FY08 export target set at US$160bn
Unveiling the Annual Supplement to the Foreign Trade Policy 2004-09, Commerce & Industry Minister Kamal Nath said that the export target of US$ 125bn for 2006-07 has been met. With this, India's share in global trade has crossed 1% as against last year's 0.76%. The Commerce Minister also set an ambitious target of US$ 160bn in 2007-08 and US$ 200bn in 2008-09 despite the slowdown in the US and the steep appreciation in the rupee. "We have factored in the appreciation of rupee which keeps on fluctuating. We have already requested the Reserve Bank of India (RBI) to provide concessional loans to exporters," he said. Clocking a 25% CAGR, exports have double over the last three years, from US$63.84bn in 2004-05 to US$125bn in 2006-07.
In what could prove to be a bonanza for exporters, Commerce Minister Kamal Nath announced exemption of service tax on services rendered abroad or in India to facilitate exports. The move is expected to provide benefits of Rs5.5bn to exporters. It would also provide relief to exporters hit by a rising rupee. Nath also extended the popular Duty Entitlement Passbook (DEPB) scheme till March 2008. He said that a new scheme to replace the existing one would be finalised by then. More items have been included in Vishesh Krishi and Gram Udyog Yojana for tax sops. Other highlights of the policy include extension of the export promotion capital goods (EPCG) scheme to spares and parts and introduction of flexibility in meeting export obligations under the EPCG scheme.
For effectively ensuring all inclusive growth for farmers and tribals, focus products scheme expanded further to include new agro and forest products. For diversifying exports to tap hitherto unexplored markets, scope of focus market scheme is being expanded to include 16 new countries including 10 CIS nations.
Exports and employment in handloom and handicraft sectors have been provided further push through duty free access to machinery and equipment for effluent treatment plants. To sharpen core strength of promising gems and jewellery sectors and handicraft sector, duty free access to tools, machinery and equipment proposed to be provided to give them competitive edge. Export of rhodium polished silver jewellery will be encouraged further. To reduce transaction cost for diamond sector, testing facility at Dubai incorporated in the list of certifying agencies.
Despite the controversy over tax sops special economic zones already enjoy, the government today widened the scope of incentives for SEZs by making developers and co-developers eligible for duty exemption and remission schemes. Terming SEZs as engines of employment, investment and export growth, Nath said that during FY08, additional investment of Rs400bn would go into the SEZs and 15 lakh jobs would be created.
IT Results...TCS subdued, others shine
In a big surprise to the market, HCL Tech, Wipro and Satyam reported much better performance for the January to March quarter even as TCS' numbers failed to excite the bulls due to higher other income. TCS reported net profit of Rs11.77bn for the fourth quarter as against Rs11.05bn, translating into a sequential growth of 6.6%. At Rs51.46bn, the topline is up 5.9% quarter on quarter from Rs48.61bn in the previous quarter. Operating profit margins (OPM) are down, from 25.6% in Q3 FY07 to 26.1% in the fourth quarter due to the sharp appreciation in the rupee during the quarter. If not for the higher other income from forex cover and stake sale in JV company, PBT would have grown by just 3.9% qoq. Management has indicated continuation of revenue growth momentum and stable OPM for FY08. Annualised EPS was at Rs48.1 versus Rs45.2 in the previous quarter.
HCL Tech posted a net profit of Rs3.32bn for the fiscal third quarter ended March 31, 2007 as against Rs2.86bn in the quarter ended December 31, 2006. This translates into a sequential growth of 15.9%. For Q3 FY07, HCL Tech's revenues are up 7.6% sequentially at Rs15.77bn versus Rs14.65bn in the previous quarter. At 38.3%, HCL Tech's Q3 FY07 Gross Margins are up from 37.8% in the October-December 2006 quarter. EBITDA Margins for the January-March 2007 quarter are also up at 23.3% as against 22.1% in the last quarter and 22.3% in the third quarter of last year. The Diluted EPS for Q3 FY07 stood at Rs19.33 compared to Rs16.75 in the preceding quarter and Rs11.38 in the same quarter last year.
Wipro Ltd. reported Q4 FY07 net profit of Rs8.56bn, up 11.9% compared with Rs7.65bn in the previous quarter. At Rs43.33bn, the company's Q4 FY07 revenues are up 8.9% over the revenues of Rs39.79bn in the quarter ended December 2006. Wipro's Q4 FY07 Global IT revenues have improved by 7% QoQ to Rs30.48bn. The company has beaten its own guidance on Q4 Global IT revenues. It had been looking for Global IT revenues of US$685mn, but has delivered US$697mn. However, Wipro's OPM for Global IT Services and Products for the quarter declined to 24% from 25%.
Satyam Computer Services Ltd. declared its results for the fourth quarter and fiscal year ended 2007 today. The company has reported a net profit of Rs3.94bn for the quarter ended March 31, 2007 as against Rs3.37bn in the quarter ended December 31, 2006. This translates into a sequential Quarter on Quarter (QoQ) growth of about 17%. Revenues for Q4 FY07 have gone up by 7% to Rs17.79bn from Rs16.61bn in the October to December quarter of the fiscal year 2006-07. EPS was Rs5.98; a YoY increase of 36% and a sequential increase of 16.2%. EBITDA margin for the quarter was 23.1%.
Market up for 2nd week running
Key stock indices rose for the second week in a row as the Indian bulls cheered results from IT biggies Infosys, TCS, Wipro, Satyam and HCL Tech. Also, the bulls did well to weather the Asian storm on Thursday, when a higher than expected Chinese first quarter growth triggered speculation of further tightening measures by Beijing. The key indices retraced smartly from their intra-day lows and carried on the momentum on Friday. The market also shrugged off a bigger than expected jump in inflation and uncertainty over the RBI's next move on April 24. Even FIIs are back on the bourses at least this month. Data from SEBI shows that they already have poured in over US$800mn with five more trading days to go.
Broad-based buying across counters like Capital Goods, Metals, Auto, IT, Oil & Gas and Banking led to the bull run this week after last week's 4% advance. The benchmark BSE Sensex closed at 13897, higher by 513 points or 3.84% over last week's close and the NSE Nifty added 4.24% or 166 points to close the week at 4084.
Capital Goods stocks were in the limelight, recoding impressive gains over the week on the back of buoyancy in the economy. ABB, BHEL and Punj Lloyd were among the major gainers. the BSE Capital Goods index gained 3.5%. L&T rose by over 5.5% to Rs1694. BHEL advanced 2.3% to Rs2536, Punj Lloyd rallied by over 11% to Rs185 and ABB added 2.7% to Rs3851.
Metal stocks continued their upward momentum amid firm international prices and expectations of strong earnings. Copper futures in Shanghai rose to a 10-month high on signs of growing demand for the metal. Hindalco climbed by over 4% to Rs146 on reports that the company may buy 45% stake in Utkal Alumina from joint venture partner Alcan. Tata Steel recouped a 6% fall on Wednesday as value buying offset concerns about higher than expected equity dilution to fund the Corus purchase. Tata Steel gained 4% to Rs533, Jindal Steel rallied by over 10% to Rs140; JSW Steel jumped by over 7% to Rs592 and SAIL surged by over 6.5% to Rs134.
Telecom stocks outperformed the key indices after the Government notified the enhancement of FDI in telecom from 49% to 74%. Bharti Airtel, Reliance Communications and Idea were among the top gainers. Bharti Airtel advanced by over 8% to Rs845. The scrip was among the top three gainers in the Nifty. Reliance Communications rose by over 8% to Rs456, VSNL gained 3.8% to Rs437, MTNL added 3.1% to Rs163 and Idea rose by over 11% to Rs114.
The BSE Oil & Gas Index was among the top gainers, led by Reliance Industries. RIL rallied by over 9% to close at a lifetime high of Rs1541. The scrip was also the top gainer in the Nifty stocks. RIL surged following reports that the company has found a significant amount natural gas off the country's western coast. ONGC jumped over 5.5% to Rs921, HPCL advanced 5.7% to Rs259 and IOC added 4.2% to Rs410.
Banking stocks also recorded smart gains during the week on expectations that the RBI won't increase interest rates next week. SBI spurred by over 7.5% to Rs1074, ICICI Bank advanced 4.7% to Rs914, HDFC Bank gained 1.6% to Rs994, Bank of India was up by over 4% to Rs188.
INVESTMENT STRATEGY
Bulls Reddy for 14k!
Journey is more important than the end or beginning
Are we heading towards 14k again? Last time when the bulls surpassed this milestone a bit too quickly and came down crashing in quite a similar pace. This time the bulls are back again hovering around 14k levels with heavyweights lending some good support. RIL, R Com and Bharti Airtel have aided the indices in the current rally. Over the long-term, concerns and worries come and go and a secular bull trend appears very much on. In the near term, one needs to continue looking at corporate results. Developments on the monsoon outlook, F&O expiry and the annual monetary policy meeting will keep the bulls and bears on tenterhooks next week. RIL, Bharti Airtel, Siemens, REL, Bank of India, Bata India, CEAT, Rolta, HDFC Bank, Maruti, Hexaware, M&M, MTNL, SUN TV, Grasim, Glenmark, IDFC, Maharashtra Seamless, NALCO, ABB, Cipla and Deccan Aviation are among the major companies declaring their earnings next week.
Biggest weekly gain for rupee in a year
The rupee had its biggest gains in a week in over a year on speculation that the Reserve Bank of India (RBI) will not step in to check gains as inflation still remains above its comfort zone. Renewed surge in foreign portfolio and direct investment coupled with the dollar's weakness abroad helped the currency register its seventh straight week of gains to close at the highest in almost nine years. The rupee rose 1.8% this week to 41.77, the highest close since June 2, 1998. The currency climbed to 41.645 on April 17, the highest intraday level since June 1, 1998. The rupee has gained 4.5% in the past month, the best performer after the New Zealand dollar among the 15 most- traded currencies in the Asia-Pacific region. Finance Minister P. Chidambaram said earlier this week that large inflow of capital from overseas was causing the currency to strengthen. Overseas funds were net buyers of Indian stocks for the ninth day, the longest stretch since November, according to the Securities & Exchange Board of India (SEBI). Foreign funds have pumped in US$801.8mn into Indian stocks this month so far, taking the year-to-date inflows to US$2.4bn. Foreign Direct Investment (FDI) almost tripled to US$16bn in the financial year ended March 31, and may rise 56% in the current year, according to the Commerce & Industry Ministry.
Inflation perks up again
India's inflation, based on the Wholesale Price Index (WPI), rose to 6.09% in the week ended April 7 from 5.74% in the previous week, the Government said on Friday. Inflation was higher than the consensus estimate of 5.79% and 3.81% during the corresponding week of the previous year. Meanwhile, the Government revised the inflation rate for the week ended Feb. 10, from a preliminary estimate of 6.63% to 6.52%. The Government revises inflation after a delay of two months on additional price data. The WPI gained 0.4% to 210.8 from last week's level of 210.0. The Primary Articles index climbed 1.4% to 218.9 from 215.9 in the preceding week while the Fuel & Power index was up 0.1% at 320.5 versus 320.1 and Manufactured Products index rose 0.1% to 183.5 from 183.4 in the previous week. The index of Fruits & Vegetables surged by 9.5% to 242.6 from 221.5 in the previous week.
Monsoon expected to be 5% below normal
Rainfall will be weaker than normal this year, according to the Ministry of Earth Sciences' annual weather forecast for the south-west monsoon season. The rainfall between June and September will be 5% less than the national average of 89 cm, said P.S. Goel, Secretary at the Ministry of Earth Sciences. The forecast, he said, had an error rate of plus or minus 5%. Earlier, a report quoting B.N. Goswami, Director of Indian Institute of Tropical Meteorology, said the monsoon rains would be above normal. "We will review the forecast in May before giving any final conclusion. We think the monsoon will enter the country via Kerala on June 1, but the final prediction would be made 10 days ahead," said R. C. Bhatia, Director General of IMD. There was favourable rains last year because of La Nina phenomenon and hoped similar conditions would prevail this year as well, according to Goel. "Last year we had predicted 93% rainfall but due to La Nina, we got 100%," he added. One should not read too much into the initial prediction of rains during monsoon as clear picture will emerge only after the second forecast in June. The second report is expected to give an idea of rain distribution and its impact on agriculture in July, when sowing takes place across the country.
FM's fresh diktat to public sector banks
In yet another classic case of Government intervention, Finance Minister P. Chidambaram called upon nationalised banks to moderate lending to sensitive sectors such as real estate, capital markets and Non-banking Finance Companies (NBFCs). Chidambaram also asked state-run banks to go slow on mobilising bulk deposits at higher rate, besides asking them yet again to hold interest rates on home loans worth up to Rs10 lakh. He also reiterated the demand that the public sector banks should rebalance their portfolio and lend more towards the productive sectors at correct prices. The Finance Minister also asked nationalised banks to open new branches in 103 minority-dominated districts. "We have advised banks that credit growth of about 30% has to be moderated therefore they have to rebalance their portfolio and moderate credit growth to what RBI calls high-risk sectors like commercial real estate, capital markets and systemically important NBFCs," Chidambaram told reporters after a meeting with the public sector bank chiefs. The Finance Minister also said that he was informed by chairmen of the state-run banks that they have started rebalancing of portfolios in the second half of 2006-07 and will proceed the debt in the first half of this fiscal.
NCAER sees FY07 GDP at 8.3%
After the IMF and industry chamber CII, its now the turn of the National Council for Applied Economic Research (NCAER) to warn that economic growth will slow down in the fiscal year 2007-08. The GDP is expected to fall in the current financial year that started in April to 8.3% from the estimated 9.2% in FY07, the independent think-tank said, citing higher interest rates, slower exports growth and sluggish capital inflows. The IMF sees the Indian economy growing at 7.8% in 2008 as against 8.4% in 2007 and 9.2% in 2006. The CII said India's economic growth is expected to slow down to 8.5% in 2007-08 due to monetary tightening measures and supply side constraints. The NCAER said that all three segments - agriculture, industry and services - would see lower growth this fiscal.
ONGC unveils Rs180bn capex for FY08
Oil and Natural Gas Corp Ltd. (ONGC) plans to pump in Rs180bn for exploration and production of oil and gas in the financial year 2007-08 as against Rs150bn spent a year ago, Chairman and Managing Director R.S. Sharma said. In addition, ONGC plans to raise up to Rs70bn over the next six months to fund the expansion of its Mangalore refinery. The project will raise the refinery's capacity to 15mn tons per annum by 2010, from the present from 9.6mn tons. Sharma said that ONGC is currently doing due diligence for a 15mn tons per annum refinery in Kakinada, at an estimated cost of Rs 190bn. A feasibility report should be completed in the next 2-3 months, he said. Engineers India and SBI Capital Markets are working on project details. He said ONGC will execute the refinery project via a Special Purpose Vehicle (SPV). MRPL holds 46% in the SPV, Andhra Pradesh Industrial Development Corp 3%, while the remaining is held by IL&FS, and other FIs.
Tata Steel unveils funding
Tata Steel's Board approved a Rights Issue of equity shares in the ratio 1:5 at a price of Rs300 per share. This would involve issue of equity shares of the face value of Rs1.22bn and would provide an amount of Rs36.55bn. The company's Board also cleared a Rights Issue of Convertible Preference Shares in the ratio of 1:7 having a coupon rate of 2% with conversion into equity shares after two years at a price in the range of Rs500 to Rs600 per share. This issue would provide a total amount of about Rs43.50bn. Tata Sons would stand-by to take up the unsubscribed portion of both the above issues in fulfillment of its support to Tata Steel for the Corus acquisition. Tata Steel Board also proposed a foreign issue of an equity-related instrument up to US$500mn (about Rs 21bn including the premium) in such form as may be considered appropriate. This issue would be made on an ex-Rights basis, subject to approval of the shareholders. The stock tumbled 6% the day after it announced the funding due to concerns about higher than expected equity dilution, but on the week it was up 4.5%.
Essar Steel on acquisition spree
Well, contrary to media reports its Essar Global Ltd. and not JSW Steel Ltd. that is acquiring Canada's Algoma Steel Inc. in an all-cash deal worth C$1.85bn (US$1.63bn). Algoma investors will receive C$56 per share in cash from Essar Steel Holdings Ltd. The price is 3.5% higher than Algoma's closing stock price on April 13, and a 48% premium to Algoma's volume-weighted average stock price for the 20-day period ended on Feb. 14. The deal will give Essar Steel, India’s fourth largest steelmaker, a foothold in the North American market, while Algoma, Canada’s No.3 steel producer, will gain access to low-cost manufacturing base in India. Essar Global, the holding company of the Ruia group, also announced the acquisition of the US-based Minnesota Steel for an undisclosed sum. Essar Global will invest US $1.65bn to set up a steel plant in the American company's facilities. According to reports, the deal could be valued at close to US$100mn. The privately-held Minnesota Steel controls iron ore resources of over 1.4bn tons. The proposed steel plant, will have a capacity of 2.5mn tons per annum.
PGCIL files draft prospectus with SEBI
Power Grid Corporation of India Ltd. (PGCIL) has filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) for its Initial Public Offering (IPO). PGCIL would issue 10% fresh equity while the Government will piggyback on the public sector power transmission major's public issue to offload a 5% stake. The state-run transmission major has a paid-up capital of Rs38bn and each share has a face value Rs 10. There is no clarity on the amount of money PGCIL wants to raise from the public issue. The company has lined up an investment of Rs65bn in the current fiscal year (2007-08) and an investment of Rs550bn in the Eleventh Plan period (2007-12). According to reports, PGCIL is aiming to hit the capital market by May or June. PGCIL posted a net profit of Rs7.99bn for 2006-07 and plans to make total investment of Rs550bn during 2007-12 to take inter-regional power transmission capacity to 37,000 MW from about 12,000 MW.
Dish TV, Advanta make contrasting debut
Shares of Dish TV India Ltd., the demerged Direct-To-Home (DTH) subsidiary of Zee Entertainment Enterprise Ltd., ended down on its maiden trading day on the Bombay Stock Exchange (BSE). The stock listed at Rs120 per share on BSE. However, it cooled off and touched a low of Rs100 before closing at Rs102.55. Dish TV ended the week at Rs109.75. Citigroup and Enam India Research had indicated the fair value of the scrip at Rs120. As part of its restructuring, Zee Telefilms Ltd. hived off its DTH business to ASC Enterprises Ltd. For every 100 shares of Zee Telefilms, shareholders received 57 shares of ASC Enterprises.
Advanta India Ltd. made its debut on the BSE by ending the first trading day at Rs 850.05, a premium of 32.82% over its issue price of Rs 640 per share. The scrip opened at Rs 640.00; touched an intra-day high of Rs992.90 and a low of Rs 591. It finished the week at Rs845.95. Advanta's IPO of 3,380,000 shares of Rs 10 each was decided through the 100% Book-Building process. The subscription to the issue opened on March 26 and closed on March 30. The issue was subscribed 3.98 times. A subsidiary of United Phosphorus Ltd., Advanta is an international agronomic seed company with principal operations in India, Australia, Thailand and Argentina.
Air Sahara to be rechristened Jet Lite
Naresh Goyal promoted Jet Airways India Ltd. announced it will operate the troubled rival as a separate company, which will be profitable in its first year. New Delhi-based Air Sahara will be renamed Jet Lite, Goyal said. "Air Sahara will not be fully low-cost but positioning fares lower than full service airlines," the Jet Chairman said. Jet Lite will be a 100% subsidiary of Jet though the operations of the two companies will be completely separate, he added. Unlike other low-cost airlines in India, Jet Lite will have basic food and beverage service onboard, Goyal said. To cut costs on Jet Lite, the airline will now review all the aircraft leases signed by the Sahara management and will try to renegotiate some of them, he added. The two airlines will have a combined fleet of 87 aircraft, which will grow to 120 planes in two years, and a combined net revenue of more than US$2.5bn by the end of the fiscal year to March 2008, Goyal said.
Reliance Capital to buy 20% more in TV Today
Anil Ambani has made its next move in the media and entertainment turf. Less than two years after announcing its intention to acquire Adlabs Films Ltd., Reliance Capital Ltd. is now looking to grab a share of the highly competitive news and current affairs space. The Anil-Dhirubhai Ambani Group (ADAG) company is making an open offer for buying an additional 20% stake in TV Today Network Ltd., which runs the popular Hindi news channel Aaj Tak and English news service Headlines Today. TV Today also runs Tez and Dilli Aaj Tak in Hindi. Reliance Capital presently holds about 14% stake in TV Today along with Reliance Capital Trustee. The open offer will be made from the existing shareholders at Rs130.50 per share, totaling about Rs1.5bn. The offer for up to 11.6mn shares is not subject to a minimum level of acceptance and would be open from June 6 to June 25. The open offer will not result in any change in the management and / or control of TV Today. Reliance Capital said it would fund the offer through internal accruals and domestic borrowings.
Indian costs amongst the lowest: Wagoner
Indian manufacturing costs are extremely competitive and among the lowest in the world said Rick Wagoner, Chairman, General Motors (GM) at the interactive meeting organised by the Confederation of Indian Industry (CII), Society of Indian Automobile Manufacturers (SIAM), Automotive Components Manufacturer’s Association (ACMA) and American Chamber of Commerce (AMCHAM). Wagoner said that over the next decade, emerging markets within the Asia Pacific region alone are expected to account for nearly 70% of global sales growth. He said that three of the top five fastest growing auto markets over the next decade are going to be in Asia Pacific including India. Wagoner predicted that India is expected be the second largest growing auto market in less than the projected ten years. The growth will be driven by overall economic growth, rising disposable income and a rapidly expanding middle class, he added
CESC to merge Spencer's holding co with self
CESC Ltd. announced that its Board of Directors has approved a proposal for merging Pathik Retail, the holding company of Spencer's Retail, with the company. As per the Scheme of Amalgamation, to be effective from April 1, one fully paid-up share of CESC for every 1.98 fully paid-up shares of the merging company will be issued, involving issue of around 31mn fully paid-up shares of the company. The promoters' stake in CESC will rise by about 12% after the company's merger with Spencer’s Retail Ltd. The Goenkas have a 40.94% stake in CESC. After the merger, it will go up to 53%. At present, Pathik Retail holds a 94% stake in Spencer’s. After the merger, CESC will hold that stake. Spencer's is a debt-free company and it will continue to be so for some time. Goenka, however, said they would consider raising capital in the next 6-12 months for the retail business. At present, the RPG group has 400 retail outlets, which are expected to go up to 2,000 by 2009 and 4,000 by 2011. Currently, there are 125 Spencer's stores across 25 cities, comprising eight hypermarkets, five Spencer’s Super Stores, 104 Spencer’s Daily, three Spencer’s Fresh, and five Spencer’s Express. The total contracted area for all Spencer’s stores across the country is over one million sq ft.
Fortis Healthcare IPO subscribed 2.78 times
The Initial Public Offering (IPO) of Fortis Healthcare Ltd. was subscribed by just 2.78 times at 16:00 hours (IST) on Friday, according to the National Stock Exchange (NSE). The Ranbaxy-promoted company got bids for 127.41mn shares as against the issue size of 45.75mn shares. The company entered the capital market with an IPO of 45,996,439 shares of Rs10 each through a 100% book building process. The price band for the issue was fixed between Rs92 and Rs110 per share. The issue had opened for subscription on April 16 and will close today. The net issue is expected to constitute 20.19% of the post-issue paid-up equity share capital of the company. The shares are proposed to be listed on BSE and NSE. Fortis had concluded pre-IPO allotments of 10,670,194 shares with four entities at prices ranging from Rs135 to Rs159.50 per share, totaling Rs1.54bn during the period between January and March. These entities included Raj Kumar Bagri (1,000,000 shares), Apurv Bagri .(1,000,000 shares), Trinity Capital (Eight) Ltd. (8,000,000 shares) and Vasco Inc. (670,194 shares).
Chinese economy accelerates further
China's economy grew by 11.1% in the first quarter ended March 31 from the first quarter of 2006 and its inflation rate rose to 3.3% in March. Both figures were higher than expected and sparked off concerns that Beijing will hike interest rates and may ask banks to set more aside more funds to moderate lending growth. Pressure is also mounting on authorities to allow the value of the currency, the yuan, to appreciate more quickly. The Shanghai Composite index dropped 4.5% on Thursday, and pulled other global stock benchmarks down with it. However, Asian and world markets regained some of the lost ground the next day as the selling was over done. While most economists called the quarterly growth figures surprisingly strong, they said the data was distorted somewhat by a huge injection of government money into the economy, which encouraged lending, as well as by exporters’ seeking to avoid foreign tariffs that may be imposed later in the year. While some economists say that China could take tough measures to cool things off, they expect the tightening to be gradual.
Pound pierces $2 mark
The pound breached the $2 mark this week to reach its highest since June 1981 when Margaret Thatcher was British prime minister. The UK currency soared after a report showed that inflation accelerated at its fastest pace in a decade, fueling speculation that the Bank of England will hike interest rates two more times this year. The last time the pound reached $2 was in September 1992 when George Soros led speculators forced it out of the European system of linked exchanged rates. The pound crossed $2 on April 17 after a report showed consumer prices in the UK, Europe's second-biggest economy, rose 3.1%, the fastest pace in a decade. The rate is more than a percentage point above the central bank's 2% target, and forced Governor Mervyn King to write a letter of explanation to the Chancellor of Exchequer for the first time since the bank was allowed to set interest rates independently 10 years ago. The currency has risen 12.8% in the past 12 months and is the fourth best performer of the 16 most-actively traded currencies in the past five days.
Global funds cautious despite market rebound
In spite of the handsome gains generated by emerging and developed equity markets during the early part of Q2 2007, institutional investors remain cautious, said Emerging Portfolio Funds Research (EPFR). Flows into most EPFR-tracked equity fund groups during the second week of April were modest at best as investors fretted about the outlook for the US economy. The notable exceptions were Global and Western European equity funds, according to Boston-based EPFR. Steady flows continued into Emerging Market equity funds, taking year to date flows back into positive territory, while US equity funds lost money for the third time in the last four weeks, notes the firm that tracks global funds flows. Investors continue to favor Global Utilities and Real Estate Funds while retreating from Energy and Technology funds, according to EPFR. All the four major emerging markets fund groups witnessed fresh inflows during the week.
Barclays, ABN AMRO extend deadline
Barclays and ABN AMRO extended the deadline of their merger talks, which had been due to end on April 18th. The British bank is offering to buy its Dutch rival, but a group of three other banks led by Royal Bank of Scotland Group Plc is hovering with a rival bid. "The discussions, which seek to incorporate the broad objectives set out on March 20, are progressing, but there can be no certainty that they will lead to a transaction or what form it will take," London-based Barclays and Amsterdam-based ABN Amro said in a joint statement. ABN Amro, which will meet with rival bidders led by Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, on April 23. Separately, Barclays CEO John Varley told employees that the third-biggest UK bank has plenty of momentum and doesn't need to buy ABN Amro to grow. "We are examining the ABN Amro combination from a position of strength, and that means if we choose to walk away, we can," Varley wrote in a letter to staff that was posted on the company's internal Web site and filed with the U.S. Securities and Exchange Commission (SEC).
Areva extends offer period for Repower
Areva said that extended its offer period for Repower Systems in a bid to buy some more time to consider topping a bid by Suzlon. The world's largest manufacturer of atomic power stations also said that it will not make a minimum number of shares it acquires a condition of its €140 per share takeover bid for the German wind-turbine builder. Dropping the requirement that at least 50% plus one share be tendered allows the French energy major to extend the deadline to May 4 from April 20, the Paris-based company said. It didn't announce a higher bid though. The acceptance period for a rival bid by Suzlon will also be extended to May 4. Suzlon beat Areva's bid on April 10 with an offer of €150 a share. Areva already owns 30% of Repower. Suzlon is bidding together with Martifer, a unit of Portuguese builder Mota-Engil SGPS SA that owns 25% of Repower. Suzlon itself has bought a 7.7% stake in the Hamburg-based wind turbine builder.
Siemens chief to resign amid scams
Heinrich von Pierer, Chairman of Siemens AG said that he will resign from his post, but added that he was not taking responsibilities for the spate of corruption charges involving hundreds of millions of euros. Von Pierer, whose term is due to expire next year, will step down at the next supervisory board meeting on April 25. "I assume that electing a new chairman of the supervisory board will also make a contribution toward taking our company out of the headlines and bringing it back into calmer waters," Von Pierer (66) said. Siemens said that board member Gerhard Cromme would be nominated to take over the reigns from Von Pierer. Cromme is the chairman of ThyssenKrupp and heads the government-appointed panel that produced Germany's corporate governance code. Siemens has been a subject of probes in Germany, Italy and Switzerland over allegations that the company used internal funds to pay bribes and win telecom deals. Six current or former employees, including the ex-head of its telecom equipment unit, Thomas Ganswindt, are suspected of the misconduct going back to 2002.