Party’s over for the analyst community

When the Sensex moved from a level of 3,000 in April 2003 to a dizzy 21,000 earlier this year, it was an unbelievable good time for anyone
involved with the markets. One such benefactor was the analyst community. That was then.

Today’s scenario with the Sensex being at around half the level down from that peak has left a lot of people in a quandary. The analyst community has been one such affected party. Five years ago, an equity analyst needed an MBA and a good reference. That was good enough for a job at a domestic broking house.

Typically, an analyst would spend a year before another broking house would grab him at an impressive hike — often twice as much. If things went to plan, in three years, the analyst would find himself inundated with offers from foreign broking outfits at mind-boggling salaries. Clearly, the journey to 21,000 fuelled a lot of ambitions and the mismatch between demand and supply was working overtime.

Meanwhile, broking outfits wanted research analysts to recommend stocks to their clients. This in turn would generate brokerage income for them. It was the large research team that owners of broking outfits would use as the selling point to prospective private equity investors. The effort seemed worthwhile for the analysts since the money was coming in.

Typically, an analyst with an experience of three years would command an annual salary of Rs 10 lakh and one with around twice that experience would draw as much as Rs 15-20 lakh. This was as far as domestic broking firms were concerned. If one was to head to a foreign firm, the salary would be twice as much as what was being made at the domestic broking firm.

That story is hugely different today. “Many analysts came back to their own company after six months at double the salary,” says an industry observer a little wryly.

With cost cutting now the buzzword, broking outfits are looking closely at equity research which is a huge cost centre. Today, with some sectors such as real estate being under intense stress and even mid-caps going off the radar, research analysts in those segments will lose favour.

There is a school of thought which looks at analysts a little sceptically. “Most of them form an opinion after meeting the company management. Very few of them bother to talk to clients or rivals of the company,” says a fund manager with a domestic fund house. That’s not the end of the story. “Not many analysts have seen multiple bull and bear cycles,” says Churiwala Securities managing director Alok Churiwala. With the demand-supply scene easing off now, it may be possible to obtain some quality analysts.

A broker looks at the weakness a little differently. “Not many were able to identify a stock in advance,” says a broker. He says the idea comes from the superior in the office which was followed by some number crunching. Some of them made fancy presentations to fund managers to generate business for the fund house. There are many such instances.

A leading foreign broking house in April upgraded its target price for Suzlon from Rs 290 to Rs 380. Another foreign outfit in early March had a target of Rs 450 on the stock. The stock currently trades at Rs 65. There are similar stories for a lot of other mid-cap companies. Industry watchers, say analysts, often have no explanation in such cases.

The downturn in the market has separated the wheat from the chaff. Broking houses that are serious about the business would try and retain its people and also get an opportunity to choose from a large pool. It does look like there will be semblance that will come in sooner than later.

Source: EconomicTimes

After slowdown, now frauds hit India Inc, says KPMG

Banks might see their bad debts rise in the days ahead not because of the economic slowdown, but because they were hoodwinked by applicants, with cases doubling in the last six months compared to a year ago.

"We have seen the number of cases of fraud that we monitor double in the last six months over the same period last calendar year," KPMG Head (Forensic service) Deepankar Sanwalka told PTI.

The resultant Non-Performing Assets are not because of a bad credit decision, but because documentation was not complete or false information was furnished, the loan could not be recovered, he said.

Sanwalka said Indian industry was not prepared to deal with fraudulent practices that has come to hit it now.

"There was a franctic expansion in the last four years. But controls did not keep pace. Business expansion took precedence over getting control systems in place," he said.

As companies look to cut costs further, the firms might be again overlooking to plug such loopholes that might result in monetary losses, he added.

According to a KPMG study released earlier this year, 11 per cent of the organisations surveyed had estimated financial losses in the range of Rs one to 10 crore, while five per cent of them had losses exceeding Rs 10 crore, which was directly attributable to the frauds detected.

Source: EconomicTimes

Wellcare shares plunge 65 pc as filings delayed

Shares of Wellcare Health Care Plans Inc lost 65 percent of their value on Thursday, plunging to their lowest price ever, after the company
said it is unable to file past quarterly financial reports.

In a government filing posted after the markets closed on Wednesday, Wellcare said it could not estimate when they would be filed. In a separate filing, the company said medical costs were up significantly.

The shares were down $13.00 at $6.87 on the New York Stock Exchange. Wellcare, which administers Medicare and Medicaid programs for state agencies, has been under a cloud since October 2007, when federal and state agents raided the company's Tampa headquarters.

In the filings, Wellcare revealed weakening operations with declining margins. Medicaid performance is expected to deteriorate further as states cope with a recession, analysts noted. The company said it was cooperating with ongoing investigations.

"We do not know whether, or the extent to which, any pending investigations might result in our payment of fines or penalties or the imposition of operating restrictions on our business; however, if we are required to pay fines or penalties, the amount could be material," the company said in the filing.

With regard to the Department of Justice's investigation into a number of whistleblower lawsuits against the company, Wachovia analyst Matt Perry said: "Given that Wellcare has admitted to essentially overcharging the State of Florida in behavioral health, the presence of employee whistleblowers is not surprising.

These lawsuits can drag on for years and it's impossible to judge the merits at this point since they remain under seal." In a research note, Perry also noted that Wellcare is in default on its senior credit facility of $153 million.

The debt will become payable on May 13, 2009, but the lenders could accelerate the payback date and/or increase the interest rate. The company has engaged an investment bank to help it secure alternative financing, he added.

Carl McDonald, an analyst with Oppenheimer, noted that lower investment income has been a big drag on its earnings. "Investment income will likely be down by more than 50 percent this year, costing the company about $40 million, or almost 60 cents per share," McDonald wrote in a note.

Source: EconomicTimes

Dubai property boom gets hit by financial crisis

This Arab Gulf boomtown _ so business-friendly it's been called ``Dubai Inc.'' _ is suddenly getting a nasty taste of
the global financial crisis.

Housing prices are falling for the first time in years, and shares are plummeting.

One major property developer has begun laying off staff, and another is reviewing its recruiting needs. Others are scaling back ambitious growth plans as financing for both companies and homebuyers freezes up.

``What happens in Dubai is very linked to the financial crisis,'' Markus Giebel, chief executive of Dubai-based builder Deyaar Development Co., said in an interview at his office overlooking the sprawling city's skyscrapers on Thursday. ``There's actually no way to swim against the stream. If the stream goes left, you'd better swim with it.''

Deyaar encapsulates the forces now buffeting Dubai's housing sector _ one of the key drivers of this city's wealth in recent years.

In April, the company's former CEO and other officials were detained amid allegations of financial impropriety _ an early salvo in a wider anti-corruption sweep. Analysts praised the crackdown, but it also rattled investors just as the global financial crisis was heating up.

Deyaar's stock has fallen sharply since. The company's shares ended the trading week Thursday at 78 fils (21 cents), down 74 percent from a year earlier.

Other real estate and banking shares are tumbling too. The Dubai Financial Market is down 25 percent this week alone.

At the same time, Dubai developers _ like their counterparts in the West _ are finding it harder to raise funds. Deyaar has shelved recently announced plans to raise more than $1 billion through the sale of Islamic bonds and is paring its international growth plans from about 10 countries to about three, Giebel said.

Others are also scrambling to cope with a change of fortunes that appears to have caught many by surprise. Only last month, the industry was busy unveiling audacious new projects, including a tower about two-thirds of a mile (one kilometer) high.

At least for now, the good times appear over. After years of unrelenting growth, home prices on the secondary market in Dubai fell by 4 percent from September to October, according to a report this week by HSBC Holdings PLC. Prices for high-end ``villas,'' typically stand-alone houses, are down 19 percent and face ``protracted weakness'' if lending rules remain tight, analysts at the bank said.

The report provides hard evidence for what real estate agents have been saying privately for weeks: many would-be buyers are spooked, and those that want to buy face a tough time getting mortgages.

Mary Nicola, an economist at Standard Chartered Bank in Dubai, said there are two main factors putting pressure on housing prices _ tight credit markets and increasingly negative sentiment among investors globally.

As recently as a few months ago, speculators enticed by low borrowing rates and little money down helped drive the prices of unbuilt, or ``off-plan,'' property up to the levels of finished developments, she said.

``Access to cheap credit led to an increase in borrowing and people were just going out and putting their assets in the property market,'' she said. ``People were able to put minimum money down and then flipping the property within days.''

Over time, bank deposits failed to keep up with the rapid credit growth, pressuring local lenders. At the same time, credit markets were tightening up around the globe.

Now the city is bracing for what some fear could be a painful correction. Morgan Stanley predicted in August prices will drop 10 percent by 2010 but could fall far more sharply in a more dire scenario.

Emaar Properties, the UAE's leading publicly traded developer, said Thursday it is reevaluating its recruitment policies to ensure they meet the company's long-term interests.

Also this week, privately held Damac Holding said it will cut 200 jobs, or 2.5 percent of its staff.

The question now is whether the rest of the industry can adapt in time.

``It was an ever-growing market,'' Giebel said, suggesting that some developers may be unprepared to manage the shift to what could be a prolonged downturn.

``Whether all of the companies are prepared for something like this ... I don't know. But very seldom do you have leaders who are good at both the good times and the bad times,'' he said.

Source: EconomicTimes

Oil falls to near $56, demand wilts

Oil dropped to just above $56 a barrel on Thursday after the latest evidence of a deep drop in demand offset news OPEC might take emergency
action to curb supplies.

US crude was seven cents lower at $56.09 by 1627 GMT, recovering from a session low of $54.67 - the weakest level since January 30, 2007. London Brent crude dropped $1.12 to $51.25.

"The only thing supporting the market is the possibility of OPEC cuts at the end of the month, but the production cuts would probably only be in step with falls in demand," said Christopher Bellew of Bache Financial.

Selling gathered fresh momentum after the latest set of US inventory data showed another fall in U.S. gasoline demand and a rise in stocks of refined products.

Overall crude stocks were unchanged against expectations of an increase. But gasoline inventories rose by two million barrels, more than analyst expectations for a 300,000 barrel rise and gasoline demand over the previous four weeks was 1.9 per cent lower than a year ago.

The International Energy Agency in a monthly report slashed its global oil demand growth forecast for next year and said this year's increase in consumption had been the slowest since 1985.

It predicted demand would next year expand by only 350,000 barrels per day (bpd) - down 340,000 bpd from its forecast in last month's report.

Faced with the prospect stocks will swell as consumers stop buying, pushing prices even lower, the Organization of the Petroleum Exporting Countries said it was considering an emergency meeting at the end of November in Cairo.

Only last month, it agreed to cut output by 1.5 million bpd at emergency talks in Vienna. Oil has lost more than 60 percent of its value since hitting an all-time high above $147 a barrel in July.

The average price so far this year is still only just below $90 a barrel, but OPEC is focused on the price it receives for its oil. The OPEC basket on Wednesday dropped below $50 a barrel for the first time since January last year.

Source: EconomicTimes

Rupee may return to strength by early to mid 2010: Mecklai

Worried over the sharp depreciation of the rupee? Here's some solace for you. Risk management consultancy major Mecklai Financial has predicted the rupee will begin to rise again by late 2009 and could return to strength by early to mid 2010.

In its latest research report, Mecklai has said that capital flows will take some time to return to 'normal'. However, "we believe that by late 2009, we should see investment flows resume, which should be the trigger for some modest strength in the rupee ...which could return to strength by early to mid 2010."

Even today "the silver lining for India is that the sharp depreciation of the rupee has rendered exports much more competitive. So, too, the dramatic fall in oil will make the trade balance much more manageable," the report says.

Of course, capital flows remain a major negative for the rupee. After having more than quadrupled to $108bn over the previous two years, capital inflows are expected to fall to $31bn in 2008-09. Portfolio flows are forecast to decrease by $10bn, as compared to an increase of $29bn in the previous fiscal, while borrowings are expected to fall from $41bn to $15bn. FDI has been the only bright spot this year, doubling to $10bn for Apr-Aug 2008; despite the crisis, the net figure should easily surpass last year's level of $15bn.

However, with equity prices having fallen 60% this year, as a result of which many, many companies are cheap even compared to their cash assets, and the credit market slowly on its way to normalcy, "we would expect capital flows to begin to show improvement by the second half of 2009," the report says.

The RBI's recent decision to reverse all restrictions it had placed on ECBs, NRI deposits, and FII flows through participatory notes is timely and will boost flows as and when the environment improves. Interestingly, one of the fallouts of this crisis is that "we will have a more liberal external account when the smoke clears."

Of course, the overall balance of payments is expected to be negative in fiscal 2009 and has already resulted in a substantial drawdown of reserves. However, in view of the factors listed above, "we believe fiscal 2010 should see a surplus of around $20bn, which should support a return to a modestly stronger rupee," the report says.

Source: EconomicTimes

Government not 'cure-all' for economic woes: Bush

US President George W. Bush said on Thursday that the global economic crisis was not "a failure of the free market system" and warned against seeing government intervention as "a cure-all."

"The crisis was not a failure of the free market system. And the answer is not to try to reinvent that system," Bush said in a prepared speech to lay out his agenda at Friday and Saturday talks with world leaders in Washington.

"We must recognize that government intervention is not a cure-all," said the US president, who rejected any effort to blame a lack of US regulation for the international meltdown that began with the burst of the US housing bubble.

"Some blame the crisis on insufficient regulation of the American mortgage market. But many European countries had much more extensive regulations and still experienced problems almost identical to our own," he said.

It was unclear to whom Bush's warnings about dismantling international capitalism were addressed, and the White House would only say that the US president was restating a commitment to free trade as an engine for growth.

Bush aides have said the talks would aim to forge agreement on the underlying causes of what many call the worst crisis since the Great Depression of the 1930s and principles for a coordinated international response.

"The leaders attending this weekend's meeting agree on a clear purpose: To address the current crisis, and lay the foundation for reforms that will help prevent a similar crisis in the future," Bush said.

"We also agree that this undertaking is too large to be accomplished in a single discussion. So this summit will be the first in a series," said Bush, who hands the keys to the White House to Barack Obama on January 20.

Created in 1999, the G20 comprises major rich and developing countries, accounting for 85 percent of the world economy and about two-thirds of its population.

Its members are the United States, Germany, Japan, France, Italy, Britain and Canada, the European Union, Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.

International Monetary Fund and World Bank officials are also expected to attend the Washington summit.

Amid calls for enhancing those international institutions' role, Bush said both must "reform" and "modernize" the way they make decisions.

"They should consider extending greater voting power to dynamic developing nations -- particularly as they increase their contributions to these institutions. They should also consider ways to streamline their executive boards, and make them more representative," he said.

Bush, who worked with the US Congress to craft a 700-billion-dollar bailout of troubled US banks, praised international cooperation thus far but warned: "This crisis did not develop overnight, and it will not be solved overnight."

"There will be more difficult days ahead. But the United States and our partners are taking the right steps to get through the crisis, and they are working," said the US president.

With many looking to blame lax US regulatory structures for the meltdown, Bush said "outdated regulatory structures and poor risk management practices" had particularly hurt large international financial institutions.

Source: EconomicTimes