Men At Work

When the cat is away, the mice will play... right? Wrong. At least, India’s storied bureaucracy isn’t having a ball while the politicians are busy electioneering. Instead, some critical government departments are hard at work, ticking off items on their to-do list, so the next government can hit the ground running as soon as it is sworn in.In the first week of May, when external affairs minister and Congress leader Salman Khurshid was in the midst of a heated election campaign in Varanasi — the high-profile constituency where party nominee Ajay Rai is taking on BJP’s prime ministerial candidate Narendra Modi — his ministry forged ahead with its diplomatic business. The public diplomacy division of the ministry worked equally hard on a campaign of sorts — fighting the negative perception of India’s pharmaceutical industry created by its global rivals. The ministry organised a special screening of a documentary, Fire In The Blood, before representatives of foreign embassies and the international media. It was intended to showcase the life-saving role the Indian generic drug industry has played in making anti-AIDS medicines available to millions of poor patients in Africa at a fraction of the cost charged by innovator brands. The film was screened two days after the United States Trade Representative (USTR), in its annual Special 301 Report, put India on the “priority watch list”, indicating the serious concern that the USTR had about India’s “intellectual property rights (IPR)” compliance levels. India’s response to the USTR report was not limited to this act of public diplomacy. The commerce ministry — the administrative ministry for trade and IPR issues — has already conveyed its stand. Rajeev Kher, commerce secretary, has informed USTR that the right forum to discuss the concerns of the US industry will be the bilateral Trade Policy Forum (TPF) that is already in place. “We have decided to have the next TPF in June. The secretary (commerce) will meet the deputy USTR during this meeting,” a ministry official said. Here again, there’s no dearth of action despite the election campaign priorities of commerce minister Anand Sharma.The handling of the USTR crisis just goes to show that there is no let-up in business at the commerce ministry. Conferences and meetings continue as scheduled. For instance, on 5 May, a ministry arm — the Directorate General of Anti-Dumping and Allied Duties — initiated an inquiry into the alleged dumping of the chemical hexamine by Chinese and UAE firms in the domestic market.The commerce ministry is also busy drafting the Foreign Trade Policy for the next five years —2014-19. Outlining the ministry’s agenda, Kher says the new policy will treat foreign trade as a composite economic activity. “Various government departments and the state governments need to work in tandem. The foreign trade policy should have strategic objectives to address, should be contextualised and not just be an amalgamation of a set of instruments towards export promotion,” says Kher. While the final policy will be announced after the new government assumes office, the draft will be ready for the new minister to examine and approve. break-page-breakThe finance ministry’s role is even more crucial as the country will need a full budget as soon as the new government takes over. “The groundwork has to be completed soon as the new budget has to be passed within a month or two of elections getting over. A draft budget is more or less ready,” says a senior finance ministry official. While the technical details (income and expenditure) will be filled in, the bureaucracy will wait for directions from the new government and tweak the draft as required. The ministry remains a hub of activity for other reasons as well. “There are Plan schemes (schemes approved under the 12th Five-Year Plan) of various ministries that need clearance. Statutory commissions and bodies need to function normally. There are commitments (made and approved already) that need to honoured,” says the official. Naved Masood, secretary, corporate affairs ministry, is, perhaps, the busiest bureaucrat right now. Almost 74 per cent of the laws prescribed in the Companies Act, 2013 can only turn operational when the corresponding rules, clarifiying provisions of the law, are notified. So far, the government has barely notified half of them, and the ones that have been notified require further clarification. “The ministry is working on clarifications of the new rules and is on the verge of notifying an FAQ (frequently asked questions) to allay the fears and doubts of hundreds of companies in relation to the corporate social responsibility rule,” says a company law expert. New forms and procedural guidelines that are needed to comply with the new laws are also being issued almost on a daily basis, while the minister of state for corporate affairs, Sachin Pilot, is occupied with his election campaign.Even the agriculture ministry is working round the clock. With the temporary change in weather conditions over the Pacific Ocean (the El Nino phenomenon) threatening the monsoon this year, the ministry is hard at work on measures to mitigate its effect. The common link that keeps all ministries and departments on their toes is their responsibility to set the initial agenda for the next government. Cabinet secretary Ajit Seth has written to all ministries requesting completion of the ground work before the next government is sworn in.A definite case of the lull being apparent, not real!   joe@businessworld.in  twitter@joecmathew(This story was published in BW | Businessworld Issue Dated 02-06-2014)

Bullion Sinks To Lowest In 15 Months On Robust US Data

Gold tumbled to its lowest level in around 15 months on Monday after better-than-expected U.S. jobs data boosted the dollar, dampening safe-haven appetite for bullion and pushing silver and platinum to multi-year lows.Gold, which often influences other precious metals, has also failed to capitalise on geopolitical tensions caused by military conflict between Russia and Ukraine and the rise of Islamic State in Iraq and Syria.Cash gold had fallen 0.20 percent to $1,188.37 an ounce by 0325 GMT. It earlier dropped to $1,183.46 an ounce, its weakest since June 2013.Platinum touched its lowest since 2009, silver fell to its weakest since 2010, and palladium hit an 8-month low."A strong dollar is a major problem for gold. Sentiment is very bearish but I think we expect some kind of rebound," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong, who pegged support at $1,180 an ounce."There's a little bit of physical buying, but premiums haven't changed. We have to see what happens later in the day. If demand is coming, of course, it will push up the premiums."Premiums for gold were quoted at $1.20 to $1.60 an ounce to the spot London prices, unchanged from last week, despite a sharp drop in cash gold prices.The absence of main gold consumer China is weighing on the physical market, which usually sees a pick up in demand from jewellers and retail investors when prices fall.Chinese markets have been shut for national holidays and will reopen on Wednesday.U.S. gold was at $1,189.00 an ounce, down 0.33 percent.The dollar started the week on a strong note in early Asian trade on Monday, holding near a more than four-year high touched after an upbeat U.S. nonfarm payrolls report increased speculation that the Federal Reserve would raise interest rates in mid-2015 or earlier.Data from the Labor Department on Friday showed U.S. non-farm payrolls rose 248,000 last month and the jobless rate fell to 5.9 percent, the lowest since July 2008, underscoring that the U.S. economy continues to improve.In Tokyo, sellers pushed up premiums for gold bars to 25 cents to spot London prices from zero last week to offset the decline in global prices."At this moment, demand is not good. But maybe when the holiday in China is over, the premiums may go up further," said a dealer in Tokyo.Markets in Singapore, a key bullion trading centre in Southeast Asia, were also closed for a public holiday.(Agencies) 

London Beats New York As Most Popular Work Destination

London is the most popular city in the world to work in, an international survey of more than 200,000 people found, with nearly one in six of those questioned wanting to move to the British capital to secure employment.The study by The Boston Consulting Group and totaljobs.com found respondents from 189 countries ranked London above New York and Paris, while Britain was second behind the United States as the most appealing country for international jobseekers.While the survey - described by its compilers as the most expansive study conducted on worker mobility - found that almost two thirds of jobseekers were willing to move abroad to work, within Britain only 44 percent of people want to move overseas for work."This report cements London's reputation as a truly global city," said Mike Booker, of totaljobs.com. "Not only does it offer a wealth of job opportunities in a range of industries, but it boasts some of the world's top cultural attractions, so it's no surprise that people across the globe want to come and work here."The survey of a mixture of the employed, unemployed, self-employed and students included a mix of people actively looking for a job, those not actively looking but open to opportunities and workers not looking for a new job at the moment.(Reuters) 

Not A Dismal Picture

Oil Prices Slip On Increased Supply, Strong Dollar

Crude prices slipped today to multi-year lows owing to a build-up in supplies while the dollar rallied in response to a strong US jobs report, as analysts warned of further losses.US benchmark West Texas Intermediate for November delivery was down five cents at $89.69. On Friday it closed below $90 for the first time since April 2013. Brent North Sea crude eased 36 cents to $91.95, a two-year low.While output surges in the United States owing to oil shale extraction, exports are on the rise in Russia, Libya and Kurdistan. Also, Saudi Arabia cut prices for the fourth straight month last week to defend its market share, suggesting it is unlikely to cut production any time soon.Both Brent and New York contracts have shed about 15 per cent in the past three months."Oil prices are likely to keep falling for the rest of the year as global supply is outstripping demand," said Tony Nunan, oil risk manager at Mitsubishi Corp. in Tokyo."Supply of US shale gas alone can cover global demand this year, and unless OPEC countries reduce their production, or unless a fresh geopolitical concern occurs, the best estimate now is a bearish market," he added.Also depressing prices is the stronger dollar, which surged Friday after the Labor Department said the US economy created 248,000 jobs in September and the jobless rate dipped to a six-year low of 5.9 per cent.The news increased the likelihood the Federal Reserve will hike interest rates sooner than later. The greenback is sitting at six-year highs against the yen and two-year highs against the euro.A stronger greenback makes dollar-priced commodities more expensive for buyers using weaker currencies, which tends to dent demand and push prices lower.  (Agencies)

Less Fanfare, Better Sense

April Retail Inflation Rises To 3-month High Of 8.59%

Costlier vegetables, fruits and milk pushed up retail inflation to three-month high of 8.59 per cent in April, squeezing the space for the Reserve Bank to ease interest rates in the monetary policy review in June.The retail inflation, measured on consumer price index (CPI), was 8.31 per cent in March.As per the data released by the government, food inflation increased to 9.66 per cent against 9.1 per cent in March.Vegetables were costlier by 17.5 per cent in April as against 16.8 per cent in the previous month. The rate of price rise in fruits was 21.73 per cent as against 17.19 per cent in March.Inflation in milk was 11.42 per cent in April as against 11.02 per cent in the previous month.Meanwhile, Amul and Mother Dairy, the two major milk suppliers in Delhi have increased prices by Rs 2 a litre.The price rise in protein-rich items like egg, meat and fish was 9.41 per cent, while cereals and pulses became costlier by 9.67 per cent and 5.05 per cent respectively.Amid industry clamouring for cut in interest rate, the Reserve Bank had chosen to keep the policy rate (repo) unchanged at 8 per cent in its April monetary policy review as retail inflation was "sticky".The RBI is scheduled to announce its next monetary policy review on June 1.As per the data, the corresponding provisional inflation rates for rural and urban areas for April 2014 are 9.25 per cent and 7.69 per cent, respectively.The government will release inflation based on wholesale price index (WPI) on May 14.(PTI) 

Northern Rock not so solid for Brown's future

Surging Dollar May Be Triple Whammy For US Earnings

The suddenly unstoppable US dollar is posing a triple threat to American companies' profits: driving up the costs of doing business overseas, suppressing the value of non-US sales and, perhaps most worryingly, signaling weak international demand.The dollar has been on a tear, with an index tracking it against six other major currencies notching roughly an 8 per cent gain since the end of June. Few analysts see its breakout performance stalling out anytime soon since the US economy stands on much firmer footing than most others around the world, Europe's in particular.For companies in the benchmark S&P 500, that's a big headwind because so many are multinationals, and as a group they derive almost half of their revenue from international markets."You will get some companies that have failed to meet expectations based on the weakness we're seeing overseas, so it is going to be a source of disappointment," said Carmine Grigoli, chief investment strategist at Mizuho Securities in New York.Moreover, that weakness, especially in Europe, "is going to be critical here," he said. "It's an important component of (US) earnings going forward."And while investors and analysts have begun to figure in the negative effects of a fast-strengthening dollar with regard to the approaching third-quarter reporting period, the risk to the fourth quarter and 2015 remains largely unaccounted for.For instance, third-quarter profit-growth expectations for S&P 500 companies have fallen back to 6.4 per cent from about 11 per cent two months ago, Thomson Reuters data showed.By contrast, the fourth-quarter growth forecast is down just slightly, to 11.1 per cent from a July 1 forecast of 12.0 per cent. And profit-growth estimates for 2015 have actually increased in that time from 11.5 per cent to 12.4 per cent."If you try and extrapolate out to the fourth quarter and how much that currency effect is going to be, your guidance is probably going to come down for a good slug of the multinationals on the S&P," said Art Hogan, chief market strategist at Wunderlich Securities in New York.Warning From FordWhile the dollar’s strength is a sign of better economic prospects in the United States compared with the euro zone and other parts of the world, it makes US goods and services more costly overseas.Data this week showed German factory activity shrank for the first time in 15 months, while European Central Bank President Mario Draghi disappointed stock investors when he failed to provide a specific stimulus program for the euro zone's flagging recovery. In China, data showed the country's manufacturing sector is barely growing.Grigoli said third-quarter profit estimates for US companies with the most overseas sales have fallen more than estimates for the entire S&P 500 and also compared with companies with almost no overseas sales.Mizuho data shows a 1.5 percentage point decline in estimates from July 31 to Sept. 29 for companies that derive 60 per cent or more of their sales from overseas compared with a 1.0 point decline in estimates for the S&P 500 and a 0.4 point decline for companies with almost no overseas sales exposure.Ford Motor Co.'s disappointing forecast this week may be a hint of what's to come. The No. 2 US automaker cut its forecasts for pretax profit this year, citing steeper losses in Russia and South America."Not to extrapolate too broadly from one company, but I think the negative sentiment . . .has been pretty dramatic," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. Ford shares lost 10.7 per cent last week.The potential hit to earnings follows a nearly flat quarter for the market performance of the S&P 500. The index gained just 0.6 per cent, although it remains near its record high.Equity valuations are also tipped to the high side. From a forward 12-month perspective, the price-to-earnings ratio on the S&P 500 is 15, just above its historic average of 14.9, according to Thomson Reuters data.Reporting Parade Set To StartThe onslaught of quarterly results begins soon, and the next two weeks bring reports from US companies with some of the highest levels of overseas sales. Among them, fast-food restaurant operator Yum Brands, which derives roughly 77 per cent of its sales overseas, is due to report on Tuesday, while results from chipmaker Intel, with about 83 per cent of its sales coming from overseas, are due on 14 October.In the last 30 days, analysts have slashed Yum's estimates, lowering the average earnings per share forecast by 5.4 per cent, according to Thomson Reuters StarMine. At the same time, though, Intel's estimates have been nudged up by 0.2 per cent.Among sectors, tech has the highest percentage of foreign sales, at 57 per cent, and analysts say it may take the biggest hit from the dollar this earnings season, according to S&P Dow Jones Indices data.Qualcomm, whose shares fell 5.6 per cent in the third quarter, derives 97 per cent of its sales abroad, the data showed. There's been little recent forecast revision activity for Qualcomm, which will not report earnings until early November.Accenture tops the list of companies with the most sales abroad within the S&P 100, while Fabrinet leads the list of companies with the most sales abroad within the S&P small-cap 600. Twenty-one of the 23 analysts to revise their Accenture forecasts in the last month have cut their outlooks, while no analysts have changed Fabrinet's forecasts in the last 30 days.Tech also has the highest number of profit warnings for the third quarter, though its ratio of negative-to-positive preannouncements, at 2.1 to 1, is lower than the S&P 500's ratio of 3.3 to 1, Thomson Reuters data showed.(Reuters)

American Dream

In what could be the largest tech stock debut ever in the US, Chinese e-commerce juggernaut Alibaba recently filed its IPO prospectus in the US. Alibaba Group Holding, which powers 80 per cent of all online commerce in the world’s second largest economy, is expected to raise over $15 billion, and could top the $16 billion pulled in by Facebook in 2012. The bulk of the proceeds will go to Yahoo — which bought a 40 per cent stake in Alibaba in 2005 and which must sell more than a third of its current 22.6 per cent stake through the IPO. While Alibaba is less known in the US, its listing has stirred up the most excitement in Silicon Valley and Wall Street since Facebook’s record IPO. Alibaba will become the largest Chinese firm to list on the NYSE or Nasdaq.Up In The AirHewlett-Packard (HP) said it plans to invest more than $1 billion over the next two years to develop and offer cloud-computing products and services. The company said it will make its OpenStack-based public cloud services available in 20 data centres over the next 18 months. OpenStack, a cloud computing project that HP co-founded, provides a free and open-source cloud computing platform for public and private cloud services. HP recently inked a deal with Taiwanese contract manufacturer Foxconn Technology Group to make servers aimed at companies that provide cloud computing services.Number TweaksThe US trade deficit narrowed in March as exports rebounded, but the improvement was probably not enough to prevent the government from revising down its estimate of first-quarter growth to show a contraction. The Commerce Department recently said the trade gap shrank 3.6 per cent to $40.4 billion, broadly in line with economists’ expectations. When adjusted for inflation, the deficit dipped to $49.4 billion from $49.8 billion in February. March’s shortfall, however, was a bit bigger than the $38.9 billion that the government had assumed in its advance first-quarter gross domestic product (GDP) estimate. The report came on the heels of March construction spending and factory inventories data that also proved weaker than the government had assumed in its advance GDP report.Patent Penalty A US jury left the total damages Samsung Electronics must pay Apple unchanged at $119.6 million, after additional deliberations in a trial where the South Korean firm was found to have infringed three Apple patents. During the month-long trial, Apple accused Samsung of violating patents on smartphone features including universal search, while Samsung denied any wrongdoing.Close-Lipped JPMorgan Chase is reportedly closing the accounts of current and former foreign government officials to avoid the compliance costs associated with them. This affects around 3,500 accounts. JPMorgan said it was closing the Chase accounts and stopping credit cards of the officials because of hiked compliance costs. Banks are obliged to subject accounts of “politically exposed persons” to added scrutiny. The ban does not apply to JPMorgan’s private bank.ResolutionCredit Suisse Group is in talks with the US justice department to pay around $1.6 billion to resolve an investigation into the bank’s role in helping Americans evade US taxes, sources are reported to have said. Prosecutors have also been pushing for Credit Suisse to plead guilty in connection with the probe. A spokesman for Credit Suisse declined comment. The penalty would exceed the 895 million Swiss francs ($1 billion) that Credit Suisse had set aside to pay potential penalties to the US.Big Deal Germany’s Bayer has trumped rival bidders for Merck & Co’s consumer care business in a $14.2-billion deal. Merck said it expects after-tax proceeds of $8-9 billion from the sale, which is expected to close in the second half of 2014. The transaction, the largest in the German healthcare industry since Bayer bought rival Schering for €17 billion ($24 billion) in 2006, will make Bayer the world’s second-biggest consumer healthcare firm, as it seeks to make better use of its distribution network and sales force.Playing CoyAstraZeneca laid out its defence against Pfizer’s $106-billion takeover approach by predicting its sales would rise by three quarters over the next decade, although only after a short-term drop. With promising new medicines expected to lift annual revenue above $45 billion by 2023, up from $25.7 billion in 2013, selling out to the US group now would deprive investors of huge gains, it argued. But the group has not ruled out a deal altogether, and sources say it is willing to talk if there is a compelling offer.Tax TalkFrance and Germany recently led a group of 10 EU nations in calling for a tax on financial trading, but their failure to agree to central elements of the plan means it will fall short of its original goals. The tax was promised in 2011 as a means to getting banks to contribute more towards solving a crisis that had by then bankrupted Greece and Ireland. The 10 finance ministers also pledged to phase in the tax on shares and derivatives trading from 2016.Slow & SteadyGrowth in China’s factory output and investment may have stabilised in April — estimated to grow 8.9 per cent over last year — as the government uses targeted policy measures to underpin growth, while the pace of declines in exports and imports may have eased, a news poll showed. However, the country may only get a temporary boost from such policy support, as growth will inevitably slow while the government seeks to tackle high debt levels and excessive factory capacity.Air PocketAbu Dhabi’s Etihad Airways said its strategy of buying stakes in European airlines was bringing fresh competition to the region. Etihad currently has holdings in Air Berlin, Air Lingus and Air Serbia, and is looking to buy a chunk of Italy’s ailing carrier Alitalia. However, it has come under scrutiny of regulators to see if they comply with European ownership rules.Foul PlayTourists visiting Brazil for the World Cup (starting 12 June) are advised to pack a bathing suit, sunscreen, and lots of cash. Home to some of the world’s most expensive restaurants and hotels, visitors had better be prepared for the $10 caipirinha drink, $100 risotto and the $1,000-a-night hotel room — prices fuelled by many of the same imbalances and policies that have restrained economic growth in recent years. One reason for the steep prices is the high cost of doing business, courtesy a mix of taxes, import tariffs, bureaucracy and poor infrastructure.(This story was published in BW | Businessworld Issue Dated 02-06-2014)