Saturday, November 01, 2008
After infusing Rs 1,85,000-crore liquidity into the banking system, the RBI on Saturday effected yet another 100 basis points cut in Cash Reserve Ratio (CRR) and a 0.5 percent reduction in key short-term lending (repo) rate, signaling softening of interest rates to prop up growth.
The one percentage point cut in CRR, the amount which banks have to park with the apex bank, has been brought down to 5.5 percent to infuse additional liquidity of Rs 40,000 crore into the system.
The CRR cut will be in two tranches and the first one of 0.5 percent will be effective retrospectively from October 25 and the second from November 8.
The RBI also cut the repo rate, the rate at which it lends to banks, by 0.5 percent to 7.5 percent with effect from November 3.
The central bank has also reduced the statutory liquidity ratio (SLR), the amount which banks are mandated to park in government securities, by 100 basis points to 24 percent.
Welcoming the decision, ICICI Bank Joint Managing Director Chanda Kochhar said, "it will release much needed liquidity into the system and signal reduction in interest rates."
The SLR cut would inject about Rs 40,000 crore into the banking system.
To provide further comfort on liquidity and to impart flexibility in liquidity management to banks, the Central Bank has introduced a special refinance facility to scheduled commercial banks.
Under this facility, the banks will be able to borrow short-term funds from Reserve Bank up to a maximum period of 90 days.
The RBI also said that it would continue to sell foreign exchange (US dollars) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps.
"The Reserve Bank would either sell the foreign exchange directly or advise the bank concerned to buy it in the market. All transactions by the Reserve Bank will be at prevailing market rates and as per market practice," the apex bank said.
The apex bank, has also, "as a temporary measure" decided to permit systemically important non-deposit-taking non-banking financial companies (NBFCs-ND-SI) to raise short-term foreign currency borrowings under the approval route.
This is, however, subject to their complying with the prudential norms on capital adequacy and exposure norms, it said.
It has also decided to conduct buy-back of market stabilisation scheme (MSS) dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the system.
Earlier, under the MSS, government securities had been issued to sterilise the expansionary effects of forex inflows.
But now, with considerable forex outflows, it has been decided to conduct buy-back of MSS dated securities, the RBI said.
This would be calibrated with the market borrowing programme of the government and the securities proposed to be bought back and the timing and modalities of these operations would be notified separately, the RBI said.
We had suggested last week that you could get greedy when others are fearful and thankfully, the festival of lights did bring in a lot of brightness to the market. Stocks have bounced back as if the world’s woes are over. We all know that the worse may not be over as yet but Friday saw fireworks across the board. Falling inflation, cooling crude and a host of measures by governments and central banks augur well for the economy in general and the market sentiment in particular. However, a reversal in FII flows remains the big trigger for our markets. Till that happens, confidence levels may continue to remain lower. Our research team has prepared an India Infoline Model Portfolio (IMP). In uncertain times like this, we suggest you stick to a couple of stocks from the model portfolio and gradually build up your positions as the situation improves. At every sharp rise, keep booking some profits.
Global slowdown has not only cast its shadow on Its, telecom, power but also Parma as of 72 cross border outbound deals that these sectors concluded in April-August 2008, reduced their valuation by 76% as compared to 54 such outbound deals recorded in the same period in fiscal 2007, according to ASSOCHAM assessment.
The total number of outbound mergers and acquisitions during the first five months of current fiscal stood at 72 with a total value of US$ 3727.48 million against 54 deals worth US$ 15544.96 million during the same period in last year, points out the ASSOCHAM analysis adding that their was a decline in outbound M&A activities by 76.02%.
Releasing the Paper, the ASSOCHAM President, Mr. Cajon Jindal said that despite global slowdown which adversely affected IT and Its the most, a total 32 M&A activities happened between April-August 2008 of which 5 were inbound, 18 outbound and 9 domestic. This was followed by Pharmaceutical sector in which 5 inbound, 11 outbound and 5 domestic M&A took place.
In telecom, total 15 M&A activities happened of which 3 were inbound, 9 outbound and 3 domestic. In power sector, only 2 outbound and 1 domestic M&A happened. In other sectors, 21 inbound, 32 outbound and 27 domestic M&A took place. Interestingly, the pharmacy sector witnessed only 6 inbound and 5 outbound between April-August 2007 as against 4 in telecom. IT and IteS witnessed a total of 13 M&A activities between April-August 2008 of which 9 were outbound and4 domestic.
The major mergers and acquisitions occurred in pharmaceuticals, finance, telecom, IT & ITES and power sector. During the first five months of FY ’09, pharmaceutical sector topped the list with 38.69 per cent of the total valuation of M&A deals that took place in India, telecom sector accounted for 17.41 per cent, while IT and power sector accounted for 15 per cent and 8.44 per cent respectively.
Standard & Poor's Ratings Services affirmed its 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on the Republic of India. The outlook on the long-term rating remains stable. The ratings on India reflect the country's strong economic growth prospects and its deep government debt market, which helps accommodate its weak fiscal position. "India's economic prospects remain strong with growth likely to average more than 7.0% in the medium term," said Standard & Poor's credit analyst Takahira Ogawa. "Underpinning that growth is the gradual deregulation of the industrial sector, continued trade liberalization, a dynamic service sector, and modest improvements in infrastructure."
"The ratings on India remain constrained by a weak fiscal profile, especially the high government debt burden and deficit, which are still among the largest for rated sovereigns," Mr. Ogawa said. Commitment to fiscal consolidation across all levels of government has been one of the supporting factors for the sovereign credit rating in the past several years. However, higher oil prices and populist measures for the coming general election have weakened the government's efforts in fiscal consolidation.
The stable rating outlook balances India's good external liquidity and growth prospects with its weak fiscal flexibility. An improvement in the sovereign ratings will depend on resumed fiscal consolidation that leads to a materially lower debt and interest burden, and additional reforms that lift the country's growth prospects and income levels. On the other hand, further fiscal slippage, a marked decline in external liquidity indicators, or policy measures that weaken economic growth prospects, could lead to downward pressure on the ratings.
The consolidated debt of India's central and state (general) governments is projected at 82% of 2008 GDP, while interest payments are likely to consume about 30% of general government revenue. India's contingent liabilities are also high. Government-guaranteed debt alone amounts to nearly 9% of 2007 GDP.
The brakes seem to be coming on the galloping inflation which rose 10.68% in the week to Oct. 18 from a year earlier after gaining 11.07% in the previous week. Expectations were it would be around 10.8%. India's annual inflation rate eased to a 4-½ month low in mid-October and could be in single digits before the end of 2008. It was the lowest annual rate since May 31, the week before a hike in state-set retail fuel prices pushed inflation into double digits. Prices are falling in India because of waning consumer demand and a decline in commodity prices. RBI last week reduced its economic-growth forecast to as low as 7.5% from 8% in the year to March 31.
With crude prices cooling and prices of most commodities falling, expectations are inflation may fall to single digit by the end of November itself.
The Federal reserve dropped key interest rate from 1.5% to 1% in a bid to boost economic growth and increase the availability of credit. This cut follows a 50-basis-point reduction earlier in the month. The Fed’s statement points to tight credit amid market turmoil, as well as declines in consumer spending, business equipment spending, and industrial production. The Fed also expressed a new concern about weakened economies abroad "damping the prospects for U.S. exports." The big question is whether rates can go below 1%? The last time rates were at 1% was between June 2003 and June 2004.
…So does China, South Korea
China’s Central Bank cuts deposit lending rates by 27bps to 6.66% from 6.93%, the People's Bank of China stated on its web site. The deposit rate drops to 3.60% from 3.87%. This is the third time in two months China has cut rates.
Bank of Korea lowered the seven-day repurchase rate to 4.25%. This is the largest-ever rate reduction following last week`s carnage in stock and currency markets. Bank of Korea Governor Lee Seong Tae lowered the seven-day repurchase rate by 75 basis points to 4.25%. This was the largest-ever rate reduction in its history, following a more than 20% decline in South Korean shares in the past week. Bank of Korea also cut rates on special loans for small and medium-sized companies to 2.5% from 3.25%, the central bank said. It will also accept bonds issued by commercial banks as collateral in its money-market operations.
…And Bank of Japan too cuts rate
The Bank of Japan cut its benchmark interest rate to 0.3%. The deciding vote was cast by Governor Masaaki Shirakawa to lower the key overnight lending rate from 0.5 % to 0.3%. Four of the eight board me
Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
31-OCT-2008,CCCL,Consolidated Construction,ARGONAUT VENTURES,BUY,200000,285.00,-
31-OCT-2008,COREPROTEC,Core Projects and Technol,PRASHANT JAYANTILAL PATEL,BUY,626663,57.46,-
31-OCT-2008,COREPROTEC,Core Projects and Technol,ROBECO INSTITUTIONEEL EMERGING MARKETS QUANT FONDS,BUY,1643224,58.29,-
31-OCT-2008,COREPROTEC,Core Projects and Technol,SHARAD SHAH,BUY,1010230,52.48,-
31-OCT-2008,COREPROTEC,Core Projects and Technol,TRANSGLOBAL SECURITIES LTD.,BUY,485512,57.37,-
31-OCT-2008,GUJNRECOKE,GUJARAT N R E COKE LTD,ROBECO INSTITUTIONEEL EMERGING MARKETS QUANT FONDS,BUY,2476247,30.16,-
31-OCT-2008,HINDALCO,Hindalco Ind Ltd.,RETAIL EMPLOYEES SUPERANNUATION TRUST,BUY,8865000,57.99,-
31-OCT-2008,MAHLIFE,Mahindra Lifespace DevLtd,SWISS FINANCE CORP MAURITIUS LTD UBS SECURITIES,BUY,316000,188.94,-
31-OCT-2008,MTNL,Maha Tel Nigam Ltd.,BANK OF NEW YORK MACQUARIE BANK LTD,BUY,3000000,62.17,-
31-OCT-2008,NAUKRI,Info Edge (India) Limited,EQUINOX PARTNERS LP,BUY,170000,437.24,-
31-OCT-2008,ALOKTEXT,Alok Industries Limited,ROBECO CAPITAL GROWTH FUND,SELL,1060000,17.20,-
31-OCT-2008,COREPROTEC,Core Projects and Technol,PRASHANT JAYANTILAL PATEL,SELL,702765,58.08,-
31-OCT-2008,COREPROTEC,Core Projects and Technol,TRANSGLOBAL SECURITIES LTD.,SELL,529791,56.73,-
31-OCT-2008,TRIVENI,Triveni Engineering & Ind,TOFSL TRADING AND INVESTMENTS,SELL,2615139,34.25,-
31-OCT-2008,VIMTALABS,Vimta Labs Limited,TATA MUTUAL FUND,SELL,145572,18.07,-