Saturday, January 23, 2010
Wall Street suffered its worst one-day decline in nearly three months on January 21 after the Barack Obama administration announced a slew of proposals aimed at tightening the regulatory noose around the nation's biggest financial firms. The proposals aim to deter commercial banks from becoming so large that they put the broader US economy at risk and distort normal competitive forces. The proposed new norms include limiting the size and scope of Wall Street's trading operations.
Obama, who blames excessive risk taking by Wall Street firms for helping to cause the financial crisis, also intends to stop them from owning or investing in hedge funds. They also prohibit commercial banks from owning, investing or advising private equity funds. "If these folks want a fight, it's a fight I'm ready to have," Obama told reporters at the White House, flanked by his top economic advisers and lawmakers. "We should no longer allow banks to stray too far from their central mission of serving their customers," he said.
The proposed rules also would bar US financial institutions from proprietary trading operations for their own profit. The White House blames the practice for helping to nearly bring down the US financial system in 2008. They would also set a new limit on banks' size in relation to the overall financial sector that would take into account deposits as well as liabilities and other non-deposit funding sources. Only commercial banks that don't do proprietary trading on their own accounts would have access to the Federal Reserve's discount window, a government-lending facility through which banks borrow reserves at a discount.
This would separate commercial and investment banks. Key banks that would be covered by the proposed restriction include Citigroup, Bank of America, JP Morgan Chase, Wells Fargo. Traditional investment banks such as Goldman Sachs and Morgan Stanley could need to give up their status as commercial banks to continue proprietary trading of mortgage securities. Goldman Sachs would need to divest its private-equity and hedge fund businesses as well as limit its proprietary trading, based on the proposal.
The plan is in tune with the proposal of former Federal Reserve chairman and current economic advisor Paul Volcker, who has called for greater restrictions on financial institutions in the wake of the financial crisis. Before his announcement, Obama met Volcker. The White House did not discuss the proposal with the banking industry prior to making it public.
The Initial Public Offering (IPO) of Jubilant FoodWorks Ltd. received a strong response as it got subscribed 30.86 times as per latest information available with the stock exchanges. The total QIB portion was subscribed 59.38 times while the HNI was subscribed 51.81 times. The retail portion also received an overwhelming response as the segment was subscribed 3.71 times. Kotak Mahindra Capital Co. Ltd. was the sole book running lead manager to the IPO. Jubilant FoodWorks had entered the capital markets with its IPO of 22,670,447 equity shares with a price band of Rs135 to Rs145 a share. The offer comprised a fresh issue of 4,000,000 shares and an offer for sale of 18,670,447 shares by the India Private Equity Fund (Mauritius) and Indocean Pizza Holding Ltd.
Lupin announced that its US subsidiary, Lupin Pharmaceuticals, Inc (LPI) has received the tentative approval for the company's Abbreviated New Drug Application (ANDA) for its Memantine Hydrochloride tablets, 5mg and 10mg from the US Food and Drug Administration (USFDA). Lupin's Memantine HCL tablets are AB-rated to Namenda tablets indicated for the treatment of moderate to severe dementia of the Alzheime's type Namenda had annual sales of about US$1.1bn for the twelve months ended September 2009, based on IMS health sales data. Commenting on the approval, Vinita Gupta, Group President & CEO, Lupin Pharmaceuticals Inc. said, "We are pleased to receive this tentative approval and look forward to bringing Memantine HCI tablets to the US market as an affordable generic alternative post-patent expiry".
The frenzy in PSU stocks continued this week on speculation about further disinvestment plans by the Government though shares of the state-run companies did turn a bit volatile. Reports suggested that the Government was planning to sell a 10% stake in Hindustan Copper Ltd. through a proposed follow-on public offering (FPO). The Union Mines Ministry approved selling a 10% stake in Hindustan Copper, Chairman and Managing Director Shakeel Ahmed was quoted as saying. Sunil Mitra, who is in charge of disinvestment, indicated recently that the Finance Ministry was in talks for selling a 10% stake in Hindustan Copper. The Government of India holds a 99.59% stake in Hindustan Copper at present.
A separate report said that the Government is keen to bring metals and mining companies at the front of the divestment queue, and is likely to push the initial public offer (IPO) of Satluj Jal Vidyut Nigam (SJVNL) to next fiscal year. Manganese Ore India Ltd. (MOIL) and Hindustan Copper could hit the market early next fiscal, with the Government disinvestment riding on it. The Government is looking to offload about 10% of its stake in MOIL in the company’s proposed IPO and 15-20% stake in Hindustan Copper. At the same time, reports said that the Centre was not planning any stake sale in Dredging Corporation of India and Shipping Corporation of India (SCI).
In November 2009, the Union Cabinet approved a proposal to sell at least 10% government holding in PSUs and use the proceeds for social schemes until March 2012 to cut high fiscal deficit. The Government wants profitable listed public-sector companies, where its stake is more than 90%, to have at least 10% of their shares held by the public. Prime Minister Dr. Manmohan Singh’s government also plans to sell shares in some profitable unlisted PSUs.
Unfavourable external environment (China and US) had an adverse impact on sentiment, though the NSE Nifty did manage to rebound after falling well below 5000. The market remains vulnerable to a fresh decline, owing to both local as well as global factors. However, a further recovery from here on is not ruled out, especially if the RBI doesn't spring a nasty surprise in its quarterly policy meeting on Jan. 29. The undertone will also hinge on global markets remaining stable. Any fresh bad news from China or any other part of the world may drag the Nifty down below 5000 again. A flood of earnings announcements, including some top companies, will only add to the anxiety levels. Volatility may escalate due to the F&O expiry on January 28. Technically, the Nifty has strong support at 5000, but can drop as low as 4950. On the way up, the Nifty could encounter resistance at around 5120. So, brace for a bumpy ride. Don't take undue risks till the current uncertainty subsides and there is more clarity on direction.
Results Next Week: Adani Power, Alstom Projects, Alok Industries, Aban Offshore, Anant Raj Industries, Apollo Tyres, Aurobindo Pharma, BEL, BPCL, BoB, BoI, Britannia, Cairn India, Colgate, Cadila Healthcare, Canara Bank, Cipla, Century Textiles, Crompton Greaves, Cox & Kings, Dabur India, Dredging Corp., DLF, Educomp, EIH, Emami, EMCO, Gammon India, Gujarat Industries Power, Glenmark, GSK Consumer, Godrej Industries, GMR Infra, GTL Infra, GVK Power, HCL Tech, Hero Honda, Hindustan Unilever, Hindalco, HPCL, Hotel Leela, IOB, IVRCL Infra, IOC, IDFC, India Cements, Indian Hotels, Jagran, Jain Irrigation, Jindal Steel, Jet Airways, Jyoti Structures, KEC Intnl, KSK Energy, Karnataka Bank, Karur Vysya Bank, Lupin, LIC Housing, Max India, MTNL, M&M, Marico, Mundra Port, NHPC, NTPC, NALCO, Nagarjuna Construction, OBC, Opto Circuits, Onmobile, Pidilite, Pfizer, P&G Health, PNB, Patel Engineering, PFC, Pantaloon, Power Grid Corp., Puravankara, Reliance Infra, Siemens, Shoppers Stop, Sobha Developers, Sun Pharma, Suzlon, SBI, Sterlite, SAIL, Tanla, Tata Steel, Tata Tele, Tata Comm, Tata Motors, Trent, Titan, Thermax, Tulip Tele, Union Bank, United Phosphorus, Unitech Voltamp and Wockhardt.
Food price inflation continued to soften in the week ended January 9 even as non-food prices witnessed a sudden spurt, data released by the Government showed. Despite the drop in food inflation from nearly 20% a few weeks earlier, the RBI will most likely boost the CRR if not the policy rates. For the week ended January 9, inflation for the Food Articles group fell to 16.81% from 17.28% in the preceding week, according to the Union Commerce & Industry Ministry. The index for Food Articles group declined by 0.1% to 285.6 from 285.8 for the previous week.
Inflation for the Non-Food Articles group jumped to 10.40% from 8.76% in the week ended January 2. The index for Non-Food Articles group rose by 1.9% to 257.9 from 253.2 for the previous week. Inflation for the Minerals group remained unchanged at (-) 5.18%. The WPI for the Primary Articles group rose by 0.4% to 284.6 from 283.4 in the previous week. The annual rate of inflation for the group stood at 13.93% compared to 13.82% for the previous week. It was at 11.87% during the corresponding week of the previous year.
The annual rate of inflation for the Fuel & Power group stood at 6.34% for the week ended January 9 compared to 6.25% in the previous week. It was (-) 1.41% during the week ended January 10, 2009. The index for this major group rose by 0.1% to 350.4 from 350.1 for the previous week. Inflation for the Mineral Oils group rose to 9.78% from 9.65% while that for the Electricity group stood unchanged at 1.95%.
India’s benchmark wholesale price inflation rate accelerated to 7.31% in December, the most in 13 months. That exceeded the central bank’s forecast of inflation
touching 6.5% by March 31, 2010.