Government bonds rallied and the rupee was marginally stronger on Wednesday after the RBI said late on Tuesday it will buy bonds and eased bond-holding rules for banks to ease tight cash conditions. The rupee recovered by 10 paise to 63.15 against the US dollar in early trade after RBI announced measures to curb volatility and ease liquidity situation. Forex dealers said besides dollar selling by exporters, the Reserve Bank yesterday announced a slew of measures to ease liquidity, including Rs 8,000 crore bond buyback, to ensure adequate credit flow to the productive sectors of the economy, which also supported the rupee. They said, dollar's weakness against euro overseas also helped the domestic currency. Also Read: RBI Eases Tight Money Policy The rupee had ended 12 paise lower at 63.25 after hitting a fresh low of 64.13 against the US dollar in the previous session. The BSE benchmark index Sensex rose sharply by 321.66 points, or 1.76 per cent, to 18,567.70 in early trade. The benchmark 10-year bond yield fell as much as 69 basis points to 8.21 per cent. It was last trading at 8.28 per cent. Interest rate swaps were also sharply down. The five-year OIS was down 60 basis points at 8.35 per cent, while the one-year was down 44 bps at 9.45 pct, traders said.(Agencies)
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Stating that the current economic scenario is similar to 1991-92 crisis, foreign brokerage Barclays today said credit growth of banks will slow down to 10-11 per cent levels, just like it did during the crisis in early 90s. "The current macro context and consequently the monetary policy challenges are similar to those in FY1992," it said in a note. Barclays drew a slew of parallels between the ongoing economic scenario and the one during the dark period of 1991-92, like a sharp GDP slowdown, strained external account and sticky inflation. It can be noted that growth has fallen to a decade low of 5 per cent in FY13, the current account deficit is at a record high of 4.8 per cent, while the headline inflation also surged to 5.79 per cent due to the rupee depreciation, after showing ebbing for three months. Top economic policymakers, including Prime Minister Manmohan Singh, who ushered in the reforms in 1991 as a result of the crisis, have been repeatedly asserting that the scenario at present is not the same as 1991. It added that in 1991-92, capital spending and credit growth were weak, and hence, going to the bond markets was an unattractive option for banks. "If the FY92 scenario is repeated, credit growth could drop to 10-11 per cent," it said, conceding that this is contrary to the current focus on credit growth getting constrained because of weak deposit growth. Barclays said given their inflexible cost structures, public sector banks would get impacted because of this while others like Yes Bank and Indusind Bank, which are witnessing a string of growth in operating expenses because of network investments will also be hit. "A prolonged slowdown in credit growth would put pressure on the cost to income ratios of banks that have an inflexible cost base," it said.(PTI)
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Under attack over missing files relating to coal block allocation, the government on Tuesday, 20 August, said in the Rajya Sabha that the issue was being looked into and no stone would be left unturned in tracing the missing documents sought by CBI.The Opposition forced three adjournments before lunch over the issue, asking coal minister Sriprakash Jaiswal to recuse himself from replying and demanding that Prime Minister Manmohan Singh should make a statement.They said "propriety" demands Jaiswal should abstain as the missing files reportedly relate to a beneficiary of coal block allocation who is linked to the minister.Jaiswal sought to mollify the Opposition as he said he was ready to face any punishment if found guilty of the allegations.At the same time, he asked Leader of the Opposition Arun Jaitley as to what punishment he would undergo if the case was otherwise."All efforts are being made to locate documents which are not readily available...My Ministry would leave no stone unturned in tracing and providing the documents sought by the CBI," he said, adding a total of 769 files and documents running into 1.5 lakh pages have been handed over to the investigating agency.Raising the issue earlier, Jaitley said there are media reports that one of the beneficiaries of the coal block allocation was some body with whom the Coal Minister was related."If files relating to that allocation are missing, should he be making a statement on those files. I want to know from the chair that on account of this conflict of interest, should he make the statement...If not direct, it is a case of indirect involvement," said Jaitley."Propriety demands that the minister should voluntarily not speak...it should be the Prime Minister who should speak," said Najma Heptulla (BJP), asking the chair to give a ruling in this regard.Ravi Shankar Prasad (BJP) said the Minister should "at least voluntarily recuse himself" from replying to the query on missing files.Supporting the demand, Sitaram Yechury (CPI-M) said, "The House must know how these files are missing. It is appropriate that the minister then incharge should make the statement how the files went missing." Replying to the opposition attack, Jaiswal conceded that some files are missing and hence an inter-ministerial committee headed by an additional secretary has been set up to look into the issue and any action will be taken only after its report."The mandate given to the committee is to examine and review non-availability of files/documents and suggest appropriate action," he said, adding the committee has held two meetings and documents are being located.Amid slogan shouting by BJP, Jaiswal said some documents belonging to a period prior to 2004 are missing and alleged who had the interest in getting the files to pre-2004 period missing while pointing the needle of suspicion at NDA regime.Earlier Jaitley alleged that "files don't disappear, they are made to disappear" and said, "the files contain evidences of arbitrary allotments...the evidence of crime are in those files...if files disappear, the possibility of their escaping the punishment for a crime is obviously there." He said destruction of evidence in a case being probed by CBI and monitored by Supreme Court is in itself a crime. "Has the minister registered any FIR? Have you taken any legal recourse," he asked.There was uproar by the entire Opposition when Derek O'Brien (TMC) quoted a Congress spokesperson as saying, "the files are being re-written" and BJP raised slogans of "shame, shame".Questioning the minister, Jaitley said, "Will you please tell us the list of those companies whose files have been made to miss or disappear...who are these people who are the beneficiaries."Yechury also questioned Jaiswal if any FIR has been registered for the missing files, but the minister said a committee has been set up in this regard and any action will follow after its report.Seeking to know how the files went missing, Yechury asked why the files were not sought from the CAG which had conducted a complete audit of the ministry that led to the coal scam.Jaitley made a specific query if no file pertaining to post-2004 period was missing, but the Minister said this information was with CBI, leading to uproar.He said the files did not go missing in 2004 but in 2013 during the time when Jaiswal was the minister.The minister said if there was information about theft or destroying of files, an FIR would have been registered, but said since this was a case of missing files a Committee has been formed.Earlier, asking the chair to seek a direction on who should make a statement on the issue, Najma Heptulla (BJP) cited her own example when she in the chair had given a ruling asking Ram Jethmalani not to speak on the stock scam as he was the retainer of Harshad Mehta's assets at the time.Deputy chairman PJ Kurien, however, said the chair cannot direct the government to ask a specific minister to make a statement. The chair cannot presume any member or Minister to be guilty based on newspaper reports, saying if government wants it can make a statement.Prasad said when the coal scam surfaced, the Prime Minister and others had repeatedly assured that proper investigation would be conducted."It is a serious issue. If there would be resistance, then we will be constrained to presume that there is something fishy," said Prasad on why Jaiswal is insisting to make a statement on the issue. (PTI)
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Attributing rupee fall to widening current account deficit (CAD), Moody's said, depreciating value of the domestic currency is likely to inflate the fuel subsidy bill, weaken the credit quality of oil companies and put pressure on the fiscal deficit."Despite previous price liberalisation in the petroleum sector, the subsidy bill is likely to rise due to depreciation, thus widening the government's deficit, which is also under pressure from slower revenue growth", said Moody's Investors Service in an e-mail reply.The depreciation of the rupee, it said, reflects the wider CAD as well as lower net capital inflows.Continuing its slide, the rupee breached 64-mark against dollar on Tuesday, 20 August, by falling 98 paise to trade at record low of 64.11 on persistent dollar demand in the early trade."We believe the currency will remain under pressure until the current account deficit narrows meaningfully, or capital inflows accelerate due to an improving growth outlook," Moody's said.Meanwhile, a report by the rating agency said that the rupee fall will weaken the credit quality of state-owned oil marketing and upstream oil companies during the current fiscal if the government continues to ask them to share a higher fuel subsidy burden as it did in April-June."We now expect fuel subsidies for FY 2014 at Rs 1.4-1.5 lakh crore, up from the Rs 1.3 lakh crore expected in June 2013," said Vikas Halan, Moody's Vice President and Senior Analyst.The report cites the ongoing depreciation of the Indian rupee and the rising crude oil prices as the reasons for the upward revision of its fuel subsidy estimate for 2013-14."If the government continues with the same subsidy-sharing formula, as in April-June quarter, then the credit quality of the state-owned oil companies will weaken further," Halan added.(PTI)
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India raised the cap on foreign direct investment in asset reconstruction companies (ARC) to 74 percent from 49 percent, the Reserve Bank of India (RBI) said on Monday, 19 August, another measure to attract capital inflows to support a sagging rupee.The foreign investment limit of 74 per cent in the company will include both foreign direct investment and foreign institutional investment with a single portfolio investor not allowed to exceed 10 per cent of paid-up capital in the ARC, the RBI said.(Reuters)
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Moody's on Monday, 19 August, reiterated its stable outlook on India's Baa3 sovereign rating, Bloomberg cited analyst Atsi Sheth.India's rating is supported by low levels of overseas government debt and adequate reserves for balance of payments needs in the near term, Sheth said in an email to Bloomberg. "The rating is also supported by domestic savings rate," it added.India's sovereign rating is at the lowest investment grade level. Moody's said that it will continue to asses the country's foreign exchange reserves adequacy. "India has adequate reserves for near-term BoP payments," it said.According to Moody's, flows are unlikely to accelerate unless growth outlook improves. "Fiscal policy is the weakest aspect of Indian economy," it said.Earlier in the day, in an interview with ET Now, Sheth said, "India has had certain amount of capital controls before and will likely continue to have capital controls into the future. Indian authorities have been very clear that capital account liberalisation is something they will address with caution.""In our view, India has always had capital controls. The measures announced recently were indeed adjustments in the amounts of controls. So depending on what your own view is, you can interpret it as new capital controls or an adjustment of capital controls. But the fact is that there were capital controls before, there will be capital controls now and the amount of control is what is being adjusted now," she added."In my view, what is affecting the attractiveness of the country as an investment destination are two factors. One is the growth outlook that we are seeing coming in and the second factor is the policy environment," Sheth said."We saw over the last year a flurry of announcements which have been seen positively by some because they open the doors to investment in certain sectors and they liberalise regulation in certain other sectors. But the net result of all those announcements has still not reflected in the growth. There is still uncertainty as to what next will come from the government that will really propel an improvement in the investment outlook.""Until there is some clarity that the government is going to take measures that will actually lead to private investors making direct investments, the attractiveness of India as an investment destination will remain subdued," she added.Earlier today, The rupee fell past 63 per dollar to a record low on sustained dollar demand from state-run and foreign banks.The rupee closed at 63.13 to a dollar, down 2.4 per cent on the day. The currency closed trading on Friday at 61.65/66 (not 61.55/56).
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The Apple-Samsung patents battle rages on, and now the Barack Obama government seems to have been roped in. Recently, the US International Trade Commission (ITC) banned the sale of some older iPhones and iPads in a ruling that favoured Samsung Electronics over Apple. But soon after, the American government overturned the ITC ruling, saying the decision was in part based on its “effect on competitive conditions in the US economy and the effect on US consumers”. Ironically, a few days after the ban was reversed, ITC announced another ruling that Samsung had violated two of Apple’s iPhone patents and must end US import of some of its products. Now, one needs to wait and see if the American government will step in again, this time in Samsung’s favour. Industry trackers hope it will, since such strict intellectual property laws have a huge negative impact on the masses.GroundedThe US government recently sued to block American Airlines and US Airways’s proposed merger to create the world’s biggest airline, saying consumers would end up paying higher fares and fees. The surprise move may delay, or even derail, a merger set to close in September and could stall a broad industry restructuring that investors were counting on to support airline profits. It also could hinder American’s parent AMR Corp’s efforts to emerge from its nearly two-year-old bankruptcy. The justice department, which has in recent years allowed two major airline mergers to go ahead, said it is out to block the $11-billion deal entirely rather than seek concessions. Tim ArmstrongFirefightEmployees getting fired for innocuous deeds is not news, but a CEO apologising for the manner of firing definitely is. AOL Inc chief executive Tim Armstrong said in a staff memo recently that he made a mistake in publicly firing Abel Lenz in front of a 1,000 workers. Armstrong fired Lenz after he told the creative director at AOL’s Patch unit to put down his camera. “I am accountable for the way I handled the situation, and at a human level it was unfair to Abel,” Armstrong said in the memo. He added that he apologised directly to Lenz as well. The CEO said he had asked Lenz not to record meetings earlier as well.Out Of The BottleHJ Heinz, the world’s largest ketchup maker, said it plans to eliminate 600 jobs across North America. The move follows the $28-billion sale of the firm to Warren Buffett’s Berkshire Hathaway and private equity firm 3G Capital earlier this year. “Our new organisational structure will simplify, strengthen and leverage the company’s global scale, while enabling faster decision-making, increased accountability and accelerated growth,” said Michael Mullen, a Heinz senior vice-president. The eliminated positions are all white-collar jobs, with 350 layoffs at the firm’s Pittsburgh headquarters. The cuts follow a June shakeup that saw 11 top executives leave. After the cuts are complete, the firm will still employ around 6,000 people across North America.Orient Calling Whirlpool Corp said it will buy a majority stake in China’s Hefei Rongshida Sanyo Electric for $552 million as the world’s largest maker of home appliances seeks to expand its sales in Asia. Hefei Sanyo, which makes washing machines, microwaves and refrigerators sold under the Sanyo, Rongshida/Royal Star and Diqua brand names, competes with big Chinese firms such as Haier Electronics and GD Midea. It reported a net profit of $48 million on sales of $636 million last year.Cutting The CordFoxconn Technology, known for assembling Apple’s iPhones, will decide by year-end whether to branch off into unconventional new territory: making solar panels in China. It’s an industry plagued by overcapacity, and panel prices have tumbled by over two-thirds in two years. Yet, some say Foxconn — which has been testing the market for two years — may end up timing it right, moving in just as the sector shows some signs of stability. It intends to cut its reliance on Apple, which accounted for around 60 per cent of its parent firm Hon Hai’s $100-billion-plus revenue last year.A Speed Bump The pace of economic growth has slowed in Japan, casting doubt over its ambitious stimulus plan and a planned tax hike. Its economy grew at an annual rate of 2.6 per cent in the second quarter of 2013, as ooposed to an expected 3.6 per cent increase. Markets hope this will cause policymakers to delay or suspend an unpopular tax increase — doubling consumption tax to 10 per cent by 2015 — that can take a bite out of growth just when the bold economic stimulus plan appears to be bearing fruit.The Penny DropsSeven people who ran a more than $140-million scheme that preyed on investors in 35 countries by fraudulently inflating the price of penny stocks were recently arrested in the US. Two other people, including the alleged mastermind, were charged but remain at large. The scheme led to one of the largest international penny stock investigations ever conducted by the US. The defendants used US securities markets as a platform to run elaborate fraudulent schemes, including wire fraud and false personification of Internal Revenue Service employees, an attorney said, adding, “where others saw citizens of the world, the defendants saw a pool of potential marks”. Telling NumbersBanks cut 5,500 branches across the European Union (EU) last year, 2.5 per cent of the total, leaving the region with 20,000 fewer outlets than it had when the financial industry was plunged into a crisis in 2008. Last year’s cuts come after 7,200 branches were axed in 2011, according to data from the European Central Bank. EU banks have been closing branches to trim operating costs and improve their battered earnings. Consumer take-up of online and telephone banking services has accelerated the trend. The data shows EU banks cut 8 per cent of branches in aggregate in the four years to the end of 2012. Greece saw one of the biggest cuts, shedding 5.7 per cent of its outlets.The Power Of TwoThe German and French economies grew faster than expected in the second quarter, bettering a widely heralded expansion in the US and pulling the euro zone out of a year-and-a-half-long recession. The increased pace was primarily driven by renewed business and consumer spending in the 17-country bloc’s two largest economies. The euro zone economy was fragile overall, however, with some countries, notably Spain and Italy, still struggling. The 0.3 per cent euro zone growth for the three months to June meant a nascent recovery was on a more solid footing. The EU has been in a debt crisis for more than three years. France grew by 0.5 per cent, and Germany by 0.7 per cent.(This story was published in BW | Businessworld Issue Dated 09-09-2013)
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Gold prices took another jump of Rs 515 to scale an eight-month high of Rs 31,525 per ten gram in Delhi on Saturday, 17 August, sustained buying by stockists and investors.After its biggest single day rise in two years yesterday, the precious metal advanced to a level last seen on December 18, 2012 due to tumbling rupee and stocks.The rally in precious metals sparked after rupee plunged to all-time low of 61.65 against American currency, raising fears the dollar-denominated metal would become costlier and restrict supply into the market after the RBI prohibited inward shipment of gold coins.Investors rushing to bullion as a safe haven following free fall in equities and forex further influenced the market sentiment. Firming global trend was another positive factor for the precious metals."Melting equities and depreciating rupee have left no other option for the investor fraternity but to park their funds in bullion," said Surender Jain, Vice President of All India Sarafa Bazar.Restricted supply after government increased import duty on the metal to 10 per cent on August 13 and firm global cues supported the upsurge in the metal, he added.The latest measures by RBI and the government are part of a series of steps taken to curb gold import, a major contributor to the widening current account deficit.Silver followed suit and shot up further by Rs 1,365 to Rs 50,685 per kg on increased demand from industrial units and coin makers.In the national capital, gold of 99.9 and 99.5 per cent purity advanced by Rs 515 each to Rs 31,525 and Rs 31,325 per ten grams, respectively.Sovereign followed suit and climbed by Rs 200 to Rs 24,900 per piece of eight gram.Similarly, silver ready added Rs 1,365 to Rs 50,685 per kg and weekly-based delivery by Rs 1,315 to Rs 50,535 per kg, after steep rise of Rs 3,270 in the previous session.Silver coins spurted by Rs 1,000 to Rs 87,000 for buying and Rs 88,000 for selling of 100 pieces.(PTI)
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The country's foreign exchange reserves rose by $1.434 billion in the week ended 9 August, after dropping by $2.99 billion previous week, the Reserve Bank of India said. Total reserves rose to $278.601 billion as against $277.167 billion in the week ended 2 August. Foreign currency assets (FCA), a major component of the forex reserves, also increased by $1.453 billion to $251.349 billion in the week, according to the RBI. In the week ended 2 August, FCA dropped $2.155 billion to $249.895 billion. Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of the non-US currencies, such as the Euro, Pound and Yen, held in the reserves. During the week, the gold reserves remained unchanged at $20.747 billion, the central bank said. For the week under review, the special drawing rights (SDRs) were up by $45.4 million to $4.398.2 billion, while the country's reserve position with the International Monetary Fund (IMF) fell by $64.7 million to $2.107 billion, the RBI data showed. (PTI)
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Education solutions provider Educomp Solutions said on Friday, 16 August, it has cut 3,500 jobs in the last three months and has also initiated measures to spur growth."Educomp has announced a slew of measures aimed at putting the company back on a growth trajectory at a time when market sentiment is adversely impacting bottom lines across industry and has pushed the education sector into negative growth territory," it said in a release.The plan entails modifications in structure, systems and sales strategies to return the firm to profitability in the current and following fiscal. Within this transformational plan, a series of tactical steps have been identified to fast-track the correction, it added.Redundancies are being calibrated in a progressive manner and employee strength is being rationalised. Contracts of unproductive staff are being terminated, while enhancing responsibilities among existing staff to control costs without impacting performance, it said."Over the last 3 months, the company has let go over 3,500 employees. This alone has the potential of significant savings for the company," Educomp added.Collections are being prioritised and a zero-tolerance regime for recoveries has been initiated and around 750 schools which have delayed payments have been sent notices, it said."While Smartclass has always enjoyed a loyal customer base, 750 non-compliant schools which represent less than 5 per cent of the installed base have been asked to show cause for their repeated delays," Educomp Smartclass COO Divya Lal said.Recently, the Gurgaon-based firm outsourced its service and maintenance logistics to HCL Infosystems in a bid to exploit efficiencies of scale as well as provide specialist services to existing and new customers.The company is targeting a reduction in operational costs of close to 20 per cent over the last fiscal due to these measures.(PTI)
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