U.S. reports grim data, EU vows to shield economy

Major U.S. banks reported huge losses and other data painted a grim outlook for the U.S. economy on Thursday as Europe vowed to shield its industries from the global crisis that hammered markets again.

EU leaders pushed plans for a global summit to overhaul the world financial system, as Switzerland took on $60 billion of bad debt from UBS and European stocks fell.

"The whole cliche of Wall Street arriving on Main Street is so true now, with recession in the U.S., the UK, Europe and probably Japan, and significant slowing elsewhere," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

Japan's Nikkei fell 11 percent to suffer its worst one-day drop since the stock market crash of October 1987, European stocks slid again and more bad economic news in the United States deepened the gloom.

One bright spot was that rates banks charge each other for loans mostly fell on Thursday in response to radical moves by central banks to provide liquidity, shore up banks and loosen credit lines to institutions needing cash.

In the real economy, however, the news from the United States was mostly grim.

Investment bank Merrill Lynch wrote down $5.7 billion of toxic assets and Citigroup reported a quarterly net loss of $2.8 billion.

U.S. home builder sentiment sank to an all-time low in October, motorcycle maker Harley-Davidson Inc cut its earnings forecast, General Motors said it would lay off 1,500 workers and big U.S. manufacturers braced for a slowdown.

U.S. industrial production dropped the most in 34 years in September and factory activity in the U.S. mid-Atlantic region fell to an 18-year low in October.

"We should anticipate further declines in employment and softness in most components of demand for goods and services," said Gary Stern, president of the Minneapolis Federal Reserve Bank.

European stocks ended down around 5 percent while Wall Street's Dow and S&P 500 indexes swung between positive and negative in choppy trading.

Source: EconomicTimes

Switzerland pumps billions into bank rescue plan

Switzerland announced a nearly $60 billion bailout of its largest bank on Thursday, shaking the country's reputation as a financial haven pr
otected from the global meltdown by its hallowed tradition of discreet and conservative investing.

Most of the bailout money will go to create a $54 billion fund to buy bad securities backed by subprime U.S. mortgages and other high-risk securities from UBS AG, whose move into risky investments departed radically from the Swiss tradition of cautious money management.

UBS and the country's second-largest bank, Credit Suisse, account for 67 percent of $3.1 trillion on Swiss banks' balance sheets. They employ almost half of the 109,000 people who work for banks in the country of 7.5 million.

The rescue plan includes tighter regulation for banks, including new caps on the maximum debt they can incur and closer scrutiny of management pay and incentives.

``The state serves society, and there are moments when the state has to step in,'' Swiss President Pascal Couchepin said.

Credit Suisse Group turned down the bailout and said it would raise $8.75 billion on the open market. The largest amount would come from the Qatar Investment Authority, a government-controlled fund.

The government's move was a dramatic break from repeated assurances that the Swiss system was immune to meltdown. Swiss officials said Thursday that the country's other 300-plus banks remain healthy because of large deposits from Swiss and wealthy foreigners.

Source: EconomicTimes

Financial turmoil: Capitalism is not dead

he past month's turmoil in U.S. and global financial markets has spawned several articles tolling a death knell for capitalism. Some said that the crisis is proof that capitalism never worked, others opined that the solutions to the problems will end capitalism.

To paraphrase Mark Twain, reports of capitalism's death are greatly exaggerated. Although Washington is using non-market solutions in an attempt to unfreeze the credit markets, they have not succeeded, and are unlikely to be permanent. The next administration, Republican or Democratic, might take over more of the economy. But if one country in our global economy proceeds down an unsuccessful socialist road, others will demonstrate the effectiveness of capitalist measures—just as America led the way with tax cuts in the 1980s.

The present crisis started not because capitalism was allowed to run its selfish course, but because the government interfered with the operation of private businesses and allowed excessive growth of money and credit.

Take housing, where the crisis began. The government interfered with private decision-making by requiring banks to make loans to people who could not afford them, through the 1977 Community Reinvestment Act. It forced banks to improve lending and service to borrowers in poorer neighborhoods, including people with poor credit histories. Some of these borrowers only qualified only for subprime mortgages, which had introductory low rates that eventually rose.

In another example of government interference, Fannie Mae and Freddie Mac were given implicit government guarantees, letting them borrow at favorable rates. The rationale given by both mortgage companies was that this was the way that less-affluent Americans could get homes of their own—housing that they could not afford under otherwise. While the government was pressuring financial institutions to increase lending, the Federal Reserve was lowering interest rates to try to avoid a recession after the terrorist attacks of September 11. This vast expansion of money and credit had to go somewhere—and it went into an inflation of housing prices of horrendous proportions, the real estate bubble that eventually burst.

The mission of the central bank is to keep a sound currency. The Fed failed.

The cause of the problems was not capitalism, so it cannot be said that capitalism was unsuccessful. The remedial actions that the government is taking are not capitalism either. The collapse of the bubble and the effects on subprime mortgages and the economy led to additional government intervention of another type. Some institutions, such as Bear Stearns and AIG, were propped up; others, notably Lehman Brothers, were allowed to fail. The Federal Reserve opened its discount window to investment banks, an unprecedented step, and now stands ready to buy commercial paper. The Treasury's recent insistence that nine major banks accept an infusion of official capital—government money—is extraordinarily dangerous. It's one matter to have credit available if private institutions choose to draw on it, and yet another to require them to make the government part-owners, even if temporarily.

If the recent government actions had solved the problem, and the Treasury planned to continue as the owner of preferred bank stock, then capitalism could perhaps be said to be dead. But neither of these is true. Global markets have signaled over the past two days, despite today's 400 point rise in the Dow, that confidence has not been restored. And President Bush has emphasized that the Treasury measures are temporary. Professor Allan Meltzer of Carnegie Mellon University has proposed a capitalist solution—just let the defunct firms fail, and the healthy ones purchase the assets, along the model of the Wells Fargo takeover of Wachovia (despite Uncle Sam's attempted Citibank deal). This would be capitalism. Perhaps it's time to give it a try.

By Diana Furchtgott-Roth

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.

Source: EconomicTimes

Dollar retreats as stock gains trim safety demand

The dollar retreated against the euro and a basket of currencies on Friday as safety demand from investors and global companies for the wor
ld's most liquid currency waned after a late surge in Wall Street shares.

Japan's Nikkei share average tracked U.S. stocks higher, gaining 2.6 per cent in early trade a day after its worst fall since the 1987 crash, further easing investor risk aversion.

The yen extended falls against the euro and the Australian dollar as gains in equities prompted investors to step back towards carry trades, in which the low-yielding yen is used to fund investment in higher-yielding currencies and assets.

"The safety buying of the dollar may have peaked for now," said Hideki Amikura, deputy general manager of forex at Nomura Trust Bank.

Further falls in interbank loan rates amid more drastic steps by central banks to provide funds and to improve bank balance sheets have provided relief to investors and a boost to the U.S. stock market, Amikura said.

But worries that worldwide efforts to rescue troubled banks will not stave off a global recession remained strong after more dismal U.S. data on housing and business activity, keeping losses in the yen and the dollar relatively small, traders said.

The euro was up 0.4 per cent from late Thursday New York trade at $1.3505.

The dollar index, which measures the dollar's value against a basket of six major currencies, fell 0.2 per cent to 82.155

Against the yen, the euro rose 0.3 per cent to 137.15 rebounding from an earlier low of 136.27 yen hit on trading platform EBS.

The dollar was nearly flat against the yen at 101.60 yen after dipping as low as 101.12 yen on EBS.

Source: EconomicTimes

Buy Dishman Pharma, target of Rs 310: Karvy

Karvy Stock Broking has upgraded its rating on Dishman Pharmaceuticals & Chemicals to buy with a target of Rs 310 in its October 16, 2008 research report. "We expect revenues and earnings to grow at a CAGR of 31.4% and 27% from FY08 to FY10E driven primarily from the high margin CRAMS segment. We maintain our long term positive outlook on the company. Currently the stock is quoting at 12.5x FY 09E and 9.7x FY 10E. On account of contraction in valuations we revise our price target downwards by 18 % to Rs 310 based on P/E of 13.1.x FY10E. On account of price correction we upgrade our rating to BUY with a price target of Rs 310," says Karvy Stock Broking's research report.

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Source: Moneycontrol

Buy Larsen and Toubro, target of Rs 1385: Merrill Lynch

Merrill Lynch has maintained its buy rating on Larsen and Toubro (L&T) with a target of Rs 1385, reports CNBC-TV18.

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Source: Moneycontrol

Buy Divis Labs, target of Rs 1415: Karvy

Karvy Stock Broking has upgraded its rating on Divis Laboratories to buy with a price target of Rs 1415 in its October 16, 2008 research report. "The net revenues of the company set to exhibit 25.7% CAGR growth from FY08 to FY10E on account of continued revenue traction. The earnings are expected to grow at a CAGR of 28.1% from FY08 to FY10E which is estimated at Rs 68.3 in FY09E and Rs 88.4 in FY10E. On account of recent price correction due to fall in markets the company is available at attractive valuations. We upgrade our rating to BUY with a price target of Rs 1415 based on a PE of 16x FY10E basis," says Karvy Stock Broking's research report.

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Source: Moneycontrol

Buy Zee Entertainment, target of Rs 240: Religare

Religare Research has maintained its buy rating on Zee Entertainment Enterprises with a target of Rs 240, reports CNBC-TV18.

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Source: Moneycontrol

Buy Larsen and Toubro, target of Rs 1480: Citigroup

Citigroup has maintained its buy rating on Larsen and Toubro (L&T) with a target of Rs 1480, reports CNBC-TV18.

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Source: Moneycontrol

Buy Axis Bank; target Rs 850: P Lilladher

Prabhudas Lilladher has recommended a buy rating on Axis Bank with price target of Rs 850, in its report dated October 14, 2008.

"Axis Bank has reported an excellent set of numbers with PAT up by 77% at Rs 4.03 billion, which was higher than our (Rs 3.63 billion) and market expectations. The key drivers for the positive surprise were better than expected fee income (up 91%YoY and 17% QoQ) and net interest income (up 81% YoY and 13% QoQ). At the CMP of Rs 663, the stock is quoting at 13.4x FY10E EPS, 2.1x FY10E BV and 2.1x FY10E ABV. Axis Bank continues to remain among our top picks and we maintain our BUY recommendation with a reduced price target of Rs 850, " says Prabhudas Lilladher's research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy Wipro, target of Rs 358: Karvy

Karvy Stock Broking has downgraded its rating on Wipro from an outpeformer to buy with a target of Rs 358 in it October 16, 2008 research report. We for Q2FY09, expect its global IT revenues to breach to USD 1.09 billion, which in INR terms works out to sequential growth of 10% and the overall revenues to grow by 9.9%, as we expect its other revenue streams to perform better than the previous quarter."

"As we expect the treasury loss to be to the tune of Rs 745 million, its other income would be negative, as it has a forex cover to the tune of USD 2.2 billion. Even after factoring for higher effective tax rate,the net profit would increase by 6.3% As the stock as come off significantly, we are upgrading the stock from an outpeformer to BUY,target of Rs 358" says Karvy Stock Broking's research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy ICICI Bank; target Rs 615: P Lilladher

Prabhudas Lilladher has recommended a buy rating on ICICI Bank with price target of Rs 615, in its report dated October 15, 2008.

"Stock performance may continue to remain volatile in the near term in-line with the global developments. However, we feel that at the CMP of Rs 414 the stock is trading at 9x FY10E EPS and 1.0x FY10E ABV and 1.2x FY10E ABV (excluding value of subsidiaries). The bank is available at extremely attractive valuations and thus we have upgraded our rating to a BUY with a revised price target of Rs 615," says Prabhudas Lilladher's research report.

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Source: Moneycontrol

Buy Sonata Software, target of Rs 44: Parag Parikh

Parag Parikh Financial Advisory Services has maintained its buy rating on Sonata Software with a target of Rs 44 in its October 15, 2008 research report. "Sonata Software has reported extremely good results for the 2nd quarter of FY09. Overall, the results have increased our confidence on the company. Factoring the robust Q2 results and the changed currency scenario, we are increasing our earnings estimate for FY09 from Rs 6.25 to Rs 7.25 per share. We maintain our BUY call on the scrip, with a target of Rs 44 based on 6x FY09E (117% Upside)," says Parag Parikh Financial Advisory Services' research report.

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Source: Moneycontrol

Larsen and Toubro an outperformer: IDFC-SSKI

IDFC-SSKI has maintained its outperformer rating on Larsen and Toubro (L&T) with a target of Rs 1168, reports CNBC-TV18.

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Source: Moneycontrol

Accumulate Infosys; target Rs 1443: P Lilladher

Prabhudas Lilladher has recommended an accumulate rating on Infosys Technologies with price target of Rs 1443, in its report dated October 10, 2008.

"Infosys reported Q2FY09 numbers, handsomely beating street expectations. There was a strong growth in the consolidated revenues at 11.6% QoQ in rupee terms to Rs 54.18 billion, which was driven by a volume growth of 5.7% QoQ and INR depreciation of 6%; PAT, also, grew by 10.0% QoQ at Rs 14.32 billion. Operating margin (EBITDAM) bounced back by 264 bps (given absence of wage hike/visa cost pressures prevalent in Q1), while PAT margin declined 39bps on the back of lower other income and higher tax provisioning. We expect Infosys to report an earnings growth of 19.0% and 10.8% in FY09 and FY10, respectively. While a deteriorating macroenvironment, volatile domestic currency and management�s cautious stance seem to urge caution, we believe the current price captures much of these risks. At the CMP of Rs 1,226 it quotes at 11.1x FY10E earnings. We rate it �Accumulate� with a target price of Rs 1,443 (13x FY10E earnings)," says Prabhudas Lilladher's research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Buy HDFC Bank, target of Rs 1435: Karvy

Karvy Stock Broking has recommended a buy rating on HDFC Bank with a target of Rs 1435 in its October 15, 2008 research report. "In FY2008-10, we expect that the bank's total business, NII and net profit would grow by 32%, 34% and 31.3% CAGR respectively. Though in FY09, there would slight strain on margin but it would still remain strong at 4.57% (around 38 bps lesser) and thereafter it would improve to 4.7% in FY10. The bank is expected to report RoAA of 1.3% and RoAE of 17%."

"We have valued the bank on DDM (dividend discount model) considering explicit projection till FY2010 and then assumed 14.2% growth during the high growth phase and thereafter 7.0% during stable growth phase. We determine the bank's intrinsic worth at Rs 1,435 per share. Based on our target price, the bank would trade at 3.2x of adjusted BVPS and 21.5x basic EPS FY2010. We rate the stock as a BUY with a target price of Rs 1,435," says Karvy Stock Broking's research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Buy Jubilant Org, target of Rs 397: India Capital Markets

India Capital Markets has maintained its buy rating on Jubilant Organosys with a target of Rs 397 in its October 15, 2008 research report. "Jubilant having started as a speciality chemical player, has rapidly expanded its presence through out the value chain of pharma life-cycle driven both organically as well as in-organically. Its recent acquisitions in the CRAMS space like Hollister-stier in US and Draxis in Canada has consolidated its position in the regulated markets. With its wellchanneled network into the regulated markets and its expanded capabilities in the CRAMS."

"Sales were up 52% YoY at Rs 9,405 million, driven by the Pharma & Life Sciences business which grew 59% YoY at Rs 5,858 million. Pharma & Life Sciences business contributed 62% of total sales in Q2FY09 (60% in Q2FY08). We maintain a Buy rating with a price target of Rs 397 per share (upside of 116%)," says India Capital Markets' research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol

Below Rs 180, Punj Lloyd can slip to Rs 145: Gujral

Technical Analyst, Ashwani Gujral is of the view that if Punj Lloyd breaks Rs 180, then it could be headed to about Rs 145.

Gujral told CNBC-TV18, "Punj Lloyd was the stronger midcap kind of capital goods stock but yesterday it�s broke down below Rs 190-195 level, which held on for a bit. If it breaks even Rs 180, I think it could be headed to about Rs 145. The danger is in the largecaps now things like Larsen & Toubro, ONGC, Reliance these are the kinds of stocks, which should come under pressure, particularly ONGC looks weak."

Disclosure: It is safe to assume that analyst and his clients may have an investment interest in the above stock/sector.

Source: Moneycontrol

JP Associates has target of Rs 55: Gujral

Technical Analyst, Ashwani Gujral is of the view that Jaiprakash Associates has target of Rs 55.

Gujral told CNBC-TV18, "JP Associates and Nagarjuna Construction are still not showing any signs of bottoming out. JP Associates probably has next target at around Rs 55."

He further added, "Punj Lloyd has recently started falling so that could have more downside than some of the others, which are falling."

"Nagarjuna Construction is now anybody�s guess that it will go off the radar. All of these infrastructure kind of stocks, capital intensives as a group will under perform from here and probably people would much rather be in defensive and things which need capital."

Disclosure: It is safe to assume that analyst and his clients may have an investment interest in the above stock/sector.

Source: Moneycontrol

Exit Tata Steel on rise: Bose

Technical Analyst, Rajat K Bose is of the view that rally in Tata Steel should be used as opportunity to get out of it as technicals have become so damaged that immediate recovery is not likely.

Bose told CNBC-TV18, "Tata Steel has got some support between Rs 263-271, so unless and until Rs 263 is decisively broken, it will hold out, but I tend to think that it is also heading towards something like Rs 220-230. These kind of stocks, if they were to rally, then one actually should take that as an opportunity to get out instead of building up any fresh position thinking that they are offering value or something because the technicals have become so damaged that I don�t think immediate recovery is likely."

Disclosure: It is safe to assume that analyst & his clients may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol

Reliance has support at Rs 1326-1350: Bose

Technical Analyst, Rajat K Bose is of the view that Reliance Industries has major support between Rs 1326-1350.

Bose told CNBC-TV18, "I happened to have played on a long position while Reliance was recovering but now it�s again down below Rs 1,400, so chances are this recovery is short-lived and if it were to fall below Rs 1,360 once again in the spot market then it can once again move down. But I would say that since Rs 1,350 to about Rs 1,326 had been the major support area for Reliance, shorting here at current juncture may not be advisable."

Disclosure: It is safe to assume that analyst & his clients may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol

Mkts to stay undervalued for 6-9 months: Reliance MF

Madhusudan Kela, Head-Equity Investments at Reliance Mutual Fund said markets are seeing forced liquidation across the world and expects the markets to remain undervalued for a period of 6-9 months. He sees no redemption pressure on equity funds, in line with normal trend and is waiting for the markets to stabilise before putting in more money.

Kela said that the government response has avoided a longer-term systemic problem and added the Sebi move would help to disclose genuine short positions in the market.

Kela feels that valuations of select companies are extremely compelling and expects the earnings to be muted. He said that the larger part of that has already been discounted by the markets.

He sees inflation falling to 7-8% by June 2009.

Amitabh Mohanty, Head-Fixed income at Reliance Capital Asset Management feels the government move with respect to mutual funds and liquidity is very reassuring and said that the RBI or Reserve Bank of India has restored a lot of faith in the money markets. He said that there was an easing in the credit market overnight rates post the RBI move. He expects some more steps from the RBI in the credit policy.

Source: Moneycontrol

Interest rates need to come down: ICICI Bank

To ease liquidity in the system, the government and Reserve Bank of India announced a whole host of measures yesterday. RBI stepped in with another 1% cut in the cash reserve ratio. The Finance Minister also announced that RBI will provide Rs 25,000 crore to lending institutions immediately under the farm debt waiver scheme. Also, the FII limit in corporate bonds has been hiked to USD 6 billion from USD 3 billion.

Chanda Kochhar, Joint MD and CFO, ICICI Bank, feels interest rates in the system need to come down if we need to see more growth. "Whether we achieve by liquidity or repo rate measures is not that important. "
According to Kochhar, the economy in the current scenario may not be growing at 9%. "Even if we are growing at 7% or 7.5%, these are very good growth rates, given what is happening globally. We still see some fundamental factors remaining pretty strong and the rate of growth being better than what the other parts of the world are facing. But to continue the momentum and to pump it with a whole lot of liquidity, what is required is not just liquidity, but also interest rates, as both the retail credit and the investment pipeline is sensitive to the interest rate. Thus, it is required that the interest rates in the system come down."

Source: Moneycontrol

Advances, deposits grew 30% in Q2 FY09: HDFC Bank

HDFC Bank's standalone Q2 FY09 net profit stood at Rs 528 crore as against Rs 368.48 crore in the same period last year.

Commenting on the quarter gone by, Paresh Sukthankar, Executive Director, HDFC Bank, said both advances and deposits grew by about 30%. "We saw some increase in retail non-performing loan, but asset quality still remains fine. Gross NPAs stood at 1.57%, while net NPAs came in at 0.57%. The bank's net interest margins stood at 4.2%."

According to Sukthankar, it may take a little longer for interest rates to come down. "We are hoping for a policy rate cut, but don't expect one in the near future.

He said the bank has no exposure to foreign investments.

Source: Moneycontrol

See good buying opportunity by year-end: ODL Sec

Sandy Jadeja, Chief Market Strategist and Head Of Global Training, ODL Securities said there is just no confidence in the market and people are just not willing to buy. He said the markets haven't seen the scary capitulation point. "That's happening right now."

He feels the markets are going to approach a very good buying opportunity for year-end. "That's going to happen within the next 1-2 weeks. If the BSE starts hitting around 10,000, we could go down towards 9,950 and may be even 9,900. That will be capitulation. On the Nifty, it could be possibly around the 2,900-3,000 mark."

Anand Tandon, Director-Equities, Brics Securities, is also bearish on markets. He feels the markets are far away from a valuation bottom. He feels we are in a strange territory right now and it is not easy to make a forecast

According to Tandon, inspite of sharp cool off in commodity price, inflation still remains in double-digits. "We are running deficits of all kinds whether it is current account or fiscal deficit. All of them are increasing. I am not sure that we have a situation where the government has too many levers to pull when it comes to the macro-economic picture."

Source: Moneycontrol

Motilal reiterates 'buy' on Axis Bank

Motilal Oswal Securities has reiterated 'buy' on Axis Bank, as the stock trades at 2.4 times FY09E BV 15 times FY09E EPS and at 2 times F
Y10E BV and 12 times FY10E EPS.

Axis Bank has demonstrated its ability to grow at a strong pace across all parameters. Motilal is impressed particularly with its CASA growth (CAGR of 50% over FY04-08) and strong traction in fee income (CAGR of 56% over FY04-08) and clean asset quality.

Post Q2FY09 results, the brokerage has increased the estimates by 11 per cent for FY09 and by 4 per cent for FY10 to factor in higher fee income and higher provisions.

Motilal expects (i) earnings CAGR of 36 per cent over FY08-10E; (ii) RoE to improve to 18 per cent by FY1 and (iii) RoA to sustain at 1.2 per cent in two years.

Motilal estimates BV to be Rs 281 in FY09 and Rs 324 in FY10 respectively. The brokerage expects EPS to be Rs 45 in FY09 and Rs 55 in FY10.

Motilal are factoring in significantly higher NPA provisions-a rise of 100 per cent in FY09 and a further rise of 40 per cent in FY10. Motilal estimates also factor in a higher delinquency rate of 1.5 per cent in FY09 and 1.7 per cent in FY10 respectively v/s 1 per cent in FY08.

Q2FY09 results came in significantly higher v/s estimates. Net interest income was up 55 per cent YoY (v/s est of 41%). Profit after tax increased 77 per cent to Rs 400 crore (v/s est Rs 340 cr) on the back of strong loan book growth (54%), NII and fee income.

CASA grew 43 per cent YoY and 17 per cent QoQ. CASA ratio was stable QoQ at 40 per cent. Asset quality was strong (net NPA at 0.43%) with a shift in favor of safer asset classes.

NIM in Q2FY09 improved 16 basis points QoQ and 23 basis points YoY to 3.51 per cent. Domestic NIM rose QoQ from 3.49 per cent to 3.67 per cent in 2QFY09. Fee income (excl. treasury/forex fees) growth continues to surprise positively-up 93 per cent YoY in Q2FY09 (v/s our est. of 50% growth).

Asset quality is robust-gross NPAs are at 0.91 per cnet (stable QoQ and YoY) and net NPAs at 0.43 per cent (down 4bp QoQ and 12bp YoY). The proportion of A and above rated large and mid-corporate loans increased from 78 per cent in Sep 07 and 81 per cent in Mar 08 to 84 per cent in Sep 08. Similarly, the proportion of SME loans in SME4-8 (lower quality buckets) rating has come down from 24 per cent in Sep 07 and 29 per cent in Mar 08 to 22 per cent in Sep08.

Source: EconomicTimes

Hindalco issue subscribed 56%

Hindalco Industries’ closely watched Rs 5,050-crore rights issue, aimed at repaying expensive bridge loans taken for the Novelis acquisiti
on, saw subscriptions of about 56%, according to final data submitted on Thursday.

The Aditya Birla flagship company received subscriptions for over 29.42 crore shares, representing 55.97% of the total quantity on offer. The issue was among the first to hit the equity markets even as the financial turmoil was unfolding. The timing of the issue had led to a major fall in the stock price, which was lower than the rights offer price.

Under the rights offer, Hindalco issued 52.58 crore shares at a price of Rs 96, including a premium of Rs 95 each, in the ratio of three shares for every seven equity shares held.

On Thursday, the stock of Hindalco plunged by 12.1% to Rs 69.75 as it is a part of the 30-share sensex and is thus not regulated by daily trading limits. The shares have fallen by 38% in the past month. According to the underwriting agreement, ABN Amro, Citigroup, Deutsche Equities, DSP Merrill Lynch and SBI Capital Markets will subscribe to 17.89 lakh shares, totalling about Rs 1,717.88 crore.

The promoters and associated companies bought 39% of the rights offer and may buy an additional 10%. ABN Amro, Citigroup Global, Deutsche Equities, DSP Merrill Lynch and SBI subscribed to 3,57,89,202 shares each, according to the data issued by Hindalco.

Hindalco had taken a $3.03 billion bridge loan to acquire Novelis and the proceeds from the rights issue were aimed at partly repaying the amount.

Hindalco’s rights issue is expected to have a close bearing on similar offerings. Tata Motors is scheduled to close its ongoing rights issue on October 20. The shares of Tata Motors, India’s largest automobile company, plunged sharply by 11.1% to Rs 250.55 on the BSE on Thursday, compared to the differential and ordinary rights offer prices of Rs 305 and Rs 340 respectively.

The auto company is planning to raise Rs 4,145-crore through the rights issue to part finance its acquisition of the Jaguar Land Rover brands.

The weak markets and tight liquidity conditions have eroded investor sentiment, forcing many companies to reconsider and rework their fund-raising plans. Even in the case of foreign currency convertible bonds, companies are being compelled to reset the conversion prices or reach a settlement with the bond holders, according to sources close to the development.

Source: EconomicTimes

Gold falls under $800 as traders cash in holdings

Gold prices briefly plunged below $800 an ounce Thursday as investors continued to sell off commodities on concerns that the economic sl
owdown will dramatically reduce demand for energy and raw materials.

Gold for December delivery fell $34.90 to settle at $804.50 an ounce on the New York Mercantile Exchange after earlier falling to $786.70.

Other precious metals also fell. December silver fell 54.5 cents to settle at $9.635 an ounce on the Nymex, while December copper lost 12.5 cents to settle at $2.0855 a pound.

Jon Nadler, analyst with Kitco Bullion Dealers Montreal, blamed the pullback on investor expectations of a substantial drop in worldwide demand for commodities.

``If the global economy will have to go through what apparently lies ahead of it, hopes for demand for 'stuff' will have to be sharply revised _ and not upward,'' Nadler said in a note.

In energy trading, crude oil fell below $70 after the government reported sharp increases in U.S. crude and gasoline supplies, a sign investors took as more evidence that the slumping economy is curbing demand.

Light, sweet crude for November delivery dropped $4.69, or 6.2 percent, to settle at $69.85 a barrel on the Nymex, the lowest settlement prices since Aug. 23, 2007. Earlier prices dipped to $68.57, a level not seen since June 27, 2007.

Crude has now fallen 52.5 percent since surging to a record $147.27 on July 11.

In other Nymex trading, heating oil fell 10.62 cents to settle at $2.1108 a gallon, while gasoline futures lost 16.02 cents to settle at $1.622 a gallon.

Meanwhile, agriculture futures traded mixed on the Chicago Board of Trade.

Wheat for December delivery fell 0.5 cent to settle at $5.5525 a bushel, while December corn lost 3.5 cents to settle at $3.845 a bushel. November soybeans rose 9 cents to settle at $8.670 a bushel.

Source: EconomicTimes

Small and mid-tier ITES in big trouble

The gloomy global economic outlook and reduced demand for technology services in the US and Europe is likely to result in an increased
ITES in trouble
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pace of consolidation among small and mid-tier IT services companies in India, analysts say.

Export-oriented small and mid-tier IT companies were able to weather the storm of rapid appreciation in the rupee against the US dollar in 2007 and early 2008, but now they are faced with the stark reality of dwindling orders.


Sudin Apte of Forrester Research says that consolidation in the Indian IT industry was on the way anyway, but the pace may pick up in the next 18 months. He is of the view that a large number of smaller firms are in “denial mode,” thinking they will be able to ride out the bad times, but reality will sink in after they start seeing negative cash flows.

It is estimated that around 60-70% of the country’s IT services exports are contributed by the top 20 players, with the rest coming in from small and mid-tier entities. T R Madan Mohan of Browne & Mohan, a consultancy firm, says that the pace of consolidation will be high because of pressure from private equity investors. PE firms, which invested in software companies expecting an IPO in 2009, are either encouraging the companies to merge or bring in a strategic partner to reduce risk.

Analysts said this kind of consolidation is already happening for firms with a topline of around Rs 50 crore, but the major worry would be for entities which have an annual revenue of less than Rs 5 crore and servicing the BFSI market in the US or the UK.

For example, of the around 1,550 units registered with STPI Bangalore, only 28% of them have gross revenue of more than Rs 100 crore. The expectation is that through consolidation and mergers, a fifth of them will exit the system. Avinash Vashistha, CEO of offshore advisory Tholons, agrees that it would be a tough road ahead for the small and medium-sized firms. However, he also thinks that there is considerable interest among investors in these firms as their valuations are particularly low and there is greater interest in outsourcing and offshoring.

“The worry is that if there is a recession and downward trend till the last quarter of 2008, which is what seems to
be imminent, then many of them have to look at drastically different business models,” says Mr Mohan of Browne & Mohan.

Source: EconomicTimes

PSUs barred from pulling out MF investments

Public sector companies, which had been allowed to invest in the equity markets through mutual funds, are now under pressure from the g
overnment to stay invested in the crumbling stock market. According to government sources, several public sector undertakings (PSUs) have been directed not to press redemptions from public sector mutual funds as it could lead to further panic in the market.

The move comes at a time when the Reserve Bank of India (RBI) has provided a Rs 20,000 crore liquidity facility to mutual funds to help them overcome redemption pressures in the wake of the financial crisis. The government’s move comes close on the heels of power major NTPC withdrawing Rs 1,000-crore worth of investment in mutual funds fearing further market crash.

“Though there has been no formal communication, the PSUs have been directed not to exit from their investments. The government had also recently ordered PSUs not to invite competitive bids for bulk deposits and keep at least 60% of funds with public sector banks. This decision is also on the same line,” a government official said.

Being major investors in MFs (a substantial portion of Rs 2 lakh crore cash surplus with PSUs could be invested in MFs), the government feels that PSUs should remain invested in funds to counter excessive selling pressure in the market. Already, state run financial institutions have tried to balance selling pressure at the bourses by being active buyers of stock. While in the last two days FIIs have sold shares worth Rs 2,191 crore (net sales), domestic institutional investors have actually bought stocks worth Rs 1,407 crore.

The government had allowed navratna and miniratna companies to invest their cash surpluses in Sebi-regulated public sector mutual funds to enhance treasury returns. According to a Crisil study, blue-chip PSUs, which include both navratnas and miniratnas, have over Rs 2 lakh crore of surplus cash, out of which 30% could be invested in public sector mutual funds.

The government permission to PSUs even included investment in equity-linked funds on the condition that such investments should not exceed 30% of the available surplus of the concerned PSU. The government relaxed the norms after various PSUs requested that allowing them to invest in the booming stock market will provide them a level playing field with the private sector in terms of investment options. Earlier, public sector companies had only exposure in fixed deposits, treasury bills and RBI bonds.

Chief investment officer of a public sector mutual fund welcomed the government move and said this should benefit in the long run as it will give faith to other institutional investors. “I think it’s the right step given that some of the private mutual funds have put a cap on the redemption temporarily given the acute liquidity crunch in the market,” the officer said.

Source: EconomicTimes