Saturday, October 04, 2008
Nomura Holdings is planning to acquire Lehman Brothers Holding's Indian back-office operations, including its information technology (IT) operations, Japan's Nikkei business daily said. The Nikkei reported that Nomura, Japan's biggest securities firm, would pay several billion yen to acquire the Mumbai-based operations, which employs more than 2,000 employees. Nomura has already accepted about 3,000 workers from Lehman Brothers' Asia-Pacific units and some 2,500 employees from Europe and the Middle-East, the Nikkei newspaper said. Lehman Brothers' Indian back-office operations, based in the financial hub of Mumbai, handles trading settlement duties as well as IT research and development.
ICICI Bank said that it was aware that rumours were being repeatedly circulated in certain centres regarding the financial strength of the bank. It stated that these rumours were baseless and malicious. The bank reiterated that ICICI Bank has a very strong capital position, having proactively raised Rs200bn (about US$5bn) in June 2007, almost doubling its capital base. It has a networth of over Rs470bn (over US$10bn) and a capital adequacy ratio of 13.4% as at June 30, as against the regulatory requirement of 9%. This reflects the healthy capital position and comfortable level of leverage. ICICI Bank also said that it's banking and non-banking subsidiaries are also well-capitalised.
ICICI Bank also clarified that 98% of ICICI Bank UK Plc's non-India investment book of US$3.5bn is rated investment grade and above. Only about 18% of ICICI Bank UK's non-India investment book is exposure to the US. ICICI Bank UK has zero exposure to US sub prime credit, whether directly or through credit derivatives such as CDO/CLN/CDS. In addition, ICICI Bank UK holds cash equivalent instruments of US$1.1bn. There is no exposure to US banks in this category. ICICI Bank UK has a total balance sheet size of US$8.5bn and has zero NPLs on the balance portfolio of US$3.9bn. As on the last balance sheet date of June 30, ICICI Bank UK had a capital adequacy ratio of 17.4%.
India's current account deficit climbed in the first quarter of the current fiscal year as a widening trade gap, fueled by increased oil imports, offset higher net invisible surplus, the Reserve Bank of India (RBI) said. Current account deficit in the quarter ended June stood at US $ 10.7bn versus US $ 6.3bn in Q1 of 2007-08, data released by the central bank showed. The capital account had a surplus of US$12.96bn in the quarter ended June as against US$17.5bn in the same quarter a year earlier. As a result, the BoP surplus for the Apr-June quarter fell to US$2.2bn from US$11.2bn in the year-ago period.
Net FDI flows were higher at US$10.1bn in Q1 FY09 as against US$2.7bn in Q1 FY08. Portfolio investment witnessed large net outflows (US$4.2bn) in Q1 FY09 compared to net inflows of US$7.5bn in the same quarter last year. Net ECB inflows to India amounted to US$1.3bn in Q1 FY09 as against US$6.9bn in the corresponding quarter of last year. This constituted 11.8% of net capital flows as against 40.3% last year. Net accretion to foreign exchange reserves on a BoP basis (i.e., excluding valuation) was US$2.2bn in Q1 FY09 versus US$11.2bn in the first quarter last year.
Inflation, based on the wholesale price index (WPI) fell below 12% for the first time in the last 13 weeks, as prices either declined or remained stable for most product groups. The annual inflation, calculated on a point-to-point basis, declined to 11.99% in the week ended September 20 as against 12.14% in the previous week, the Commerce & Industry Ministry said in a statement. The annual rate of inflation stood at 3.51% as on September 22, 2007. The market had expected inflation to dip slightly to around 12.1%. The WPI for all commodities stood nearly static at 241 versus 241.1 in the previous week.
The index for the 'primary articles' group declined by 0.2% to 251.3. The annual point-to-point inflation for the group declined to 11.29% compared to 11.56% reported last week. The index for the 'fuel & power' group remained unchanged at its previous week's level of 375.3. The rate of inflation for this group declined to 16.52% from 16.66% in the previous week. The index for the 'manufactured products' group rose by 0.1% to 207.5. Rate of inflation for this group declined to 10.55% from 10.61% in the previous week. Inflation of 30 essential commodities increased to 7.70% as on the week ending September 20 from 7.58% reported in the earlier week.
The Indian rupee slumped to the lowest since mid-2003 as stocks slid, adding to speculation that investors will take more money out of the nation's equity market. The local currency completed its eighth weekly loss, the longest drop since December 2005, on signs that the US economy is headed for a recession that may hurt global growth. The rupee also fell after the RBI said the current-account deficit widened to a record in the three months to June 30. The rupee fell 1% to 47.0850 per dollar, the lowest since June 2003, at 5 p.m. to close on Friday in Mumbai. The currency lost 1.15% this week.
The benchmark BSE Sensex slipped over 4% during the week due to concerns over the health of the US economy amid the raging financial crisis. The index has lost 38.3% this year after advancing 47% in 2007. The MSCI Asia Pacific Index declined 2.1%, taking its loss this week to 7.7%, the most since Aug. 2007. Overseas investors have sold Indian equities worth a record US$9.2bn more than they bought this year, the report stated. India's current account gap, the amount by which imports exceed exports, remittances and other income, increased to US$10.7bn in the April-June period from US$1.04bn in the previous quarter, according to the RBI data.
When it comes to Ulips, it appears that there are no shades of grey: you either love them or hate them. To put it in black and white, the industry and potential purchasers love them, and most of the people who have them tend to hate them. Accusations of mis-selling and hard-selling are hurled at the industry. Most investors admit that they don't understand how it works, but they keep buying Ulips more than any other insurance product. Hence, all kinds of records are being broken: there is an unprecedented growth in the number of Ulips sold and in the collection of premiums. All of this serves to boost the cause of privatisation. This is why we decided to make Ulips the subject of the first Money Today Round Table, held in Mumbai last month.
Since a number of investors (existing and prospective) purchase Ulips without knowing much about them, we felt it was the job of a magazine like ours to give them more information. But what are the industry stakeholders insurance firms, distributors and advisers doing about it? Surprisingly, many of them, who participated in the discussion, admitted that there was rampant mis-selling. But in the same breath they added that the system had become corrupted and they were only the byproducts of the system . They felt that the consumers didn't wish to be (seriously) involved at the time that they bought a financial product.
When we prodded the experts, they admitted that agents push potential buyers to opt for Ulips instead of other insurance products that might suit the latter better. Even the product manufacturers were blamed for not being able to realise the opaqueness in the manner in which they operated. An additional complication arose since it is extremely difficult to compare different Ulip products. Many said that even the insurance regulator might be unable to solve the basic problems that the industry faces today.
As a part of the Round Table, we invited six industry representatives to brainstorm and discuss where the Ulips were headed, and the problems that confront the industry at present.
After three years of torturous and controversial journey, the Indo-US civil nuclear co-operation deal is finally expected to see the light of day when President George W. Bush signs on the dotted line or over the weekend. US Secretary of State, Condoleezza Rice is scheduled to arrive in New Delhi on Saturday to sign the inter-governmental instruments that will operationalise the landmark agreement. The final legislation is titled "United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act".
On Wednesday, the US Senate approved the deal with an overwhelmingly majority, while also shooting down two killer amendments. The agreement, entered into between Prime Minister Dr. Manmohan Singh and President Bush in 2005, secured 86 votes while 13 Senators voted against it. The US-India Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy (123 Agreement) got bi-partisan support after the killer amendments, moved by two Democratic Senators, were turned down.
Democrat Barack Obama and Republican John McCain also voted for the bill, as did Democratic Vice-Presidential candidate Joe Biden. The legislation was already cleared by the House of Representatives. The bill still contains provisions that would ensure cessation of US nuclear cooperation in case New Delhi conducts a nuclear test.
Rice wrote to Senate majority leader Harry Reid, that a nuclear test by India would result in the most serious consequences, including automatic cut-off of cooperation as well as a number of other sanctions. She expressed hope that India would continue to abide by its unilateral moratorium on further nuclear tests.
However, India said that the country still retains the right to conduct a nuclear test, while others have a right to react to such an incident. "India has the right to test, others have the right to react," External Affairs Minister Pranab Mukherjee said.
Even as the Bush government is banking on the Congress to bail itself out, the market here will turn its focus on quarterly results. Most players will be closely analysing India Inc's report card to gauge the impact from the worsening macro factors, besides the global financial crisis. At the same time though, they will keep one eye on the happenings in the global markets given the enormity of the financial mess. One factor could swing the pendulum in favour of the bulls is the dip in inflation, which has fallen below 12% after a long time. Whether the same prompts the RBI to ease the monetary policy remains to be seen. Meanwhile, the rupee continues to be under pressure, which is adding to the worries for the FIIs. Also, a weak currency makes imports costlier, resulting in a higher trade gap and thus affecting the overall Balance of Payment situation. So, the movements in currency and commodity markets will also have a bearing on the market sentiment.
Among the stocks Tata Motors would be in focus as the company has formally withdrawn from Singur. Next week will also be a truncated one as Thursday will be a holiday on account of Dasera. Infosys will come out with its earnings on Friday. At the time of writing this, markets in the US and Europe were quite buoyant ahead of the much-awaited House vote. Last time around, the House sprang a surprise by rejecting the measure. This time though, the bill has been modified and a few provisions have been included in it to quell some of the opposition to the bill. It remains to be seen, however, if the bill gets cleared or not. And, even if it does, there are concerns about how effective it will be in reducing the pain in the financial system. Any favourable news on this front will have only a temporary impact on the market. Given that there are hardly any positives to drive the indices higher, we expect the market to remain sideways with a negative bias.
The massive rescue plan, designed by the Bush government to cleanse the US financial system and restore confidence in Wall Street, was shot down by the House of Representatives amid continued political wrangling. The move triggered one of the worst selloff in US stocks and dealt a brutal blow to bipartisan efforts to pull the world's largest economy from the brink of collapse, despite repeated warnings of a major catastrophe by White House. The Bush regime, however managed to win the support of the Senate after incorporating a few changes in the bill. The measure was scheduled for a fresh vote in the House on Friday.
In the interim period, there was more mayhem in the western financial space, with the contagion spreading to Europe. Citigroup stepped in to rescue Wachovia, but by the end of the week the troubled bank abandoned that deal and found another suitor in Wells Fargo.
Across the Atlantic, regulators and governments threw lifelines to European banks. The Dutch, Belgian and Luxembourg governments partly nationalised Fortis amid uncertainty about its ability to sell assets it holds in ABN Amro. Dexia, a Belgian-French bank, received a €6.4bn (US$9.2bn) government cash injection. In the UK, Britain Bradford & Bingley, a specialist in buy-to-let mortgages, was nationalised and some assets sold to Spain’s Santander. Hypo Real Estate, Germany’s second-largest property lender, obtained €35bn (US$51bn) in credit guarantees from the government and the banking industry. And Glitnir, Iceland’s third-largest bank, was nationalised.
Ireland’s government took the extraordinary step of guaranteeing all deposits in six Irish banks after their share prices suffered huge losses. The guarantee covers around €400bn (US$575bn) of liabilities, more than twice Ireland’s gross domestic product (GDP). Some politicians, especially in Britain, grumbled that the Irish move may be contrary to European Union (EU) competition law.
The Reserve Bank of India (RBI) stepped in to reassure depositors that ICICI Bank was financially sound amid reports of a wave of cash withdrawals from the bank. And Russia provided a further US $50bn to increase liquidity in its banking system. This comes on top of a US $130bn package doled out to Russian banks in the form of loans, tax cuts and delayed tax payments.
Oil prices slipped in volatile trading on Friday after Congress approved a historic $700 billion bailout of the nation's teetering financial industry as the longterm health of the global economy remained questionable.
Investors bet down the price for crude early in the day when the US Department of Labor reported that employers slashed payrolls in September by the greatest amount in more than five years, but got back into the market when Wells Fargo Co stepped in to buy Wachovia Corp. for $15.1 billion.
Labor Department figures showed that payrolls shrank by 159,000, more than the 100,000 economists predicted. The nation's unemployment rate remained flat at 6.1 per cent, as expected.
And few believed that the unprecedented bailout package, passed early in the afternoon, would rekindle the global appetite for energy any time soon.
"I don't think it will be capable of putting a floor under oil prices," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
Light, sweet crude for November delivery fell 9 cents to settle at $93.88 a barrel on the New York Mercantile Exchange.
On Thursday, prices closed at their lowest level in two weeks, tumbling below $94 a barrel on doubts that a revamped bailout plan will be enough to avoid a protracted economic slump. Settling at $93.97 a barrel, the price was the lowest since Sept. 16.
Ritterbusch noted demand deterioration is not only intact, "it's been accentuated by this financial rescue effort and the subprime loan issues."
November Brent crude fell 31 cents to settle at $90.25 a barrel on the ICE Futures exchange.
The US Senate overwhelmingly approved a sweetened bailout plan on Wednesday after House lawmakers stunned investors earlier in the week by rejecting it.
The Senate added $100 billion in tax breaks and more in bid to win over enough dissenting House votes.
"Approving the bailout may create a little bounce and alleviate the negative sentiment temporarily," said John Vautrain, an energy analyst with consultancy Purvin & Gertz in Singapore. "The problem is US gasoline demand has been off one heck of a lot."
Statistics from the US Labor Department released on Thursday showed more signs of a weakening economy, adding to concerns about falling demand.
In a sign of how far consumers are pulling back, retail gasoline prices fell for the 11th week in the last three months. There was a brief pause in price declines because of hurricanes Gustav and Ike, which disrupted supplies in the Gulf of Mexico.
The Energy Information Administration reported that as of Monday, prices fell 8.6 cents to a national average $3.632 a gallon.
That's still 31 per cent more than last year, and high gasoline prices continue to squeeze consumers.
On Thursday, the US Commerce Department said factory orders in August plunged by 4 per cent compared to July, a much steeper decline than the 2.5 per cent drop analysts expected and the biggest setback since a 4.8 percent plunge in October 2006.
"All the indicators have been very negative," Vautrain said. "There's been an economic wallop, and people don't have as much money to spend."
Significant gains over the past days by the dollar against the euro also have helped push down prices, but the greenback lost some ground early Friday.
Investors tend to buy commodities like oil to defend against dollar weakness and a hedge against inflation, but return to the US currency as it strengthens.
The 15-nation euro rose to $1.3856 in Friday trading.
In other Nymex trading, heating oil futures rose 4.75 cents to $2.6620 a gallon, while gasoline prices fell 2.67 cents to $2.2283 a gallon. Natural gas for November delivery fell 12.3 cents to $7.358 per 1,000 cubic feet.