Greenspan sees 1/3rd chance of recession in US
After rattling global investors last week with his remarks of a "probable" recession this year in the US, former Federal Reserve chairman Alan Greenspan said he saw a "one-third probability" of a downturn in the world's largest economy this year. "We are in the sixth year of a recovery; imbalances can emerge as a result," the 81-year-old Greenspan said in an interview to Bloomberg News. He said he was surprised by the market reaction to comments he made on Feb. 26 on the possibility of a recession in the US. "It is possible that we can have a recession at the end of this year," said Greenspan, who headed the American central bank for 18 years until January 2006. The interesting part is that the current Fed chief, Ben S. Bernanke disagrees with Greenspan's recession theory. In a speech to the Congress last week, Bernanke, 53, said that the economy may strengthen this year. Meanwhile, Bernanke continued Fed's campaign to rein in the mortgage portfolios held by Fannie Mae and Freddie Mac. He suggested that the companies' sizes and structures posed a risk to financial markets and called for stronger regulation and supervision.
China to take more steps to curb growth
With the economy not showing any signs of cooling, China is prepared to take further steps to check the relentless flow of FDI, besides placing curbs on local lending. "China will take more steps to curb investment and lending," Premier Wen Jiabao said. "The Government will control excess liquidity and further boost domestic consumption," he said. China has been trying to engineer a smooth landing amid nagging fears that record high trade surplus is sending asset prices, especially that of property, soaring while strong FDI may lead to excess capacity. "The country will further regulate real estate," Wen told the annual meeting of the National People's Congress, China's parliament in Beijing. The Chinese economy, which accounts for about a tenth of global GDP growth, grew by 10.7% in 2006, the fastest pace in 11 years. China is planning an 8% growth in 2007. China will do more to save energy and cut pollution in 2007 while striving to keep its economy growing following four straight years of double-digit growth, Jiabao said. In his annual report to the National People's Congress, Wen also promised to lift spending on the restless countryside by 15.3% this year to 391.7bn yuan (US$50.6bn) to improve schools, hospitals and lagging incomes.
Paulson wants China to open financial markets
China should move faster on opening its financial markets if it is to sustain high economic growth and stability, US Treasury Secretary Henry Paulson said. Speaking at Shanghai's newly opened Futures Exchange, Paulson said that open markets are the fastest way to prosperity for all. "The risks for China are greater in moving too slowly than in moving too quickly toward transparent, liquid, stable capital markets," he said. Paulson also urged China to relax currency controls that keep the yuan from rising more quickly in value against the dollar. The system makes Chinese goods relatively cheap and adds to the trade imbalance. It also limits China's monetary policy options and puts a huge burden on China's banking system, he said. China's leaders acknowledge that the country's financial markets need an overhaul. But, so far China's leaders have balked at more drastic reforms, saying might damage the country's fragile financial systems. Also, Beijing has one eye on the upcoming once-in-five-years Communist Party congress in the autumn. So, leaders are focusing on social issues like free rural schooling, health, housing and pollution. Big bang reforms for the financial sector that will please the West, especially the US, will have to wait.
Yen falls after hitting 3-month high
The yen was headed for a weekly loss after a rebound in global stocks encouraged traders to sell the Japanese currency and buy higher- yielding, and in many cases risky assets. The currency slid against all but one of the world's 16 most-actively traded currencies as equity markets rallied from last week's crash. The yen dropped the most against the New Zealand dollar, where the central bank yesterday raised its benchmark interest rate to 7.5%. The yen fell to 154.26 per euro from 154.10 a week ago after the European Central Bank (ECB) raised its benchmark refinancing rate for a seventh time since December 2005 to 3.75%. Meanwhile, the Swiss franc, which is also used as a funding currency for carry trades, also weakened as a government report showed inflation at a three-year low, limiting scope for the central bank to raise borrowing costs. Switzerland's 2% rate is the second-lowest among major economies after Japan. The Bank of Japan's benchmark is 0.50%. The Federal Reserve and the Bank of England's key rates are 5.25%.
ECB up rate, BOE on hold
The European Central Bank (ECB) increased the key refinancing rate by a quarter point to 3.75%. The bank also raised its growth and inflation forecasts for 2008. ECB President Jean- Claude Trichet said that interest rates were still fueling economic growth, signaling that the bank may raise borrowing costs further after the latest hike. "Given the favorable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate," Trichet said. Investors raised bets on higher rates after Trichet's comments. The ECB raised its inflation forecast for 2008 to around 2% from about 1.9%. In 2007, inflation may average about 1.8% instead of 2%, the bank said. Separately, despite a sharp rise in housing prices from Britain's biggest mortgage lender, the Bank of England (BOE) left interest rates unchanged at 5.25% for a second month. With Gordon Brown's 11th budget less than a fortnight away, the Bank's monetary policy committee decided against the quarter-point increase in borrowing costs predicted by some analysts. But financial markets are betting on an increase shortly. House prices are still racing ahead, manufacturing is growing and there is little evidence of a slowdown in consumer spending. The UK economy is on course for its best performance in 2007 in three years. Moreover, the BOE's own forecasts, published last month, showed inflation would overshoot its target unless rates rise above the current level.
New Thai FM promises no shock rules
Thailand's Finance Minister Chalongphob Sussangkarn said that he had no plans to shock investors still reeling from new ownership restrictions and currency controls. "Government policies must be implemented to boost confidence, not destroy it," said Chalongphob. "There will be no policies that will shock the market." Sussangkarn said on his first day on the job that he wants Thailand's capital controls adjusted in ways that don't rattle markets. Some measures will still be needed to prevent inflows from creating excessive volatility, he said. Thailand's consumer confidence slid to the lowest in six- months in February and business confidence dropped to a four- month low a month earlier after Bank of Thailand currency controls in December triggered the stock market's steepest slide in 16 years. Discord within the government installed after a Sept. 19 coup led to Pridiyathorn Devakula quitting as finance minister a week ago.
Indian economy may be overheating: study
After growing at 8.6% in the last four years, the Indian economy is all set to soften a bit amid rising inflation and some signs of overheating, domestic credit ratings agency CRISIL said. For 2007-08, the GDP growth is expected to moderate to 7.9 - 8.4%, CRISIL said in a report. Asia's fourth-largest economy is estimated to grow by 9.2% in the current fiscal year on top of the 9% growth in FY06. Inflation, which is currently just above 6%, is projected at 5-5.5% while 10-year G-sec yield is expected to be at 7.8-8%, CRISIL said. The INR/US exchange rate is expected to stay in the band of Rs 44-45 in 2007-08, it added. According to CRISIL, the Indian economy continues to demonstrate robust growth driven by all sectors of the economy, with the underlying domestic consumption-led growth that is swiftly translating into investment-led growth, with a little overheating.
Inflation rises to 6.1%
India's inflation, based on the Wholesale Price Index (WPI), rose to 6.1% in the week ended Feb. 24 from 6.05% in the preceding week, the Government announced. The latest barometer of wholesale prices was higher than the consensus estimate of 6.03%. The WPI inched up by 0.1% to 208.8 from 208.6 in the previous week. The Primary Articles Index declined by 0.5% to 213.9 from 215.0, while the Fuel & Power Index was unchanged at 318.9 and the Manufactured Products Index increased by 0.4% to 182.5 from 181.8. The Ministry of Commerce & Industry revised upwards inflation for the week ended Dec. 30 to 5.89% from the preliminary estimate of 5.58%
RBI puts cap on inter-bank borrowings
The monetary tightening continues and private banks may find it tough to manage liquidity going ahead. In a bid to check excessive borrowings by banks to fund the spiraling growth in loans, the Reserve bank of India (RBI) has capped inter-bank liabilities of banks. The move is likely to curb borrowings by banks that tap the money market to lend to customers. Such borrowings could take place in the overnight call money market, or as term money, certificate of deposits or tier bonds that banks float to shore up capital adequacy. The inter-bank liabilities of a bank should not exceed 200% of its net worth as on March 31 of the previous year. However, individual banks may, with the approval of their Boards, fix a lower limit for their inter-bank liabilities, keeping in view their business model. The banks whose Capital Adequacy Ratio (CAR) is at least 25% more than the minimum (9%) i.e. 11.25% as on March 31, of the previous year, are allowed to have a higher limit up to 300% of the net worth for inter-bank liabilities. The guidelines will be applicable from April 1. However, banks, which are not in a position to comply with these requirements from April 1 may furnish a plan to the RBI for approval indicating the date by which they would be able to comply with the requirements.
Steel companies cut prices on Govt diktat
All the top steel producers of the country slashed prices after the Government asked them to rollback the recent price increase to help reign in inflation, which is still above 6%. Steel producers, including Tata Steel, Essar, Ispat, JSW and Jindal, agreed to lower prices of Hot-Rolled Coils (HRC) by Rs500 per ton to Rs27,000 a ton, said RS Pandey, Secretary in the Steel Ministry. Prices of TMT bars will be reduced by as much as Rs700 a ton, he said, adding that the profitability of steel companies would not be affected by the reduction. "The Government has expressed concern about the impact of the price increases on the common man and on inflation," Pandey said in New Delhi. "We thought there is need to talk to them (steelmakers) and they decided to roll-back prices."
Pawar denies sugar decontrol proposal
Refuting media reports of a plan to decontrol the sugar sector, Agriculture Minister Sharad Pawar said that the Government had no plans to allow sugar mills to sell their entire produce in the open market. "I don't have any proposal and neither are we thinking about it," Pawar told reporters in New Delhi on the sidelines of the India-Africa Agrifood Summit. Earlier today, a financial daily reported that the Government planned to do away with the levy quota system from April 1 and could also scrap the Minimum Support Price (MSP) for cane to allow farmers get a better deal. Levy quota is a system where sugar mills have to sell 10% of their total output to the Government at below market rates. Sugar producers can sell 90% of their output at market rates, while the Government usually fixes the quantity and time of the sale every month.
Feb car sales up 46% yoy
Domestic sales of passenger cars grew by 46.47% in February to 92,594 units from 63,213 units in the same month a year ago, data released by the Society of Indian Automobile Manufacturers (SIAM) showed. According to analysts, the sharp rise is mainly because in the year-ago month sales were down as customers had postponed their purchases in anticipation of a reduction in excise duty on small cars in the budget. Commercial vehicle sales during the month were up 26.45% at 44,322 units as against 35,049 units in the corresponding month last year. Motorcycle sales in the month under consideration rose by about 5% to 516,410 units from 492,116 units in the same month a year ago. The slow growth was mainly on account of a decline in Bajaj Auto's sales.
M&M to buy 43.3% in Punjab Tractors
Mahindra & Mahindra Ltd. (M&M) won the race for picking up a 43.3% stake in rival Punjab Tractors Ltd. for about Rs9.51bn. The company agreed to pay Rs360 per share for purchasing the stake from Actis and the Burman family. The deal values Punjab Tractors at around Rs22bn. While Actis will get Rs6.34bn for its 29% stake in Punjab Tractors, the Burmans (of Dabur fame) will fetch Rs3.17bn for its 14.5% holding. The other two suitors in the last round of bidding included Ashok Leyland Ltd. and TAFE. Earlier, the Tata group (with Fiat-CNH) pulled out of the race. Before that a clutch of companies like the Sonalika Group, Escorts, Italian tractor firm Sam Duetz-Fahr and a private equity consortium had withdrawn from the bid. As a result of this deal, M&M will also get a 33% in Swaraj Engines and 24% in Swaraj Automotives. M&M will have to announce a mandatory open offer for buying a 20% stake each in Punjab Tractors, Swaraj Engines and Swaraj Automotives.
Morgan, Citigroup, Actis buy 6% in NSE
The National Stock Exchange (NSE) has once again beaten the Bombay Stock Exchange (BSE) by securing the minimum 26% foreign ownership stipulated by the Government ahead of the old rival. Morgan Stanley, Citigroup and Actis have agreed to pick up a total of 6% in NSE for an undisclosed amount. While Morgan Stanley will purchase 3% equity stake in NSE, Citigroup and Actis will buy 2% and 1%, respectively. The Government has restricted individual foreign holding in local stock exchanges at 5%. The stake will be bought from IDBI (2%), SBI (1.5%), SBI Capital Markets (0.5%), Corporation Bank (0.265%), Union Bank (0.125%), Bank of Baroda (0.89%), Canara Bank (0.385%) and Oriental Bank of Commerce (0.335%). The investments follow the earlier agreements between NYSE, General Atlantic, Goldman Sachs and Softbank Asian Infrastructure Fund with IFCI, IL&FS, ICICI, PNB and GIC to acquire 5% each in NSE from the domestic Institutions. They paid US$460mn for stake totaling 20% in January, valuing NSE at US$2.5bn. The latest stake sale from NSE comes close on the heels of BSE announcing the induction of a second strategic investor in the form of Singapore Exchange as part of its demutualisation process. Earlier this week, Singapore Exchange paid US$42.7mn for a 5% stake in BSE. Last month, Deutsche Boerse bought a 5% stake in BSE, valuing Asia's largest exchange at around US$900mn.
Tata Steel buys two mills in Vietnam
Tata Steel also announced that its 100% subsidiary NatSteel Asia Pte. Ltd. had agreed to acquire controlling stake in two rolling mills in Vietnam. NatSteel will acquire a 100% stake in SSE Steel Ltd., which operates a 250,000 tons per annum (TPA) bar/wire rod mill. It will purchase a 70% stake in Vinausteel Ltd., which produces 180,000 TPA reinforcing bars. The remaining 30% equity in Vinausteel is held by Vietnam Steel Corporation. The acquisition will result in an addition of 430,000 TPA finishing capacity. The enterprise value for the two acquisition is around US$41mn. This transaction is likely to be completed by June. Tata Steel Ltd. announced that it had acquired a 100% stake in Kolkata-based Rawmet Industries, at an enterprise value of Rs1.01bn. Rawmet has a Ferro Alloy Plant near Cuttack, consisting of two 16.5 MVA semi closed electric arc furnace having a capacity of producing around 50,000 tons per annum of High Carbon Ferro Chrome. The Board of Rawmet has been reconstituted with nominees of Tata Steel. Corus shareholders clear acquisition by Tata Steel
Vodafone's Hutch deal lands in court
Even before the ink dries on Vodafone Group Plc's deal to buy the 67% stake in Hutchison Essar from Hutchison Telecom International Ltd. (HTIL), it is being challenged in the Delhi High Court. The acquisition was contested on the ground that the new firm would violate the existing FDI norms for the telecom sector as it would have total foreign holding of 89% as against the stipulated limit of 74%. The deal has been challenged by a non-government organization (NGO) called Telecom Watchdog. The Delhi High Court directed the Government and the Foreign Investment Promotion Board (FIPB) to complete in two months, an inquiry into the allegations that the deal between HTIL and Vodafone is in violation of the current FDI norms. "Since the aforesaid matter is before FIPB and an inquiry is (being) done by FIPB, we are not issuing any notice to the companies. The Centre and FIPB will decide the matter as expeditiously as possible within two months," said a division bench comprising Chief Justice M K Sharma and Justice Sanjiv Khanna.
Tata's Rs1-lakh car to cost more on road
The much-touted Rs1-lakh-car from Tata Motors Ltd. is likely to cost much more on road after accounting for excise duty, sales tax, octroi and other expenses, Chairman Ratan Tata said. The car will be priced at Rs1 lakh ex-factory, Tata said at the Geneva Auto Show. The four-door car will have a 600cc engine under the hood and will be able to accommodate 4-5 people, Tata said, adding that variants with extra features such as AC, power steering, etc. will be more expensive.
The car, scheduled for launch in 2008, will be made at a plant at Singur, West Bengal. The proposed factory has become a political hot potato with opposition parties in the state alleging wrongdoings in procuring the land. Tata has blamed rivals for fuelling the political controversy over the group's small-car project at Singur. Meanwhile, the company signed a lease agreement with the West Bengal Government for the Singur Land.
Listings...MindTree and Idea shine
As expected, shares of MindTree Consulting and Idea Cellular climbed on listing while that of Indus Fila, Oriental Trimex, Evinix Accessories, Broadcast Initiatives, Euro Ceramics, Mudra Lifestyle and Vijayeshwari Textiles were hammered as investors were reluctant to buy into companies with relatively weak management quality.
Idea Cellular opened at Rs92.40 on BSE as against the issue price of Rs74. The stock closed at Rs85.55 after being as high as Rs94.25 and a low of Rs84. MindTree opened at Rs627 on NSE as against the issue price of Rs425, translating into a premium of 47.5%. On Friday, the stock closed at Rs651.80 after touching a high of Rs678.80 and a low of Rs575.20.
Broadcast Initiatives opened at Rs140 versus the issue price of Rs120. However, the stock lost altitude and ended the week at Rs68.55 after hitting a low of Rs60.40. Oriental Trimex also suffered the same fate. After opening at Rs50.10 compared to the issue price of Rs48, the stock declined to a low of Rs25.40 after being as high as Rs47. It closed the week at Rs26.55.
Evinix Accessories also could not attract investors' attention. The stock opened at the issue price of Rs120. It fell to a low of Rs69.20 after touching a high of Rs128. Euro Ceramics opened at Rs151 on BSE versus the issue price of Rs165. The scrip ended at Rs118.65 after being as low as Rs115.25. Mudra Lifestyle shares opened at Rs94.80 on BSE compared to the issue price of Rs90 per share. The stock finished at Rs63.80 after hitting a low of Rs62.05. Vijayeshwari Textiles opened at Rs90.05 on BSE as against the issue price of Rs100. It shut shop at Rs69.95 after touching a low of Rs65.