Economy to grow by around 7 pc in FY'09, hopes FM

Revival in steel and cement sectors and ample funds available with states for spending today gave the centre the confidence that the country will grow by around 7 per cent in the current fiscal. For the first nine months of this fiscal, the economy grew by 6.9 per cent and the government's advance estimates pegged the growth at 7.1 per cent for the entire 2008-09. Replying to a question on economic growth during an interview, Mukherjee said, "All these are estimates and of course between 6.9 and 7.1 (there is) not much difference, but I do hope when the final figures come out it would be around seven per cent." The economy grew by 5.3 per cent in the third quarter of current fiscal. To a query whether market is losing confidence due to slackening growth, he said, "I don't agree with your (interviewer's) contention." He said exact numbers could be known only after it becomes clear how will economy respond to stimulus packages. "All these things...have to be seen for example slow revival of steel and cement industry has started, housing industry have been made adequate allocations, states have been provided funds, they themselves have good cash reserves of about Rs 91,000 crore, quite a few of them would like to spend a substantial quantum of money this year... all this would be available after March 31," he added. "These are speculation, estimates...How will economy respond to stimulus package, how is it going to respond to the various steps we have taken in the fiscal year." When asked whether measures to stimulate economy in the Interim Budget were taken under pressure, he said, "No, this is a normal practice. Every FM does (it)." "I have followed exactly the same pattern as every other FM does. I have not changed an iota of the direct tax. I have not imposed any new tax to mop up additional resources, that is the constitutional propriety," he said. The Finance Minister had cut service tax, excise duty by two per cent each, besides extending four per cent reduction in excise duty beyond this fiscal to propel the slowing down economy. He said,"(The) government is continuing... as and when situation would demand we would respond. Situation demanded...we responded, it is still unfolding and we would have to respond in future."

HSBC plans $17 bn share sale to raise funds: Report

HSBC, Europe's biggest bank, plans to raise more than 12 billion pounds ($17 billion) in a share sale aimed at propping up its capital base in order to cope with the economic crisis, a media report said on Saturday. The report said the share issue would likely be announced alongside its full-year 2008 results due on Monday. The report quoted unidentified people involved in the discussions as saying the offer price for the sale had not been set and the deal could still be postponed. The bank is also expected to announce a cut in its dividend, the report said. It said the share sale was underwritten by Goldman Sachs and JPMorgan Cazenove and the deal could set a new record in Britain for a rights issue funded by private investors after Royal Bank of Scotland's 12 billion pound share offering last April. HSBC has traditionally been one of the best capitalised banks in the world and has not raised capital while rivals have scrambled for cash as the credit crisis has deepened.

Analysts see big benefits for RIL

Cash flows from RPL will help Reliance to step up investments on explorations. Reliance Industries (RIL), which owns the world’s biggest refinery complex, is looking at additional cash flows, tax benefits, continuity of export status and other synergies in its attempt to merge Reliance Petroleum with itself, after a 54 per cent decline in stock prices. The biggest benefit for RIL seems to be using additional cash flows generated by RPL which can be used to step up investment and expansion of its oil & gas exploration business. Top 10 in market capitalisation Company Market cap* Reliance with RPL 2,33,382.30 NTPC 1,51,881.37 ONGC 1,47,829.38 Bharti Airtel 1,20,850.81 Infosys 70,509.16 MMTC 70,297.75 ITC 69,028.86 Bhel 68,351.68 SBI 65,207.89 NMDC 60,085.03 RPL= Reliance Petroleum, Fig in Rs cr *At Friday’s closing price on BSE “RPL will start generating cash. A smart thing is to merge RPL with RIL, which can use the RPL cash flows to fund its expansion,’’ an analyst with a local brokerage said. RPL is expected to report a profit of about Rs 4,500 crore in 2009-10 while RIL expects to post a profit of more than Rs 19,000 crore in 2009-10. Yet another factor motivating the merger may be the continuity of tax benefit accruing from a special economic zone for another five years. The RIL refinery enjoyed a ten-year tax holiday, sales tax deferment and other tax rebates, all of which ended a couple of years back when it sought an export-oriented unit. But the Jamnagar refinery is set to lose its EoU status, entailing tax incentives, next month as the term expires. Additionally RIL will save on transfer pricing on use of KG Basin gas and other related products between the two companies. The company will also save on taxes to be paid arising out of the transfer resulting in savings of about $1-1.5 for every barrel of crude processed, analysts said. The savings will occur at a time when refining margins are under pressure because of a slump in oil prices. As for RPL, with the completion of the refinery, the cash flow generated will help Reliance Industries in enhancing its investment in exploration and production business, analysts said. “Overall it seems a good move from Reliance Industries’ perspective,’’ Deepak Pareek, an analyst with Angel Broking said. On the basis of the market price of the two companies the swap ratio works out to 17 shares of RPL for every one share of RIL, while if the company opts to swap shares on the basis of book value the swap ratio will be 20:1. Analysts believe that RIL may swap each of its share for every 18 shares of RPL. For investors of RPL, even though it may be seem to be a losing proposition, in the current market situation, it would make sense for them to convert their holding into a larger company which has a wide variety of businesses rather than invest in a company with a single income stream.

MTNL to launch 3G in Mumbai by April

State-owned telecom service provider Maharashtra Telephone Nigam (MTNL) will launch its 3G services in Mumbai by early April, overshooting its earlier intentions of launching services by February-end. MTNL had launched 3G services in the capital in December 2008. According to sources close to the development, the company has completed its beta testing (trial runs) successfully and is ready for the commercial rollout of the services. MTNL is looking at an early April date for the launch. MTNL has already set up 720 base transceiver stations (BTS) for its 3G rollout in the Mumbai circle.

Gold rebounds in London trades as slide seen overdone

Gold rebounded in the London trades today, after lingering in a tight range earlier in the day as traders bought the yellow metal on ideas that the recent slide that took around $60 off the benchmark COMEX futures in the last three sessions was overdone in the face of strong fundamentals. The commodity went up for a low of $937.50 per ounce in Asia and currently trades at $ 953, down $10.40 per ounce after a sharp fall last night. The global equity markets continued to slip, making it possible for Gold to find a support around $940 per ounce mark on the COMEX The US dollar continued to maintain a strong bias against the Euro even as worries over the US banking space continued to hold sway. Last week, ECB president Jean Claude Trichet warned that the euro zone's financial system is facing challenging times, as financial markets and the real economy are dragged in a downward spiral. Major concerns are emanating on the Central and Eastern (CEE) economies in the Euro region and even as Germany has announced that it stands ready to protect the Eurozone if one of its member states found itself in such serious difficulty that it could not refinance its debt. Dollar maintained its firm undertone after more evidence emerged on the vulnerability of the Central and Eastern Euro nations. The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank issued a joint pledge Friday to provide up to 24.5 billion euros ($31.2 billion) in aid to support Eastern Europe's bank sector. The greenback has been a beneficiary of the global risk aversion despite mounting problems on the US financials front and continued worries over the swelling budget deficit. US short term treasuries have been in great demand from the global investors, as the falling yields indicate and 1.2500 looks likely to be tested in the Euro/dollar pair in case the economic outlook continues to deteriorate. The greenback currently trades at 1.2668 against the Euro, compared to 1.2750 earlier in the day. MCX Gold futures went above Rs 15600 per 10 grams, hitting a high of Rs 15628 during the day. The April futures are trading up Rs 342 or 2.24% from the previous close with a massive 11% increase in the open interest.

Variable Load Structure for Mutual Funds

The Securities and Exchange Board of India (SEBI) is mulling introduction of a variable load structure for mutual funds in India. This is a game changing initiative which can have several ramifications for investment management in general and mutual funds in particular.

SEBI has by and large been an excellent regulator. Most regulations, atleast concerning Mutual Funds, have been extremely investor friendly. Against this background, SEBI's move to introduce a variable fee structure for investors and advisors makes for interesting analysis.

Based on the limited coverage in the press, this is what I make of SEBI's proposal:

* a. The load chargeable would have to be agreed to by BOTH, the investor and the advisor, and would have to be mentioned in the application form.
* b. The load mentioned would have to be within the prescribed limit of 6% for a scheme.
* c. Investors can also choose to compensate the advisor with a separate cheque while paying the AMC the amount without any load.
* d. Nowhere in any of the press clippings I have seen, has there been a mention of the default load, i.e., the load levied if there is no mention of it in the application form. Or if any application form does not have this data, would it get rejected as a ‘Not In Good Order' (NIGO) application.

What are the potential ramifications ?

* a. Advisors will have to inform investors of the loads and expenses and the need to sign off together.
* b. ‘Good' advisors can use this opportunity to emphasise their value-add and hence ask for a higher load. This should not be difficult as they charge much higher fees for insurance advice.
* c. ‘Savvy' investors can use this opportunity to demand more from their advisors or even lower the load for investments.
* d. All of this would inevitably lead to a ‘Moment-of-truth' between advisor and investor. This is crunch time and advisors better prepare for the same.
* e. Different FEE and FREE models will develop and in the end an amalgam of thought processes will coalesce to produce a smoothly working model for the advisor and investor.
* f. However, fee discovery can prove to be a prickly affair. Only confident advisors can pull off a fee based model in the face of a downturn.

Moot points :

* 1. How will the large distributors - Banks, Brokerage Houses etc - standardize this amongst their teams.
* 2. Will a Relationship Manager's compensation be linked to the load sign-off. Logically, it has to be. So what is the sales story now?
* 3. Will there be a strata of privileged clients with preferential loads?
* 4. Will commoditised advice be dispensed for the low load clients?
* 5. Will rebating be back? Or can we expect to see these signs in your favourite broker office : ‘Invest in our ELSS before May 31, 2009 and pay no load' or ‘No-load in all new SIPs. Hurry, limited period offer'.
* 6. What will IFAs do? Have a standard plank or charge what the wallet can pay?
* 7. Will Clients use this opportunity to hold the advisor responsible for a sizeable erosion in his equity portfolio.
* 8. Will some IFAs give up on Mutual Funds altogether and go for low hanging fruit - the Jeevan Aasthas and other such insurance schemes.
* 9. What is the guidance that Association of Mutual Funds in India (AMFI) will provide in such policy formulation?

However, this has once again shown that SEBI has cost control and transparency in mind. SEBI is indeed several notches above its Insurance counterpart, when it comes to empowerment of the investor in every stage of investment. Howsoever noble SEBI's intentions may be, this is bound to cause some heartburn amongst the advisory community. Mutual Funds charge a fraction of what Insurance companies charge and hence are much less remunerative. The oft quoted aphorism ‘the Indian investing community is not mature' is soon going to be tested.

SEBI has kept a deadline of March 6, 2009 seeking suggestions on this new initiative.

Do you have any ideas, suggestions and thoughts on this? Please do share it in this blog. This is a topic worth discussing threadbare.

Jubilant Organosys buys back FCCBs worth US$ 59 million

Jubilant Organosys has bought back and cancelled via a tender offer, Foreign Currency Convertible Bonds (FCCBs), to the tune of US$ 48.3 million. Together with earlier buy back of US$ 11.1 million in 1st week of February 2009, the company has, in all, bought back and cancelled FCCBS at the face value of US$ 59.4 million (at an accretive value of US$ 72.3 million) by paying US$ 47.6 million. The total cumulative gain on purchase of FCCBs till date including YTM is US$ 24.7 million. After buy back of US$ 59.4 million and conversion of US$ 57.0 million totaling US$ 116.4 million, the company's outstanding FCCBs as on date stand at US$ 193.6 million — which represent 62.4% of the original issue value of US$ 310 million. The company has used its foreign exchange earnings and external commercial borrowing resources to fund the buy back of FCCBs. The current paid up capital is 147.5 million shares of Re 1 each. The fully diluted capital of the company after taking into account outstanding FCCBs, would stand at 171.2 million shares of Re 1 each.

Govt seeks US$5.2bn world bank loan to fight global crisis: report

The Government has asked for a loan of US$5.2bn from World Bank for two years to June 2010 to fight an economic slowdown, acting finance minister Pranab Mukherjee was quoted as saying. The US$5.2bn loan will be over and above the average loan assistance of around US$1.5bn to US$2bn a year, Mukherjee stated. The Government has sought US$3.4bn for the recapitalization of state-run banks and National Housing Bank, US$1bn for Power Grid Corp. of India Ltd., US$600mn for India Infrastructure Finance Co. and US$200mn for financing small and medium companies, the minister added. The government of India has borrowed Rs2.56 trillion from foreign Governments as of Jan. 31, and the interest payable is Rs43.13bn, Mukherjee said.

Revival of closed fertiliser units likely by 2011-12: Paswan

The government today said that all ailing fertiliser units are likely to be revived by 2011-12 either through the joint venture route or inducting a strategic partner. An Empowered Committee of Secretaries has been set up to look into various options for revival of each of the closed units of Hindustan Fertiliser Chemicals and Fertiliser Corporation of India, Chemicals and Fertiliser Minister Ram Vilas Paswan said in the Lok Sabha during the Question Hour. "The government has also decided in-principle to consider waiver of outstanding loans and interest on these companies subject to finalisation of a fully tied-up proposal for revival of each of the closed unit," he said. There are eight fertiliser units which have been closed due to various reasons including non-availability of inputs like gas and high prices of naphtha. Once restarted, the availability of fertilisers would increase substantially, the minister said. Replying to a supplementary that whether subsidy on fertilisers can be given directly to farmers, he said this was not possible as in that case the farmers would have to make huge investment to buy fertilisers and then claim subsidy. "We are still open to this... Let members give their views... If we get convinced it we will certainly look into it," the minister added.

Crisil downgrades ratings for Hindalco, Sterlite

Rating agency Crisil today downgraded long-term debt rating of leading non-ferrous metal producers -- Hindalco, Vedanta Aluminium and Sterlite Industries, expecting their earnings to remain under pressure over the medium-term. Even as it revised the rating of Sterlite and VAL to AA from AA+, Crisil said it has retained long-term debt rating of other Vedanta group firms -- Bharat Aluminium Company (Balco), Hindustan Zinc and Madras Aluminium Company (Malco). Crisil expects "a decline in the company's (Sterlite) consolidated profitability and cash accruals over the medium-term" and said its view on Vedanta Aluminium Ltd (VAL) follows the downward revision of its group firm Sterlite's ratings. The rating agency has also downgraded the long-term debt rating of the country's largest aluminium producer, Hindalco Industries, to AA- from AA, while revising down its long-term outlook from stable to negative. "Weak aluminium prices will keep the company's earnings under pressure over the medium-term...The decline in accruals, coupled with large planned capital expenditure will also keep the company's gearing high," the release added. Instruments rated 'AA' offer an adequate degree of safety with regard to timely payment of financial obligations, '-' or '+' denote a notch lower or upper, respectively.

No double tax for RIL, RPL

Amar Singh failed to stop the government from granting export unit status and other benefits to Reliance Industries' two refineries. To add more to it, the oil ministry is now gearing up to offer local tax benefits to Mukesh Ambani, making good for Reliance's shortfall arising due to a drop in demand in global markets. The sky high crude oil prices meant a wind fall of profits for oil refining companies globally. But with crude now kissing the ground zero at multi-year lows, refiners such as Reliance Industries are trying to compensate a slump in overseas market demand with sales to government run oil companies. Learnt that the oil ministry has requested the commerce ministry to amend some rules for Special Economic Zones and Export oriented units, allowing Reliance Industries and Reliance Petroleum to sell petrol and diesel back home under deemed exports status without paying taxes twice. This could also help the government owned oil companies, which import about 3 million tonnes of oil products and help save roughly about $1-$1.5 billion of foreign exchange. However, for India, which imports about 120 million tonnes of crude with a bill of about $100 billion at peak, savings of $1.5 billion may not be a big number. But when we analyse closely, a saving of Rs 4000-Rs 5000 crore distributed among the three major oil marketing companies is definitely good news, even for RIL's future strategy for domestic markets.

Power Grid seeks to borrow US$2bn from World Bank

Power Grid Corp is seeking to borrow as much as US$2 bn for its network expansion, according to a report. The grid operator, based in Gurgaon near New Delhi, may sign agreements with the World Bank for a US$1 bn loan by June. The report stated that the company is seeking government approval for a US$1 bn loan from Asian Development Bank.The company still needs to raise Rs157 bn, part of which may come from the local bond market. Power Grid delivers about 45% of the electricity generated in the country to consumers and plans to spend Rs550bn on expansion in the five years to 2012, report adds. India plans to add 60,000 kilometers (37,300 miles) of transmission lines by 2012 to carry 60% of the power generated, the World Bank said in March last year. The expansion, coupled with the construction of power plants, will increase the share of manufacturing in India’s gross domestic product.

Satyam board in favour of 31% open offer: Srcs

The Satyam board is leaning towards an above 31% open offer sources. The company may look at preference issue if the buyer fails to get 20% in open offer. It is undecided on whether the first, second preference issue will have same pricing. The board, sources said, are still undecided on IT experience, but are in favour of managerial capability as criteria for bidders. Potential bidders will not get information on individual clients but will get aggregate information about orders, verticalised client mix, and geographies. It expects to send detail details of Expression of Interest to the Company Law Board on Friday. The board is likely to ask for the bidder to share strategic vision for Satyam. Sources added that there are differing views on how to protect minority shareholders.

UK economy contracts 1.5% in Q4

UK's GDP growth fell by 1.5% in the fourth quarter of last year versus 0.7% in the third quarter, the Office for National Statistics reported today. The quarterly decline was the largest since 1980. That matched the agency's initial estimate of fourth-quarter GDP performance. Economists had expected GDP to be revised down slightly to a 1.6% quarterly decline. On an annual basis the British economy shrunk by 1.9% as against a growth rate of 2.6% in the same quarter last year. The Office for National Statistics had estimated a drop of 1.8% in the fourth quarter over the year ago period. The annual figure was in line with expectations. The Office for National Statistics also downwardly revised third quarter GDP to show a 0.7% quarterly fall, compared to a previous estimate of 0.6%.

SAIL to fomally take over Malvika Steel on Feb 27

State-run Steel Authority of India (SAIL) will formally take over Malvika Steel Plant, which is currently closed, on Februray 27. The takeover exercise would be completed in the presence of AICC General Secretary and MP from the Amethi constituency Rahul Gandhi, who will be visiting here along with Union Minister for Steel and Chemicals Ram Vilas Paswan and Minister of State for Steel Jitin Prasada, sources said today. Promoted by the Usha Group, the unit had proposed to manufacture 6.8 lakh tonnes of hot metal per annum, but the unit soon ran into rough weather and was formally shut down in 2002, after being declared as sick by its promoter. In 2005, the Debt Recovery Tribunal in New Delhi while issuing an order in favour of IFCI for recovery of Rs 1,037.59 crore from Malvika Steel announced the auction of the plant, which was on 724 acres of land. Two years later, the JP Group acquired the sick unit for a consideration of Rs 207 crore from BIFR, but the acquisition failed to change the fate of the plant, which remained closed ever since. The Centre had finally decided to acquire the unit through SAIL. The unit at the Jagdishpur industrial area was set up in 1989 on the behest of the former Prime Minister Rajiv Gandhi, who was then the MP from the Amethi parliamentary constituency.

IOC, HPCL, BPCL shelve investment plans in Brazil

State-run Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) have shelved plans to invest in sugarcane farms in Brazil for producing ethanol due to the economic slowdown and resource crunch. In a written reply to a question in Rajya Sabha, Petroleum Minister Murli Deora said the three oil marketing companies (OMC) had explored the possibility of acquiring sugarcane acreage and putting up ethanol manufacturing units in Brazil. "The project was found to be feasible and strategic for the Indian oil industry. However, in view of economic slowdown and resource crunch, OMCs are not contemplating any investment in Brazil to set up an ethanol project at present," he said. The three firms had planned to jointly buy or lease plantations and related units for producing ethanol, a by-product of sugarcane that is doped in petrol to reduce dependence on imported oil. IOC, BPCL and HPCL were working on deals to acquire 15-35 per cent stake in two of the largest Brazilian integrated ethanol players -- Louis Dreyfus Commodities Bioenergia and Infinity -- and 50 per cent equity in new plantations/projects of smaller firm Rezek. Indian oil firms were to form a joint venture company for ethanol investments and share half of the equity in it. The remaining half ownership was to be offered to the Brazilian partners.