The Ibs Times 39 Edition - News Digest

THE IBS TIMES - News Digest Issue— 39

8th December 2008 [Monday]

India-Pakistan Relationship after 26/11 India-Pakistan relations have reached not only their lowest point after the Mumbai massacres but also perhaps their most dangerous phase ever. Throughout the earlier periods, even during the 1965 and 1971 wars and the 1999 Kargil incursion, Pakistan had a credible government in place, even under Yahya Khan, the military dictator known for his fondness for the bottle. At present, however, Pakistan is almost dysfunctional an "international migraine", as former US secretary of state Madeleine Albright has said. One dictator has reluctantly left, but the civilian government which replaced him does not seem to be fully in charge. As much is clear from President Asif Ali Zardari's backtracking from his earlier more cooperative attitude towards India. It isn't only that he has had to go back on his prom(Just Click to go directly) ise to send the Inter-Services Intelligence (ISI) chief to India to help in the investigations into the terrorist attack, but he is now blandly denying any Pakistan connection. He has even said that the suspect caught in Mumbai may not be a Pakistani at all. Given this deliberate attempt to absolve Pakistan of all guilt, it is hardly surprising that he has summarily rejected India's request for handing over 20 patrons of terrorism, including the Lashkar-e-Taiba chief, Hafez Sayeed, and Dawood Ibrahim, the head of a formerly Mumbai-based criminal gang that was responsible for the 1993 serial bombings in Mumbai. The hardening of Zardari's stance makes it clear that the army has again begun dictating terms despite promising to withdraw to the barracks. Pakistan's fledgling democracy, therefore, under a civilian president and prime minister, is under threat from its old adversary, the army. It is a turn of events which cannot please India. The wars of 1965 and 1971 were fought when the army ruled the roost. General Musharraf also initiated the Kargil intrusion behind then Prime Minister Nawaz Sharif's back. Zardari's accession had raised hopes not only because, as he said, democracies do not go to war, but also because it seemed that he intended to implement Benazir Bhutto's intention of improving ties with India. After losing power, Benazir apparently realized that she had made a mistake with her earlier shrill, azadi, azadi, azadi (freedom), and cry for Kashmir. Zardari's observation a few weeks ago that there was a bit of India in every Pakistani and vice versa had not only underlined the essential unity of the subcontinent but also that he was serious about better relations. This belief was confirmed by his observation that India did not pose a threat to Pakistan. Was the terrorist outrage in Mumbai intended to derail him and the prospects of an improved relationship? As is obvious, for a Pakistan president to disregard an Indian threat erodes the very basis of the army's rationale for its overlordship of the polity - to save Pakistan from India. The entire procedure of propping up the Taliban in Afghanistan and securing the Al Qaeda's bases there was intended to provide Pakistan with strategic depth in the event of a war with India. It is no secret that the army has never taken kindly to the collapse of this carefully nurtured enterprise after 9/11. The army also cannot be pleased with the mission entrusted to it by America to fight its old friends, the Taliban and the Al Qaeda, in the badlands of Pakistan's northwest, which has been described by President George Bush as "wilder than the wild west".

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Cover Story: 1 India Pakistan Relationship After 26/11 Bulls Eye View - 2 Commodities Corporate Diary

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Economy

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Industry

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Jargonomics

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TH E IBS TI ME S Cover Story (Contd…) Improved relationship with India will mean that the army will have to continue to fight the "war against terror" and see its old enemy, India, go from strength to strength to become a regional superpower. The old dream of bleeding India to death with a thousand cuts will have to be buried. Of course the visitors to India from the other side of the border now have a very difficult time now. One terrorist attack and what are the steps India takes? It makes getting visa for Pakistanis to India difficult; yes it‘s a good measure but is this required measure? Security should always be a prime concern while giving visas. Why is it that such a tragic incident is when the government gets a jolt and gets into action? Aren‘t we paying the taxes so that they are always awake? These are the multiple questions that come to the mind of every Indian Citizen. Nevertheless, it is very right on the government‘s part to take this step. India tightened its visa policy for Pakistani nationals due to additional security measures introduced in the wake of the terrorist attacks in Mumbai, saying a minimum time of one month would be required to process visa applications. The Indian High Commission in Islamabad said the new rule would apply to all visa applicants except those travelling to India in connection with medical emergencies. India has blamed Pakistan-based elements, including the banned Lashker-e-Taiba group, for the attacks in Mumbai that killed over 180 people. It has asked Pakistan to take action against these elements. After initially denying the charges, President Asif Ali Zardari said Pakistan would assist India in probing the attacks and take action against any Pakistani elements found involved in the incident. A statement issued by the Indian mission said: "On account of additional security measures following the terrorist attacks on Mumbai, the High Commission of India would like to inform all visa applicants that the processing time for issuing visas would now be a minimum of 30 days except for medical emergency cases." The statement also said a new visa application form had been introduced for Pakistani nationals and only this new form would be accepted from December 15. India has also put on hold all upcoming meetings under the four-year-old Composite Dialogue process till Pakistan addresses its concerns related to the Mumbai attacks, diplomatic sources said. The secretaries for defense, commerce and culture of the two countries were expected to meet in the coming weeks. Last year, India issued visas to over one lakh Pakistani nationals while Pakistan had issued about 35,000 visas to Indians. Compiled By: Kavitha

Bulls Eye View (Commodities) Commodities Cuts may help Production metal prices rebound With the US officially declaring economic recession, the worst seem not over for base metals such as copper, aluminium, zinc and lead. Prices have already halved and inventories at the London Metal Exchange (LME) are overflowing as there is no substantial improvement in off take. However, the recent production cut announced by the mining companies may push up in the short term. Zinc prices on an average plunged 83 per cent to $1,242 a tonne in November from $2,278 in June on LME while inventory was up 40 per cent from 1.24 lakh tonnes (lt) to 1.73 lt.Average aluminium prices on LME have dipped 28 per cent from $2,845 a tonne in June to $2,041 a tonne in November. Stockpiles at LME were up 49 per cent to 1.49 lt in November from 1 lt in June. Acreages under most rabi crops gain In a further signal of easing inflationary pressures in the economy, acreages under most rabi crops currently being planted are significantly higher compared to last year‘s levels. This, the Government hopes, would pave the way for a softening of food prices in the coming months, on top of the reductions effected in fuel prices on Friday.According to the Agriculture Ministry‘s latest Crop Weather Watch Report, released here on Friday, farmers have so far planted 173.70 lakh hectares (lh) under wheat, against the 154.27 lh covered during the corresponding period of last year. Higher acreages have also been reported for other cereals, including maize (5.02 lh against 4.04 lh), barley (5.15 lh against 4.38 lh) and jowar (45.87 lh against 42.43 lh). Cheaper fuel pulls down inflation rate to 8.4% The annual Wholesale Price Index-based inflation rose 8.4 per cent for the week ended November 22, lower than the previous week‘s annual rise of 8.84 per cent. The dip in the year-on-year inflation rate was entirely on account of a big fall in the inflation in the fuels group. The annual rate of inflation, calculated on point to point basis, was 3.11 per cent during the corresponding week of the previous year. During the latest reported week, the official WPI for ‗All Commodities‘ declined 0.6 per cent to 233.7 points from 235.1 points for the previous week, according to the data released by the Ministry of Commerce and Industry on Thursday.

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Bulls Eye View (Commodities) Futures trading resumes in 4 commodities Belying subdued response, the four commodities – chana, potato, soyoil and rubber – in which futures trading was re-launched, received good trading interest with potato on MCX closing the day with a gain of 11 per cent. Futures trading in the four commodities was opened up after the ban for over six months. Mr. Veeresh Hiremath, research analyst, Karvy Comtrade, said, ―we had not expected such a good response in the four commodities. Volumes were good right from the beginning and went up further as the day progressed.‖Potato for March delivery on MCX recorded a turnover of Rs 44 lakh through 32 contracts. It opened on the higher side at Rs 494 a quintal and touched a low of Rs 432 before closing at Rs 479 a quintal. Potato futures are expected to trade on the firm note with the lower production estimates. Fertilizer importers lose out even in declining price situation Crashing international prices normally spell good times for importers. But not really so for importers of di-ammonium phosphate (DAP) and various fertiliser raw materials/intermediates, who avail themselves of Governmental ‗concession‘ (subsidy reimbursement for selling below cost) on the basis of an import parity price (IPP) formula. The last 3-4 months have seen huge declines in landed cost of most fertilisers and raw materials used in manufacture. Urea prices (cost & freight), which touched $850 a tonne in July-August, are now ruling at around $260 a tone PepsiCo to step up contract farming efforts PepsiCo will stop exports of basmati, which it has been growing since 1995-96 under the contract farming initiatives it undertakes. The paddy that it procured, roughly half of some of the 18,000 tonnes grown in 23,000 acres of contact farming in 2008, will be sold by LT Overseas, the makers of Daawat Basmati Rice, said Mr Vivek Bharati, Executive Director, Agriculture and External Affairs, PepsiCo India. PepsiCo exported about 1,078 tonnes till October this year. The company nonetheless plans to continue its contract farming initiatives. It is, in fact, hoping to encourage farmers to adopt the direct seeding method which it believes provides better yields. The method would also offer opportunity for farmers to earn carbon credits, since there‘s no production of methane while the paddy samplings grow in foot deep water, said Mr Amit K. Bose, Executive Vice-President –Exports, PepsiCo. The company hopes to have it registered with the United Nations Framework Convention on Climate Change, after which farmers can make an additional income from carbon credits. Allow futures trading after lifting physical market restrictions There is heightened expectation in the commodity trading circles about the revival of futures trading in at least four commodities – potato, soya oil, chana and rubber. Suspension of trading lapsed on November 30, and no fresh notification of extension had been announced until early afternoon on Monday. Other commodities whose derivatives trading stands prohibited include rice, wheat, urad and tur. The commodity futures market regulator – Forward Markets Commission (FMC) – is in no position to take an independent decision on restarting derivatives trading in the aforesaid commodities. There is a reason to believe, the FMC has been waiting for official communication from New Delhi before making any official announcement. FMC is under the administrative control of the Union Ministry of Consumer Affairs. Biometric cards for fishermen Biometric smartcards will be made compulsory for sea-going fishermen in coastal Karnataka from January 1. The move is aimed at strengthening security along the Karnataka coast and at identifying fishermen during accidents at sea. This was announced at a joint meeting of the Coastal Security Police, the Karnataka Fisheries Department, the office of the Port Officer (Old Mangalore Port) and representatives of fishermen here on Monday. Speaking at the meeting, Mr Mukunda Nayak, Inspector of Coastal Security Police, said at the recent high-level meeting convened by the Inspector-General of Police (Western Range) in Mangalore it was decided to expedite the issue of biometric smartcards to the fishermen. Compiled By: Ishita Singh

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Bulls Eye View (Corporate Diary) M&M opts for partial closure due to demand slowdown Following Tata Motors and Ashok Leyland, the country‘s largest utility vehicle maker Mahindra & Mahindra also has chosen to go in for a partial shutdown of its plants this month.―The manufacturing plants of the automotive sector — Nasik, Kandivli, Igatpuri, Zaheerabad and Haridwar — will work partially during the month. Most will be shut down for around three-six days depending on the market demand of the products manufactured in the respective plants,‖ M&M said in a statement issued to the BSE. Tata Motors 3-year FD looks attractive Fixed deposits offered by Tata Motors may be a good investment option for investors looking to park excess funds for three years. The company is accepting a minimum deposit of Rs 20,000 with additional amounts in multiples of Rs 10,000 for a maximum of three years. The offer of 11 per cent interest for a three-year deposit is an attractive option, as there may be few alternatives available for this term, with similar rates on offer. The deposit offers 0.5 per cent additional interest for senior citizens, employees and shareholders in Tata Motors. Therefore, investors can buy a small lot of Tata Motors shares and avail a higher rate on the fixed deposit. US woes not to hit Indian vendors, says GM General Motors, which plans to source $1 billion worth of auto parts from India, has said that the current crisis in North America will not affect local vendors. The world‘s largest auto maker also said that it plans to launch three new cars in India during 2009. It will also increase prices of its models between 2 per cent and 3 per cent next year.The General Motors President for India, Mr. Karl Slim, told Business Line that its operations in Latin America as well as in Asia-Pacific were robust and as the auto maker sells more cars outside North America, sourcing of components from Indian vendors will be of the same level as had been announced earlier. General Motors has already sourced components worth about $500 million from Indian vendors so far. The rest of it will be sourced by 2010. There has also been no decrease in business for its partners in India with whom it has outsourcing contracts for its various requirements, he said. BHEL bags order from Oman for gas turbines State-run Bharat Heavy Electricals Ltd (BHEL) has bagged an order from Oman for supplying 126 MW gas turbine generator packages. The value of business is expected to be of the order of Rs 2,000 crore, spread over the next 6-7 year. The rate contract includes supplying and supervision of erection and commissioning of several 126 MW units for various power projects planned by Petroleum Development Oman (PDO). This rate contract will initially be valid for six years with a provision for further extension by another three years with mutual agreement, during which PDO can buy additional units from BHEL, the company said. Punj Lloyd signs pact with Thorium Power of US Punj Lloyd Ltd will form a 50:50 joint venture company with US-based Thorium Power Ltd for building nuclear power plants. The new company will combine Punj Lloyd‘s expertise in EPC contract work and Thorium Power‘s technological expertise in the use of thorium to generate nuclear power. A memorandum of understanding (Moue) for this was signed between the two companies. NMDC cuts iron ore prices for domestic buyers by 25% The National Mineral Development Corporation (NMDC) on Thursday reduced prices of iron ore for domestic long-term contracts by around 25 per cent.The new prices are effective from December 1 and the company will hold the prices for the next four months till March 2009, the Chairman and Managing Director of NMDC, Mr. Rana Some, told Business Line after the company board decided to cut prices.―Prices will come down in the range of Rs 470 to Rs 1,153 a tone on various grades. However, there will be no change in our prices to international customers,‖ he said. The new price band will be in the range of Rs 1,500 to Rs 3,500 a tone as against the earlier band of Rs 1,900 to Rs 4,100 a tonne.The main domestic buyers of iron ore from NMDC are private sector steel majors such as JSW Steel Ltd, Ispat Industries, Essar Steel as well as many other smaller players. The two largest steel makers — Steel Authority of India and Tata Steel — have their own captive mines and do not source iron ore from NMDC under long-term contracts. Compiled By: Ishita Singh

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Bulls Eye View (Economy) RBI steps may spur banks to cut rates The series of steps announced by the RBI on Saturday is expected to bring property developers back from the brink of bankruptcy, and possibly infuse life in the dormant housing sector, shouldbanks lower home loan rates taking cue from the central bank‘s action. In order to help real estate companies tide over the current credit crunch and weak demand, RBI has cut repo and reverse repo rate by 100 bps each on Saturday and allowed restructuring of commercial real estate loans up to June 30, 2009. The loans granted by banks to Housing Finance Companies (HFCs) with a ticket value of up to Rs 20 lakh to home buyers will be classified under priority sector. This means a home buyer gets a loan upto Rs 20 lakh at a lower rate even from HFCs, thus getting a wider choice of lenders. Oil rises above $43, Saudi deepens cuts Oil rose above $43 a barrel on Monday, as a rebound in global equity markets and further evidence of supply cuts by top exporter Saudi Arabia helped the market break a six-session losing streak. The market had fallen 25 percent last week, its biggest weekly fall in nearly 18 years, depressed by the world economic outlook. U.S. crude for January delivery was up $2.53 to $43.34 a barrel by 1235 GMT. It fell more than 6 percent on Friday to close at $40.81, its lowest since December 2004. RBI may further cut repo rate by 150 bps: Goldman RBI could cut its repurchase auction rate, at which it infuses cash into the banking system, by 150 basis points more by mid2009, Goldman Sachs said on 8th November 2008. The reverse repo rate, at which the central bank absorbs surplus cash, could be cut by a further 100 basis points, the financial firm said in a note. The Reserve Bank of India on Saturday cut both its key short-term rates by 100 basis points each to boost economic growth in the wake of a global credit crisis and recession in some majoreconomies. The repo rate is now at 6.5 percent, and the reverse repo rate has been reduced to 5 percent, its lowest in more than three years. Goldman expects a corridor between 4 percent and 5 percent between the reverse repo and repo rate by mid-2009. note.

Refund of service tax on foreign agent commissions up to 10% In a major relief to the exporters reeling under a global demand slump, the government today allowed up to 10 per cent refund of service tax on foreign agent commissions and offered a two per cent interest subsidy that could be raised further and extended till next fiscal. As part of the economic stimulus package announced today, the government provided for a two per cent interest subvention till March 2009, subject to a minimum rate of seven per cent. The threshold limit of refund of service tax paid by exporters on foreign commission agent services has been enhanced from two per cent to 10 per cent of freight-on board value of export goods, an official statement said. The package, coming on the back of fresh monetary measures announced by the RBI on Saturday, includes refund of service tax on output services while availing of benefits under duty drawback scheme. The benefit of service tax refund has now been extended to services provided by a clearing and forwarding agent to exporters also. Compiled By: Abir Zara Khan

Bulls Eye View (Industry) Banking Union Bank cuts BPLR by 75 bps to 12.5 pc Union Bank of India on Monday said it cut its benchmark prime lending rate by 75 basis points, effective today, to 12.5 percent, its deputy general manager Vivek Mhatre told Reuters over the telephone. SBI to consider rate cut after RBI's decision The State Bank of India on Friday said it will consider rate cut after the Reserve Bank of India announces reduction in benchmark rates. SBI has already reduced benchmark lending rate by 75 basis points to 13 per cent, beginning last month. This package will help increase liquidity and encourage consumption behaviour. RBI should further reduce cash reserve ratio, so that cheap funds are made available to banks for lending.

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Bulls Eye View (Industry) Auto Apollo Tyres declares lockout in Kerala unit The recession-hit tyre major Apollo Tyres on Saturday declared a lockout in its Kalamassery unit in Kerala which employs 1,100 people, accusing the trade unions of going on an "illegal" strike and resorting to negative and non-cooperative attitude. A company release said it was forced to take drastic measurers to increase efficiency and reduce cost as it had been hit by recession. The workmen had been resorting to 'llegal' stoppage of work and acts of indisicpline, disrupting the normal working of the plant causing heavy loss of production, it charged. It alleged that the workmen yesterday indulged in violent acts of obstructing and preventing the loaded trucks from transporting tyres meant for export threatning the drivers and preventing them from moving out. Later, they stopped all work inside the plant from 6.15 pm and resorted to "sudden illegal strike". Cheap imports derail tyre industry Hit by the slowdown in exports, the Rs 20,000-crore domestic tyre industry is battling other issues like fall in production of commercial vehicles and cheap imports from China. The Director General of Foreign Trade (DGFT) has placed imports of ‗radial‘ truck and bus tyres in the restricted category to check imports. However, the industry has voiced its fears that unscrupulous traders may import these products, classifying them as ‗bias‘ truck and bus tyres. Both radial and bias tyres look identical. But radial tyres are preferred for their technology, which leads to long tyre life, resistance to cuts and punctures, good traction and fueleconomy. Since there was anti-dumping duty on bias tyres, imports on radial tyres increased significantly. In July 2007, the government imposed anti-dumping duty on bias tyres, which led to a steep increase in import of radial tyres. TVS November sales declines 12.7% TVS Motor Company today reported a 12.7 per cent decline in the sale of two wheelers in November, 2008 at 98,402 units compared with 112,766 units in the corresponding period last year. Motorcycles sales of the company stood at 45,276 units for the month of November this year compared with 57,113 units in the same month last year.

Consumer Products Unilever to slash 250 R&D jobs globally Consumer goods major Unilever Plc has announced slashing of 250 research jobs across the world as a part of its restructuring plan to consolidate its research and development activities. The reshaping programme has been announced to combine and streamline group's three global research and development operations into one Unilever R&D organisation to improve efficiency, a company statement said. Rural markets beat cities in FMCG sales growth Rural consumers are displaying considerable resilience in spends on fast-moving consumer goods (FMCG) despite the economic slowdown, say top industry officials While overall consumer spends (urban+rural) on FMCG are showing smart rates of growth, the growth in rural markets at 20% plus has overtaken urban markets, which is growing at 17-18%, according to industry estimates. Industry watchers attribute the growth to rise in rural disposable incomes, following three consecutive years of good agricultural growth. Also, top industry officials said the government has pumped in a lot of investments into rural areas. United Spirits to absorb Balaji Distilleries United Spirits Ltd said on Monday its board had approved the amalgation of Balaji Distilleries Ltd.The board has also recommended an issue of two equity shares of United Spirits for every 55 held in Balaji Distilleries, it said in a statement. United Spirits is the world's third-largest spirits maker by volume. Compiled By: Abir Zara Khan

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Jargonomics Weekend Effect: A phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday. Some theories that explain the effect, attribute the tendency for companies to release bad news on Friday after the markets close accounts for depressed stock prices on Monday, while others state that the weekend effect might be linked to short selling, which would affect stocks with high short interest positions. Alternatively, the effect could simply be a result of traders' fading optimism between Friday and Monday. Balloon Payment: An oversize payment due at the end of a mortgage, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender. Balloon payments are often prepackaged into what are called "two-step mortgages." In this type of mortgage, the balloon payment is rolled into a new or continuing amortized mortgage at the prevailing market rates. Naked Shorting: The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen. While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades. Troubled Asset Relief Program(TARP): A government program created for the establishment and management of a Treasury fund, in an attempt to curb the ongoing financial crisis of 2007-2008. The TARP gives the U.S. Treasury purchasing power of $700 billion to buy up mortgage backed securities (MBS) from institutions across the country, in an attempt to create liquidity and un-seize the money markets. The fund was created by a bill that was made law on October 3, 2008 with the passage of H.R. 1424 enacting the Emergency Economic Stabilization Act of 2008. The Treasury will be given $250 billion immediately, and the President must certify additional funds as they are needed. The additional funds will be distributed as $100 billion, and then as the final $350 billion is given, Congress has the right to not approve the additional amounts. Technical Correction: A decrease in the market price of an asset or entire market after extensive price increases. A technical correction occurs even when there is no evidence that the increasing price trend should cease. It is often caused when investors temporarily slow down their purchases of securities, which commonly leads to a pullback toward a short-term support level. Bottom Fisher: An investor who looks for bargains among stocks whose prices have recently dropped dramatically. The investor believes that a price drop is temporary or is an overreaction to recent bad news and a recovery is soon to follow.

Compiled By: Sanjana and Rohit

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TH E IBS TI ME S Editors : Abir Zara Khan, Deepika Pandey, Gautam Lunawat, Ishita Singh, Kavitha Koteeswaran, Nidhi Gupta, Rohit Sinha, Sanjana Bhuwalka, Uzma Rizvi, Varun C. Bhagath Mentors : Puneet Thakur

Disclaimer: This newsletter is just a compilation of news from various sources. Thus, readers are expected to cross-check the facts before relying upon them. Though much care has been taken to present the facts without error, still if errors creep in, necessary feed backs will be always welcomed. Editors will not be responsible for any undertakings. The newsletter is not meant for sale and hence, no part of the newsletter should be used without the prior permission of the editorial team.

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