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)
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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)
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If you keep belching at the dinner table, you’ll be eating in the kitchen”—Warren Buffett, chairman and CEO, Berkshire Hathaway, on his decision to not vote on an equity compensation plan for executives of Coca-Cola, even though he thought the plan was excessive“If I lose, my kettle is ready. I will go back and sell tea”—Narendra Modi, BJP’s prime ministerial candidate, in response to a question often raised by Congressmen on his future if he happens to lose the general elections“This monitoring behaviour of the United States is within expectations”—Ren Zhengfei, founder and CEO, Huawei, on learning that the US National Security Agency was spying on his company“We want to invest in the partners that are really doing the right thing with the workforce”—Mark Parker, CEO, Nike, on shifting the company’s production within China after a major strike at a supplier’s factory“No company or individual is too big to jail”—Eric H. Holder Jr, attorney general, US, on the Justice Department preparing criminal charges against two of Europe’s largest banks — Credit Suisse and BNP Paribas“I have done more heavy lifting in the last 12 months than RBI”—P. Chidambaram, finance minister, taking credit for restoring calm in India’s financial markets last year“The Fed may get more raucous about what to do next as tapering draws to a close”—Alan Blinder, an economics professor at Princeton University and a former vice-chairman of the central bank, at a conference in Boston“I am pretty concerned about a Modi-run government. The indications that it will be a fairly bullying government are already there”—Salman Rushdie, author, at a conference(This story was published in BW | Businessworld Issue Dated 02-06-2014)
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The Election Commission on Monday (12 May) directed the Varanasi Returning Officer to file an FIR or complaint against Congress candidate Ajai Rai for displaying his party symbol and talking to media at a polling booth amounting to "canvassing" which is barred on the voting day.Official sources in the EC said that the FIR or complaint would be filed under Section 126 and 130 of the Representation of the People Act, 1951 against Rai.Rai landed in a controversy after he went to vote wearing his election symbol on his kurta, with BJP and AAP seeking action against him.Special Election Observer Praveen Kumar said in Varanasi he has sent a detailed report to the Chief Election Commissioner on the issue.Varanasi Returning Officer Pranjal Yadav said he has seen the video of Rai going inside the polling booth in Ramakant Nagar of Chetganj area wearing Congress' election symbol."We have seen the video. We have informed the Special Election Observer and the higher authorities. Action would be taken immediately," Yadav said.Kumar said that flashing of election symbol at the booth is violation of Section 130 of the Representation of People Act.Rai, along with his family members, this morning went to cast his vote wearing a badge of Congress election symbol 'hand' on his kurta.He, however, defended his action, saying that he has the right to wear the symbol as a candidate.Rai also claimed that the case against Narendra Modi cannot be compared with his action as the BJP Prime Ministerial candidate had shown his lotus symbol after casting vote in Gandhinagar.(PTI)
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Wielding a broom, Prime Minister Narendra Modi on Thursday launched the country's biggest-ever cleanliness drive that is expected to cost Rs 62,000 crore, asserting that the "Swachh Bharat Abhiyan" (Clean India Mission) is "beyond politics" and inspired by patriotism. Modi swept the filthy streets in Delhi to raise public awareness about cleanliness and sanitation. Rejecting opposition criticism that his government has been taking credit for every achievement, the Prime Minister acknolwedged the efforts of all previous governments to make India clean. "All the governments in this country have made one or the other effort to do this work. Several political, social and cultural organisations have made efforts in this direction," Modi said in his 25-minute address at Rajpath, where he formally kicked off the five-year-long campaign that will cover 4,041 statutory towns. Administering a pledge to people to make India clean, he said that this task is not the responsibility only of municipal workers or the government but of all the 125 crore Indians. He said that the campaign should not be seen as a mere photo opportunity. Modi has urged every Indian to devote at least one hundred hours every year, two hours every week, towards cleanliness. In an event marked by fervour and symbolism, the Prime Minister earlier wielded a broom and swept pavement in Valmiki Basti, a colony of sanitation workers in the Indian capital. The urban component of the mission is proposed to be implemented over 5 years starting from October 2, 2014 in all 4,041 statutory towns. The total expected cost of the programme is Rs 62,009 crore, out of which the proposed central assistance will be of Rs 14,623 crore. The Cabinet had last month decided to merge the 'Nirmal Bharat Abhiyan', a campaign for rural sanitation with Swachh Bharat Mission. Congress CriticismThe Prime Minister countered Congress criticism that his government behaves as if everything happened only after he came to power. "I do not make any claim that the government, which has been elected to power just now, has done everything." The Congress has accused Modi of taking credit for the initiatives undertaken by the previous United Progressive Alliace (UPA) government and trying to give an impression that every good work was done only by him. Maintaining that everybody deserves kudos, the Prime Minister asked not to get into making political barbs on the issue. "Everybody before us has worked for it. Under Mahatma Gandhi's leadership, the Congress had led it. Who was successful, who was not. Let us not get into it who has done it, who has not. We should work responsibly," he said. Public AwarenessWhile ruing that 60 per cent of populace in rural areas still defecate in open, the Prime Minister said the stigma of women lacking toilet facilities has to be removed. Modi said that he has requested the corporates to evolve plans under corporate social responsibility to build clean toilets specially for girl students in schools. India, he said, should learn from foreign countries, where people are disciplined and do not litter in public places. He said though it is a difficult task, it can be achieved and for that people will have to change their habits. Modi said that a campaign has been unleashed on the social media as well where a separate website for the mission has been launched and he is tweeting about the drive on his Twitter handle. Expressing confidence that the nation can achieve the target of becoming one of cleanest in the world, the Prime Minister dwelt upon the low cost success of the Mars Orbiter Mission. "If people of India can reach Mars with minimal expenditure, why can they not keep their streets and colonies clean," he said. "If we make it a public movement, we can make our country being counted as one among the cleanest nations," he said. Modi earlier in the day visited the 'samadhi' of Mahatma Gandhi and former Prime Minister Lal Bahadur Shastri on their birth anniversary. Dismal NumbersQuoting a WHO estimate, the Prime Minister said a person in India loses about Rs 6,500 per annum due to illness and poor health as he is unable to perform day-to-day duties. He said if the surroundings are kept clean, then people will remain healthy and such losses can be minimised. Less than one-third of Indians have access to sanitation and more than 186,000 children under five die every year from diarrhoeal diseases caused by unsafe water and poor sanitation, according to charity WaterAid. A United Nations report in May said half of India's population still practise open defecation. Diseases and deaths because of unhealthy conditions cause major economic losses, and a World Bank report in 2006 estimated that India was losing 6.4 per cent of its GDP annually because of poor sanitation. (Agencies)
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India is on the cusp of political change that is widely expected to infuse a new life into an economy that is struggling to break away from a tale of weak growth and high inflation.But data due this week will probably show no improvement yet to its economic woes, as industrial output is expected to contract for a second straight month while inflation is forecast to pick up.Asia's third-largest economy is battling the worst slowdown since the 1980s as GDP growth has almost halved to under 5 per cent in the past two years.Output from mines, utilities and factories in March probably fell 1.5 per cent from a year earlier, according to a Reuters poll of economists.If the forecast materialises, it would mark the fifth fall in industrial production in six months, reflecting the rut gripping the economy from weak consumer and investment demand.Meanwhile, consumer inflation is estimated to have quickened to 8.48 per cent in April from 8.31 per cent in March, the poll showed. Wholesale prices for the month are forecast to rise 5.73 per cent compared with a 5.70 per cent annual gain in March.The statistics ministry will release industrial production and consumer inflation data at 5:30 p.m. on Monday. The commerce and industry ministry is due to release wholesale price figures on Thursday at around 12 p.m.Optimism For TurnaroundPolicymakers are hopeful of an economic rebound in the fiscal year that began in April, but much will depend upon the pace of reforms after a new government takes over in New Delhi following the conclusion of ongoing national elections on May 16."We concur that the economy has bottomed out in recent quarters and a right mix of policy coordination and governance should be able to kick-start the growth cycle," Singapore-based brokerage DBS said in a note last week."While the cycle could benefit from a stable government, the (growth) upturn will be gradual."High inflation and weak growth have dogged much of outgoing Prime Minister Manmohan Singh's second term, damaging the prospects of his Congress party at the hustings and swelling public support for pro-business opposition leader Narendra Modi.Modi's promise to fix an ailing economy has made him the prime ministerial front-runner. The Nifty has surged 17 per cent since the Bharatiya Janata Party (BJP) leader officially joined the fray for the country's top job on hopes he would script an economic revival.But that depends on his success in pushing up capital investment growth from an eleven-year low and cooling retail inflation that been averaging nearly 10 per cent for the past two years, way above the central bank's comfort zone."The promise of reform needs to match with improvement on the ground to sustain that optimism (in financial markets)," wrote DBS' economist Radhika Rao.ChallengesWhile many analysts are hoping for a rapid implementation of pending labour, fiscal and tax reforms for a faster economic recovery, some say high corporate leverage and rising bad loans at Indian banks will hamper the pace of recovery.Stressed loans in India - those categorised as bad and restructured - total $100 billion, or about 10 per cent of all loans. Debt-equity ratio of Indian firms has hit a two-decade high of 97.9 per cent, Nomura said.Compounding economic worries are the prospects of a below-average monsoon this summer, which could hit farm output and fuel inflation, leaving the central bank with little room to support the economy.In 2009, patchy monsoon rains led to India's worst drought in nearly four decades, resulting in runaway food inflation.(Reuters)
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Election Commission guidelines making it virtually mandatory for political parties to deposit their funds in banks and not to exceed ceiling limits in financial assistance for candidates to ensure transparency and accountability came into effect today.The Election Commission order of August 29 in this regard under Article 324 of the Constitution (superintendence, direction and control of elections) was part of a set of comprehensive guidelines on transparency and accountability in party funds and election expenditure.The poll body had said that guidelines will come into effect from October 1.Under the guidelines, the treasurer of a political party is now required to ensure maintenance of accounts at all state and lower levels and consolidated accounts at the central party headquarters.The accounts maintained by the treasurer shall conform to the guidance note on accounting and auditing of political parties issued by the Institute of Chartered Accountants. The annual accounts shall be audited and certified by certified chartered accountants as required under the Income Tax Act.Under the guidelines, a party should ensure that no payment in excess of Rs 20,000 is made to any person or company in cash, except in a village or in town not served by a bank.Also it will not apply to payments made to any employee or party functionary towards salary, pension or reimbursement of expenses or where cash payment is required under any statute.Referring to the Representation of the People Act provision regarding ceiling for election expenditure of a candidate, the EC guidelines make it clear that such assistance from a political party shall not exceed the prescribed ceiling."Any payment in this regard by the party shall be made through crossed account payee cheque or draft or through bank account transfer and not in cash," says one of the guidelines.While the recognised political parties shall file all reports, namely the contribution reports in Form 24A, the audited annual accounts as certified by the chartered accountants and the election expenditure statements with the Commission.The unrecognised parties shall file them with the chief electoral officer of the states.The EC said in order to bring uniformity, all political parties shall submit to the Commission or to any authority mentioned by it a copy of the annual accounts with auditors report for each financial year before October 31 of each year.The Income Tax provisions do not allow any deduction on the contributions made in cash by any person or company to a political party.Accordingly, the Commission guidelines say, the political party shall maintain names and address of all such individuals, companies or entities making donation to it excepting petty sums donated by public during rallies.Further, any amount or donation received in cash, shall be duly accounted in the account books deposited in the party's bank account within a week of its receipt.However, the party can retain a reasonable amount required for day-to-day functioning and for defraying cash expenses.The Commission said concerns have been expressed in various quarters that money power was disturbing the level playing field and vitiating purity of elections.Noting that it is desirable for political parties to observe transparency and accountability in respect of funds raised and expenditure incurred both during elections and in other times, the Commission said it is necessary and expedient to provide guidelines for bringing that.(PTI)
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