Yields fall,rupee closes a tad higher 06/05/08 ET Page 12

FAVOURABLE liquidity conditions are depressing bond yields to inch towards the 7.75%-mark. The yield on the new benchmark bond, the 8.24% bond maturing in 2018, ended the day at 7.79%, falling from Fridays close of 7.84%, reports Our Bureau in Mumbai. According to market sources, the rise in demand for bonds is purely driven by comfortable cash conditions that prevail, in spite of the central bank increasing cash reserve requirements for banks. Sentiment in the bond market has also been boosted by the belief that the central bank will resist increasing rates and use CRR hikes and market-stabilisation auctions as tools to bring inflation under control. Another view in the market is that inflation will moderate in the medium term, which is why the market had not reacted to last weeks unexpectedly high figure of 7.57%. The rupee rose slightly to end the day at 40.61/62 against the dollar, above Fridays close of 40.64/65. The rupee had opened at similar levels before rising to the days high of 40.53 during early trade, as market participants cashed in on their dollar holdings. However, the rise was cancelled by continuous buying by oil refiners, as global oil prices continued to soar. Also, there was dollar-buying by banks, which sold them in the overseas non-deliverable forwards (NDF) market, in an attempt to arbitrage the price difference. Banks parked surplus funds worth Rs 33,065 crore with the Reserve Bank of India through reverse repo operations of its liquidity adjustment facility. Comfortable cash conditions have prompted bond yields to drop 31 bps in the last week. How long these comfortable cash conditions remain will be the key question, said a bond dealer.

Hidden mortgage risks abound in US home market 06/05/08 ET Page 12

John F Wasik CHICAGO

BOTTOMS up! Its time to swallow a heavy dose of risk realism when considering the US home market. While its a given that home prices will continue to fall in most major markets in the immediate future, you have to defy the conventional wisdom on what will happen next. Start with the role of the adjustable-rate mortgage. In the past, they were leverage lollipops that tasted the lowest rates for short periods. In 2005, borrowing costs dropped to levels not seen in a generation. Yet in an enlightened view, mortgages should be seen as riskmanagement vehicles, instead of just financing. Adjustable loans, which accounted for two-thirds of foreclosures in the fourth quarter of last year, exposed millions of homeowners to a catastrophic amount of bond market risk. If you only plan to stay in a home for a few years, then an adjustable loan is an appropriate vehicle. Heres the risk, though: Inflation is likely to push rates up after the Federal Reserve is done stimulating the credit markets. Just look at soaring food, energy and commodity prices. The Feds rate cutting moves are on a short leash. The threat of inflation brings into focus the dull, but risk-averse, fixed-rate mortgage. In a rising rate environment, its the best deal around. It provides complete insulation from higher borrowing costs once you lock in a rate. Millions have suddenly gotten risk savvy on this account, which may explain why nine out of 10 borrowers are refinancing into a fixed loan, according to figures compiled by Fannie Mae, the largest US purchaser of mortgages. They are ignoring the advise of former Fed Chairman Alan Greenspan, who was recommending adjustable rate loans a few years ago. Another rotten plank of the conventional wisdom is that the most secure housing markets would be buoyed by population growth and home building. While US home prices overall slid 2.4% from a year earlier in February, the decline was 9.2% in booming western states and almost 4% from Maryland to Florida, according to the Office of Housing Enterprise and Oversight, the regulator of Fannie Mae and Freddie Mac. Why the huge disparity? Because of the high percentage of adjustable loans, foreclosures, speculation, overbuilding and above average appreciation in those areas. The relative scarcity of land in coastal regions created a perception that these places were more valuable. Areas with high inventory and foreclosures may take years to recover. Foreclosures doubled in the first quarter and home prices in 20 major cities fell in February by the most on record. More pain may be on the way. Genworth Financial, an insurance company that lost a third of its market value due to mortgagerelated losses, predicted last month that home prices will fall by as much as 25% from their peak values. What about the new home market? If you are betting on starter houses to take off once Congress decides on a mortgage bailout plan, think again. The new housing

market may be hobbled by much tighter credit. Morris Davis, a professor of real estate and economics at the University of Wisconsin-Madison, says curtailed credit will cause the price of starter homes to fall, thus reducing the wealth of current owners of starter homes, which will itself trigger a chain-reaction decline in the price of a trade-up home. Bloomberg

D E BATE

Is the world moving away from the dollar? 06/05/08 ET Page 11

The greenbacks weakening has impelled many emerging economies to further diversify their fo experts examine the implications of this attempt to reduce reliance on the worlds strongest cu
ISSUES
Is any other currency poised to take over from the dollar as the currency of trade?

What are the implications of erosion of the dollars strength?

Should India also diversify its forex assets away from the dollar?

BISWAJIT DHAR

Prof & Head, Centre for WTO Studies, IIFT

IN RECENT months, continual fall in the value of the US dollar vis--vis most of the major currencies have sharpene greenback as a global reserve currency. While most analysts have predicted the decline in the status of the US dollar some have gone as far as predicting that the euro would fill the void left by the dollar. What these predictions have d once-in-acentury event. Some see it as an imminent event, given that dollars role as a medium of exchange in the g as a store of value is being redefined. Yet some others, like Chin and Frankel in their recent paper, have predicted tha years surpass the dollar as leading international currency. The pitch on the future of the US dollar was queered to a considerable extent by George Soros who warned in the W that the role of the dollar as a reserve currency role was nearing its end. Arguing that the current crisis facing the US about the bust following the housing boom, Soros opined that it was basically the end of a 60-year period of continuin dollar as the reserve currency. The manifestation of this, according to Soros was that the rest of the world was increa dollars. Although the debate on the possible decline of the dollar as the premier international currency goes a long way bac the 1970s, it is the emergence of the euro as the possible substitute for the dollar that has triggered the recent debat endorsed by Chin and Frankel who have argued that the euro now exists as a more serious potential rival than the m secondary reason, according to the authors is that the US has a 25-year history of chronic current account deficits an of trend depreciation. A few snapshots from the ground would indicate the seriousness of this debate. The sharp depreciation in the US do alternative currencies, particularly in countries where external trade is dollar denominated. The Chinese textile export get off the block. The greenbacks decline has prompted exporters to finalise contracts in euros or British pounds to a majority of 1,000 textile traders responding to a recent survey indicated that they were taking payment in alternative best not to deal in US dollars. In the same vein, Russia, the worlds secondlargest oil-exporting nation, has been preparing to switch trading in Ru primary export, from the dollar to the rouble. However, some analysts have pointed out that the Russians may take a

Yet another development that should be of considerable worry for the US authorities is that developing countries ha from the dollar as is evident from the pattern of their foreign exchange holdings. In 2007, the share of dollar holdings in developing countries foreign exchange reserves declined to 61% from 73% the beneficiary, rising to 28% of developing-country reserves in the fourth quarter from 19% when the decade began And, importantly, these countries accounted for 76% of the global foreign exchange reserves which stood at $4.9 tr

ASHIMA GOYAL

Professor IGIDR*, Mumbai

THE euro has made steady gains as a preferred trade currency but, despite weakening for a number of years, the d costs in switching to another currency unless a critical mass of countries switches. The decline and reduction in dollar rather than sudden, and this may continue. In addition to the double deficits that triggered dollar weakness, the subp further shocks. But US policy has been pro-active in response to the shocks. The weak dollar is showing signs of help deficit. That is US strength adjustment is such as to maintain growth and encourage innovation and markets. And Asia. Volatility may be higher, but US has over the long run, been able to sustain more growth and innovation compa For a country to qualify as the hegemon it must be the dominant economic power, have deep financial markets and

almost caught up with US in economic size, and gains from the strength of the Euro, and relative stability of the finan and conservative policies have moderated growth. Moreover, European countries are at diverse levels of development depth and its charter prevents the European Commercial Bank from giving the kind of support to markets that the US The subprime crisis has impacted European Banks also. Even so, once the tipping point is reached a switch can be s role in keeping countries away from that point. Irans decision to cease pricing its oil exports in the dollar is political. support for the US, Opec is unlikely to follow. Dollar volatility imposes costs on countries that use and accumulate it. As the hegemon the US has, in past episode countries to share the burden of adjustment. Dollar depreciation was a weapon used to force Europe to expand dome exports and supporting the dollar. China has resisted pressure to share the burden through large Renminbi appreciati accumulation has created a huge demand for US securities, so dollar exports sustain US balance of payments. Rising intervention to maintain a competitive currency to stimulate labour absorption and exports. But they are also insuran cross-border capital flows. Although emerging markets have reduced the share of US dollars in their reserve assets (to 60% in end 2006 comp absolute dollar demand remains high. Countries with large dollar holdings are vulnerable, because their reserves will depreciates. To the extent largescale selling may bring about such a collapse, they are locked into holding the dollar. It is necessary to adjust away from these dangerous imbalances, but the optimal adjustment path remains gradual, Asia a slow diversification of asset holdings and currency appreciation in line with labour productivity. For US red depreciation and global growth. Dialogue of G-7 and Asian central banks and governments can help coordinate to suc of panic dollar selling. This is one way to ensure the system survives the current shocks. All countries have a stake in strengthening of other currencies and more diversification in trade baskets and asset holdings will eventually make th (*Indira Gandhi Institute of Development Research)

JAMAL MECKLAI

CEO Mecklai Financial

MUCH as many people would like to believe it, the world is not moving away from the dollar. The US, despite all its primary engine of world growth, producing, even today, over a third of global output. It is losing influence to be sure, both economically as China and India move up the scale of global growth, and a from the Gulf, begin to impact the world of global investment and politically. The way its ship of democracy-viawar proves, if any proof be needed, that its political invincibility is fast becoming a myth. However, to leap from that to th replaced as the primary currency of world trade is, in my view, a little too stretched. True, certain oil producing countries such as Iran and probably, Venezuela have already started invoicing oil in Euro the global economy is moving so fast that the cost of shifting its fundamental anchor, in terms of increased risk if not large to even comprehend. Of course, when the dollar was falling like there was no tomorrow and the doomsayers we course, still talking about a return to another gold standard and the end of paper money there was a flurry of conc But that is the nature of the market. Its job is to push things so far that people begin to get really jittery and start doing things that are quite crazy. Indeed, the very fact of this article and the continuing thinking along these lines very close to the end of the dollars longterm decline. Just wait for the dollars recent uptick to turn into a trend so over the next few months and all talk of shifting away from dollars will end. Indeed, even if the dollar did continue to decline, there are currently no viable candidates that could take over from

being bipolar (before the collapse of the Soviet Union) to multi-polar, where there will increasingly be several regiona political power on the global stage. Having most of your trade denominated in your domestic currency provides immense benefit both from a risk an standpoint which any global player would covet. However, it is difficult to expect any single player to get strong en and therefore, a tightly balanced inertia will keep the dollar in charge. Of course, the value of the dollar will continue to fluctuate, as it has been doing since the end of the era when exch Bretton Woods system. And, in any case, central banks across the globe, including the Reserve Bank of India, have lo reserves into a basket of currencies. While this is one piece of information that the Reserve Bank of India (RBI) does not divulge, the most recent statem reserves reported that the value of the reserves rose by Rs 4,620 crore, while the foreign currency value of the reserv The rise in the rupee value means that the RBI bought dollars (about $1.18 billion); the fall in the foreign currency the dollar against other currencies during that week. Making the (clearly incorrect) assumption that all non-US dollar reserves are in euros, would suggest that over 43% are in currencies other than the dollar. Clearly, Indias central bank has already diversified its reserves adequately.

INTERVIEW MANNY FONTENLA-NOVOA

India is a unique market for us 06/05/08 ET Page 11

FIDELITY is certainly a strong suit with Manny Fontenla-Novoa, global CEO of Thomas Cook plc. The 54-year old Fontenla is an out and out Cooks man, having joined the company at the age of 18 as an accountant. The travel major has made a comeback of sorts after its merger with MyTravel group, almost a year ago. The deal catapulted it on to the European travel hustings, giving it the much needed scale and size. One fallout was felt in India, where Thomas Cook plc did a volte face in March to buy back Thomas Cook India (TCIL) from the Dubai Financial Group. In an interview to Cuckoo Paul, Fontenla-Novoa outlines the new frontiers for the brand that began its journey over 125 years ago.

Can you explain why Thomas Cook plc has bought back the Indian venture from the Dubai Financial Group, after selling it two years ago. Things changed in the two years. It was almost like meeting all over again. We have turned around the UK company and are now much bigger. There were four similarsized players earlier with the same market share, now we are down to two. We are a different organisation now, our balance sheet is much stronger. Margins are almost double that of last year. Our strategy was to enter three large emerging markets in India, Russia and China. TCIL was an obvious choice for us, we knew the brand and the company. As far as the selling price ($254 million) and the reacquisition is concerned ($320-$383 million), it is not really very different, because the multiples were almost the same. If they werent the city (London) would have never forgiven me. The Indian economy too has also grown substantially since we sold out and TCIL has changed substantially. What are your plans for Thomas Cook India? We operate in about 13 countries, yet India is a unique market for us. We want to use the talent in this country to expand to other regions like Pakistan and other Commonwealth countries. We cannot expand to these places from the UK, its too far away. Most of our growth will now be organic, we are not planning any more acquisitions. In India its the staking stock period. Weve got to digest all these deals that we did. What are the really big challenges to the travel industry now? Will environmental consciousness, especially of carbon emissions by airlines, inhibit growth? The biggest question mark now is about the global recession how deep will it be and how long will it last? The other issue is that of oil prices. With a barrel of crude oil now selling at $120, which was around $70 a year ago and $50 the year before. This and the food crisis are the real issues. The impact of the airline industry on greenhouse gases has been grossly exaggerated. The air transport business accounts for less than 1% of carbon output in the world. But it is being used to levy carbon taxes. Not one government that is collecting money in the name of these taxes is using the money for green measures. We are a responsible company and are cutting down emissions and encourage recycling and other measures. But we need to differentiate between emotion and fact

on this one. Fortunately, we are not aware of a single customer who has been influenced by the greens on holiday destinations. Do you see a slowdown in travel demand? There has been absolutely no fall in travel spend across the markets we operate in. We are present in 19 countries and we are either up or on the same level as last year in all of them. In fact, we have lesser stock to sell than last year. In the UK, summer 09 is already on sale and we are 25% up on last year. Of course we dont have a major presence in the United States where most of the problems seem to be. But we are big in Canada and the market there is simply booming. What about the forex market, how core is that to your business now? Foreign exchange is still a very large business for us and we have been in it for about a hundred years now. We have a 50% market in forex in India and about 20% in the UK. We plan to expand to other regions using these two footholds. The airport business is key to this, though margins are thin we can make good money on volumes. Our infrastructure costs are very low and we can gear up quickly. But the forex market is changing rapidly. Traditional products like travellers cheques are being replaced slowly by others like pre-paid cards, which can be loaded with foreign currency. The dynamics of different markets are completely different. Some have more government control and strict licences. We have to vary our model depending on the market. After the UK-based Thomas Cook Group sold its Indian arm Thomas Cook India to Dubai Financial Group (DFG) in 2006, its now buying back the same. The UK entity is acquiring up to 74.9% of the public-listed Thomas Cook India would make an aggregate profit of a maximum of Rs 538 crore or $135 million.

Article 1 may 6 Greenspan paints grim picture of US economy Sees US in throes of awfully pale recession end of the year Rich Miller WASHINGTON FEDERAL Reserve former chairman Alan Greenspan said the US has slipped into an awfully pale recession and may continue to languish for the rest of the year. We are clearly receding with economic growth now at about 0%, he said in an interview with Bloomberg News. Greenspan, who now consults for clients including Deutsche Bank, also said it was too soon to declare the end to the credit crisis stemming from the collapse in the subprime mortgage market. The Fed former chiefs assessment echoes figures in the past month that show declines in manufacturing and housing industries, though fewer job losses than economists forecast. Greenspans successor, Ben S Bernanke, and his colleagues indicated last week they are ready for a pause in interestrate cuts after seven reductions since September. Greenspan spoke the day before the Federal Open Market Committees April 30 statement, where it dropped a previous reference to downside risks to growth and noted uncertainty about the outlook for inflation. While declining to comment on monetary policy, Greenspan said the economy is returning to a more inflation-prone period. Import prices are rising, as are wages overseas, adding to pressures already caused by soaring costs of food, energy and other commodities. Bernanke is scheduled to speak on mortgage markets at 8:30 p.m. in New York on Monday. Greenspan, 82, portrayed the economy as being caught in a tug-ofwar between cash-rich businesses on the one hand and money-losing financial institutions on the other. This is a very unusual situation, he said. Neither side is obviously winning the battle. The economy grew at a 0.6% annual rate over the past two quarters, the slowest pace since the 2001 recession. Greenspan said continued stagnation for the rest of this year may be the best the US can hope for and might even be the most likely outcome. That's certainly the most benevolent scenario, he said. It's not all that far from being the most probable. We're in a recession, he said. But this is an awfully pale recession at the moment. The declines in employment have not been as big as you'd expect to see. The government reported on May 2 that US payrolls fell by 20,000 in April, compared to the median estimate of a , which may last till the

75,000 decline in a Bloomberg survey. The unemployment rate unexpectedly dropped to 5% from 5.1% in March. The Fed former chief said a recovery won't begin until home prices show signs of stabilising, relieving pressure on financial firms to write off mortgage-related losses. Bloomberg

Hard days ahead: Buffett OMAHA: Ace investor Warren Buffett said he does not expect financial markets to panic as write-downs and losses for bad debts mount in the financial services industry, but said those losses were not over by a long shot. The worlds richest person, who runs Berkshire Hathaway, said at a press conference the Federal Reserve brought markets back from a precipice in March in helping broker JPMorgan Chases purchase of Bear Stearns, which was on the brink of bankruptcy. There's going to be more pain, sure, Buffett said.

Inflation risks stay: Trichet BASEL: Global growth is still strong owing to the resilience of emerging markets, but inflation risks are significant, European Central Bank Jean-Claude Trichet said on Monday. At a global level, global growth remains significant despite the slowing down observed in a number of industrialised economies and clearly thanks to the remarkable resilience of a great number of emerging economies, said Trichet. We see ongoing growth at a significant level even if somewhat lower than in the previous year, he added. He described inflationary risks as significant owing to oil, commodities and food price rise.

Article 2 may 1

US economy springs Q1 surprise, grows at 0.6%

THE NUMBERS DONT LIE, BUT ON THE GROUND, RECESSION FOR REAL
Glenn Somerville WASHINGTON

IS

Abuild-up in inventories kept the economy afloat in the first quarter despite the weakest consumer spending since 2001 and the biggest drop in home building in more than 26 years, a government report showed on Wednesday. The Commerce Department said gross domestic product or GDP expanded at a 0.6% annual rate in the first quarter, matching the fourth quarters advance and handily topping a forecast for 0.2% growth in an advance poll of economists. Some economists said the report suggested the US economy was on a bit firmer ground than had been thought, but others were still bracing for worse times ahead as businesses ratchet back production further to try to sell off inventories. We expect that the coming inventory correction will send growth into negative territory, save a truly heroic effort by the US consumer to spend their way out of the current malaise with their $600 rebates, said Joseph Brusuelas, US chief economist at IDEAglobal in New York. Tax rebate checks that are part of a government economic stimulus program began to flow this week to upwards of 100 million Americans. Government bond prices initially dipped on the stronger-than-expected growth figure but later recovered as investors focused on weakening consumer spending. Stocks opened higher. Separately, ADP Employer Services said US private-sector employers added 10,000 jobs in April, another surprise on the upside since forecasts had been for 60,000 jobs to be lost. The reports were issued just before Fed policy-makers began a second day of deliberations that is expected to result in a decision to trim official interest rates another quarter percentage point to try to keep expansion going. Analysts said they still expected a rate reduction. This is not going to disrupt things at the Fed today, said economist Pierre Ellis of Decision Economics in New York. GDP is the broadest measure of total economic activity within US borders and, despite a better-thanexpected first-quarter performance, details of the report reflect widespread weakening that many analysts fear will lead to a reces sion. The GDP figures are an initial measure of first-quarter performance and will be revised twice in coming months. The Fed has cut its benchmark federal funds rate by 3 percentage points since mid-September to shore up the economy and calm unsettled financial markets. But many believe the Fed may send a signal at Wednesdays meeting that its ratecutting campaign is at an end amid signs of persistent rises in food and energy prices. Consumer spending that fuels two-thirds of economic activity through consumption of goods and services, grew at the weakest rate since the second quarter of 2001,

when the economy was last in re cession. It rose at a 1% rate after growing 2.3% in the fourth quarter. The weakening in the distressed housing sector was even more striking. Spending on residential construction plunged at a 26.7% rate - a ninth straight quarterly decline and the biggest for any three months since the end of 1981. Reuters

Article 3 May 2

Interest rates to cool down this summer, predicts Kamath

Export Duty Gains Untested; US Recession Augurs Well For Us
Our Bureau NEW DELHI

Showing Withdrawal Signs

NEWLY-elected CII president and ICICI Bank CEO K V Kamath expects interest rates to move southwards in near future. Given the liquidity in the system, interest rates should have already come down. However, the environment created in the market was such that it restrained interest rates from coming down, he said. The reduction in bond rates in the last few days after the credit policy announcement was an important bellwether pointer in that direction, he said. Commenting on the fiscal measures announced by the government to curb inflation, Mr Kamath said CII supported the reduction in import duties but would have to examine the efficacy of the imposition of export duties. The benefits of imposing export duty on any product are not clear. The international experience is mixed, he said. Projecting an 8-9% GDP growth in 2008-09, the CII president said though the Indian corporate sector has registered mixed results in the last quarter, the numbers were not as bad as some had predicted. There is no negativity in the minds of corporates. We need to know the pulse of the consumer and continue to work towards a higher rate of growth, he said. He added that the latest figures showed the US was coming out of recession , which should augur well for the Indian economy and companies. Mr Kamath said domestic banking is at the best juncture in a decade. The financial sector has grown at a consistent pace. In fact, the question to be addressed is if the sector is geared to meeting the requirements of the countrys growth trajectory, he said. He highlighted the areas of work for CII in 2008-09. While we will continue to focus on the skill development initiatives and in ensuring that the sections which were otherwise ignored are benefited, we would also like to attend the manufacturing and agricultural sector, he said. CII has set a target for the manufacturing sector, to post 25% share in GDP by 2020. In agriculture, he said there is a need of a model land leasing Act and greater private partnership. Taking the example of Gujarat, where agriculture has registered remarkable growth, he said the model is replicable across the country. He added that in the services sector, CII will focus on promoting private investment in tier-II cities, particularly in healthcare, organised retail, tourism and logistics.

K V KAMATH

P R E S I D E N T, C I I , & C EO , I C I C I B A N K

Article 4 may 2

US slump hits garment suppliers

Anirvan Ghosh BANGALORE

AS THE US shows definite signs of recession , Indian suppliers to retailers like Wal-Mart, Target and Gap are feeling the heat. New orders are difficult to come by, and profits are down. JVS Group MD Britto M Joseph says business is down by around 15% since the recession . The company has big clients such as Wal-Mart and Target in the US, and Tesco, UKs largest retailer. They are facing lower demand from consumers, and so are hardly placing new orders, says Mr Joseph. Target and Wal-Mart want him to sell at lower prices. He has refused, citing the rise in cotton prices by 25% and the rupee rise. Gap has ordered lesser than what it did last year, says Gokaldas Exports MD Rajendra Hinduja. The company is Indias largest garments exporter. Gap is ready to buy the same volumes, but want it at a lower price than last year, he says. Gokaldas earns more than 96% of its revenue from exports to global brands, such as Tommy Hilfiger, Nike and Adidas, and to large retailers such as Gap. It employs over 54,000 people in 46 factories and is one of the largest employers in the garments business. The orders are down around 20% as a whole, from the large US retailers, and so are the profits, says Apparel Export Promotion Council (AEPC) director R Balaji. He says because of recession followed by the rupee rise, players like Gokaldas were better prepared. Till last year, before the rise in the rupee started pinching and the US re cession set in, business was good. Wal-Mart, Target and Gap, three of the largest US retailers, were also actively sourcing from JVS and Gokaldas. Blackstone picked up a 50.1% stake in Gokaldas Exports for $116 million or Rs 482.5 crore in August last year.

NOSEDIVE
JVS Groups business is down by around 15% since the recession . The co is bearing the brunt of rupee rise and the rise in cotton prices. Besides, its clients Target and Wal-Mart want to lower supply prices Gokaldas Exports orders are down around 20% as a whole from the large US retailers, and so are the profits

Artile 5 may3

In BRIC Lane, India is several blocks behind others

BRIC Report Author Jim ONeill Tells ET About How China, Russia Lead In Education
Sudeshna Sen LONDON

INDIA trails other BRIC countries, hold your breath, in its track record on education, compared to Russia, China and Brazil. Indias growth environment score for education hovers just above 4, on par with the global average for developing countries and way below the 8, 7 and 6 marks of Russia, Brazil and China. And its not China, but Russia and Brazil which have made the most significant gains in 2007. It might seem counter-intuitive, but this is research from the man who invented counter-intuitive. Jim ONeill is best known as the father of the BRIC report, the one that changed the face of globalisation. Managing director and head of global economic research at Goldman Sachs, Mr ONeill warns that while the perception is that India and China have all this talent, it is, in fact, Russia and China which have the best growth environment scores and track record on education. Mr ONeill recalls that in the early days, when Goldman came up with the report, he was usually met with surprised shock and a youve-got-to-be-kidding attitude. These days, hes considered some kind of messiah about the fate of the developing countries. Speaking toET, heres his take on a variety of issues. Tinkering with import and export policies, and price controls Im convinced those are sticking plaster solutions. I believe that its high time India set up a mechanism for a long-term inflation target, and the RBI is given the While everyone now thinks that the BRIC report projections are a done deal, there are lots of things of great importance to make this happen. Whenever I ask which BRIC country has the best education credentials, everyone says India. Its actually Russia, says Mr ONeill. Besides education, India needs to improve its overall growth environment track record GES score is what Goldman Sachs uses to estimate the general environment to facilitate growth, and in 2007, India ranks at 110 with 4.6 in 2007, behind Russia (5.5), China (5.5) and Brazil (5.3). responsibility for it, as in many other countries. Im puzzled as to why this mandate has not been given to the central bank, he says. And despite the global panic, hes not really concerned about rising food prices; Im not so worried about it as many other people; there have been a lot of speculative investments in food, and market prices will adjust, he says. But heres a warning note from the man:

Growth above 8% tough for India

RUSSIA and Brazil again have shot up in the ranking by 10-odd places each while India has not. Last week, at a presentation to a large audience of India-watchers, Mr

ONeill reiterated this message: While the US recession may have modest direct consequences on India, the environment for future growth isnt all that rosy. I dont do the regular forecasts we put out, but my view is that India will find it difficult to maintain growth rates of more than 8% without significant policy changes. Id say 6% to 8% is more feasible, till the end of this decade, he told ET. Hes relatively cautious about the Indian market, even though MSCI forward P/E index ranks India highest among emerging markets. Its potentially a great story, but one has to respect the prices, its not cheap, he adds. What market players need to watch out for is not global food prices, but how deep the US recession turns out to be; a mild re cession is likely to leave India untouched, but a dramatic slowdown will be a big external risk . Meanwhile, the focus is on education. sudeshna.sen@timesgroup.com

Article 6 may 1

Wall St worried about big picture

Nichola Groom & Bernard Woodall CALIFORNIA

THE US economy may be in a funk, but thats nothing compared with the pall hanging over Wall Street. Some of the biggest US investors said on Tuesday they expected the nations economy to get worse, but then work its way toward recovery later this year. On Wall Street, however, the road back to health will take much longer. It is the Great Depression on Wall Street. It sure isnt on Main Street, said Citadel Investment Group chief executive Ken Griffin during a panel at the Milken Institute Global Conference in Beverly Hills, California. According to Griffin and other top US investors at the conference, the credit and housing crises that led to hundreds of billions of dollars in losses for Wall Street firms will take those investment banks years to claw back from. Until you see Wall Street put on their party hats again and get on the tables and start dancing is going to be years, said Ken Moelis, a former UBS banker who now runs his own investment firm, Moelis & Company. It will be a long time for Wall Street to come back to where it was. Leon Black, billionaire investor and founding partner of hedge fund Apollo Advisors, said the banking system has been broken since last summer and has fostered a credit crisis the likes of which I've never seen in the 30 years I've been in the business. Notwithstanding that, however, Mr Moelis said he did not expect to see a deep Main Street recession . In parts of the country, such as Pittsburgh, he said, business is booming thanks to soaring prices on commodities such as steel. They are looking for strategic deals and they are not interested in hearing how bad it is on Wall Street, Mr Moelis said. Lazard Asset Management Group chairman Chuck Ward and Peter Weinberg, a partner with boutique investment bank Perella Weinberg Partners, agreed that the US economic downturn would likely be a short one. We are just starting to see the slide in the economy and I think that will play out over six months, Mr Ward said. I don't think it will be a big recession . But by the end of the year I gotta believe that thats going to be behind us. Reuters

PESSIMISM SETS IN
US economy will move towards recovery later this year Wall St firms may take time to recover from subprime losses Some investors feel that the banking system has been broken But many investors did not expect a deep Main Street recession

Article 7 may 7

Fed plans to rest, but it cant

IN EVERY Federal Reserve policy cycle, there comes a crucial time when policymakers have to decide Right now, the timing for a pause in the Feds rate cutting feels right: Its quarter-point cut on April 30 rate to a level historically associated with very stimulative financial conditions, and its patchwork of lend success in calming the credit markets. Recent data including a small plus for first-quarter economic g

severe recession , while stubborn inflation is an argument against further stimulation, especially wit on the way. A pause right now, however, is an especially high-risk decision. The credit crunch changes the calculu even as it increases the uncertainty in the economic outlook. Despite the Feds massive rate cuts, its di of that stimulus will find its way into the economy, compared with past business cycles. And financial co recent weeks, remain uneven. Taken at face value, the Fed policy is now highly stimulative. By any metric, the inflation-adjusted tar the first time since the Feds sharp policy easing during and after the 2001 recession . Its far below the thought to be consistent with a neutral policy. However, the impact of financial conditions depends on many other factors, including market rates ac of risk embodied in those rates, the willingness of banks to lend, stock prices, and the dollars value. Cle stimulative, as it boosts exports, limits imports, and attracts foreign investment. Other conditions are st between market rates and riskless treasury securities have narrowed, but these risk measures remain f Sharply tighter mortgage lending standards, combined with the ongoing stress in the secondary mortga biggest reasons why the Feds easing to date is not having its usual effect. Businessweek

Article 8 may 5

The subprime crisis and what it means for India

Indias exposure to the US market is limited and declining.The impact of the US slowdown could be felt through Europe,which is also likely to slow down.

THE subprime mortgage crisis and its potential impact on US economic growth has raised concerns whether growth in India which averaged over 9% in the last three years will be adversely affected. The Indian economy showed signs of overheating in mid-2007, with inflation rising above 6%. Although the central bank has pursued a tight monetary policy, inflation has recently risen above 7%. Buoyant capital flows posed challenges for liquidity and macroeconomic management, and the Reserve Bank of India responded effectively by adopting a mix of policy measures including imposing capital controls, allowing the rupee to appreciate, and liberalising outflows of capital. India is running a current account deficit (CAD) which is likely to increase to 2.6% of GDP in 2009 from the 1.5% in 2008, driven largely by the sharp increase in international prices of oil and food commodities. So far Indias CAD has been comfortably financed through capital inflows and FDI. In this scenario, the question whether a global credit crunch and significant slowdown in the US economy could undermine Indias growth prospects, becomes pertinent. The main channels through which a global credit crunch and a recession in the US can affect India are: (i) a decline in capital inflows and lower corporate access to credit in international markets; (ii) slowdown in exports of goods and services from India to the US; and (iii) remittances. The impact on Indian growth through the first two of these channels is likely to be negative though the structure of Indias trade could mitigate the impact through trade (explained later). The bulk of Indias remittances come from the Gulf and are therefore unlikely to be impacted, significantly. Compensating effects from increasing government expenditure, budget boosts for consumption, infrastructure and investment spending may still keep the aggregate demand side of the story intact, though there are signs even here of credit growth and investment spending slowing down. Capital inflows/Access to credit: India has never raised a sovereign bond in global capital markets, so any effect of a credit shortfall will be on the ability of Indian corporates to access overseas capital and through capital inflows. India received $99 billion (approximately 10% of GDP) in net foreign exchange flows in 2007-08 including net FDI ($11 billion), portfolio flows ($41 billion), ECBs and overseas borrowings by Indian corporates ($33 billion), banking capital ($7.5 billion). As the subprime crisis unfolds, counterparty risk aversion has become acute and has led to financial institutions building up significant liquid assets as precautionary measures, sometimes equivalent to 20-25% of their balance sheets. This has resulted in banks cutting lending and shifting out of exposures to corporates, a reversal of portfolio flows away from emerging markets (including India), and widening spreads on emerging market paper (including Indian paper). These developments will slow down capital inflows into India, with estimates for 2008-09

ranging between $40 and $50 billion. The recent drop in the Indian equity markets, also a reflection of the global rise in risk aversion and reduction in liquidity, will have a negative impact on investment and consumption. According to market estimates reported by the BIS, outstanding asset-backed commercial paper reached $1.5 trillion in March 2007, of which $300 billion was based on mortgage-backed assets. So far, the total of all write-downs and credit loss for major banks and brokerages is approximately $200 billion but far more is expected as other asset classes (such as Liquidity Puts, Credit Default Swaps and Leveraged Loans) get impaired. The total global write-downs are expected to be around $1 trillion (IMF estimates) of which the banks have so far written down around $200 billion. The prospect of further losses and the need for greater reserve provisioning suggests that the supply of new credit is likely to become increasingly restricted with tighter credit standards, and higher spreads. Tight market liquidity has been further exacerbated by fears of a US recession . Issuance by Indian companies had increased rapidly in recent years (albeit from a small base) driven by robust domestic economic growth and the need to fund rapid overseas expansions by corporate India. Indian companies were active in the foreign debt markets (both primary and syndications) for financing overseas expenditures denominated in foreign currency, mergers and acquisitions, and the overseas needs of their clients (banks/financial institutions). However, given the tight liquidity in the foreign debt market and loss of risk appetite on the part of banks, it is becoming increasingly difficult for Indian corporates and banks to raise foreign loans. Pricing for foreign borrowing by even top-tier Indian borrowers (e.g., Tata Motors, Reliance, ICICI, Exim) has increased significantly since the beginning of January 2008. Very little foreign borrowing by Indian companies has been done in the last few months because of ECB restrictions (the interest rate cap in some cases is lower than the applicable market spread), other than offshore M&A transactions. A prolonged period of inability to access international bond markets for private Indian companies, coupled with increasing spreads in the domestic market is likely to lower investment and growth. The big question that arises is how a major correction in the international capital markets, the flight to quality, and lower risk appetite of financial institutions and international institutional investors will impact Indias ability to finance its large infrastructure needs. Given that credit growth has not been responsive to liquidity injecting measures by central banks (the Fed has cut rates by 225 bps since January 22 2008), it would be reasonable to assume that the supply of long-term financing for infrastructure projects world-wide will reduce over the next 12-24 months, while spreads will increase. The need, therefore, for developing the local long-term debt market has assumed even higher urgency. Trade: On the trade front, the impact of a slowdown in US economic growth is likely to be less significant because of the structure of Indias trade and the declining importance of the US as a trading partner. A possible favourable consequence of lower US demand for commodities such as oil and food grains could be a lowering of their prices, which have been surging lately (India is a net importer of these commodities). The downside will come from a decline in demand for Indian exports, mainly IT (the US accounts for nearly 65% of the revenues of IT vendors) and BPO services. However, the bigger picture shows that Indias overall exposure to the US market is limited and declining. However, the impact of the US slowdown could be felt through Europe, which is also likely to slowdown. In sum, the expected impact of a global credit crunch and slowdown in the US economy on India appears to be relatively small through the trade channel, as exports are diversified; the financial channel effects are likely to be more significant

through a reduction in capital inflows in the event that lower global interest rates do not lead to more credit becoming available and banks continue to pull back lending (to counter illiquidity) and shift out of exposures to corporates globally and in India to safer assets. (The author is regional director for South Asia, International Finance Corporation (IFC). Co-authored by Rita Bhagwati, senior economist, IFC South Asia.)

Article 9 may 4

April job loss in US not as bad as Federal Reserve had feared

Reuters WASHINGTON

THE US economy lost jobs for the fourth month in a row in April but at a slower pace than earlier in the year, easing fears that the economy was at a growing risk of slipping into a deep recession . The Labor Department said on Friday that 20,000 jobs were shed last month, far fewer than the 80,000 that economists had anticipated. The national unemployment rate, which is compiled from a separate survey, unexpectedly fell to 5% from 5.1%in March. Since 2008 began, some 321,000 jobs have been lost from payrolls, yet the economy expanded slightly during the first quarter and factories are still getting enough orders to keep hope alive that growth may gain momentum. Major stock indexes initially climbed on the jobs report but finished mixed on a jump in oil prices and disappointing results from Sun Microsystems Inc, the worlds fourth-largest business computer maker. The Dow Jones industrial average rose 48.2 points to close at 13,058.2 while the tech-laden Nasdaq Composite Index fell 3.72 points and ended at 2,476.99. Prices for US Treasury bonds were broadly lower as investors bet the jobs report raised chances the Federal Reserve will be able to pause its rate-cutting campaign. A report from the Commerce Department, showing a stronger-than-expected 1.4% rise in March US factory orders added to the positive market tone. Forecasts had called for only a slight 0.2%rise in March orders. The report also showed, however, that inventories of unsold manufactured goods climbed to the highest since the department started records in 1992. Attention focused on the jobs report, though, since it offered one of the first looks at second-quarter performance and as it surprised markets that had been braced for worse. President George W Bush, speaking after touring a technology company in St Louis, conceded the job losses showed a weakened economy but insisted it remained resilient. The four-month string of job losses since 2008 began is the longest since a fivemonth stretch in 2003, when the economy was in a jobless recovery from the last recession in 2001. In a telephone interview, Commerce Secretary Carlos Gutierrez described the report as bittersweet since it still reflects a weaker job environment. The Bush administration began making direct deposits this week of up to $600 for individuals and $1,200 for couples as part of an economic stimulus program approved by Congress.

Article 10 may 3

US employers cut less jobs than expected in April

Glenn Somerville WASHINGTON

EMPLOYERS cut jobs for a fourth straight month in April but not as vigorously as feared, according to a government report on Friday that also showed an unexpected improvement in the unemployment rate last month. The labour department said 20,000 jobs were shed last month, far fewer than the 80,000 that economists surveyed by agencies had anticipated would be lost. Aprils job reductions followed upwardly revised losses of 81,000 jobs in March and 83,000 in February. Employers also cut 76,000 jobs in January. The national unemployment rate eased to 5% from 5.1% in March, contrary to forecasts that it would pick up to 5.2%. Though the losses in jobs last month were less than forecast, they nonetheless represent continued deterioration in hiring prospects. The four-month string of monthly losses is the longest since a five-month stretch in 2003, when the economy was still in a so-called jobless recovery from the last recession in 2001. The moderation in the pace of losses may reinforce chances that the Federal Reserve, which cut official interest rates again earlier this week, will be able to pause its rate-slashing campaign. It looks like the economy is in better shape than we thought, said Owen Fitzpatrick, head of the US equity group for Deutsche Bank Private Wealth Management in New York. I think a lot of people were expecting it to be a lot worse. John Silvia, an economist with Wachovia Bank in Charlotte, NC, said the jobs data gave the Fed some breathing-room to assess the impact of substantial rate cuts it already has made. I think the employment decline was less than expected and consistent with a modest slowdown in the US economy, possibly a recession , and I think it will allow the Fed time to look at the data going forward, Silvia said. Reuters

Article 11 may 1

Fed cuts rate by 0.25%, 7th since credit squeeze began

Craig Torres WASHINGTON

THE Federal Reserve lowered its main interest rate by a quarter of a percentage point to 2%, the seve global credit squeeze thats eroded economic growth. The substantial easing of monetary policy to date, combined with ongoing measures to foster market promote moderate growth over time, the Federal Open Market Committee said in a statement after me Washington. The committee will continue to monitor economic and financial developments and will act sustainable economic growth and price stability.

While a nine-month contraction in credit and soaring fuel prices have pushed the economy to the edg has begun to return to financial markets. Inflation expectations are also picking up, driven by near reco food expenses. Financial markets remain under considerable stress, and tight credit conditions and the deepening ho weigh on economic growth over the next few quarters, Fed chairman Ben S Bernanke and his colleague Oil prices marched to another record high of $119.93 a barrel on April 28. The Fed said indicators of i risen. The committee expects inflation to moderate in coming quarters, reflecting the projected leveling commodity prices and an easing of pressures on resource utilisation, the Fed added. It will be necessary to continue to monitor inflation developments carefully, the Fed said. Uncertaint high. At the same time, the economy is faltering. Hours before the Fed decision, the Commerce Departmen domestic product increased at an annual pace of 0.6% last quarter. Spending by households, the bigges at the slowest pace since 2001, when the US economy was in a recession . The Fed board of governors also voted to lower the discount rate, the cost of direct loans from the cen reduced the normal 1-point spread over the federal funds rate in August to a half point to ease liquidity narrowed the difference on March 16, in the first weekend emergency move since 1979. Central bankers have reduced the inter-bank lending rate 2.25 percentage points in 2008 with a serie including two three-quarter point cuts and one half-point cut prior to todays move. In addition, the Fed authority in March and opened a direct loan window for investment banks. The actions have reduced risk premiums for financial firms, and stock prices have climbed since the p 18. The Standard & Poors 500 Index has rallied since Fed officials last met. Yields on five-year obligation US mortgage company, have fallen to 0.56 percentage points over Treasury notes of similar maturity, d point. Credit markets seem to have stabilised in most areas, Brian Sack, senior economist at Macroeconom said before the meeting. We believe that the Federal Open Market Committee is ready to slow the pace

Fed chairman Ben Bernanke

Article 12 may7

High mortgage foreclosure rate has hit broad economy,

Scott Lanman & Alison Vekshin WASHINGTON

FEDERAL Reserve chairman Ben S Bernanke, seeking to end the worst housing slump in a quarter centu and mortgage lenders to intensify their efforts to avoid home foreclosures. Bernanke, in a speech in New reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said targeted at borrowers at greatest risk of losing their properties, and avoid providing an incentive for de The Fed chief also backed the idea of having the Federal Housing Administration refinance troubled mor Democratic legislation in Congress, without explicitly endorsing the bill. His remarks indicate a gap with which has preferred to rely on industry-led efforts. Realistic public- and private-sector policies must tak traditional foreclosure-avoidance strategies may not always work well in the current environment, Bern House Financial Services Committee chairman Barney Frank, a Massachusetts Democrat, has sponsor the FHA insure as much as $300 billion in mortgages after loan-holders agree to reduce principal. The b deliberation in the House this week after Franks panel okayed it May 1. Bernankes comments seem to legislation that Congress is going to bring out later this week, said Christopher Rupkey, chief financial e Mitsubishi UFJ in New York, in an interview. Bloomberg

Bankruptcy filings climb 49% in US

WASHINGTON: Business bankruptcy filings in the US increased 49% in April from a year earlier, the biggest gain so f economy prompted more companies to shut down. Business petitions rose to 5,173 during the month, according to st records by Jupiter eSources in Oklahoma City. Total bankruptcy filings, including those by individuals, were up 31% f

group said. Signs of distress such as bankruptcies and foreclosures are rising as economic growth has slowed to its w recession

in 2001. The economy lost jobs in April for the fourth month in a row, for a total of 260,000 jobs cuts s

Article 13 may 7

Economy to spin 8.9% growth this year: NCAER

Our Bureau NEW DELHI

HIGH investment level, expanding consumer demand and policy stimulus is expected to boost the cou 8.9% during 2008-09, economic think-tank NCAER said on Tuesday. The estimate is higher than the pro and the government. The minimum growth level would be 8.5% if external shocks slow expansion, the of the economy says. The duty cuts announced in the 2008 Budget and last weeks anti-inflation drive would spur growth, t Implementation of Sixth Pay Commissions recommendations on salaries of government employees wou and emphasise the argument about Indias growth being predominantly driven by internal demand, it h RBI had projected a growth rate of 8-8.5%, while the government had estimated GDP expansion duri around 8.5%. NCAER forecast is thus far the best confidence vote for the India Growth Story which was slowdown.

NCAER, however, has cautioned that global factors such as rising commodity prices and possible rece moderate growth. On the lower side, the economy is projected to grow at 8.5% as the short-term pros a year earlier due to rising inflation and fears of slowing down... However, as investment scenario is hea comprehensive case, GDP growth is projected at 8.9%, it said. Interestingly, the think-tanks study has some good news on the inflation front too. Increase in real p in 2007-08 as compared to 2006-07, it has been emphasised. Milk, dairy products, vegetables and edib which witnessed higher inflation. In what should sound as music to the governments ears, the report says actual stock of rice and whe 19 million tonnes as on April 1, 2008 as compared to 16.2 million tonnes at the beginning of 07-08. The million and wheat at 5.5 million has been described as comfortable, providing confidence to governmen fire. However, it has been pointed out that improvement in productivity would be the key to meeting foo The report projected inflation at 4.9-5.2% for 2008-09 as compared to 4.4% last year. The governme over the past few weeks to rein in prices. Data released last week showed inflation was at a 42-week hi The report says the government would be able to keep the fiscal deficit within 3% despite the high su out in the Fiscal Responsibility and Budget Management Act are within reach, thanks to strong growth in

Article 14 may 6

Fag-end selling drags Sensex down

Index Down 109 Points; Analysts See Nervousness As Earnings Season Nears Its End
Menon

EQUITY benchmarks ended lower as investors resorted to profit booking towards closing hours on Mon the trend of booking profits at every rise reflects nervousness and lack of positive triggers in the marke continue for some more time. We are nearing the end of results season; from hereon, the market is not to piggyback on. The market will remain range bound with a downward bias in the months to come research, Amar Ambani. The 30-share Sensex, which opened on a positive note on Monday, shed 109.2 points, or 0.6%, to clo Nifty closed 35.9 points, or 0.6%, lower at 5,192.25. Out of the 30 Sensex stocks, only four advanced. BSE, 1,613 scrips advanced, 1,118 declined and 45 remained unchanged. Shares worth Rs 48,000 crore As per provisional data on the NSE, FIIs were net sellers for shares worth Rs 237 crore on Monday. We are expecting a correction in the near term. The US bourses have not reacted to the recent write banks. From what we can deduce, there is going to be another round of sell-offs in that market, triggeri emerging markets as well, Mr Ambani said. If there is a fall, the Sensex is likely to correct by at least 2,000 points before finding ground at 16,000 have limited effect on investors as the market is very much under-leveraged, he adds. According to analysts, the biggest cause of worry for Indian equity market is inflation. The wholesale pr ended April 19 rose to a fresh three-and-a-half-year high of 7.57% from 7.33% a week ago. This is the the WPI has stayed above the 7%-mark, significantly above RBIs revised target of 5.5% for the year. It will be difficult for the central bank to bring inflation under control, especially when it is borne out of escalating food prices and rising fuel prices. We do not expect food prices to moderate in the near futur be volatile for at least a year, said an analyst with a foreign fund house. According to most analysts, it would be close to the fourth quarter of the calendar year when one cou

global inflationary pressures, credit crisis and currency fluctuations. If the US economy already enrou manages to extract a soft landing, the equities market will start to look up by next year. Meanwhile, oil prices rose in Asian trade on Monday following fresh unrest in Africas biggest crude oil Yorks main oil futures contract, light sweet crude for June delivery, was 15 cents higher at $116.47 per $116.32 on Friday at the New York Mercantile Exchange. Asian markets advanced, lifting the regions benchmark near a four-month high, after copper and cru fewer jobs than forecast. Japans Nikkei, Singapores Strait Times Index, Seoul Composite and Jakarta C range of 0.3% and 2%. Hong Kongs Hang Seng ended 0.2% lower at 26,183. shailesh.menon@timesgroup.com

Article 15 may 5

IN A NUTSHELL
D Telekom eyes US Sprint Nextel

FRANKFURT: Deutshe Telekom is looking at a possible purchase of US wireless company Sprint Nextel Saturday. Managers at Deutsche Telekom were studying different options such as a takeover or a merg without quoting sources. It said a decision had not been made. A Deutsche Telekom spokesman decline In March, a research report by Merrill Lynch fuelled speculation that Deutsche Telekom may consider a US wireless carrier. Deutsche Telekoms T-Mobile USA is the fourth-biggest operator in the country. The German company as a potential buyer because it would allow it to triple its subscribers and catapult T-M spot. In the note Merrill Lynch said Sprints operational problems would cause it to cut prices in an effor customers, potentially starting a price war among operators, but an acquisition would avert such a deve

JPMorgan sees no end to financial crisis soon

FRANKFURT: JPMorgan Chase does not expect the US financial crisis to end soon and will remain very

said in comments published by a German weekly on Saturday. We can only speculate how deep and ho the United States will really be and how that in turn will impact banks, James Dimon told Welt am Sonn with the crisis for a long time, Dimon said, adding that it was not the companys job to make bets on th

UKs Barclays looks for Korean investment

LONDON: British bank Barclays has held talks with an investment fund backed by the Korean governm raising fresh capital, The Sunday Telegraph said. The newspaper said it was unclear whether the talks w Corporation were still live, but added that Britains thirdbiggest bank had held discussions with several o investors. Barclays, which counts Temasek and stateowned lender China Development Bank among its s comment.

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Article 16 may 5

QUICK BYTES
Idhasoft eyes Rs 1k-cr revenue, overseas buys

MUMBAI: IT major Idhasoft is eyeing a Rs 1,000-crore turnover besides planning to seal a series of m worth around Rs 180 crore this fiscal, a company official said. The company also plans to float its IPO la a Rs 1,000-crore revenue this fiscal. We are also in advanced stages of negotiations for acquiring small companies in the US and Europe and hope to seal 4-5 such deals soon," Idhasoft CEO Alok Pathak said revenue of Rs 400 crore in FY 08. Idhasoft, which in March, sealed the acquisition of US-headquartered acquiring another US IT company in the banking and financial services space for around Rs 20 crore. "W acquisition within a month. We are also close to sealing two more acquisitions in the UK and Germany Pathak said, without disclosing the acquisition costs. "We have earmarked around Rs 180 crore for 4-5

added. Describing the present environment in the US as being conducive for acquisitions, Pathak said "t brought down acquisition costs. Besides, small companies find themselves getting squeezed out and hen sell-out."

DIAL invites bids to develop general aviation facilities

NEW DELHI: With the opening up of the airport infrastructure sector to FDI, the GMR-led Delhi Interna from global firms to fund, construct and operate facilities for general aviation and non-scheduled operat The EoIs, which can be filed till May 30, have been issued to Fixed Based Operators (FBOs) for restructu first dedicated general aviation facility. The selected FBOs would finance, design, develop, construct, op the dedicated general and business aviation facilities at airport, including terminal side facilities, airside services, a DIAL advertisement said.

Article 17 may 4

RIDING back to life

Innovative Harley ad campaign heaps biker scorn on doomsayers

SCREW it. Lets Ride. Thats the advice that Harley-Davidson Inc, the motorcycle maker whose sales h the US economic slowdown, has for customers fearful of falling home values, rising gas prices and a sta In a rare national newspaper and magazine advertising campaign called We Dont Do Fear, the com to make pessimism and watching the news seem downright unpatriotic.

Over the last 105 years in the saddle, weve seen wars, conflicts, depression, recession , resistan ad, which shows a helmeted rider on a Harley chopper silhouetted against what appears to be the red a tattered American flag. Weve watched a thousand hand-wringing pundits disappear in our rear-view mirror. But every time stronger than before .... If 105 years have proved one thing, its that fear sucks and it doesnt last long ad encourages readers to visit the bikemakers website and leave comments. Harley has also shipped thousands of bandannas bearing the Screw it, Lets Ride motto to its dealer Hans Richer, the former Pontiac marketing director who runs Harleys branding efforts, said the ad, whi Today, will also run in Sports Illustrated. The bike maker normally prefers much more targeted campaig broad consumer publications. I wouldnt call this a typical media buy for us, Richer said. But we felt t that lent itself to a national newspaper ... or national publications ... where some of these attitudes mig Harley slashed production, laid off hundreds of workers and warned it would report full-year earnings w U.S. economic slowdown crimps demand for its iconic motorcycles. News of the layoffs and production cuts came as Harley reported a first-quarter net profit of $187.6 m million last year. We do have a unique perspective because of our history, Richer said. We have seen riders have too. I think fundamentally, when they talk among themselves or talk to us, they have a mor They dont put much value on doom and gloom and we thought it was time somebody said it. Reuters

Article 18 may 2

Crude jumps over 3% to $116

Reuters NEW YORK

OIL JUMPED more than 3% to over $116 a barrel on Friday after a report showing the US economy lost April eased worries about the countrys economic health. US crude oil futures for June delivery rose $3. touching a high of $116.49 a barrel in late trade. London Brent crude gained $4.06 to settle at $114.56 The gains followed three days of losses amid concerns that economic weakness in the United States w oil demand growth. World markets cheered a US government report that the economy lost only 20,000 jobs in April, a qu had expected. Surprisingly strong US factory order data improved sentiment further.

The numbers are still suggesting a mild recession but maybe they ease fears of a deep or prolon extent they would be supportive to the oil market, said Mike Wittner of Societe Generale. Earlier, oil prices drew support from renewed clashes between Turkey and Kurdish rebels in northern bombers attacked Kurdish rebel targets overnight, the latest in a series of strikes since Turkish ground border in force in February. Output disruptions in Nigeria and the lingering effects of a strike at Britains Grangemouth refinery tha 700,000 barrels per day of North Sea oil production, also lent support to the rising prices.

Article 19 may 4

Foreign investors cosy up to US treasuries

Gayatri Nayak MUMBAI

EVEN as the US Federal Reserve was on a rate-cutting spree and recessionary trends were apparent i continued to repose their faith in US treasury bonds. According to the latest figures released by the US Fed in mid-April, foreigners have continuously inves and bills. Total foreign investments moved up from $2,143.3 billion in February 2007 to $2,436.2 billion almost 14% over the year. Foreign investments have gone up by around 8.6% ever since the Fed has g September. Between September 07 and February 08, investments by foreigners rose from $2242.2 bil investment interest, however, seems more stronger in bonds than stocks. Country-wise details shows a mixed trend among big-ticket investors in US treasuries. While Japan ha $616.4 billion to $586.6 billion, China, Brazil and oil exporters (despite Irans decision to do away with t dealings), have seen a sharp rise in its holdings of US treasury bonds during the period. W h i l e India has lowered its exposure since February 07 from $20.1 billion to $14.4 billion in Febru picked up gradually since September. However, these investments have not grown at the same pace as foreign currency assets. While reserves grew by $106 billion (over 50%) between February 07 and Feb billion since September 07. It may be noted that post-2000, India has been diversifying its forex asset basket comprising the US dollar, the sterling pound, euro and yen. Though the currency break-up of ho domain, the Reserve Bank of India is said to be diversifying in other currencies such as Chinese yuan, t dollar and the Canadian dollar, among others. These currencies have been fairly stable over the past on dollar. Investment interest are believed to be strong even in March. According to a recent report by PNB Gilt initially, softened in the US treasury market as buying interest for government bonds continued and tre strongest quarter (January-March08) in five and half years. However, the release of strongerthan-expected reading of the US manufacturing index in March shifte equities. gayathri.nayak@timesgroup.com

Article 20 may 2

The suns going down

The spark that showed up in the past two surveys seems to have blown out. The March 08 roun macro-economic fundamentals in terms of rising inflation, low political confidence and a gloom level, have increased the severity of the decline in business confidence
Pallavi Mulay ET Intelligence Group

BUSINESS Confidence Index (BCI) inched up in past two rounds of the survey. However, there were c sustainability of these upbeat sentiments largely due to the turmoil in the global financial markets and s slowdown in the first quarter of 2008. This fear has turned out to be reality in the latest round of ET-NC Survey. BCI has declined by 3.4% to 148.7 for the quarter ended March 08 compared to the previous r This fall in business confidence is a matter of serious concern as the sentiments have taken a beating ac categories.

Components

Sentiments were beaten across three components, namely, overall economic conditions, financial positio climate. Although it is difficult to identify the exact reason for the fall in different components of BCI, it

turbulence in the financial markets, rising inflationary pressures and the impact of a likely recession It is clearly visible in the 3.6% fall in the number of positive respondents having better expectations o conditions. These macroeconomic concerns seem to have trickled down to the micro level as well. The p sentiments regarding their financial position in next six months has fallen by 4.5% in the latest round c round held in December 07. The steepest fall of 7.5% is observed in case of favourable investment clim last round, firms were quite bullish on the investment climate as there was an expectation of interest ra However, rising inflation numbers in February and March 08 has changed the scenario and increased th monetary tightening. That weakens the sentiments for the investment climate. The only component of BCI, which has witnessed no change in this round, is the number of firms oper level. Unchanged assessment of capacity utilisation at firm level implies that demand growth in the econ satisfactory despite a projection of an economic slowdown. Firms continue to produce output at roughly Firms across industries have, however, expressed their concerns about rising raw material costs, some levels of inventories and shortening of order books.

Sector-Wise

A mixed trend is observed amongst the sectors. Business confidence amongst firms belonging to consum goods and services is down quite sharply. A fall of almost 8% in the BCI for consumer durables and serv survey is largely on account of unfavourable investment climate. In case of consumer durable sector, th observed in index representing firms expectation about over overall economic conditions in next six mo hand, seems to be most worried about deterioration in the investment climate. On the contrary, capital goods industry records a rise of 1.41% in overall business confidence level. P macro economic conditions and better financial position have supported the business sentiments in this belonging to this sector are also pessimistic about current investment climate. Though consumer non-durables industry has witnessed a marginal rise in the overall confidence index broad-based. Optimism prevails across all the components. Given the fact that the period of the survey year, normally a busy quarter for manufacturing companies, the decline in BCI is a stark reminder of de

environment. The firms are looking at a short-term future of next six months with considerable uncerta

Region-Wise

All three regions West, North, South witnessed a fall in business confidence. It is primarily on acco outlook on overall economic conditions and financial position of the firms in next six months. On the oth region are quite optimistic about business environment. So, there is an increase of 4.43% in BCI for thi optimism in the East may be on account of the fact that the region saw relatively sharp decline in BCI in

Firm Size

Mid-sized firms with annual turnover of Rs 10-100 crore and Rs 100-500 crore and small firms with turn most pessimistic about business environment. These segment have recorded a fall of almost 7.9%, 8.3% the BCI in this round on account of deterioration of macro factors. Unfavourable investment climate at p outlook on overall economic conditions have dampened the sentiments. A remarkable feature of the current round is that the firms belonging to the largest category (with tur seems to be surprisingly upbeat. The respondents in the category reported 380 basis points improveme points decline in BCI for all companies. This is significant deviation from the general pattern observed in The rise in BCI for large companies is driven by the improvement in their assessment of the overall ec six months. The respondents are also slightly more optimistic on the investment climate. In short, it imp firms, on the average, appear to be more capable of absorbing shocks to business confidence.

Type of Ownership

Across ownership categories, there is a decline in BCI for all the cases with the exception of individually where there is an improvement. However, the improvement in BCI in the case of individually-owned/pa 2.9%. Public sector firms and public limited private companies recorded a steepest fall in the BCI. Senti across four components of the BCI for these categories.

Conclusion

Business sentiments have been beaten badly in the latest round of survey. Both, present conditions and business environment is dampening. If the sentiments do not revive going forward, it will lead to decele growth as business accounts for bulk of investment demand in the economy. As of now, Reserve Bank o about the revival in business environment in the later half of FY09 on account of resilient investment de in inflation numbers. So, we need to wait and watch whether the recent monetary and fiscal measures u current issues bear the fruits or not. pallavi.mulay@timesgroup.com

Article 21 may 2

A tale of two banks

RBI & US Fed Dance To Different Tunes

ADAY after the Reserve bank of India (RBI) signalled a tightening of its monetary policy stance by hik US Federal Reserve did exactly the opposite. It cut the Fed funds rate, the overnight rate at which bank discount rate at which it lends directly to banks. Wednesdays 25 basis points reduction brings the Fed r since 2004. At one level the difference in response between the two central banks, both dispensers of m largest democracies and both coincidentally in an election year, may seem surprising. But the Feds gre growth rather than inflation is really not surprising. For one, US growth has slowed dramatically and tho

whether the economy is already in a recession latest numbers show US GDP grew just 0.6% ann against our third quarter (October-December 2007) growth of 8.4%. For another, inflation in the US is w week ended April 12, 2008. With close to 25% of the population living below the poverty line, inflation h harder than the average American. Hence the diametrically opposing priorities of the two central banks. Having said that, the reality is the actions of the US Fed have a much greater import for us than vice for about 30% of the world GDP and with the US dollar still the currency of choice globally, what happen impact on the rest of the world, India included. To that extent the slight easing of the language in the s Fed rate cut is comforting. Of course, this must be set against its admission that economic activity rem spending subdued and labour markets softer. For the moment, markets remain doubtful. While the dol share price index weakened on Wednesday, Asian markets were mixed on Thursday. Clearly some more light at the end of the tunnel!

Article 22 may 1

Profit booking shaves 91 pts off Sensex

Gaurav Pai

THE euphoria over the Reserve Bank not tinkering with interest rates proved short lived, as investors profits registered on Tuesday. The mood remained cautious as investors appeared concerned over the o meeting expected to be held on Wednesday evening. On Wednesday, Indian benchmark indices traced the downward journey of their Asian and European c registering another choppy session. The disappointing results from many key European companies are l

the contagion of the US recession spreading to Europe. On Wednesday, it was SAP and Alcatel-Luce estimates. As for the hints from the US markets, brokers were expecting another round of rate cut by Fed on We bank obliged them by reducing the fund rate by a quarter point, hopefully to save the global financial m This brings down the bellwether rate to 2%, the lowest since December 2004. Meanwhile, the US economy grew only 0.6% in the first quarter at the slowest pace in five years as co spending faltered and the housing slump deepened. Things are not that wobbly on the local shore. Rating agency Crisil in its latest outlook for Indian econ March 2009 has stated that the overall growth scenario is expected to remain strong with investment as BSE Sensex and NSEs broader index Nifty both shed half a percent each to end the day at 17287 and Nifty Futures for the May series are trading at a strong 28-point premium to the spot, a bullish signal. chartists who are most optimistic on the market in the days to come. BSPL Indias Vijay Bhambwani fee is up to the 5435 levels based on Fibonacci projection golden ratio studies, a possible upside of 200 poin that the 5400/5435 level will be the first real resistance for the bulls is likely to emerge in the coming s Ketan Karani of Kotak Securities says that Wednesday was the second session in a row where Nifty tr moving average, showing an extremely bullish trend. Nifty has been trading below its 200 DMA for the gaurav.pai@timesgroup.com

Article 23 april 30

Consumer confidence touches 5-year low

WASHINGTON: Confidence among Americans fell to a five-year low this month after home prices dropped by the most since at least 2001, signalling a deepening threat to consumer spending. The Conference Boards confidence index fell to 62.3 in April, posting its biggest three-month slide since the last recession in 2001, the New York-based research group said on Tuesday. House prices in 20 US metropolitan areas dropped 12.7% in February from a year earlier, more than forecast and the most since S&P/Case-Shillers records began seven years ago. Economists anticipate a report on Wednesday will show gross domestic product growth slowed to 0.5% in the first quarter as home construction fell, employers cut payrolls and consumers struggled with a surge in gasoline prices. The Conference Boards index dropped from a revised 65.9 reading in March that was higher than previously estimated. Economists had forecast the Conference Boards measure would fall to 61. Bloomberg

Article 24 may 1o

Inflation shows signs of peaking, hits another 3-year high of 7.61%

Positive Base Impact May Play Role In Bringing Down Price Index Within Two Weeks, Feel Experts
Our Bureau NEW DELHI

THE annual inflation rate rose yet again, to a fresh three-and-a-half-year high of 7.61% for the week ended April 26, government data showed on Friday. Inflation measured as a change in the wholesale price index (WPI) from its level in the corresponding week a year ago, was a tad lower at 7.57% in the previous week. For the moment, it looks like the worst in year-on-year terms. The price index has moved up for all items by 7.61%, including primary articles (8.8%), manufactured goods (7.42%) and the fuel, power, light and lubricants group (6.9%). However, whats heartening is the week-on-week rise that has definitely cooled down. From the week ended April 19 to the week ended April 26, prices have risen much slowly by 0.08%, compared to the 0.8% week-on-week rise in early March. In the second week of March, week-on-week increase in the price index had fallen to 0.5%. In April, it had come down to 0.3% and 0.26%. However, last week, when experts were expecting it to come down to 0.1%, it went up again to 0.3%. A worried government came out with another slew of measures, including banning futures trade in potato, rubber, soya oil and chana, and persuaded steel companies to take a price cut. Experts feel there are chances that in the coming two weeks, positive base impact may play some role in bringing inflation down. In May 2007, inflation had gone up significantly in the first week by 0.4 points to 212 from 211.6. The inflation figure of 7.61% could be reaching a peak in year-on-year terms because there will be a high base effect in the next week. Hopefully, if we stick with the 0.1% weekon-week increase in price index, we should be at 7.25%, and may be 7%, before May is out, Deutsche Bank south Asia regional head Sanjeev Sanyal said. Reacting to inflation numbers, finance minister P Chidambaram said inflation will stay at the current level for some time before it shows a downward trend, and the current levels indicate that inflation is stable. He stated the government is in the process of asking cement companies to cut prices and may take further administrative steps if necessary. Some experts, however, expressed doubts whether the trend of moderation in week-onweek price movement will continue, in the wake of rising inflationary expectations. The pace of inflation on a week-on-week basis has been moderating. The point is whether it will remain volatile. There are expectations the base effect could help in the next two weeks. However, it will remain short-lived since lower base effect will come into picture again. It will push the inflation to a higher level, Crisil Principal economist D K Joshi said. Besides, there are inflationary expectations looming over the economy due to the falling rupee and spiralling crude oil prices. This would raise cost of imports, Mr Joshi said. The possibility of further rise in cash reserve ration (CRR) in the wake of rising liquidity due to falling currency is not ruled out. Kotak Mahindra Bank chief economist Indranil Pan said, With inflation consistently above the 7% level, it is safe to assume the central bank will actively take liquidity tightening measures.

In its annual monetary policy announced on April 29, the central bank raised the CRR proportion of deposits that banks must set aside by a quarter point to a seven-year high of 8.25%, effective May 24. The commerce ministry on Friday revised the inflation rate for the week ended March 1 to 6.21% from 5.11%. The government revises the rate from two months ago after receiving additional price data.

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