Sunday, December 21, 2008
The bulls will hope to Jingle all the way in this Christmas-shortened week. We wonder! US President George Bush’s bailout plan (or may be an orderly bankruptcy) for the auto majors is expected to bring some Joy to the World. Having said that, the euphoria may prove to be short lived and the markets could turn lower again on concerns about a weakening global economic outlook. In the Indian market, we have the F&O expiry which could well show gains for the month. The Government may drop more hints on its next round of stimulus package, which is also likely to include more rate reductions. One must keep an eye on global markets as well as FII inflows to make some sense of what the mood on the markets will be in the near term. Like every year, despite disappointments, expectations continue for a miracle on Dhirubai Ambani’s birthday which falls next Sunday (Dec 28). With year-end considerations also in play, expect wild swings before we leave behind 2008 – a year best forgotten
Chanda Kochhar, ICICI Bank’s joint MD is to take over as the bank's CEO and MD from May 2009. KV Kamath would take over as non-executive chairman in place of N Vaghul, who would retire from the Board on completion of his current term on April 30, 2009. The change is subject to the approval of the Reserve Bank of India (RBI) and the shareholders. Kamath will be non-executive chairman of the ICICI Bank Board for five years effective May 1, 2009. "We currently have 1400 branches and has received licences from the RBI to set up 600 more branches. By March 2009, we are planning for a growth rate of 5-10%," Kochhar said. "I see interest rate correction in 2009. As interest rate softens, there is more opportunities for banking industry," she added. Lending rate will come down to single digits in a year and predicted attractive opportunities in treasury operations in the soft interest rate regime, Kamath said. "Single digit lending rate and double-digit growth is what we should look forward to one year from now," Kamath said.
The economic downturn is a major policy concern but India should return to its high growth trajectory once global conditions return to normal, the Reserve Bank of India (RBI) said in its annual report on the banking sector for the year ended June 2008. The RBI said that an industrial sector slowdown could adversely affect the profitability of the corporate sector and credit risk. "The overall long-term macroeconomic outlook continues to be favourable with moderation of growth being the current policy concern," the central bank said. There were downside risks from India's increasing global integration, such as a sustained outflow of capital, financial contagion and slowing world growth, the central bank said in the report. Active liquidity management was key to the current policy stance and the use of a combination of instruments to absorb excessive pressures had helped cushion the impact of the global crisis on local markets, the RBI said. To reduce the probability of future crisis, the RBI and the Government should continue to adopt global best practices for prudential supervision and regulation. "Consequently, the role of fiscal space in promoting financial stability has once again come into prominence," the central bank said.
The Indian rupee rallied amid expectations that global investors will pour more money into high-yielding assets like emerging market equity after US interest rates fell as low as zero. The sharper than expected drop in inflation fueled speculation that the RBI will cut rates further to revive economic growth. The partially convertible Indian rupee closed the week at 47.26 per dollar, rising 2.8% during the week, the best performance since the week through Nov. 7. It touched a weekly high of 46.85 and a low of 48.17. The currency rose for a third successive week as global stocks have rallied on hope that rate cuts and stimulus packages will bolster the global economy. The rupee is up nearly 7% from a record low of 50.6150 touched on Dec. 2. The currency’s 16.5% loss this year is still the biggest since 1991.
The Indian currency extended gains this week after the Federal Reserve cut its benchmark interest rate to as little as zero this week and said it will use all available tools to help resume growth in the world’s biggest economy. The Fed said it will target a federal funds rate of between zero and 0.25%. The benchmark BSE Sensex gained 4.2% this week, adding to last week’s 8.1% advance. Offshore non-deliverable forward contracts showed traders scaled back bets for how far the currency will fall in a month. The contracts indicate the rupee will trade at 47.65 a dollar in a month, compared with expectations for a decline to 51.26 at the end of November.
India's inflation, based on the wholesale price index (WPI), fell sharply in the first week of this month after the Government cut fuel prices for the first time since Feb 2007 in the wake of the steep fall in crude oil prices from a record US$147 a barrel in July. The annual, point-to-point inflation stood at 6.84% in the week ended Dec. 6 as against 8% in the previous week, the Commerce & Industry Ministry said. Inflation was expected to decline to around 7.5%, according to economists. It had touched a 16-year peak of nearly 12.91% on Aug. 2 and was at 3.84% in the comparable period last year. The WPI for "All Commodities" declined by 1.1% to 231.1 in the first week of December. The index for Primary Articles dropped 0.4% to 249 while the index for Manufactured Products declined by 0.3% to 202.4. The index for Fuel & Power was slid 3.7% to 332.1 due to a steep decline in the prices of naphtha (23%), furnace oil (15%), bitumen (11%), petrol (10%), aviation turbine fuel (7%), high speed diesel oil (6%), light diesel oil (5%) and lubricants (4%). The rate of inflation, based on average monthly WPI, which was 10.97% for the month of October has eased by 2.31% to 8.66% in November, the Commerce Ministry said. The annual rate of inflation for Food Articles group stood at 10.19% for the week ended Dec. 6 compared to 10.52% in the previous week. It was 2.51% as on Dec. 8, 2007. Meanwhile, the Government revised the inflation rate for the week ended Oct. 11, to 11.30% from the provisional estimate of 11.07%, while the WPI for the same period stood revised at 239.3 versus 238.8 forecast earlier.
Just a few days after unveiling the fiscal stimulus package and fresh round of rate cuts, the Government went a step further and launched a special housing loan package for budget homes. Nationalised banks brought cheer to small home loan borrowers by cutting rates under a new package. Loans up to Rs20 lakh will now be available at 8.5-9.25% a year for tenures up to 20 years. The margin has been reduced to 15%. The offer will be valid only for new loans up to June 30, 2009. Currently, the interest rate on these loans average around 10% for most PSU banks.
Under the scheme, the interest rate on home loans up to Rs5 lakh, for a maximum period of 20 years, will not exceed 8.5% for the first five years. The margin for this segment has been reduced to 10%, from the current 20-25%. A borrower can get a home loan of up to 90% of the value of the property.
During the first five years, if any bank introduces a home loan product at a lower rate, then the borrowers will be offered that rate. After the first five years the interest rate will be reset from the date of the first drawal and borrowers have the option to go for fixed or floating rates. The package does not apply to existing home loan borrowers and cannot be swapped with an existing loan. The move could put some pressure on private and foreign banks to cut home loan rates.
Public sector banks also announced a package for the 40-lakh strong small and micro units which are reeling under the impact of high interest costs and economic slowdown. The interest rates for all existing and new loans for micro industries will be brought down by 100 basis points. In the case of small and medium enterprises where banks have fund based exposures up to Rs100mn, the interest rate will be cut by 50 basis points.
However, realty players cried foul, saying that the package announced by the state-run banks will not help in reviving the crisis for the Indian realty sector, which is facing the worst downturn in the last 10 years, because of high interest rates. Meanwhile, some media reports said that the Government may increase the upper end of the home loan package from Rs20 lakh to Rs30 lakh in the next round of stimulus program.
Satyam Computer found itself in the eye of a storm after the IT major announced a plan to buy two companies promoted by the promoter's son for around US$1.6bn. The rationale: the move will provide a much-needed cushion amid uncertain business environment for the core IT and BPO businesses. The management also claimed that the diversification will pay rich dividends in future. However, enraged investors forced the company to do an about-turn on the ill-conceived acquisitions, citing blatant violation of corporate governance. The Hyderabad-based company dropped the plan to acquire 100% of Maytas Properties and 51% in Maytas Infra. But, despite the move, the shares of both Satyam and Maytas Infra took a beating, prompting the company to announce plans for a share buyback. The board will meet on Dec. 29 to consider the buyback. But, the move is unlikely to restore investor confidence in Satyam management, who has lost much of its credibility for flouting all ethical norms of corporate governance. Meanwhile, the Government is believed to have ordered a probe into Satyam's decision to buy two promoter group companies and then scrap the deal in the wake of investor backlash.
India Strategy, India Economy, Satyam Computers, Tata Steel, Indiabulls Real Estate, India Valuations
India Strategy, India Economy, Satyam Computers, Tata Steel, Indiabulls Real Estate, India Valuations
Zee News, Infosys Technologies, Larsen and Tourbo, BPCL, HPCL, IOC, IRB Infrastructure Developers, Reliance Industries, India Telecom, India Banking
Zee News, Infosys Technologies, Larsen and Tourbo, BPCL, HPCL, IOC, IRB Infrastructure Developers, Reliance Industries, India Telecom, India Banking, India Cement
Despite talks of recent downturn in property prices, developers are unlikely to reduce prices, as the realty players feel that their properties are well- priced, says industry body FICCI.
"Voluntary reduction of property prices are not on the cards of developers. Barring very few developers, who have already reduced their prices, majority feel that their properties are rightly priced," said the Chamber in its latest study on the scenario of property prices in the country.
According to the report, developers may cut prices "by 10-15 per cent and not beyond only if the situation does not improve in the next few months".
The study underlined that developers seemed to have realised the need for affordable and mid-range housing to survive the current slowdown.
FICCI also said due to higher risks of investing in real estate, the sector would witness lower private equity deals in the next 12 months, as funds would not be easily accessible.
"...valuations are expected to go down further and the costs are going to be very high for developers," it added.
Regarding housing projects, FICCI said: "After having reached its peak, residential real estate in India will witness a steady down cycle for next few months. There is time and cost overrun in the existing projects while new projects are being deferred."
Such a situation would eventually lead to a reduction in price in the coming four quarters and the market was expected to turn in favour of end-users, the report said.
According to the industry body, high interest rates have dwindled the demand for properties, while scarcity of funds and slimming of liquidity have affected the supply side on commercial real estate.
"The corporates are postponing their expansion plans as they are expecting the prices to fall further. Instances of deferment in projects and delays in execution of ongoing projects are numerous," it said.
An increasing number of developers are now shifting their focus to demand based developments due to oversupply of commercial spaces, the report added.
Stating that many realty firms have diversified in the recent times to counter falling sales in the property market, FICCI said: "To beat the slowdown, some prominent companies are considering entering new areas like coal mining, big-ticket irrigation projects, transmission lines, telecom and core infrastructure projects."
On the PSU banks' recent reduction in interest rates, the report said that the upper limit of the special package for home loans should be increased to Rs 30 lakh from the current Rs 20 lakh.
FICCI has suggested measures, including simplification of land-holding framework, single-window approval for projects, use of technology to keep land records and release of more urban lands, for a healthy functioning of the realty sector.
In addition, the report has suggested allotment of higher floor space index (FSI) for integrated township projects to make properties more affordable.
Sustained buying support in select index heavyweights helped the Sensex cross the 10,000-mark last week. The index moved in a much narrower range of 555-odd points last week from a low of 9,633 to a high of 10,189. The Sensex finally ended with a gain of 410 points at 10,100 on Friday.
Among the index stocks, Tata Motors, ICICI Bank, Grasim, HDFC Bank, DLF, Hindustan Unilever, NTPC, ONGC and Mahindra & Mahindra gained 10-16 per cent each. On the other hand, Satyam slumped 26 per cent to Rs 163. Reliance Communications dropped 13 per cent to Rs 249 and HDFC shed 7 per cent at Rs 1,636.
With the index crossing its first major hurdle on the monthly charts, the Sensex is now likely to move up to 10,700 in coming days. However, as the index has reached an overbought zone, some amount of profit-taking cannot be ruled out. The 14-day RSI (Relative Strength Index) is almost 72 per cent. An RSI of above 70 per cent is said to be overbought.
On the upside, the index is likely to face resistance around 10,310-10,380-10,445, while on the downside, the index is likely to find support around 9,750-9,670.
The NSE Nifty, too, moved in an extremely narrow range of 184-odd points from a low of 2,923 to a high of 3,107. The Nifty finally ended with a gain of 156 points at 3,078. The index appreciated more than 1 per cent last week compared with the Sensex. While the Sensex was up 4.23 per cent, the Nifty gained 5.35 per cent. Hence, the Nifty was able to scale past the 3,040-level, while the Sensex ended at 10,100.
In doing so, the Nifty has also managed to close above its mid-term (50 days) moving average after 62 trading days. The mid-term moving average is now at 2,953 and the short-term (20 days) moving average is at 2,815. The short-term moving average has to cross the mid-term moving average for the uptrend to sustain.
This week, the Nifty is likely to find support around 3,005-2,985-2,965, while resistance on the upside would be around 3,148-3,170-3,190.