOORS TO EX-EMPLOYEES: India’s top technology firms, Infosys technologies and EDS-MphasiS, are hiring back all the staff they had to let go during the economic crises.

3. JSW, REDDY DEAL HINGES ON IRON-ORE: JSW Steel, which makes 7 metric tomes of steel in Bellary –hospet, depends on third parties for ore. It now demands a stake in OMC ,which is an iron ore major promoted by BJP ministers of Karnataka , or a definite deal to supply iron ore in return for taking over Karnataka ‘s reddy brothers’ steel company.

4. PRIORITY TAG SOUGHT FOR LOANS TO SICK STATE FIRMS: the dept. of public enterprises has proposed to finance ministry to classify loans to sick state owned companies (like Hindustan Machine Tools) as priority sector lending. These companies which earlier got loans from state-owned banks at 14% will now be able to secure them at 9-10%.

5. PSU’S JITTERY ABOUT 25 FLOAT NORMS: the department of disinvestment has sought a review of the recent norms that make it mandatory for all listed firms to have at least 25% public float, arguing it could affect the disinvestment programme and impact the valuation of public sector firms. Many state owned companies had previously agreed to get listed only for the purpose of being disinvested and not because they wanted to raise funds. But now once these new norms are applied many of these state owned companies like coal India etc. will have to raise public holding to 25%. These guidelines might affect the valuations of firms as there would be a flood of PSU offers in the market.

6. Sensex surges up by 1.74% closing at 17876.55 on Monday.

7. Nifty closes at 5353.30 on Monday up by 1.72%.

THE DAILY ECONOMIC UPDATE

21 June, 2010

Top stories
1. ULIPS TO BE REGULATED BY IRDA: president pratibha patil has signed an ordinance ending the Ulips turf war. The ordinance clearly states that IRDA would now be regulating Ulips nixing claims from the rival regulator sebi. This ordinance will necessitate amends to be made in the insurance act to include Ulips in life insurance business and securities contract (regulations) act making it clear that ‘securities ‘will not include Ulips. Ulips scheme will now be revamped with lock-in period to be increased from three to five years and also making it mandatory for the insurers to offer a life cover, health cover or an annuity plan along with life cover.
2. MFS CUT SHADY DEALS WITH BANKS TO CUT LOSSES: mutual funds are resorting to unauthorized dealing with banks to cut losses and finance redemption. A few fund houses have cut ready forward transactions where a security is sold and then bought back at a pre- decided price off the market rates with banks and a few finance companies (aka repo deals). This started soon after the mutual funds sensed a liquidity crunch after telecom companies started pulling out money from debt schemes to finance payments for 3g spectrum. Funds chose to meet redemptions via repo deals rather than selling securities and borrowing from banks in order to save the asset value of the schemes hoping that markets will recover.
3. MUKESH AMBANI IS THE MAN TO WATCH OUT FOR: the seeming end of the self defeating sibling rivalry between the ambani bros is now creating nervousness among the competitors with many of them rethinking their decision to enter businesses like power and telecom. After the tearing of the non- compete pacts, the elder brother quickly announced his plans to enter the power sector and has already bought infotel broadband wireless spectrum to mark the entry in the telecom sector. What bother the competitors most is, RIL‘s ability to sweep off the competition & the tweak the laws in its favor.
4. HIGHER TAX EXEMTION LIKELY FOR TRAXPAYERS UNDER Direct Tax Code: individual tax payers are sure to get some relief with the Direct Tax Code prescribing a higher exemption limit. The existing limit of rs. 160000 for individual would be upped by rs. 40000 saving taxes by up to rs.4120.
5. IDFC TO BRING GLOBAL PARTNER ABOARD FOR AMC: IDBI plans to rope in a global fund manager as strategic partner in its asset management company to bolster the business at the time of turmoil in the mutual fund industry. The management says that they will need the support to manage the fund or advise foreign flow funds into Indian equity markets. The management gives no further details on the issue.

the daily economic update

June 18, 2010

Top stories

1. BIG TELECOS WOULDN’T JOIN TRAI’S CONFERENCE CALLS: India’s leading GSM operators are unhappy with the telecom regulatory authority of India (TRAI)‘s process of fixing prices of 2g spectrum beyond the 6.2Mhz mark. The operators (bharti airtel, idea cellular and Vodafone essar) have all refused to participate in the telecom regulator’s consultation process to set a price for 2g spectrum citing lack of transparency.

2. EASIER RESIDENCY TEST FOR FOREIGN COMPANIES IN DTC: the latest draft on the Direct Tax Code has negated the definition of foreign company given by the earlier paper. The original text brought the world wide income of every foreign firm which had its control partly in India and partly abroad taxable in India. The new paper has junked this definition and stated that a foreign firm will be treated as a resident only if its effective place of management is in India i.e. if the board functions from India or if the strategic decisions are taken from India.

3. RIL IS IN TALKS WITH PIPAVAV TO PICK UP 26% STAKE: PSL or pipavav shipyard ltd. i.e. India’s largest integrated shipyard with facilities to build ships and off store structures is eyed by RIL , which hopes to take a 26% share in the enterprise. Though the deal seems likely to happen, none of the parties have come out with a statement confirming any progression.

4. FOOD & FUEL INFLATION FALL: though the economy is still battling with high inflation a little respite was seen in the food & fuel inflation. Food price inflation for the week ended June 5 was at 16.12% compared to 16.74% in the previous week. Similarly, fuel price inflation dropped to 13.18% as against 14.23% in the previous week.

5. EUROPEAN CRISIS TO BE A THREAT: if country’s chief statistician, Mr. Pronab Sen., is to be believed the European crisis may have an effect on the country’s growth. The crisis may cause a turn down in the global demand hampering India’s exports. But the statistician maintains that the effect would not be as large as it was in the previous years. “At that time a large volume of our exports was based on international trade credit. When the international banks dried up, exports came to a halt as the banks were not prepared for this. Now Indian banks are back to trade credit business” he maintains.

6. Sensex closes at 17616.69 up by .88%.

7. Nifty closes at 5273.85, up by .79%.

THE DAILY ECONOMIC UPDATE

Top stories

17 June, 2010

1. Ulips , equity oriented MFs to lose tax cover in new- look code :
The CBDT plans to reduce the number of saving schemes eligible for tax deductions to only about half a dozen. Only PPF, GPF, pension’s schemes by PFRDA, and pure life insurance schemes will now be in the EEE bracket i.e. no tax either on investment, accumulations or withdrawals.
However Ulips and equity oriented mutual funds will not be tax free.
This was majorly done to boost revenues and encourage long term savings. The 3 lakh deduction as proposed by the DTC will also be lowered.

2. Income tax slabs to be crunched:
The finance ministry will tighten the slab rates as proposed by the DTC. The DTC proposes to increase the slab rate limits from 3 lakh to 10 lakh for the slab of 10% and from 5 lakh to 25 lakh for the slab of 20% tax rates. The industry experts do expect the CBDT to accept the proposed tax slabs as this would severely affect the revenue collections. In corporate tax to CBDT would not have the leeway to lower the tax rate from 30% to 25% as proposed.
Further the MAT and the STT rates will further not be reduced( the DTC proposed a cut of about 5% in mat on gross assets , but since the calculation of MAT will be done on book profits as before, this cut is no longer feasible from the tax revenue’s point of view.)

3. More about DTC

• The deduction of rs. 150000 on interest payments on housing finance loan will continue in the coming years too.
• The commerce department will in strict opposition to the finance ministry’s proposal to withdraw tax exemptions for new industrial units coming up in SEZ after the DTC is implemented in the coming fiscal.

4. New norms may force 13 PSUs to be delisted from the stock exchange:
About a dozen public sector units may be delisted from the stock exchange owing to absence of revival prospects and investor interest to meet the new listing requirements. The experts believe that the companies may also not generate any interest even in the case of disinvestment.

5. Investment banks stay away from HCL sell off: Hindustan Copper has been postponing its date for submission of the EoIs ( expression of interest ) from the investments banks. However the banks are not interest in taking part in the HCL disinvestment procedure because of the skyrocketing market cap of the company. The mar cap of the company is around 47274 crore rupees as opposed to its profits of just 154.68 crore. Trading at this price, according to the industry experts is non-justifiable.

6. Bankers are clueless on lending norms to farmers and exporters: the bankers are worried that the present subsidy of 2% given to them by the finance ministry may be bargained to a lower rate of 1% with the coming of the new base rate norms. The banks can not lend finance to farmers at a rate higher than 7% thus if their lending cost is 9% the rest 2% is met by the government. However with all the banks pegging their base rate at 8% the bankers worry that the subsidy limit may be reduced to 1%. This limit has earlier also been reduced from 3% to 2.

7. Sensex closes at 17,462.87 on Wednesday rising by around .29%

8. Nifty reaches 5233.35 , up by .21%