No job cuts in IT industry, says Narayana Murthy

The global economic meltdown and the financial crisis looming large over the Indian economy will not result in any downsizing or job cuts in the IT industry,

Work experience is important
says N R Narayana Murthy, founder of Infosys Technologies, one of India's most reputed companies in the sector.

"There are no job cuts. The growth has certainly slowed down but it is not making any significant impact on us," Murthy, who was in the national capital Saturday to announce the finalists for Rhodes scholarships, said.

He also hinted that the net rate of growth of employment in his sector will stay in the green. "Despite reports of companies laying off some staff as a cost cutting measure, they have been advertising for new employees at the same time."

According to him, the key challenges facing the Indian industry in these turbulent times were inflation and the psychological impact of the US crisis, leading some companies to hit the panic button.

He also said that the weakening of the rupee was just an offshoot of the global economic meltdown and was proving to be beneficial for the IT industry.

"The foreign exchange rates are helping us and in some way, they mean higher revenue for my industry," Murthy said, and added that a weaker rupee was making exports of Indian IT industry competitive vis a vis other countries.

Source: EconomicTimes

Evidence of US recession piles higher with new data

Evidence of a recession piled ever higher on Friday, with new figures showing Americans are spending less and gloomy about the economy

, while the government signaled it won't buy stock in the financing arms of auto companies to prop them up. The Commerce Department reported consumer spending dropped a sharp 0.3 per cent in September while their incomes, the fuel for future spending, managed only a small 0.2 per cent gain.

That followed a report a day earlier that the US economy shrank by 0.3 per cent in the third quarter. The accepted definition of a recession is two straight quarters of a shrinking economy.

Closing out the worst October in 21 years but one of the best weeks ever, investors did some bargain shopping on Wall Street, snapping up stocks that have plunged in value. The Dow Jones industrial average gained nearly 145 points.

Meanwhile, the outgoing Bush administration sent signals to automakers and other industries hoping for government purchases of their stock that they probably won't qualify for the program.

Administration officials, who spoke on condition of anonymity because the program is still being put together, said it was unlikely the auto companies would be able to qualify for direct government purchases of stock in their auto-financing arms as part of the $250 billion stock purchase program.

They could still be eligible for government purchases of bad assets, such as auto loans, under a separate program that is expected to spend $100 billion initially. The government plans to buy stock in banks and lift bad assets on their books as part of the financial system bailout.

The wrangling over the broader rescue program continued, with Democrats stressing Congress wants the package to be used to pump new loans into the economy, not diverted to stockholders or executives or to buy other banks.

"I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed," said House Financial Services Committee Chairman Barney Frank, D-Mass. He announced hearings on the rescue package Nov. 12 and 18.

The Treasury Department said it would extend a Nov. 15 deadline for banks that do not have publicly traded stock to apply for the government stock-purchasing plan — a plan that could extend to 6,000 banks.

The bank rescue is intended to shore up financial companies and get lending, the lifeblood of the economy, going again.

Meanwhile, Federal Reserve Chairman Ben Bernanke said in a speech that whatever system is constructed following the government takeover of mortgage giants Fannie Mae and Freddie Mac must have better safeguards to make sure it can work during times of stress.

Source: EconomicTimes

Liquidity shot: RBI cuts repo, CRR, SLR

The Reserve Bank of India, or RBI, has cut the repo rate by 50 basis points to 7.5% with effect November 3.

It has also cut CRR, or cash reserve ratio, by 100 bps in two stages to 5.5%. The first stage of CRR cut would be with effect October 25 and the second stage would come into effect November 8. The 100-bps CRR cut will infuse Rs 40,000 crore into the system, the RBI said.

The central bank will also cut SLR to 24% by 100 bps from November 8 onwards. It has allowed refinance to banks up to 1% of NDTL, or net demand and time liabilities, for 90 days.

In a statement on its website, the RBI said, “The Reserve Bank has reviewed the current and evolving macroeconomic situation and liquidity conditions in the global and domestic financial markets.”

The release stated, “On the growth front, it is important to ensure that credit requirements for productive purposes are adequately met so as to support the growth momentum of the economy. Domestic financial markets have been functioning normally. Prudent regulatory surveillance and effective supervision have ensured that our financial sector has been and continues to be robust. However, the global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability.”

The Reserve Bank, the release said, will continue to closely monitor the developments in the global and domestic financial markets and will take swift and effective action as appropriate.

The move comes close on the heels of the US Federal Reserve cutting its benchmark interest rates by 0.5% to 1% on October 30 (Read: Fed move). Experts anticipated similar rate cuts across the globe. The next day, Bank of Japan cut interest rates from 0.5% to 0.3%. (Read: BoJ follows suit)

Ever since liquidity in the system tightened, RBI has cut CRR at regular intervals to inject funds. Since October, the central bank cut CRR on four different instances totalling 350 bps, from 9% to 5.5% now.

Source: Moneycontrol

Basic customs duty on jet fuel goes; IOC cuts price

But airlines hold out no promises on fare cuts.

The basic customs duty of five per cent on aviation turbine fuel (ATF) has been completely removed. The sale price of ATF has also been reduced by 15-17 per cent across the four metros.

This will help bring down costs of domestic airlines. In the near term, it will reduce their losses. In the medium term it may lead to fare reductions. This is primarily because fuel constitutes 45-50 per cent of the operating cost of most domestic airlines.

On Friday, Indian Oil announced that ATF will cost Rs 47.01 a litre in Delhi, down from Rs 56.44 a litre the previous month. Similarly, domestic airlines refuelling in Chennai will now pay Rs 51.89 a litre as against Rs 62.05 the previous month.

Citing various reasons including the rising cost of aviation turbine fuel, the full-service airlines levy a fuel surcharge of Rs 2,400 for sectors less than 750 km and Rs 3,100 for longer flights. Low-cost airlines charge Rs 2,250 and Rs 2,900 as fuel surcharge for short- and long-haul flights respectively.

‘neutralised benefits’
But, despite the Government announcements, the industry held out no promises of cutting fares or reducing surcharges immediately.

“Despite the drop in fuel prices, the cost equation remains largely the same as earlier. Oil prices are down but dollar-linked costs have shot through the roof. The depreciation of the rupee by 20 per cent has neutralised many benefits that airlines may have reaped,” a senior airline official said.

Airlines have to pay in foreign exchange for the aircraft that they either lease or buy and to the foreign cockpit crew and senior airline staff that they hire.

The industry feels that the real benefit to them and, therefore, to passengers, will be available when ‘declared good’ status is given to ATF. This will help airlines uplift ATF at a fixed sales tax rate of 4 per cent throughout the country. At the moment, sales tax varies from 4 to 29 per cent.

The Government has already come forward to help the domestic airlines. Late last month, it was decided that the sector will get six months to clear more than Rs 2,900 crore previously owed to the domestic oil companies. In addition, domestic airlines will get a 90-day grace period for clearing their current fuel bill.

Source: TheHinduBusinessLine

FII buying lifts markets

Sensex up 744 points; overseas rate cuts lead to rally.



Stocks rose on Friday as foreign institutional investors turned net buyers after a straight fortnight of fierce selling.

FIIs were net buyers of Indian equities for Rs 1,237 crore on Friday, while domestic institutions were net sellers for Rs 116 crore.

The Sensex was up 743.55 points or 8.22 per cent to close at 9788.06, and the broader Nifty was up seven per cent at 2,885.6.

The domestic market was also catching up with world markets, which looked up on Thursday when markets were closed here, said analysts.

On Thursday, the Hang Seng had gained 12.8 per cent, Nikkei 9.9 per cent, Nasdaq 2.4 per cent, the Dow 2.1 per cent and the FTSE 1.1 per cent.

“The major reason for the rally was the rate cut that happened in the US followed by interest rate cuts in China, Taiwan, Hong Kong and Bank of Japan. Another reason for the rally was the domestic inflation level, which came down to 10.68 per cent,” said Mr Alex Mathew, Head of Research at Geojit Financial Services.

The overseas rate cuts led to an anticipation of a rate cut here by the RBI as well, he said.

The market breadth was positive as 1,577 scrips on the BSE advanced and 916 declined. Among the sectoral indices, the BSE Metal, Oil and Gas, Bankex and Teck indices surged the most today, gaining between six and 10 per cent.

Mahindra & Mahindra, Housing Development Finance Corporation, Jaiprakash Associates and ICICI Bank were the top gainers , rising between 15 per cent and 23 per cent. Ranbaxy and TCS were the only Sensex scrips which ended in the red.

“There was good amount of profit booking by the domestic institutions today, which is why the markets slightly dipped in the afternoon,” said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets.

Good buying on the first day of derivatives contracts, too, gave stocks a boost, said marketmen. NSE’s F&O segment saw a total of 28.2 lakh contracts today and a total turnover of Rs 36,959 crore.

The proposal to increase the FDI cap in private sector insurance companies from 26 per cent to 49 per cent also added to the positive sentiment, said Ms Gandhi.

The rupee gained by about 20 paise tracking the domestic equity market. The high call rates also aided the rupee, said a forex dealer with a private bank.

“There was inter-bank dollar selling as high call rates made it difficult for market participants to be long on the dollar,” he said.

Source: TheHinduBusinessLine

Credit crisis: Stocks and the long run

After the second 40% decline in America’s Standard & Poor’s composite index of common stocks in a decade, global investors are shell-shocked. Funds invested, and reinvested, in the S&P composite from 1998-2008 have yielded a real return of zero: the dividends earned on the portfolio have been just enough to offset inflation.

Not since 1982 has a decade passed at the end of which investors would have been better off had they placed their money in corporate or United States treasury bonds rather than in a diversified portfolio of stocks.

So investors are wondering: will future decades be like the past decade? If so, shouldn’t investments in equities be shunned? The answer is almost surely no. At a time horizon of a decade or two, the past performance of stocks and bonds is neither a reliable guarantee nor a good guide to future results.

Periods like 1998-2008, in which stocks do relatively badly, are preceded by periods, like 1978-88 and 1988-98, in which they do relatively well, and are in all likelihood followed by similar periods.

Do the math. At the moment, the yield-to-maturity of the 10-year US treasury bond is 3.76%. Subtract 2.5% for inflation, and you get a benchmark expected real return of 1.26%. Meanwhile, the earnings yield on the stocks that make up the S&P composite is fluctuating around 6%: that is how much money the corporations that underpin the stocks are making for their shareholders.

Some of that money will be paid out in dividends, some be used to buy back stock — thus concentrating the equity and raising the value of the stock that is not bought back. Some will be reinvested to boost the company’s capital stock.

You can argue that the corporate executives have expertise and knowledge that allows them to commit the funds they control to higher-return projects than are available in the stock market. Or you can argue that they are corrupt empire-builders who dissipate a portion of the shareholders’ money that they control.

The sensible guess is that these two factors cancel each other out. Thus, the expected fundamental real return on diversified US stock portfolios right now is in the range of 6% to 7%.

The expected market return is that amount plus or minus expected changes in valuation ratios: will stocks return more as price-earnings (P/E) ratios rise, or return less as PE ratios fall? Once again, the sensible guess is that these two factors more or less cancel each other out. Compare the 6% to 7% real return on stocks to a 1.25% real return on bonds.

Source: EconomicTimes

US stores may post weakest October sales in 40 years

After slashing their spending in September as the financial meltdown intensified, shoppers went into full retreat in October, spooked by rising layoffs and shriveling retirement funds.

Retailers reporting October sales data for established stores next week expect to see the weakest performance for that month since at least 1969 _ in many cases percentage declines in the mid-teens _ and are frantically cutting prices even more to pull in shoppers.

``Consumers just stopped shopping,'' said Michael P. Niemira, chief economist at the International Council of Shopping Centers.

That is only raising more worries about the holiday season and the financial health of the industry, which has seen a string of liquidations from Mervyns LLC to Linens 'N Things. Men's Wearhouse Inc. is slashing prices on all leather jackets and selected sweaters by 50 percent, while Saks Fifth Avenue is cutting some women's fashions by 40 percent.

Kmart, a division of Sears Holdings Corp., is giving shoppers for the first time a jump-start on Black Friday deals, starting this Sunday. Kmart, which said it had planned the deals before September, will be offering weekly savings of 25 percent to 50 percent on 15 home electronics items through Nov. 23. Meanwhile, J.C. Penney Co. is already cutting prices on its tree ornaments.

Stifel Nicolaus & Co. analyst Richard Jaffe describes many of the discounts as ``unplanned and extreme.''

With the economy expected to deteriorate, the goal is to get consumers into the stores as early as possible to spend on holiday gifts, while trying to clear out fall merchandise piling up. While shoppers are expected to buy for their children this holiday season, they may not buy much else, and economists say spending will remain weak at least through early 2009.

The good news is that gas prices have receded in recent weeks, but there's not much else to cheer about as Americans feel the pain from the financial meltdown, from tightening credit to mounting layoffs. Job security is a key factor in consumers' ability to spend.

Carmen Velez, 49, from the Bronx, says worries about being let go from her job as a home health care aid has meant doing away with her $75 monthly clothing splurges at J.C. Penney and other nonessential purchases. She says the family she works for may not be able to afford to keep her employed.

``If I lose my job, then I can't pay my rent,'' said Velez. ``Now, I am saving every penny.''

She said she will buy some holiday gifts for her two grandchildren, but that's about it.

After posting a lackluster 1 percent gain in same-store sales in September, according to the ICSC-Goldman Sachs index, many analysts expected October's performance to be weak, but not this bad. Niemira estimates that same-store sales will fall 0.5 percent, the weakest October performance since at least 1969, when the index began. Excluding Wal-Mart Stores Inc.'s figures, that number could be down as much as 3 percent, according to Niemira.

But even discounters and warehouse clubs, which are expected to fare better, are seeing their sales slow.

Source: EconomicTimes