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Saturday, April 04, 2009

Worldwide IT spending to decline by 3.8% in 2009: Gartner

The unprecedented decline of the global economy is impacting the IT industry with worldwide IT spending forecast to total US$3.2 trillion in 2009, a 3.8% decline from 2008 revenue of nearly US$3.4 trillion, according to Gartner, Inc.

“IT organizations worldwide are being asked to trim budgets, and consumers are cutting back on discretionary spending,” said Richard Gordon, research vice president, and head of global forecasting at Gartner. “The speed and severity of the response by businesses and consumers alike to these economic circumstances will result in an IT market slowdown in 2009 that will be worse than the 2.1% decline in IT spending in 2001 when the Internet investment bubble burst.”

In a broad-based slowdown, the forecasts for all four of the key market sectors of hardware, software, IT services and telecommunications have been revised downward, with only software spending growth remaining positive.

Although government stimulus packages will likely be important in the long term, they will not be able to offset this bleak near-term outlook. Until global financial markets stabilize, global GDP growth, including IT spending, is unlikely to strengthen.

As a result:

• The slowdown in IT spending will reduce new market penetration and will slow replacement activity.

• The impact of reduced new sales will be more strongly felt in emerging markets, while the impact of reduced replacement activity will be more strongly felt in mature markets.

• Consumers and businesses will continue switching to lower-cost products, extending the life of existing devices and extending their current contracts and purchasing agreements.

• However, IT is essential to running most businesses. Supporting current complex IT installations is both necessary for continued operations and a strategy for slowing down technology refresh cycles.

“IT vendors should plan for business and consumer spending to be curtailed during 2009 and for a slow, prolonged recovery during 2010,” said Mr. Gordon. “At the same time, they should be alert to opportunities to help buyers with cutting costs, complying with new government regulations and taking best advantage of government rescue plans.”

Additional information is available in the Gartner report “Gartner Dataquest Market Databook, March 2009 Update." The report provides detailed regional data for worldwide IT spending through 2013.

ECB surprises with lower than forecast rate cut

The European Central Bank (ECB) pruned its benchmark interest rates by a quarter percentage point to a new record low, but the decision left the markets stunned as most economists were looking for a wider cut. The ECB cut its key lending rate to 1.25% from 1.5% while the rate for overnight deposits at the central bank was also trimmed to 0.25% from 0.5%. The decision stunned economists, who had expected a reduction of 50 basis points. At 1.25% the main lending rate is the lowest since the ECB took charge of monetary policy in 1999. The euro shot higher on the decision, rising as high as US$1.3415. It most recently was up 1% at US$1.3361. Stocks in Europe were off session highs but still sporting impressive gains. The pan-European Dow Jones Stoxx 600 climbed 3.1% shortly after the ECB decision. The Frankfurt-based ECB, which sets interest rates in the 16 countries that use the euro as their common currency, arrived at the decision after considering economic data showing rising unemployment, slumping industrial output and dwindling consumer spending. ECB president Jean-Claude Trichet will hold a press conference later in the day to explain today’s decision as well as to discuss whether the central bank will announce other measures to stimulate the euro-zone economy, like buying short-term corporate debt.

US auto sales slide; Cos hope worst is over

US auto sales tumbled sharply in March, but officials with some of the companies said they hope the worst of the slump is over. March auto sales fell 35%, but a rise from February levels could suggest that the industry’s 17-month slump in deliveries may be reaching a bottom. New autos sold at an annual rate of 9.86 million units, according to sales tracker Autodata Corp. of Woodcliff Lake, New Jersey. That beat the average estimate of 8.8 million units predicted by analysts. This was an improvement from February’s 9.1 million rate, the lowest since 1981. The rate averaged 16.8 million this decade through 2007. The annual sales rate plunged to a 27-year low in February. Ford Motor said sales fell 41% from a year ago, although they were up from January and February levels. Ford, considered to be in the best financial shape of the three Detroit automakers, had been expected to post a decline of 50%. Toyota Motor said sales fell 39% and Honda Motor said sales fell 36%. General Motors (GM) said sales fell 45% in the month, while privately held Chrysler said sales fell 39%. Hyundai Motor Co. sales fell 4.8% and Kia Motors Corp. sales slid 0.6%. US market share for the domestic automakers fell to 45.2% from 49.3% a year earlier, while the Asian brands led by Toyota rose to 47.1% from 44.4%, according to Autodata. European brands, excluding Ford’s Volvo and GM’s Saab, climbed to 7.9% of new-vehicle sales from 6.4%.

G20 summit begins amid some good news on global economy

The Group of 20 (G20) summit kicked off in London even as recent economic reports suggest that the pace of the global economic slump may be easing. US durable goods orders and home sales rose in February, while March's factory activity revealed some signs of recovery from February despite contracting for the 14th month in a row. Chinese urban investment surged 26.5% in the first two months of the year and UK house prices unexpectedly rose for the first time since October 2007. German investor confidence in March reached its highest level since July 2007. Japan's monetary base logged the fastest rise since 2004, British factory activity contracted at slower pace in March and Australia's February trade surplus soared to A$2.1bn. Even the leading banks, whose deteriorating health has been the root cause of the current global turmoil have seen improvement in business in the first two months.

However, not all's well with the world. Spain mounted its first major bank rescue in 16 years as the state took over Caja Castilla-La Mancha after efforts to choreograph its purchase by a rival lender failed. Spain also became the first euro nation to see consumer prices fall. German retail sales dropped for a 10th month in March. Japan's much-watched survey of business sentiment came in even worse than expected, hitting the lowest result on record. Turkey's economy shrank more than 6% in the fourth quarter, making it more likely that the central bank will have to cut rates further. Euro-zone's February jobless rate rose to 8.5% while in the US a survey by ADP showed the worst-ever monthly loss for private payrolls. Fitch says that Emerging Europe's GDP will contract 3.1% in 2009. Out of the 21 countries covered in the region, GDP will contract in 19 of them, be flat in one and grow in only one.

L&T bags slew of new orders

Engineering giant Larsen & Toubro Ltd. (L&T) said it has booked large orders valued at Rs51.77bn this week. This is in addition to several smaller orders secured by the company's other businesses that are not announced.

L&T has bagged a contract worth Rs12.45bn for the construction of the Dam Package, a part of the 1200 MW Punatsangchhu-I Hydroelectric Project in Bhutan. The project is being set up by the Punaatsangchhu-I Hydroelectric Project Authority which has been constituted through an agreement between the Government of India and the Royal Government of Bhutan. This is the first of a series of 10 hydropower projects jointly identified by India and Bhutan and to be implemented for a total installed capacity of 11,576 MW by 2020.

L&T said it has bagged two orders totaling Rs11.43bn from Tata Steel. These comprise Rs6.89bn for turnkey construction of Dry Cushing & Material Preparation Plant (DCMP) at Joda Mies and Engine-on-Load (EOL) Scheme at Noamundi Mines and another Rs4.54bn order for Iron Ore & Pallet Handling System at Jamshedpur.

MRPL has awarded L&T two large project orders for Rs13.44bn, including a 3.7 MMTPA Diesel Hydrotreating Unit and a 70,000 TPA Hydrogen Generation Unit (HGU) in the ‘Phase - III Refinery Project’ at Mangalore. The projects will enhance capacity and upgrade fuel quality to meet Euro IV specifications.

L&T has bagged a slew of large-value orders aggregating Rs11bn in the electrical construction sector in the fourth quarter of 2008-09. The orders have come from leading public sector organizations - the PowerGrid Corporation of India Ltd. and the Rail Vikas Nigam Ltd. The orders involve setting up of high end transmission lines and substations as well as a project for the Indian Railways.

L&T has won an order worth Rs3.45bn for design, manufacture and supply of four steam generators for 700 MWe Pressurized Heavy Water Reactors from the Nuclear Power Corporation of India Ltd. The steam generators are critical and long lead equipment to be supplied to Kakrapar Atomic Power project. These will be the largest steam generators built in India so far, and will enable an increase in the size of future indigenously built nuclear power projects from 540 MWe to 700 MWe.

Current account deficit shoots up in Q3 FY09

India's current account deficit surged to the highest in 18 years in the quarter ended December 2008 as the global financial-cum-economic crisis stifled trade as well as capital inflows, the Reserve Bank of India (RBI) said. The current account deficit widened to US$14.64bn in the October-December quarter from a revised US$4.53bn a year earlier, the central bank said. It was also much higher than the US12.83bn deficit in the previous quarter. Also, the capital account balance turned negative during Q3 FY09 for the first time since Q1 of FY 1998-99 mainly due to net outflows under portfolio investment, banking capital and short-term trade credit, the RBI said. According to the balance of payments (BoP) data released by the RBI, the capital account balance saw an outflow of US$3.23bn as against an inflow of US$31.27bn during the third quarter of last year. The overall BoP - the country's external sector balance-sheet - witnessed a deficit of US$17.8bn compared to record surplus of US$26.7bn recorded in the corresponding period a year ago.

Weekly Stock Picks - Apr 4 2009


Buy JP Associates

Buy R Com

Buy Bharti Airtel


Tata Motors March sales down 13% yoy

Tata Motors’ domestic sales in March 2009 were 52,686 nos. The company's total sales (including exports) were 54,485 vehicles. The company’s sales (including exports) for the fiscal 2008-09 were 498,581 nos. While the financial stimulus announced by the Government, particularly for commercial vehicles, has had a positive impact, the retail market would still take some time to reach the corresponding period levels of the last fiscal, Tata Motors said. As a result, March 2009 domestic sales nos. were 13% lower than that of March 2008. Cumulative sales for the fiscal year 2008-09 were 498,581 nos., down 14% over the last fiscal year. The company’s domestic sales of commercial vehicles in March 2009 were 29,006 nos., down 24% over February 2009 but 19% lower than March 2008. Local sales of passenger vehicles in March 2009 at 23,680 nos. were the highest this fiscal, 24% up over February 2009, but 4% down compared to March last year.

CDMA Cos get TDSAT nod for dual technology

Telecom tribunal (TDSAT) has supported the Government’s decision to allow CDMA players, such as Reliance Communications (RCOM) and Tata Teleservices, to launch GSM services. The tribunal also observed that GSM players are not entitled to more than 6.2 MHz of radio frequencies. This move will strengthen the Government’s efforts to impose a one-time fee for radio frequencies, exceeding 6.2MHz. Some GSM players such as Bharti Airtel and Vodafone Essar have up to 10 MHz in certain circles. The Cellular Operators Association of India (COAI) had challenged the Department of Telecom’s (DoT) decision on October 18, 2007, to amend the telecom licences and allow mobile operators to provide services on ‘dual technology’, whereby an operator could offer both GSM and CDMA platform with a single licence. Rejecting COAI’s petition, the tribunal said: "We are unable to agree with COAI that DoT’s impugned order of October 19, 2007 has disturbed the level-playing field." It added that there is nothing irregular in granting 4.4 MHz as start-up spectrum (for launching GSM services) to respondent (RCOM). Last year, the Delhi High Court had rejected the GSM operators’ plea on the issue of dual technology and imposed a fine of Rs50,000 each on six petitioners, including Bharti Airtel, Vodafone-Essar and Idea Cellular, and COAI.

Manufacturing sector health improved in March: PMI

Manufacturing activity in India seems to be on the mend on the back of the series of fiscal as well as monetary steps taken by the Government to mitigate the impact of the global financial-cum-economic meltdown, a key barometer released by ABN Amro Bank showed. The Dutch bank's purchasing managers' index (PMI), based on a survey of 500 companies, rose to a seasonally adjusted 49.50 in March from February's 47.0. Although the PMI shows contraction in manufacturing for a fifth straight month there are some signs of improvement. The index showed signs of slight improvement after hitting a trough of 44.4 in December. A reading above 50 signals economic expansion while a figure below 50 suggests contraction. "On the whole, it appears that business conditions in the manufacturing sector are gradually improving," said Gaurav Kapur, senior economist at ABN Amro Bank India. "It appears that domestic demand is picking up. External demand, however, remains weak and contracted in March too, for the sixth consecutive month," Kapur added. The new orders index rose to 49.5 from 45.9 in February.

GM, Chrysler staring at bankruptcy

General Motors (GM) and Chrysler were directed to overhaul their proposed recovery plans to get further federal aid, and officials of the Barack Obama administration reckon that a structured bankruptcy may ultimately be their best chance. The White House will provide operating funds to both the automakers for several weeks, but the struggling Detroit titans must undergo significant restructuring, US officials said. The Obama administration asked GM CEO Rick Wagoner to step down. He will be replaced by Fritz Henderson, the company's chief operating officer (COO). Board member Kent Kresa will serve as GM’s interim chairman. GM will also replace most of its Board. The US government was silent on how much more aid GM may receive if it devises a successful recovery plan. GM will get 60 days and Chrysler 30 days in which to prove they can run viable businesses. Chrysler will get US$6bn in aid only if it completes a partnership with Italian carmaker Fiat in 30 days. According to a White House document, their best chance at success may well be a structured bankruptcy. Still, it is not the administration's first choice, officials said. GM sought as much as US$16.6bn in additional aid after receiving US$13.4bn since December. Chrysler sought US$5bn after receiving US$4bn. Both had until March 31 to show progress operationally as well as financially to obtain more financial assistance.

Weekly Newsletter - Apr 4 2009

The bulls are sweating gains but show no signs of tiring as yet. Who cares whether it is convincing enough or not for the time being. Most people seem to be postponing their sales in the hope of locking in more gains. No harm in doing so when the momentum is in your favour. The problem is no one knows when the direction will change. Ride the upside and use it to lighten positions gradually. Equities may well remain the best option for the long term. But if you are in for the long term, no issues waiting for some time to resume your buying

RIL kicks off gas output from KG basin

Reliance Industries Ltd. (RIL) commenced production of gas from the Dhirubhai 1 and 3 discoveries of the KG-D6 block in the Krishna Godavari Basin, located off the East Coast of India, in the Bay of Bengal. The gas from offshore is being received at its world class onshore facility at Gadimoga, a small village in the East Godavari district of Andhra Pradesh and delivered to the East West Pipeline of Reliance Gas Transportation Infrastructure Ltd. (RGTIL).

At peak production of oil & gas, the KG-D6 facility is expected to produce over 550,000 barrels of oil equivalent per day. Production from the Dhirubhai 1 and 3 discoveries of the KG-D6 block will result in a quantum leap towards achieving India’s energy security. KG-D6 gas would also substantially reduce wealth transfer from India to other nations due to energy imports and bring down subsidy levels in the fertilizer, transportation and other sectors

RIL has started gas production in six and a half years from discovery, in comparison to the world average of 9-10 years for similar deepwater production facilities.

The initial production of gas from the Dhirubhai 1 and 3 discoveries of the KG-D6 block will be sold to existing gas starved Fertilizer and Power companies resulting in substantial reduction in subsidy burden of the Government.

The KG-D6 block (KG-DWN-98/3) in Krishna Godavari basin was awarded to RIL and Niko consortium under NELP-I. RIL holds 90% Participating Interest (PI) and Niko Resources Limited holds 10% PI in the block.

Economy Release Calendar - April 09

Economy Release Calendar - April 09

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India Elections - Apr 4 2009

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India Strategy - Apr 4 2009