In a jolt to the Maharashtra government, the Reserve Bank of India has recommended the supersession of the board of directors of the Maharashtra State Cooperative Bank and appointed two administrators to manage the bank’s affairs. This followed a negative net worth Rs144.22 crore which came out in the bank’s statutory audit for 2009-10.
Following suspected irregularities in the bank’s functioning, the RBI recommended to the state commissioner of cooperation and the registrar of cooperatives to take action to supersede the MSC Banks’ board. Accordingly, agriculture and marketing principal secretary SK Goyal and planning secretary S Shrivastava have been appointed the new administrators of the apex cooperative bank in the state.
Speaking to newspersons here Saturday evening, Goyal assured the people that “the financial condition of the MSC Bank is sound and depositors need not have any concerns. The decision to appoint an administrative board is primarily directed to further strengthen the financial position of the bank and bring professionalism and transparency.”
As on March 31, the bank’s deposits stood at Rs17,428 crore, of which Rs.1,340 crore are lying in current and savings accounts. The rest are lying under various types of fixed deposits. Besides, the bank has invested another Rs11,986 crore in different government securities. The bank also has a cash balance of Rs1,350 crore, plus its own fund of Rs3,053 crore. The net non-performing assets worked out to 7.5%.
Union agriculture and cooperatives minister Sharad Pawar on Saturday backed the directors of the MSC Bank and said that they hadfollowed the directives of the state government while disbursing loans. Expressing surprise over the dismissal of the borad of direfctors,Pawar said that there was no mismanagement on the part of the board.
He said that the state government had directed the MSCB to disburse loans to some institutions and had provided guarantees for the same. He said that a resolution to that effect was passed by the state cabinet. But this resolution was not followed and the state government did not provide funds against the guarantees when the loans were not recovered. Hence, the bank got into trouble.
Saturday, May 7, 2011
Retail investors make quick exit, and buck, from IPO stocks
BL Research Bureau:
It is not just high net worth investors who “flip” their shares on listing, after scrambling to get allotments in Initial Public Offers (IPOs). Retail investors do so too. Going by the shareholding patterns of the 63 IPOs that came out in 2010, the number of retail investors in these IPOs halved within the first three months of listing. About 80 per cent of these companies saw retail shareholders reduce their stakes as a class, soon after their market debut.
The trend was far more pronounced in IPOs that delivered gains on listing. For this analysis, we considered the shareholding patterns released when the IPO was listed and the quarter that followed immediately.
Gaining from listing
The IPOs of 2010 saw half their retail investors exiting soon after listing. The number of shares held by retail investors as a category too dropped by 33 per cent.
For instance, VA Tech Wabag saw the number of retail shareholders fall to just 28,430, from 1.4 lakh just after listing. The retail stake in the stock dropped to 7 per cent at the end of the December 2010 quarter from 15 per cent at the time it was listed in early October.
More than half the offers in 2010 managed quick gains, closing listing day with gains of over 20 per cent. Retail investors were particularly active in trimming their stakes in such stocks. Aster Silicates, for example, made an impressive market debut with a 69 per cent gain at the close of listing day. The number of retail shares in the company fell by 10 lakh, while the number of shareholders declined by 3,765.
Similarly, in Ravi Kumar Distilleries, the number of retail shares dropped a massive 63 lakh, having listed in late December with a 25 per cent gain. About 4,000 retail shareholders exited the company between its listing and the end of the December quarter.
While they did make a quick exit from offers that delivered gains on listing, retail investors showed greater reluctance to sell IPO stocks whose prices fell on market debut. Considering the shareholding at the end of the March 2011 quarter, retail investors held on to stakes even as prices continued to fall.
The number of retail shares in Pradip Overseas, for instance, rose from 65 lakh shares to 74.1 lakh shares between the June 2010 and March 2011 quarters, even as the stock languished 24 per cent below its issue price.
It is not just high net worth investors who “flip” their shares on listing, after scrambling to get allotments in Initial Public Offers (IPOs). Retail investors do so too. Going by the shareholding patterns of the 63 IPOs that came out in 2010, the number of retail investors in these IPOs halved within the first three months of listing. About 80 per cent of these companies saw retail shareholders reduce their stakes as a class, soon after their market debut.
The trend was far more pronounced in IPOs that delivered gains on listing. For this analysis, we considered the shareholding patterns released when the IPO was listed and the quarter that followed immediately.
Gaining from listing
The IPOs of 2010 saw half their retail investors exiting soon after listing. The number of shares held by retail investors as a category too dropped by 33 per cent.
For instance, VA Tech Wabag saw the number of retail shareholders fall to just 28,430, from 1.4 lakh just after listing. The retail stake in the stock dropped to 7 per cent at the end of the December 2010 quarter from 15 per cent at the time it was listed in early October.
More than half the offers in 2010 managed quick gains, closing listing day with gains of over 20 per cent. Retail investors were particularly active in trimming their stakes in such stocks. Aster Silicates, for example, made an impressive market debut with a 69 per cent gain at the close of listing day. The number of retail shares in the company fell by 10 lakh, while the number of shareholders declined by 3,765.
Similarly, in Ravi Kumar Distilleries, the number of retail shares dropped a massive 63 lakh, having listed in late December with a 25 per cent gain. About 4,000 retail shareholders exited the company between its listing and the end of the December quarter.
While they did make a quick exit from offers that delivered gains on listing, retail investors showed greater reluctance to sell IPO stocks whose prices fell on market debut. Considering the shareholding at the end of the March 2011 quarter, retail investors held on to stakes even as prices continued to fall.
The number of retail shares in Pradip Overseas, for instance, rose from 65 lakh shares to 74.1 lakh shares between the June 2010 and March 2011 quarters, even as the stock languished 24 per cent below its issue price.
Adani to complete Abbot Point acquisition by June
The Adani Group is expected to complete the Abbot Point port deal by June 2011. The company would have a long term-lease of the port premises for a period of 99 years.
The group will acquire shares from State of Queensland to complete the transaction. “Adjustments of payments to State of Queensland will be made through shares and leasing cost,” said Aakansha Joshi, associate manager, Economic Laws Practice.
Adani's Mundra Port and Special Economic Zone (MPSEZ) announced the acquisition of Abbot Point Port in Australia for A$1.8 billion (Rs 9,000 crore) earlier this week. The port would handle both captive and non-captive coal.
The port terminal is operated by Abbot Point Bulk Coal Pty Ltd, a subsidiary of Xstrata Coal Queensland Pty Ltd. The Queensland government would grant the lease of the X50 Abbot Point Coal Terminal to Mundra Port Pty Ltd. Under the lease, the state authority would retain the ownership of the port land and fixed infrastructure like the jetty and the wharf. The state would also continue to facilitate private-sector funded expansion of export infrastructure within the broader port precincts such as Terminal 2, Terminal 3 and the multi cargo facility.
The North Queensland Bulk Ports Corporation would remain the port authority for Abbot Point and would be responsible for the safety, security, efficiency and planning for the port.
The port has two mechanised berths. MPSEZ aims to build another two in the next five years. The coal terminal has two berths which are capable of handling cape size vessel over 2 lakh tonnes deadweight. The port has a capacity of 50 million tonnes but currently uses only 20 million tonnes. Abbot Point port is an operational, fully-mechanised port with ship loaders, stacker reclaimers, conveyor and rail systems. The port also can also raise capacity to 80 million metric tonnes.
In August 2010, Adani had bought coal assets from Linc Energy Ltd for A$3 billion in cash and royalties, the largest acquisition by an Indian company in Australia. The company is targeting its first coal output by the end of 2014 and production of 50-60 million tonnes by 2022.
The Mundra port handles over 50 million tonnes of cargo, and MPSEZ aims to raise the figure to 200 Mmpta by 2020. Adani Group Chairman, Gautam Adani, said, “We have harboured aspirations to expand globally and were in search of the right business opportunity, with a strategic fit. Abbot Point is our contribution to India's increasing global ambition and would boost synergy with other business of the group.”
MPSEZ operates ports at Mundra and Dahej. Currently, it is developing ports at Hazira and coal terminals at Mormugao.
The group will acquire shares from State of Queensland to complete the transaction. “Adjustments of payments to State of Queensland will be made through shares and leasing cost,” said Aakansha Joshi, associate manager, Economic Laws Practice.
Adani's Mundra Port and Special Economic Zone (MPSEZ) announced the acquisition of Abbot Point Port in Australia for A$1.8 billion (Rs 9,000 crore) earlier this week. The port would handle both captive and non-captive coal.
The port terminal is operated by Abbot Point Bulk Coal Pty Ltd, a subsidiary of Xstrata Coal Queensland Pty Ltd. The Queensland government would grant the lease of the X50 Abbot Point Coal Terminal to Mundra Port Pty Ltd. Under the lease, the state authority would retain the ownership of the port land and fixed infrastructure like the jetty and the wharf. The state would also continue to facilitate private-sector funded expansion of export infrastructure within the broader port precincts such as Terminal 2, Terminal 3 and the multi cargo facility.
The North Queensland Bulk Ports Corporation would remain the port authority for Abbot Point and would be responsible for the safety, security, efficiency and planning for the port.
The port has two mechanised berths. MPSEZ aims to build another two in the next five years. The coal terminal has two berths which are capable of handling cape size vessel over 2 lakh tonnes deadweight. The port has a capacity of 50 million tonnes but currently uses only 20 million tonnes. Abbot Point port is an operational, fully-mechanised port with ship loaders, stacker reclaimers, conveyor and rail systems. The port also can also raise capacity to 80 million metric tonnes.
In August 2010, Adani had bought coal assets from Linc Energy Ltd for A$3 billion in cash and royalties, the largest acquisition by an Indian company in Australia. The company is targeting its first coal output by the end of 2014 and production of 50-60 million tonnes by 2022.
The Mundra port handles over 50 million tonnes of cargo, and MPSEZ aims to raise the figure to 200 Mmpta by 2020. Adani Group Chairman, Gautam Adani, said, “We have harboured aspirations to expand globally and were in search of the right business opportunity, with a strategic fit. Abbot Point is our contribution to India's increasing global ambition and would boost synergy with other business of the group.”
MPSEZ operates ports at Mundra and Dahej. Currently, it is developing ports at Hazira and coal terminals at Mormugao.
FIIs turn net sellers, markets in correction mode while investors should be cautious
The domestic stock markets have been going through a correction in the last few days, mainly due to some disappointing results and a sharp hike in the key interest rates by the Reserve Bank of India (RBI) during its monetary policy review last week. The markets have come down by almost eight percent over the last 10 sessions. They are expected to trade in a range with a negative bias in the coming few weeks due to disappointments on the results front and some nervousness in the global economy, especially China and the US.
Long-term investors can use the market corrections to invest in fundamentallygood stocks. There is a lot of volatility in the commodity and currency markets as well. In the currency markets, the US dollar is losing against the basket of major world currencies. The Euro touched almost USD 1.50 mark due to concerns over new job creations and the overall US economy last week.
These are some of the major events of last week that are expected to drive the markets in the short term:
CONCERNS IN US, CHINA
Last week, concerns mounted over the sustainability of the US economic recovery after reports of a slowdown in the services sector and less-than-expected jobs created in the private sector. The Federal Reserve has continued its soft monetary policy but it has failed to yield the expected results in terms of triggering a lasting economic recovery. As the inflation rate is rising, the Federal Reserve is running out of time. It cannot keep on extending its soft monetary policy.
On the other hand, there are concerns of a slowdown in China due to their monetary policy tightening measures . The impact of rising concerns in China is visible in the sharp volatility in the commodity markets. These global These global concerns are adding to the nervousness in the domestic markets.
FII selling
The foreign institutional investor (FII) factor is not in favour of the domestic markets . They have turned net sellers in the markets here recently. This has resulted in the deep market correction . Analysts believe FIIs are taking a cautious approach due to the disappointing results season and several negative factors playing in the domestic as well as global markets.
In the absence of any positive triggers possible in the near term, many FIIs are holding their positions in cash. Investors should be cautious as the markets are expected to remain volatile with a negative bias in the short term.
SELL-OFF IN GOLD, SILVER
Profit booking happened in gold and silver last week. There was a sharp drop in the prices. Silver almost lost 20 percent over the last one week and gold also lost quite significantly. Analysts believe the main reason for such a sharp drop is the cut down in speculative positions due to increase in the margin requirements at various commodity exchanges.
However, the current decline in price is good for the long-term investor who can look at taking positions at lower price levels. The investment outlook for gold and silver is still quite bullish due to uncertainties at the global level. Investors can also take a cue from the fact that the central banks of many developed and developing countries are constantly investing in precious metals.
INFLATION
The inflation rate which was a problem mainly in emerging nations last year is slowing rising in the developed countries as well, due to the rising prices of commodities in the global markets. In India, the headline inflation rate is around nine percent. It is expected to remain high in the short to medium terms.
However, policymakers are committed to taking strong measures to control the inflation rate even if it is at the cost of economic growth to an extent. The RBI recently raised the key interest rates by 50 basis points to check the rising inflation rate which is expected to aggravate further due to the expected fuel price rise in the coming days. concerns are adding to the nervousness in the domestic markets.
FII SELLING
The foreign institutional investor (FII) factor is not in favour of the domestic markets . They have turned net sellers in the markets here recently. This has resulted in the deep market correction . Analysts believe FIIs are taking a cautious approach due to the disappointing results season and several negative factors playing in the domestic as well as global markets.
In the absence of any positive triggers possible in the near term, many FIIs are holding their positions in cash. Investors should be cautious as the markets are expected to remain volatile with a negative bias in the short term.
SELL-OFF IN GOLD, SILVER
Profit booking happened in gold and silver last week. There was a sharp drop in the prices. Silver almost lost 20 percent over the last one week and gold also lost quite significantly. Analysts believe the main reason for such a sharp drop is the cut down in speculative positions due to increase in the margin requirements at various commodity exchanges.
However, the current decline in price is good for the long-term investor who can look at taking positions at lower price levels. The investment outlook for gold and silver is still quite bullish due to uncertainties at the global level. Investors can also take a cue from the fact that the central banks of many developed and developing countries are constantly investing in precious metals.
INFLATION
The inflation rate which was a problem mainly in emerging nations last year is slowing rising in the developed countries as well, due to the rising prices of commodities in the global markets. In India, the headline inflation rate is around nine percent. It is expected to remain high in the short to medium terms.
However, policymakers are committed to taking strong measures to control the inflation rate even if it is at the cost of economic growth to an extent. The RBI recently raised the key interest rates by 50 basis points to check the rising inflation rate which is expected to aggravate further due to the expected fuel price rise in the coming days.
Long-term investors can use the market corrections to invest in fundamentallygood stocks. There is a lot of volatility in the commodity and currency markets as well. In the currency markets, the US dollar is losing against the basket of major world currencies. The Euro touched almost USD 1.50 mark due to concerns over new job creations and the overall US economy last week.
These are some of the major events of last week that are expected to drive the markets in the short term:
CONCERNS IN US, CHINA
Last week, concerns mounted over the sustainability of the US economic recovery after reports of a slowdown in the services sector and less-than-expected jobs created in the private sector. The Federal Reserve has continued its soft monetary policy but it has failed to yield the expected results in terms of triggering a lasting economic recovery. As the inflation rate is rising, the Federal Reserve is running out of time. It cannot keep on extending its soft monetary policy.
On the other hand, there are concerns of a slowdown in China due to their monetary policy tightening measures . The impact of rising concerns in China is visible in the sharp volatility in the commodity markets. These global These global concerns are adding to the nervousness in the domestic markets.
FII selling
The foreign institutional investor (FII) factor is not in favour of the domestic markets . They have turned net sellers in the markets here recently. This has resulted in the deep market correction . Analysts believe FIIs are taking a cautious approach due to the disappointing results season and several negative factors playing in the domestic as well as global markets.
In the absence of any positive triggers possible in the near term, many FIIs are holding their positions in cash. Investors should be cautious as the markets are expected to remain volatile with a negative bias in the short term.
SELL-OFF IN GOLD, SILVER
Profit booking happened in gold and silver last week. There was a sharp drop in the prices. Silver almost lost 20 percent over the last one week and gold also lost quite significantly. Analysts believe the main reason for such a sharp drop is the cut down in speculative positions due to increase in the margin requirements at various commodity exchanges.
However, the current decline in price is good for the long-term investor who can look at taking positions at lower price levels. The investment outlook for gold and silver is still quite bullish due to uncertainties at the global level. Investors can also take a cue from the fact that the central banks of many developed and developing countries are constantly investing in precious metals.
INFLATION
The inflation rate which was a problem mainly in emerging nations last year is slowing rising in the developed countries as well, due to the rising prices of commodities in the global markets. In India, the headline inflation rate is around nine percent. It is expected to remain high in the short to medium terms.
However, policymakers are committed to taking strong measures to control the inflation rate even if it is at the cost of economic growth to an extent. The RBI recently raised the key interest rates by 50 basis points to check the rising inflation rate which is expected to aggravate further due to the expected fuel price rise in the coming days. concerns are adding to the nervousness in the domestic markets.
FII SELLING
The foreign institutional investor (FII) factor is not in favour of the domestic markets . They have turned net sellers in the markets here recently. This has resulted in the deep market correction . Analysts believe FIIs are taking a cautious approach due to the disappointing results season and several negative factors playing in the domestic as well as global markets.
In the absence of any positive triggers possible in the near term, many FIIs are holding their positions in cash. Investors should be cautious as the markets are expected to remain volatile with a negative bias in the short term.
SELL-OFF IN GOLD, SILVER
Profit booking happened in gold and silver last week. There was a sharp drop in the prices. Silver almost lost 20 percent over the last one week and gold also lost quite significantly. Analysts believe the main reason for such a sharp drop is the cut down in speculative positions due to increase in the margin requirements at various commodity exchanges.
However, the current decline in price is good for the long-term investor who can look at taking positions at lower price levels. The investment outlook for gold and silver is still quite bullish due to uncertainties at the global level. Investors can also take a cue from the fact that the central banks of many developed and developing countries are constantly investing in precious metals.
INFLATION
The inflation rate which was a problem mainly in emerging nations last year is slowing rising in the developed countries as well, due to the rising prices of commodities in the global markets. In India, the headline inflation rate is around nine percent. It is expected to remain high in the short to medium terms.
However, policymakers are committed to taking strong measures to control the inflation rate even if it is at the cost of economic growth to an extent. The RBI recently raised the key interest rates by 50 basis points to check the rising inflation rate which is expected to aggravate further due to the expected fuel price rise in the coming days.
Political unrest, quakes hit air travel in March
MUMBAI: For the second year in a row, weather-related catastrophes have hit international air traffic. If it was Iceland's volcanic eruptions last year, it's the tsunami and earthquakes of Japan this year that crippled the growth in passenger traffic. But it was not just the weather, for the airline industry, the year began on a difficult note with political unrest in countries in North Africa.
The International Air Transport Association (IATA) announced scheduled international traffic results for March 2011 showing that year-on-year growth in passenger demand had slowed to 3.8% from the 5.8% recorded in February. Conversely, year-on-year growth in freight markets rebounded to 3.7% in March from the 1.8% recorded in February. Compared to February, global passenger demand fell by 0.3% in March, while cargo demand expanded by 4.5%.
``The profile of the recovery in air transport sharply decelerated in March. The global industry lost 2 percentage points of demand as a result of the earthquake and tsunami in Japan and the political unrest in the Middle East and North Africa (MENA),'' said Giovanni Bisignani, IATA's Director General and CEO. The impact of the events in Japan on global international traffic was a 1% loss of traffic in March. Looked at regionally, Asia-Pacific carriers saw a traffic loss of over 2%, North American carriers had a 1% drop and Europe's carriers a 0.5% fall. Japan's domestic market was the most severely impacted with a 22% fall in demand. The disruptions in MENA cut international travel by 0.9 percentage points. Egypt and Tunisia experienced traffic levels 10-25% below normal for March. Military action in Libya virtually stopped civil aviation to, from and within that country. Capacity adjustments lagged behind the sudden drop in demand. Against global demand growth of 3.8%, capacity expanded by 8.6%. The average load factor fell by 3.5 percentage points to 74.6%.
Asia-Pacific carriers saw the broadest negative turn of fortunes in March. Compared to the previous year passenger demand was flat. Compared to February however demand contracted by 2.2% while 0.8% was added to capacity. This led to a sharp 2.3 percentage point fall in load factors to 74.2% in March. Also, Asia-Pacific carriers, which account for 43% of global freight markets, saw air freight demand contract by 0.6% in March compared to the previous year. This is considerably better than the 5.4% fall in February which was exceptionally depressed due to plant closures associated with the Chinese New Year. Compared to February, freight demand actually improved by 8.2%. Were it not for the earthquake and tsunami in Japan, the rebound would have been much stronger.
The International Air Transport Association (IATA) announced scheduled international traffic results for March 2011 showing that year-on-year growth in passenger demand had slowed to 3.8% from the 5.8% recorded in February. Conversely, year-on-year growth in freight markets rebounded to 3.7% in March from the 1.8% recorded in February. Compared to February, global passenger demand fell by 0.3% in March, while cargo demand expanded by 4.5%.
``The profile of the recovery in air transport sharply decelerated in March. The global industry lost 2 percentage points of demand as a result of the earthquake and tsunami in Japan and the political unrest in the Middle East and North Africa (MENA),'' said Giovanni Bisignani, IATA's Director General and CEO. The impact of the events in Japan on global international traffic was a 1% loss of traffic in March. Looked at regionally, Asia-Pacific carriers saw a traffic loss of over 2%, North American carriers had a 1% drop and Europe's carriers a 0.5% fall. Japan's domestic market was the most severely impacted with a 22% fall in demand. The disruptions in MENA cut international travel by 0.9 percentage points. Egypt and Tunisia experienced traffic levels 10-25% below normal for March. Military action in Libya virtually stopped civil aviation to, from and within that country. Capacity adjustments lagged behind the sudden drop in demand. Against global demand growth of 3.8%, capacity expanded by 8.6%. The average load factor fell by 3.5 percentage points to 74.6%.
Asia-Pacific carriers saw the broadest negative turn of fortunes in March. Compared to the previous year passenger demand was flat. Compared to February however demand contracted by 2.2% while 0.8% was added to capacity. This led to a sharp 2.3 percentage point fall in load factors to 74.2% in March. Also, Asia-Pacific carriers, which account for 43% of global freight markets, saw air freight demand contract by 0.6% in March compared to the previous year. This is considerably better than the 5.4% fall in February which was exceptionally depressed due to plant closures associated with the Chinese New Year. Compared to February, freight demand actually improved by 8.2%. Were it not for the earthquake and tsunami in Japan, the rebound would have been much stronger.
IPO scam: Sebi does U-turn on Bhave
NEW DELHI: Cornered by the Supreme Court, the Securities and Exchange Board of India (Sebi) has agreed to restore orders indicting its own recently retired chief, C B Bhave, in the 2006 initial public offering (IPO) scam. In an affidavit to the Supreme Court on May 5, Sebi said it would "reconsider" the very orders it had declared as "non est" (invalid) in November 2009 when Bhave was chairman.
The affidavit annexed minutes of the April 26 Sebi board meeting disclosing its decision to reconsider those orders passed against Bhave in December 2008 "with a view to accepting the same".
The minutes admitted that this U-turn on the orders relating to Bhave's earlier avatar as chairman of the National Securities Depository Limited (NSDL) was in keeping with "the spirit of the observations" made by the Supreme Court on a PIL challenging Sebi's alleged bid to shield him in the IPO scam.
At the last hearing on March 28, shortly after Bhave's retirement, a bench comprising Justices R V Raveendran and A K Patnaik pulled up the Sebi board for preventing the orders against NSDL from coming into effect. While directing it to make amends, the bench asked the Sebi board to "pass an appropriate resolution and place it before this court for further consideration".
The orders now being adopted by Sebi came to light in March 2009 when TOI reported the failure of the regulatory body to publish them on its website even three months after they had been passed by a specially-constituted committee consisting of those who were then its part-time members: Mohan Gopal, director of the National Judicial Academy, and V Leeladhar, then deputy governor of RBI.
The purpose of entrusting the NSDL cases to this committee in August 2008 was to keep Bhave out of the decision-making loop on matters involving conflict of interest on his part.
In its December 2008 orders, the Gopal-Leeladhar committee held that NSDL's systems during Bhave's stewardship were so lax that tens of thousands of fake depository accounts were created to corner shares reserved for retail customers. The committee also directed NSDL to carry out an independent inquiry to establish individual accountability for supervisory lapses.
It was after sitting on these orders for almost a year that the Sebi board, reacting to a PIL in the Andhra Pradesh high court, came up with its unprecedented decision to overrule the quasi-judicial verdicts against Bhave. The reason it cited for its November 2009 decision was that the Gopal-Leeladhar bench had also blamed the IPO scam on regulatory lapses committed by Sebi.
Interestingly, despite agreeing to restore the orders against NSDL under SC pressure, the board is still opposed to the part where even Sebi is not spared for contributing to the IPO scam. In the minutes of its last meeting, the board reiterated its objection to the part of the orders relating to Sebi as they had been "passed ex parte without giving it any opportunity of being heard".
The activism displayed by the apex court is in contrast to the reaction displayed by the Delhi high court in October 2007 to the same PIL. The high court had dismissed the petition and slapped a fine of Rs 50,000 on the NGO, Social Action Forum for Manav Adhikar, on the charge of filing a frivolous case.
The affidavit annexed minutes of the April 26 Sebi board meeting disclosing its decision to reconsider those orders passed against Bhave in December 2008 "with a view to accepting the same".
The minutes admitted that this U-turn on the orders relating to Bhave's earlier avatar as chairman of the National Securities Depository Limited (NSDL) was in keeping with "the spirit of the observations" made by the Supreme Court on a PIL challenging Sebi's alleged bid to shield him in the IPO scam.
At the last hearing on March 28, shortly after Bhave's retirement, a bench comprising Justices R V Raveendran and A K Patnaik pulled up the Sebi board for preventing the orders against NSDL from coming into effect. While directing it to make amends, the bench asked the Sebi board to "pass an appropriate resolution and place it before this court for further consideration".
The orders now being adopted by Sebi came to light in March 2009 when TOI reported the failure of the regulatory body to publish them on its website even three months after they had been passed by a specially-constituted committee consisting of those who were then its part-time members: Mohan Gopal, director of the National Judicial Academy, and V Leeladhar, then deputy governor of RBI.
The purpose of entrusting the NSDL cases to this committee in August 2008 was to keep Bhave out of the decision-making loop on matters involving conflict of interest on his part.
In its December 2008 orders, the Gopal-Leeladhar committee held that NSDL's systems during Bhave's stewardship were so lax that tens of thousands of fake depository accounts were created to corner shares reserved for retail customers. The committee also directed NSDL to carry out an independent inquiry to establish individual accountability for supervisory lapses.
It was after sitting on these orders for almost a year that the Sebi board, reacting to a PIL in the Andhra Pradesh high court, came up with its unprecedented decision to overrule the quasi-judicial verdicts against Bhave. The reason it cited for its November 2009 decision was that the Gopal-Leeladhar bench had also blamed the IPO scam on regulatory lapses committed by Sebi.
Interestingly, despite agreeing to restore the orders against NSDL under SC pressure, the board is still opposed to the part where even Sebi is not spared for contributing to the IPO scam. In the minutes of its last meeting, the board reiterated its objection to the part of the orders relating to Sebi as they had been "passed ex parte without giving it any opportunity of being heard".
The activism displayed by the apex court is in contrast to the reaction displayed by the Delhi high court in October 2007 to the same PIL. The high court had dismissed the petition and slapped a fine of Rs 50,000 on the NGO, Social Action Forum for Manav Adhikar, on the charge of filing a frivolous case.
Friday, May 6, 2011
Nissan starts work to double production
CHENNAI: Nissan Motor has started feasibility work to double production capacity to four lakh units a year at its car plant in Oragadam, near Chennai.
Nissan and Renault signed a memorandum of understanding (MoU) with the Tamil Nadu state government to set up a greenfield plant in 2008. The plant now employs 3,200 persons. The alliance partners were to invest Rs 4,500 crore in the plant which would be shared by both partners.
"Micra rolled out in July last. It is less than a year and we have begun the process to double our capacity," Kiminobu Tokuyama, MD of Nissan India, said. With Renault also announcing aggressive growth plans for the Indian market, the capacity expansion is inevitable. The partners have invested Rs 2,600 crore so far in the plant.
On cards for Nissan is to launch a sedan on the Micra platform later this year which will be followed by a multipurpose vehicle next year. "The sedan will be in the C segment (competing with Ford Fiesta and Honda City) while the MPV will compete with Innova," he said.
The company is also learnt to be working with the Hindujas on a small car project , smaller than the Micra. "There is a big market in that segment. We are in the conceptualization stage. I do not wish to comment on with whom we are working with on that project," Tokuyama said.
Component sourcing by Nissan from India for its worldwide operations is also gaining momentum. The company had envisaged $10 million worth components to be sourced from Indian vendors for its plants in Thailand , China, Japan and the UK. "For the last year we sourced components worth $40 million. For the current fiscal (ending March 2012), we will source $100 million worth parts," he said.
On Micra, he said that from July 2010 (when the car was launched) till March 2011, the company sold 14000 cars in India and exported 56000 units to Europe, Africa and Middle East. "Going by those numbers it might sound as if we are concentrating only on exports. For us, the priority is Indian market ," Tokuyama said.
The dealer footprint is rising . As of March 2011 the company had 32 dealers and this will touch the 100-mark by March 2013.
Nissan and Renault signed a memorandum of understanding (MoU) with the Tamil Nadu state government to set up a greenfield plant in 2008. The plant now employs 3,200 persons. The alliance partners were to invest Rs 4,500 crore in the plant which would be shared by both partners.
"Micra rolled out in July last. It is less than a year and we have begun the process to double our capacity," Kiminobu Tokuyama, MD of Nissan India, said. With Renault also announcing aggressive growth plans for the Indian market, the capacity expansion is inevitable. The partners have invested Rs 2,600 crore so far in the plant.
On cards for Nissan is to launch a sedan on the Micra platform later this year which will be followed by a multipurpose vehicle next year. "The sedan will be in the C segment (competing with Ford Fiesta and Honda City) while the MPV will compete with Innova," he said.
The company is also learnt to be working with the Hindujas on a small car project , smaller than the Micra. "There is a big market in that segment. We are in the conceptualization stage. I do not wish to comment on with whom we are working with on that project," Tokuyama said.
Component sourcing by Nissan from India for its worldwide operations is also gaining momentum. The company had envisaged $10 million worth components to be sourced from Indian vendors for its plants in Thailand , China, Japan and the UK. "For the last year we sourced components worth $40 million. For the current fiscal (ending March 2012), we will source $100 million worth parts," he said.
On Micra, he said that from July 2010 (when the car was launched) till March 2011, the company sold 14000 cars in India and exported 56000 units to Europe, Africa and Middle East. "Going by those numbers it might sound as if we are concentrating only on exports. For us, the priority is Indian market ," Tokuyama said.
The dealer footprint is rising . As of March 2011 the company had 32 dealers and this will touch the 100-mark by March 2013.
Telcos top IPL ad charts with 3G campaigns
MUMBAI: Mobile phone operators have once again topped the advertising chart for the Indian Premium League (IPL). Vodafone, Tata Docomo, Airtel and Idea were the most seen brands during IPL's fourth edition as they pushed their just launched 3G services on television.
TAM Sports, a television sports viewership tracker, said other top brands to advertise during the IPL included Hyundai i10, Cadbury's Dairy Milk, Volkswagen Passat , Havells fans in a three week period starting April 8.
Telecom companies were the most prominent advertisers during IPL-3, according to TAM Sports, which attracted 143 million viewers. Last year Vodafone, Tata Docomo, Idea Cellular, Airtel and Videocon Mobile occupied the top slots as the biggest advertisers.
While mobile service providers topped the chart, other categories like automobiles, soft drinks and air-conditioners made up the rest of the top five. TAM Sports ranks advertisers based on duration and does not indicate absolute money spent by a brand or advertiser.
This year many first-time consumer goods makers including, L'Oreal, Johnson & Johnson and ITC got on to the IPL bandwagon after data showed that the Twenty20 cricket format has a large number of female viewers. Although cellular operators have been traditionally associated with cricket, the launch of 3G services meant that they bought more on-air presence this year on SET Max, the official broadcaster of the IPL.
"A few years back, cola brands like Pepsi and Coke used to rule cricket advertising. But with the growth of telecom and automobile categories, they have taken the top position. This is also supplemented by the fact that there are newer players entering these two categories unlike the soft drinks category, which has only two big players," said Ajit Varghese, MD, Maxus India, the agency which bought media for Vodafone.
The top ten list of advertisers, as seen during the ad breaks of the IPL till now, features FMCG majors like L'Oreal, Cadbury, PepsiCo and Coca-Cola besides the mentioned telecommunication companies. TAM Sports has a separate list of top advertisers, categories and brands.
TAM Sports, a television sports viewership tracker, said other top brands to advertise during the IPL included Hyundai i10, Cadbury's Dairy Milk, Volkswagen Passat , Havells fans in a three week period starting April 8.
Telecom companies were the most prominent advertisers during IPL-3, according to TAM Sports, which attracted 143 million viewers. Last year Vodafone, Tata Docomo, Idea Cellular, Airtel and Videocon Mobile occupied the top slots as the biggest advertisers.
While mobile service providers topped the chart, other categories like automobiles, soft drinks and air-conditioners made up the rest of the top five. TAM Sports ranks advertisers based on duration and does not indicate absolute money spent by a brand or advertiser.
This year many first-time consumer goods makers including, L'Oreal, Johnson & Johnson and ITC got on to the IPL bandwagon after data showed that the Twenty20 cricket format has a large number of female viewers. Although cellular operators have been traditionally associated with cricket, the launch of 3G services meant that they bought more on-air presence this year on SET Max, the official broadcaster of the IPL.
"A few years back, cola brands like Pepsi and Coke used to rule cricket advertising. But with the growth of telecom and automobile categories, they have taken the top position. This is also supplemented by the fact that there are newer players entering these two categories unlike the soft drinks category, which has only two big players," said Ajit Varghese, MD, Maxus India, the agency which bought media for Vodafone.
The top ten list of advertisers, as seen during the ad breaks of the IPL till now, features FMCG majors like L'Oreal, Cadbury, PepsiCo and Coca-Cola besides the mentioned telecommunication companies. TAM Sports has a separate list of top advertisers, categories and brands.
Thursday, May 5, 2011
Transfer of shares without consideration doesn't attract capital gains tax: Authority for Advance Rulings
MUMBAI: Transfer of shares for the purpose of business reorganisation, if done without consideration, does not attract capital gains tax, according to a ruling by the Authority for Advance Rulings (AAR) in the case of US-based Goodyear Tire and Rubber Company .
In the ruling given on May 2, AAR, a quasi-judicial authority that decides on tax liability of transactions involving foreign companies, also held that Transfer Pricing provisions and rules governing withholding tax would apply only if the income is chargeable in India.
In this case, the US company wanted to transfer shares of its Indian subsidiary to its Singapore subsidiary without consideration. Since the transfer is without consideration, the US company claimed it is not liable to pay capital gains. The I-T department held that the arrangement is "treaty shopping" that will facilitate tax avoidance whenever shares are sold in future, taking advantage of the Indian-Singapore tax treaty.
The AAR decided in favour of the taxpayer. Under the facts of the case, the US company has a fully-owned subsidiary in Singapore - Goodyear Orient Company . The US company also owns 74% of Goodyear India . The US company was proposing to contribute its 74% paid-up capital in the Indian company to GOCPL Singapore, as part of its reorgansiation of the Asia-Pacific business.
The US company told the AAR that since the transfer of shares is without monetary consideration, the question of capital gains tax would not arise. Besides, as the transfer of shares was in the nature of gift, it cannot be construed as transfer of shares in the regular nature to attract provisions of capital gains.
But revenue department defended the case by saying that the transfer is for a better business environment and therefore not a gift. The revenue department also sees it as a treaty shopping to avoid capital gains tax in further, using the India-Singapore tax treaty.
The AAR viewed it as a transaction without consideration and therefore no question of capital gains. Secondly the AAR held that the consideration cannot be valued as there is no clear date of occurrence of taxable event. Besides, the shares are long term capital asset and therefore the assets of capital gains tax would not arise.
The AAR held there is no liability to tax in India and therefore provisions for transfer pricing rules and withholding tax would not apply in this case.
In the ruling given on May 2, AAR, a quasi-judicial authority that decides on tax liability of transactions involving foreign companies, also held that Transfer Pricing provisions and rules governing withholding tax would apply only if the income is chargeable in India.
In this case, the US company wanted to transfer shares of its Indian subsidiary to its Singapore subsidiary without consideration. Since the transfer is without consideration, the US company claimed it is not liable to pay capital gains. The I-T department held that the arrangement is "treaty shopping" that will facilitate tax avoidance whenever shares are sold in future, taking advantage of the Indian-Singapore tax treaty.
The AAR decided in favour of the taxpayer. Under the facts of the case, the US company has a fully-owned subsidiary in Singapore - Goodyear Orient Company . The US company also owns 74% of Goodyear India . The US company was proposing to contribute its 74% paid-up capital in the Indian company to GOCPL Singapore, as part of its reorgansiation of the Asia-Pacific business.
The US company told the AAR that since the transfer of shares is without monetary consideration, the question of capital gains tax would not arise. Besides, as the transfer of shares was in the nature of gift, it cannot be construed as transfer of shares in the regular nature to attract provisions of capital gains.
But revenue department defended the case by saying that the transfer is for a better business environment and therefore not a gift. The revenue department also sees it as a treaty shopping to avoid capital gains tax in further, using the India-Singapore tax treaty.
The AAR viewed it as a transaction without consideration and therefore no question of capital gains. Secondly the AAR held that the consideration cannot be valued as there is no clear date of occurrence of taxable event. Besides, the shares are long term capital asset and therefore the assets of capital gains tax would not arise.
The AAR held there is no liability to tax in India and therefore provisions for transfer pricing rules and withholding tax would not apply in this case.
RBI to interview all 7 EDs for Dy Guv job
Deputy Governor Shyamala Gopinath retires on June 20.
Shyamala GopinathThe government has started the process to identify a replacement for Shyamala Gopinath, deputy governor of the Reserve Bank of India (RBI) who retires on June 20. A search committee headed by Governor D Subbarao has called all seven executive directors of the central bank for interviews on May 13. To be eligible, a candidate should have two years of residual service.
Among the seven executive directors, V K Sharma is the seniormost, followed by V S Das. The other executive directors are G Gopalakrishna, H R Khan, D K Mohanty, S Karuppasamy and R Gandhi.
The central bank, which has created two more ED posts, will also conduct the interview for the selection of EDs on May 13.
With Gopinath retiring, there will be three vacancies for the ED’s job. Among the eligible candidates, Chief General Manager P Vijay Bhaskar, currently the regional director of Bangalore, is the seniormost. Bhaskar is followed by B Mahapatra and G Padmanavan in terms of seniority. In the last couple of years, RBI followed the seniority criteria to appoint an ED.
While the appointment of deputy governor is made by the government, RBI takes care of the ED appointment.
Traditionally, of the four deputy governors of RBI, one is a commercial banker, one an economist and two are promoted from within the central bank.
Shyamala Gopinath and Anand Sinha were promoted to the deputy governor’s post from the ranks of RBI. Deputy Governor K C Chakrabarty represents the commercial banking fraternity, while the other deputy governor, Subir Gokarn, is an economist.
Gopinath, who holds charge of nine departments, including foreign exchange, was appointed deputy governor in September 2004 for five years. A deputy governor in RBI can be appointed for a maximum of five years or till the age of 62, whichever is earlier.
In September 2009, Gopinath was reappointed by the government for a little less than two years. The government made an exception during the reappointment and relaxed the two-year residual service criterion. The retirement age for RBI deputy governor is 62, while for all other RBI employees, it is 60.
Shyamala GopinathThe government has started the process to identify a replacement for Shyamala Gopinath, deputy governor of the Reserve Bank of India (RBI) who retires on June 20. A search committee headed by Governor D Subbarao has called all seven executive directors of the central bank for interviews on May 13. To be eligible, a candidate should have two years of residual service.
Among the seven executive directors, V K Sharma is the seniormost, followed by V S Das. The other executive directors are G Gopalakrishna, H R Khan, D K Mohanty, S Karuppasamy and R Gandhi.
The central bank, which has created two more ED posts, will also conduct the interview for the selection of EDs on May 13.
With Gopinath retiring, there will be three vacancies for the ED’s job. Among the eligible candidates, Chief General Manager P Vijay Bhaskar, currently the regional director of Bangalore, is the seniormost. Bhaskar is followed by B Mahapatra and G Padmanavan in terms of seniority. In the last couple of years, RBI followed the seniority criteria to appoint an ED.
While the appointment of deputy governor is made by the government, RBI takes care of the ED appointment.
Traditionally, of the four deputy governors of RBI, one is a commercial banker, one an economist and two are promoted from within the central bank.
Shyamala Gopinath and Anand Sinha were promoted to the deputy governor’s post from the ranks of RBI. Deputy Governor K C Chakrabarty represents the commercial banking fraternity, while the other deputy governor, Subir Gokarn, is an economist.
Gopinath, who holds charge of nine departments, including foreign exchange, was appointed deputy governor in September 2004 for five years. A deputy governor in RBI can be appointed for a maximum of five years or till the age of 62, whichever is earlier.
In September 2009, Gopinath was reappointed by the government for a little less than two years. The government made an exception during the reappointment and relaxed the two-year residual service criterion. The retirement age for RBI deputy governor is 62, while for all other RBI employees, it is 60.
Sensex loses 1,400 pts in nine sessions
MUMBAI: A statement by the CBI counsel in the Supreme Court, which is hearing the 2G telecom spectrum allocation scam around Thursday noon, unnerved the stock market and led to a 1.4% slide in the sensex, its ninth consecutive session of losses and the longest such stint in a decade.
K K Venugopal, the CBI lawyer, said the agency could seek further details from business tycoons Ratan Tata and Anil Ambani. The statement triggered further jitters among investors on Dalal Street, leading to panic selling in the second half of the session with the sensex finally settling at 18,211, down 259 points. Over the last nine sessions, the sensex has lost nearly 1,400 points, or 7.1% while investors wealth, measured in terms of BSE's market cap, is down by about Rs 4.30 lakh crore to Rs 66 lakh crore now.
The slide was again prompted by foreign fund selling, with real estate, software and FMCG stocks leading the laggards. BSE data showed that FIIs were net sellers at Rs 780 crore, taking the current month's net outflow figure to about Rs 3,200 crore ($700 million). Institutional dealers said most of this selling is coming from exchange traded funds of European origin which invest here through the FII route.
The main reasons for foreign fund selling are rising inflation, which is leading to higher interest rate, increasing crude prices, which could force the government's fiscal calculations to go haywire and expectations of moderation in growth rates, dealers said. On Thursday, the CBI counsel's statement led to a 5.5% slide in RCOM, which closed at Rs 89. Among other companies allegedly involved in the 2G scam, Unitech lost 3.4% to Rs 35 while DB Realty closed 3.3% down at Rs 86.
Among the sensex stocks, other than RCom, which was the top loser, Tata Power lost 5.2% to Rs 1,229 and Reliance Infra closed 4.2% off at Rs 617. Of the 30 sensex stocks, 27 ended in the red.
K K Venugopal, the CBI lawyer, said the agency could seek further details from business tycoons Ratan Tata and Anil Ambani. The statement triggered further jitters among investors on Dalal Street, leading to panic selling in the second half of the session with the sensex finally settling at 18,211, down 259 points. Over the last nine sessions, the sensex has lost nearly 1,400 points, or 7.1% while investors wealth, measured in terms of BSE's market cap, is down by about Rs 4.30 lakh crore to Rs 66 lakh crore now.
The slide was again prompted by foreign fund selling, with real estate, software and FMCG stocks leading the laggards. BSE data showed that FIIs were net sellers at Rs 780 crore, taking the current month's net outflow figure to about Rs 3,200 crore ($700 million). Institutional dealers said most of this selling is coming from exchange traded funds of European origin which invest here through the FII route.
The main reasons for foreign fund selling are rising inflation, which is leading to higher interest rate, increasing crude prices, which could force the government's fiscal calculations to go haywire and expectations of moderation in growth rates, dealers said. On Thursday, the CBI counsel's statement led to a 5.5% slide in RCOM, which closed at Rs 89. Among other companies allegedly involved in the 2G scam, Unitech lost 3.4% to Rs 35 while DB Realty closed 3.3% down at Rs 86.
Among the sensex stocks, other than RCom, which was the top loser, Tata Power lost 5.2% to Rs 1,229 and Reliance Infra closed 4.2% off at Rs 617. Of the 30 sensex stocks, 27 ended in the red.
Wednesday, May 4, 2011
Asian Stocks Drop on Concern U.S. Economic Recovery is Waning
Asian stocks declined, dragging a regional benchmark index lower for a third day, as lower-than- forecast growth in U.S. service industries and jobs sparked concern the recovery in the world’s biggest economy is faltering.
James Hardie Industries SE (JHX), the largest seller of home siding in the U.S., dropped 1.9 percent. News Corp. (NWSA), the owner of Fox Broadcasting and the Twentieth Century Fox film studio, sank 3.4 percent after posting lower earnings. Hang Lung Properties Ltd. (101) led declines among Hong Kong developers as home sales in the city fell to the least in two years in April. San Miguel Corp. (SMC), the Philippines’ No. 1 food and beverage maker, plunged 31 percent after selling $1 billion of shares and bonds.
“The U.S. economic data looks to have lost significant momentum in the most recent month, and this is weighing on markets,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “Lower commodity prices overnight could also weigh on some sectors.”
The MSCI Asia Pacific excluding Japan Index dropped 0.3 percent to 494.17 as of 11:42 a.m. in Hong Kong, with four stocks falling for every three that advanced. The measure lost 0.3 percent last week as companies from Acer Inc. to LG Electronics Inc. posted earnings that missed estimates, sparking concern global growth may not be sustained even as the U.S. Federal Reserve renewed its pledge to stimulate the world’s biggest economy by keeping interest rates low.
Hong Kong’s Hang Seng Index (HSI) fell 0.1 percent, set for its longest streak of losses since September 2008. China’s Shanghai Composite Index slipped 0.2 percent. Markets in Japan, South Korea and Thailand were closed for a public holiday.
Australia Retail Sales
Australia’s S&P/ASX 200 Index was little changed after the nation’s retail sales unexpectedly fell in March as consumers spent less at department stores and supermarkets. Singapore’s Straits Times Index gained 0.1 percent. Taiwan’s Taiex Index climbed 0.5 percent.
Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. U.S. stocks dropped in New York yesterday for a third day as the nation’s services industries expanded in April at the slowest pace in eight months, missing economist estimates, and companies added fewer-than-forecast jobs. The S&P 500 and the Dow Jones Industrial Average both declined 0.7 percent.
The Institute for Supply Management’s index of non- manufacturing companies declined to 52.8 last month, lower than the median forecast of economists surveyed by Bloomberg News, from 57.3 in March, a report showed yesterday. Readings greater than 50 signal growth. Another report showed the pace of hiring cooled in April.
U.S. Jobs
Employment increased by 179,000 in April from a revised 207,000 the prior month, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 198,000 advance this month.
Foxconn International Holdings Ltd. (2038), the world’s No. 1 contract manufacturer of mobile phones, dipped 1.6 percent to HK$4.32 in Hong Kong. James Hardie, which gets about 72 percent of sales from the U.S., declined 1.9 percent to A$5.67. Billabong International Ltd. (BBG), the world’s largest surf-wear maker, fell 1.8 percent to A$6.60.
News Corp.’s Class B shares sank 3.4 percent to A$16.70 in Sydney after saying third-quarter net income declined 24 percent from a year ago to $639 million on falling movie revenue.
Property developers in Hong Kong retreated after a government report showed home sales in April declined 37.6 percent from a year earlier to 7,635. That’s the lowest since March 2009, according to data compiled by Bloomberg. The value of transactions slid 26.8 percent from a year earlier to HK$39 billion ($5 billion), the biggest yearly drop since June 2010, the report showed.
Hong Kong Developers
Hang Lung, Hong Kong’s third-biggest developer by market value, fell 2.6 percent to HK$33.15. Cheung Kong Holdings Ltd. (1), controlled by billionaire Li Ka-shing, dropped 0.8 percent to HK$118.70. Sun Hung Kai Properties Ltd. (16), the world’s largest developer by market value, lost 0.2 percent to HK$120.10.
San Miguel tumbled 31 percent to 106 pesos, the worst performance since 1990. The company said it and controlling shareholder Top Frontier Investment Holdings Inc. sold shares at a discounted price of 110 pesos each. The sale of shares and convertible bonds raised $1 billion, it said.
The MSCI Asia Pacific excluding Japan Index climbed 3.5 percent this year through yesterday, compared with gains of 7.1 percent by the S&P 500 and 1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark index are valued at 12.9 times estimated earnings on average as of the last close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
James Hardie Industries SE (JHX), the largest seller of home siding in the U.S., dropped 1.9 percent. News Corp. (NWSA), the owner of Fox Broadcasting and the Twentieth Century Fox film studio, sank 3.4 percent after posting lower earnings. Hang Lung Properties Ltd. (101) led declines among Hong Kong developers as home sales in the city fell to the least in two years in April. San Miguel Corp. (SMC), the Philippines’ No. 1 food and beverage maker, plunged 31 percent after selling $1 billion of shares and bonds.
“The U.S. economic data looks to have lost significant momentum in the most recent month, and this is weighing on markets,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “Lower commodity prices overnight could also weigh on some sectors.”
The MSCI Asia Pacific excluding Japan Index dropped 0.3 percent to 494.17 as of 11:42 a.m. in Hong Kong, with four stocks falling for every three that advanced. The measure lost 0.3 percent last week as companies from Acer Inc. to LG Electronics Inc. posted earnings that missed estimates, sparking concern global growth may not be sustained even as the U.S. Federal Reserve renewed its pledge to stimulate the world’s biggest economy by keeping interest rates low.
Hong Kong’s Hang Seng Index (HSI) fell 0.1 percent, set for its longest streak of losses since September 2008. China’s Shanghai Composite Index slipped 0.2 percent. Markets in Japan, South Korea and Thailand were closed for a public holiday.
Australia Retail Sales
Australia’s S&P/ASX 200 Index was little changed after the nation’s retail sales unexpectedly fell in March as consumers spent less at department stores and supermarkets. Singapore’s Straits Times Index gained 0.1 percent. Taiwan’s Taiex Index climbed 0.5 percent.
Futures on the Standard & Poor’s 500 Index rose 0.3 percent today. U.S. stocks dropped in New York yesterday for a third day as the nation’s services industries expanded in April at the slowest pace in eight months, missing economist estimates, and companies added fewer-than-forecast jobs. The S&P 500 and the Dow Jones Industrial Average both declined 0.7 percent.
The Institute for Supply Management’s index of non- manufacturing companies declined to 52.8 last month, lower than the median forecast of economists surveyed by Bloomberg News, from 57.3 in March, a report showed yesterday. Readings greater than 50 signal growth. Another report showed the pace of hiring cooled in April.
U.S. Jobs
Employment increased by 179,000 in April from a revised 207,000 the prior month, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 198,000 advance this month.
Foxconn International Holdings Ltd. (2038), the world’s No. 1 contract manufacturer of mobile phones, dipped 1.6 percent to HK$4.32 in Hong Kong. James Hardie, which gets about 72 percent of sales from the U.S., declined 1.9 percent to A$5.67. Billabong International Ltd. (BBG), the world’s largest surf-wear maker, fell 1.8 percent to A$6.60.
News Corp.’s Class B shares sank 3.4 percent to A$16.70 in Sydney after saying third-quarter net income declined 24 percent from a year ago to $639 million on falling movie revenue.
Property developers in Hong Kong retreated after a government report showed home sales in April declined 37.6 percent from a year earlier to 7,635. That’s the lowest since March 2009, according to data compiled by Bloomberg. The value of transactions slid 26.8 percent from a year earlier to HK$39 billion ($5 billion), the biggest yearly drop since June 2010, the report showed.
Hong Kong Developers
Hang Lung, Hong Kong’s third-biggest developer by market value, fell 2.6 percent to HK$33.15. Cheung Kong Holdings Ltd. (1), controlled by billionaire Li Ka-shing, dropped 0.8 percent to HK$118.70. Sun Hung Kai Properties Ltd. (16), the world’s largest developer by market value, lost 0.2 percent to HK$120.10.
San Miguel tumbled 31 percent to 106 pesos, the worst performance since 1990. The company said it and controlling shareholder Top Frontier Investment Holdings Inc. sold shares at a discounted price of 110 pesos each. The sale of shares and convertible bonds raised $1 billion, it said.
The MSCI Asia Pacific excluding Japan Index climbed 3.5 percent this year through yesterday, compared with gains of 7.1 percent by the S&P 500 and 1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark index are valued at 12.9 times estimated earnings on average as of the last close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Bharti Falls in Mumbai Trading After Profit Declines, Missing Estimates
Bharti Airtel Ltd. (BHARTI), India’s biggest mobile-phone operator, fell as much as 4.5 percent in Mumbai after reporting fourth-quarter profit that missed analysts’ estimates.
Net income in the three months ended March 31 dropped to 14 billion rupees from 20.4 billion rupees a year earlier, it said in a statement to the Bombay Stock Exchange today. Analysts surveyed by Bloomberg had estimated a profit of 16.3 billion rupees.
Net income in the three months ended March 31 dropped to 14 billion rupees from 20.4 billion rupees a year earlier, it said in a statement to the Bombay Stock Exchange today. Analysts surveyed by Bloomberg had estimated a profit of 16.3 billion rupees.
Intel Increases Transistor Speed by Building Upward
HILLSBORO, Ore. — Intel announced on Wednesday that it had again found a way to make computer chips that could process information more quickly and with less power in less space.
The transistors on computer chips — whether for PC’s or smartphones — have been designed in essentially the same way since 1959 when Robert Noyce, Intel’s co-founder, and Jack Kilby of Texas Instruments independently invented the first integrated circuits that became the basic building block of electronic devices in the information age.
These early transistors were built on a flat surface. But like a real estate developer building skyscrapers to get more rentable space from a plot of land, Intel is now building up. When the space between the billions of tiny electronic switches on the flat surface of a computer chip is measured in the width of just dozens of atoms, designers needed the third dimension to find more room.
The company has already begun making its microprocessors using a new 3-D transistor design, called a Finfet (for fin field-effect transistor), which is based around a remarkably small pillar, or fin, of silicon that rises above the surface of the chip. Intel, based in Santa Clara, Calif., plans to enter general production based on the new technology some time later this year.
Although the company did not give technical details about its new process in its Wednesday announcement, it said that it expected to be able to make chips that run as much as 37 percent faster in low-voltage applications and it would be able to cut power consumption as much as 50 percent.
Intel currently uses a photolithographic process to make a chip, in which the smallest feature on the chip is just 32 nanometers, a level of microscopic manufacture that was reached in 2009. (By comparison a human red blood cell is 7,500 nanometers in width and a strand of DNA is 2.5 nanometers.) “Intel is on track for 22-nanometer manufacturing later this year,” said Mark T. Bohr, an Intel senior fellow and the scientist who has overseen the effort to develop the next generation of smaller transistors.
The company’s engineers said that they now felt confident that they would be able to solve the challenges of making chips through at least the 10-nanometer generation, which is likely to happen in 2015.
The timing of the announcement Wednesday is significant, Dr. Bohr said, because it is evidence that the world’s largest chip maker is not slipping from the pace of doubling the number of transistors that can be etched onto a sliver of silicon every two years, a phenomenon known as Moore’s Law. Although not a law of physics, the 1965 observation by Intel’s co-founder, Gordon Moore, has defined the speed of innovation for much of the world’s economy. It has also set the computing industry apart from other types of manufacturing because it has continued to improve at an accelerating rate, offering greater computing power and lower cost at regular intervals.
However, despite its promise and the company’s bold claims, Intel’s 3-D transistor is still a controversial technology within the chip industry. Indeed, a number of the company’s competitors say they believe that Intel is taking a what could be a disastrous multibillion-dollar gamble on an unproved technology.
There has been industry speculation that Finfet technology will give Intel a clear speed advantage, but possibly less control over power consumption than alternative approaches.
By opting for a technology that emphasizes speed over low power, Intel faces the possibility that it could win the technology battle and yet lose the more important battle in the marketplace. The scope of Intel’s gamble is underscored by the fact that while the company dominates in the markets for data center computers, desktops and laptops, it has largely been locked out of the tablet and smartphone markets, which are growing far more quickly than the traditional PC industry.
Those devices use ultra-low-powered chips to conserve battery power and reduce overheating. Apple, for example, uses Intel’s microprocessors for its desktops and laptops, but for the iPhone and iPad it has chosen to use a rival low-power design, built by others, that Apple originally helped pioneer in the late 1980s.
Industry executives and analysts have said that Intel is likely to have a lead of a full generation over its rivals in the shift to 3-D transistors. For example, T.S.M.C., the Taiwan-based chip maker, has said that it does not plan to deploy Finfet transistor technology for another two years.
Other companies, like ST Microelectronics, are wagering that an alternative technology based on placing a remarkably thin insulating layer below traditional transistors will chart a safer course toward the next generation of chip manufacturing. They believe that the insulation approach will excel in low-power applications, and that could be a crucial advantage in consumer-oriented markets where a vast majority of popular products are both hand-held and battery-powered.
“Silicon-on-insulator could be a win in terms of power efficiency,” said David Lammers, the editor in chief of Semiconductor Manufacturing and Design Community, a Web site. “From what I am hearing from the S.O.I. camp, there is a consensus and concession that Finfets are faster. That’s the way you want to go for leading-edge performance.”
In a factory tour here last week, Intel used a scanning electronic microscope to display a computer chip made using the new 22-nanometer manufacturing process. Viewed at a magnification of more than 100,000 times, the silicon fins are clearly visible as a series of walls projected above a flat surface.
It is possible to make transistors out of one or a number of the tiny fins to build switches that have different characteristics, such as faster switching speeds or extremely low power. Looking at the chip under less magnification, it is possible to see the wiring design, which appears much like a street map displaying millions of intersections.
Despite the impressive display, Intel’s executives acknowledge the challenge the company is facing in trying to catch up in the new consumer markets that so far have eluded it.
“The ecosystem right now is not aligned in our favor,” said Andy D. Bryant, Intel’s chief administrative officer, who now runs the company’s technology and manufacturing group. “It has to be good enough for the ecosystem to take notice and say, ‘We better pay attention to those guys.’ ”
The transistors on computer chips — whether for PC’s or smartphones — have been designed in essentially the same way since 1959 when Robert Noyce, Intel’s co-founder, and Jack Kilby of Texas Instruments independently invented the first integrated circuits that became the basic building block of electronic devices in the information age.
These early transistors were built on a flat surface. But like a real estate developer building skyscrapers to get more rentable space from a plot of land, Intel is now building up. When the space between the billions of tiny electronic switches on the flat surface of a computer chip is measured in the width of just dozens of atoms, designers needed the third dimension to find more room.
The company has already begun making its microprocessors using a new 3-D transistor design, called a Finfet (for fin field-effect transistor), which is based around a remarkably small pillar, or fin, of silicon that rises above the surface of the chip. Intel, based in Santa Clara, Calif., plans to enter general production based on the new technology some time later this year.
Although the company did not give technical details about its new process in its Wednesday announcement, it said that it expected to be able to make chips that run as much as 37 percent faster in low-voltage applications and it would be able to cut power consumption as much as 50 percent.
Intel currently uses a photolithographic process to make a chip, in which the smallest feature on the chip is just 32 nanometers, a level of microscopic manufacture that was reached in 2009. (By comparison a human red blood cell is 7,500 nanometers in width and a strand of DNA is 2.5 nanometers.) “Intel is on track for 22-nanometer manufacturing later this year,” said Mark T. Bohr, an Intel senior fellow and the scientist who has overseen the effort to develop the next generation of smaller transistors.
The company’s engineers said that they now felt confident that they would be able to solve the challenges of making chips through at least the 10-nanometer generation, which is likely to happen in 2015.
The timing of the announcement Wednesday is significant, Dr. Bohr said, because it is evidence that the world’s largest chip maker is not slipping from the pace of doubling the number of transistors that can be etched onto a sliver of silicon every two years, a phenomenon known as Moore’s Law. Although not a law of physics, the 1965 observation by Intel’s co-founder, Gordon Moore, has defined the speed of innovation for much of the world’s economy. It has also set the computing industry apart from other types of manufacturing because it has continued to improve at an accelerating rate, offering greater computing power and lower cost at regular intervals.
However, despite its promise and the company’s bold claims, Intel’s 3-D transistor is still a controversial technology within the chip industry. Indeed, a number of the company’s competitors say they believe that Intel is taking a what could be a disastrous multibillion-dollar gamble on an unproved technology.
There has been industry speculation that Finfet technology will give Intel a clear speed advantage, but possibly less control over power consumption than alternative approaches.
By opting for a technology that emphasizes speed over low power, Intel faces the possibility that it could win the technology battle and yet lose the more important battle in the marketplace. The scope of Intel’s gamble is underscored by the fact that while the company dominates in the markets for data center computers, desktops and laptops, it has largely been locked out of the tablet and smartphone markets, which are growing far more quickly than the traditional PC industry.
Those devices use ultra-low-powered chips to conserve battery power and reduce overheating. Apple, for example, uses Intel’s microprocessors for its desktops and laptops, but for the iPhone and iPad it has chosen to use a rival low-power design, built by others, that Apple originally helped pioneer in the late 1980s.
Industry executives and analysts have said that Intel is likely to have a lead of a full generation over its rivals in the shift to 3-D transistors. For example, T.S.M.C., the Taiwan-based chip maker, has said that it does not plan to deploy Finfet transistor technology for another two years.
Other companies, like ST Microelectronics, are wagering that an alternative technology based on placing a remarkably thin insulating layer below traditional transistors will chart a safer course toward the next generation of chip manufacturing. They believe that the insulation approach will excel in low-power applications, and that could be a crucial advantage in consumer-oriented markets where a vast majority of popular products are both hand-held and battery-powered.
“Silicon-on-insulator could be a win in terms of power efficiency,” said David Lammers, the editor in chief of Semiconductor Manufacturing and Design Community, a Web site. “From what I am hearing from the S.O.I. camp, there is a consensus and concession that Finfets are faster. That’s the way you want to go for leading-edge performance.”
In a factory tour here last week, Intel used a scanning electronic microscope to display a computer chip made using the new 22-nanometer manufacturing process. Viewed at a magnification of more than 100,000 times, the silicon fins are clearly visible as a series of walls projected above a flat surface.
It is possible to make transistors out of one or a number of the tiny fins to build switches that have different characteristics, such as faster switching speeds or extremely low power. Looking at the chip under less magnification, it is possible to see the wiring design, which appears much like a street map displaying millions of intersections.
Despite the impressive display, Intel’s executives acknowledge the challenge the company is facing in trying to catch up in the new consumer markets that so far have eluded it.
“The ecosystem right now is not aligned in our favor,” said Andy D. Bryant, Intel’s chief administrative officer, who now runs the company’s technology and manufacturing group. “It has to be good enough for the ecosystem to take notice and say, ‘We better pay attention to those guys.’ ”
Tuesday, May 3, 2011
U.S. Regulators Face Budget Pinch as Mandates Widen
Government regulators on the Wall Street beat have long been outnumbered and outspent by the companies they are supposed to police. But even after receiving budget increases from Congress last month, regulators are still falling behind.
The Securities and Exchange Commission and the Commodity Futures Trading Commission are struggling to fill crucial jobs, enforce new rules, upgrade market surveillance technology and pay for travel.
On a recent trip to New York to tour a trading floor, a group of employees from the commodities watchdog rode Mega Bus both ways, arriving late to their meeting despite a 5:30 a.m. departure. The bus, which cost $30 a person round trip, saved the agency roughly $1,000 over Amtrak.
“We spent hundreds of billions of dollars on a hideous bailout, and now we’re not going to fund reforms to prevent another one,” said Bart Chilton, a commissioner with the agency.
The money squeeze comes as Wall Street regulators take on added responsibilities in the wake of the financial crisis, including monitoring hedge funds, overseeing the $600 trillion derivatives market and other tasks mandated by the Dodd-Frank law.
Their budgets may soon be even tighter, with Republicans looking to cut the regulators’ spending beginning Oct. 1, the start of the government’s fiscal year. Gary Gensler, the chairman of the commodities agency, and Mary L. Schapiro, the head of the S.E.C., will discuss their budgets for the 2012 fiscal year before a Senate committee on Wednesday.
Current and former regulators warn that budgets cuts would prevent the agencies from enforcing hundreds of new rules enacted under Dodd-Frank, or worse, catching the next Bernard Madoff.
But critics contend that the agencies don’t deserve extra money, given that they missed warning signs and failed to catch serious wrongdoing in the years leading up to the crisis. The S.E.C., too, has been accused of mismanaging its finances. The Government Accountability Office has faulted the agency’s accounting almost every year since it began producing financial statements in 2004.
Some Republicans argue that the regulators’ cries of poverty are overblown. The S.E.C.’s budget this year is $1.18 billion, up 6 percent over 2010 — and nearly triple what it was a decade ago.
“A dramatic spending increase to fund the S.E.C. and C.F.T.C., as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation’s problems can be solved with more spending, not more efficiency,” Representative Scott Garrett, the New Jersey Republican who leads the House Financial Services Committee’s Capital Markets panel, said in a statement earlier this year.
While hiring bans and travel restrictions have been eased since the new budget, regulators say they are largely in a holding pattern as lawmakers debate the 2012 budget. Any further cuts, they say, could undermine their efforts to police Wall Street.
The commodities agency says the uncertainty has forced it to delay some investigations and forgo other potential cases altogether.
“We don’t have the sufficient number of bodies to pursue all relevant investigations and leads,” said Mr. Gensler, adding that his agency was short nearly 70 people in its enforcement division.
Robert S. Khuzami, the S.E.C.’s enforcement chief, has similar worries, noting that some Wall Street investigations have faced mounting delays. Recent departures of lawyers will only magnify the problem, he added.
Mr. Khuzami also said he faced a “significant backlog” of tips and referrals, including in the area of market manipulations and accounting irregularities. The tips, which come from whistle-blowers, law enforcement agencies and investors, often prompt S.E.C. investigations.
“The biggest concern is we’re not going to get to fraud and wrongdoing as early as we should,” he said. And if the agency’s budget is not increased in 2012, the S.E.C.’s enforcement division “won’t cast as wide a net,” he added.
Already, the S.E.C.’s enforcement division has adopted cutbacks. The division, for instance, has curbed its use of expert witnesses in some securities fraud trials, Mr. Khuzami said.
The division also started sending only one lawyer — sometimes a junior staff member — to conduct depositions and interview witnesses, according to defense lawyers and people close to the agency. Senior S.E.C. lawyers monitor the depositions via videoconference.
To avoid hotel costs, some S.E.C. investigators have shuttled between New York and Washington on Amtrak trains that leave around dawn and return the same day. The agency only recently started to again examine investment firms and public companies in some Southern states, after postponing reviews to avoid paying for plane fares.
Despite the recent budget increase, the S.E.C. “still must closely monitor expenses such as travel to make sure that each expense is truly mission-critical,” according to an internal agency memo dated April 14 that was provided to The New York Times. “It is not at all clear what fiscal year 2012 funding level will be approved by Congress,” said the memo, which was signed by Jeff Heslop, the S.E.C.’s chief operating officer.
While the S.E.C. offsets its budget with fees from Wall Street banks and other financial firms — and in recent years has even turned a profit for taxpayers — Congress sets the agency’s spending levels each year. Lawmakers in April raised the S.E.C.’s budget for the next few months by $74 million, to $1.18 billion. President Obama had requested $1.25 billion for the agency, and Dodd-Frank called for $1.3 billion.
The Commodity Futures Trading Commission received $202 million. Although that was a 20 percent increase over the previous year, the budget fell short of the $261 million the agency said it needed to enforce Dodd-Frank. The law requires the commission’s staff for the first time to oversee swaps, a type of derivative. The industry is seven times the size of the futures business now under its jurisdiction, Mr. Gensler said.
“With $202 million, we can grow moderately,” he said. But “we need more resources to protect the public and oversee the swaps market.”
After the budget increases, regulators ended a yearlong hiring freeze. But both agencies say they are reluctant to significantly increase staffing for fear of having their budgets cut in October.
“Please keep in mind that this round of hiring will focus on the agency’s very highest priorities, and many divisions/offices may receive approval for very few, if any, of their priorities at this time,” the internal S.E.C. memo said. The memo further instructed officials to compile a list of the “top 10 priorities for hiring,” which will then be reviewed on a “case-by-case basis.”
The agency said it had not been able to fill nearly 200 positions this year owing to budget constraints. The S.E.C. had five open spots for experts in complex trading and received about 1,000 applicants for the roles; it could afford to hire just one person.
The agency also lacks money to adequately train the enforcement lawyers already on staff, Mr. Khuzami said. Some lawyers who wanted to attain their brokerage licenses to better understand the industry had to put off prep classes.
“I don’t think people realize how serious the problem is and how serious the consequences are,” said Harvey Pitt, who was chairman of the S.E.C. from 2001 to 2003.
The regulators, for instance, have had to slow down the adoption of Dodd-Frank rules. The S.E.C. has put off creating several offices mandated by the law, including a bureau that will oversee the credit rating agencies and a special office of “women and minority inclusion.”
The commodities agency, which planned to complete its 50 new rules by July, is now hoping to finish by early fall. Once the rules are complete, the agency will not have the funds to enforce them, Mr. Gensler said. Some 200 firms registering with the commission as swaps dealers may have to wait months for the agency to process their applications — unless it can hire several new employees in the department.
Regulators fear that Congress will soon slash their budgets, which could send the agencies scrambling to cut costs again — much as they did in recent months amid the threat of a government shutdown.
Until recently, employees from the commission were instructed not to order certain office supplies — items like three-hole punches and heavy-duty staplers. The ban was lifted after the new budget was instituted.
Some regulators were also paying for their own travel. When Mr. Gensler, a former Goldman Sachs executive, headed to Brussels to help the European Parliament create new derivatives rules, he paid out of his own pocket.
Another commissioner from the commodities agency who attended a conference in Boca Raton, Fla., paid for a night at the Sheraton using his family’s promotional points. Mr. Gensler attended via a videoconference.
The Securities and Exchange Commission and the Commodity Futures Trading Commission are struggling to fill crucial jobs, enforce new rules, upgrade market surveillance technology and pay for travel.
On a recent trip to New York to tour a trading floor, a group of employees from the commodities watchdog rode Mega Bus both ways, arriving late to their meeting despite a 5:30 a.m. departure. The bus, which cost $30 a person round trip, saved the agency roughly $1,000 over Amtrak.
“We spent hundreds of billions of dollars on a hideous bailout, and now we’re not going to fund reforms to prevent another one,” said Bart Chilton, a commissioner with the agency.
The money squeeze comes as Wall Street regulators take on added responsibilities in the wake of the financial crisis, including monitoring hedge funds, overseeing the $600 trillion derivatives market and other tasks mandated by the Dodd-Frank law.
Their budgets may soon be even tighter, with Republicans looking to cut the regulators’ spending beginning Oct. 1, the start of the government’s fiscal year. Gary Gensler, the chairman of the commodities agency, and Mary L. Schapiro, the head of the S.E.C., will discuss their budgets for the 2012 fiscal year before a Senate committee on Wednesday.
Current and former regulators warn that budgets cuts would prevent the agencies from enforcing hundreds of new rules enacted under Dodd-Frank, or worse, catching the next Bernard Madoff.
But critics contend that the agencies don’t deserve extra money, given that they missed warning signs and failed to catch serious wrongdoing in the years leading up to the crisis. The S.E.C., too, has been accused of mismanaging its finances. The Government Accountability Office has faulted the agency’s accounting almost every year since it began producing financial statements in 2004.
Some Republicans argue that the regulators’ cries of poverty are overblown. The S.E.C.’s budget this year is $1.18 billion, up 6 percent over 2010 — and nearly triple what it was a decade ago.
“A dramatic spending increase to fund the S.E.C. and C.F.T.C., as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation’s problems can be solved with more spending, not more efficiency,” Representative Scott Garrett, the New Jersey Republican who leads the House Financial Services Committee’s Capital Markets panel, said in a statement earlier this year.
While hiring bans and travel restrictions have been eased since the new budget, regulators say they are largely in a holding pattern as lawmakers debate the 2012 budget. Any further cuts, they say, could undermine their efforts to police Wall Street.
The commodities agency says the uncertainty has forced it to delay some investigations and forgo other potential cases altogether.
“We don’t have the sufficient number of bodies to pursue all relevant investigations and leads,” said Mr. Gensler, adding that his agency was short nearly 70 people in its enforcement division.
Robert S. Khuzami, the S.E.C.’s enforcement chief, has similar worries, noting that some Wall Street investigations have faced mounting delays. Recent departures of lawyers will only magnify the problem, he added.
Mr. Khuzami also said he faced a “significant backlog” of tips and referrals, including in the area of market manipulations and accounting irregularities. The tips, which come from whistle-blowers, law enforcement agencies and investors, often prompt S.E.C. investigations.
“The biggest concern is we’re not going to get to fraud and wrongdoing as early as we should,” he said. And if the agency’s budget is not increased in 2012, the S.E.C.’s enforcement division “won’t cast as wide a net,” he added.
Already, the S.E.C.’s enforcement division has adopted cutbacks. The division, for instance, has curbed its use of expert witnesses in some securities fraud trials, Mr. Khuzami said.
The division also started sending only one lawyer — sometimes a junior staff member — to conduct depositions and interview witnesses, according to defense lawyers and people close to the agency. Senior S.E.C. lawyers monitor the depositions via videoconference.
To avoid hotel costs, some S.E.C. investigators have shuttled between New York and Washington on Amtrak trains that leave around dawn and return the same day. The agency only recently started to again examine investment firms and public companies in some Southern states, after postponing reviews to avoid paying for plane fares.
Despite the recent budget increase, the S.E.C. “still must closely monitor expenses such as travel to make sure that each expense is truly mission-critical,” according to an internal agency memo dated April 14 that was provided to The New York Times. “It is not at all clear what fiscal year 2012 funding level will be approved by Congress,” said the memo, which was signed by Jeff Heslop, the S.E.C.’s chief operating officer.
While the S.E.C. offsets its budget with fees from Wall Street banks and other financial firms — and in recent years has even turned a profit for taxpayers — Congress sets the agency’s spending levels each year. Lawmakers in April raised the S.E.C.’s budget for the next few months by $74 million, to $1.18 billion. President Obama had requested $1.25 billion for the agency, and Dodd-Frank called for $1.3 billion.
The Commodity Futures Trading Commission received $202 million. Although that was a 20 percent increase over the previous year, the budget fell short of the $261 million the agency said it needed to enforce Dodd-Frank. The law requires the commission’s staff for the first time to oversee swaps, a type of derivative. The industry is seven times the size of the futures business now under its jurisdiction, Mr. Gensler said.
“With $202 million, we can grow moderately,” he said. But “we need more resources to protect the public and oversee the swaps market.”
After the budget increases, regulators ended a yearlong hiring freeze. But both agencies say they are reluctant to significantly increase staffing for fear of having their budgets cut in October.
“Please keep in mind that this round of hiring will focus on the agency’s very highest priorities, and many divisions/offices may receive approval for very few, if any, of their priorities at this time,” the internal S.E.C. memo said. The memo further instructed officials to compile a list of the “top 10 priorities for hiring,” which will then be reviewed on a “case-by-case basis.”
The agency said it had not been able to fill nearly 200 positions this year owing to budget constraints. The S.E.C. had five open spots for experts in complex trading and received about 1,000 applicants for the roles; it could afford to hire just one person.
The agency also lacks money to adequately train the enforcement lawyers already on staff, Mr. Khuzami said. Some lawyers who wanted to attain their brokerage licenses to better understand the industry had to put off prep classes.
“I don’t think people realize how serious the problem is and how serious the consequences are,” said Harvey Pitt, who was chairman of the S.E.C. from 2001 to 2003.
The regulators, for instance, have had to slow down the adoption of Dodd-Frank rules. The S.E.C. has put off creating several offices mandated by the law, including a bureau that will oversee the credit rating agencies and a special office of “women and minority inclusion.”
The commodities agency, which planned to complete its 50 new rules by July, is now hoping to finish by early fall. Once the rules are complete, the agency will not have the funds to enforce them, Mr. Gensler said. Some 200 firms registering with the commission as swaps dealers may have to wait months for the agency to process their applications — unless it can hire several new employees in the department.
Regulators fear that Congress will soon slash their budgets, which could send the agencies scrambling to cut costs again — much as they did in recent months amid the threat of a government shutdown.
Until recently, employees from the commission were instructed not to order certain office supplies — items like three-hole punches and heavy-duty staplers. The ban was lifted after the new budget was instituted.
Some regulators were also paying for their own travel. When Mr. Gensler, a former Goldman Sachs executive, headed to Brussels to help the European Parliament create new derivatives rules, he paid out of his own pocket.
Another commissioner from the commodities agency who attended a conference in Boca Raton, Fla., paid for a night at the Sheraton using his family’s promotional points. Mr. Gensler attended via a videoconference.
Bank looms large in Ambani manoeuvre
Mukesh Ambani, the Indian billionaire, is known for keeping his cards close to his chest. No surprise, then, that more than a month after he announced his entry into India’s financial services sector via a joint venture with DE Shaw, the US hedge fund, few know exactly what he intends to do in the world of finance.
The union between the secretive businessman behind Reliance Industries and the $20bn fund known for using complicated mathematical models to spot market trends has left investors and market observers guessing.
But behind closed doors and in the exclusive clubs where many of Mumbai’s most influential spend their weekends, rumours abound that the billionaire aims to found the first bank owned by an Indian conglomerate.
“[Mukesh] Ambani definitely wants to open a bank,” says a person close to the chairman of Reliance Industries, his flagship holding company. “The man likes to think big when it comes to investing in a new business.”
His end goal, say people familiar with the matter, is a “Bank of Ambani” – as some financiers have termed the budding financial venture – that can compete with ICICI Bank, India’s largest private sector lender and retail bank.
Building a bank from scratch is ambitious but for a man whose father went from son of a poor village teacher in Gujarat to founder of India’s biggest family-controlled conglomerate, the mission is far from impossible.
Analysts say that given the landscape, a “Bank of Ambani” would make sense.
India’s state-dominated banking sector, while fragmented, is stable, according to Moody’s. One of its strengths is its “favourable funding profile, driven mainly by retail customer deposits and a minimal dependence on wholesale funding, which provides stability to the banks,” says the US rating agency.
The country’s biggest private sector banks including ICICI and HDFC have weathered the global financial crisis better than peers in developed markets and since late 2009 have routinely reported record quarterly profits as credit demand surges.
But more importantly, most of India’s 1.2bn people still have no access to formal banking services, a predicament that has prompted the government to propose allotting new banking licences.
The government is keen to tap the expertise of the private sector, which in industries such as consumer goods and mobile telephony has found ingenious ways to reach new markets.
Reliance is expected to have cash and cash equivalents worth about $22bn by the end of March 2012, according to HSBC.
DE Shaw has extensive experience in India, where it employs more than 1,300 people in corporate debt and portfolio management, making Asia’s third-largest economy its biggest base for operations outside the US.
Analysts say that Reliance’s financial war chest and powerful brand within India are a good match with DE Shaw’s technology and sectoral experience to build a solid and profitable retail banking network.
However, the ambitions of the man who ranked ninth in the Forbes March 2011 global rich list with a fortune of $27bn could be thwarted by India’s central bank.
The Reserve Bank of India, which regulates the industry, is divided over whether conglomerates should be permitted to own banks. “Conflicts of interest, concentration of economic power, likely political affiliations, potential for regulatory capture, governance and safety net issues are the main concerns,” it says.
The central bank was expected to make a call on the matter by the end of March but has postponed the decision indefinitely. Analysts, however, expect a verdict by the end of this year.
That delay partly explains Mr Ambani’s reluctance to disclose details about his intentions, as the central bank’s call on whether conglomerates can own banks will determine his plans in the financial services sector, says one analyst.
Even if the central bank’s verdict is No, Mr Ambani plans at least a private equity business, energy trading, a mutual fund and an infrastructure lending unit, say people familiar with the situation.
What is also certain is that Mr Ambani would be competing directly with his younger brother Anil, whose Reliance Capital is a significant operator in the financial services sector and a likely competitor for a banking licence.
The two brothers could be setting the scene for another battle, given the prevailing view that even if the central bank does give conglomerate ownership the green light, it is unlikely to allow both Ambani brothers to have fully fledged retail banking institutions.
The union between the secretive businessman behind Reliance Industries and the $20bn fund known for using complicated mathematical models to spot market trends has left investors and market observers guessing.
But behind closed doors and in the exclusive clubs where many of Mumbai’s most influential spend their weekends, rumours abound that the billionaire aims to found the first bank owned by an Indian conglomerate.
“[Mukesh] Ambani definitely wants to open a bank,” says a person close to the chairman of Reliance Industries, his flagship holding company. “The man likes to think big when it comes to investing in a new business.”
His end goal, say people familiar with the matter, is a “Bank of Ambani” – as some financiers have termed the budding financial venture – that can compete with ICICI Bank, India’s largest private sector lender and retail bank.
Building a bank from scratch is ambitious but for a man whose father went from son of a poor village teacher in Gujarat to founder of India’s biggest family-controlled conglomerate, the mission is far from impossible.
Analysts say that given the landscape, a “Bank of Ambani” would make sense.
India’s state-dominated banking sector, while fragmented, is stable, according to Moody’s. One of its strengths is its “favourable funding profile, driven mainly by retail customer deposits and a minimal dependence on wholesale funding, which provides stability to the banks,” says the US rating agency.
The country’s biggest private sector banks including ICICI and HDFC have weathered the global financial crisis better than peers in developed markets and since late 2009 have routinely reported record quarterly profits as credit demand surges.
But more importantly, most of India’s 1.2bn people still have no access to formal banking services, a predicament that has prompted the government to propose allotting new banking licences.
The government is keen to tap the expertise of the private sector, which in industries such as consumer goods and mobile telephony has found ingenious ways to reach new markets.
Reliance is expected to have cash and cash equivalents worth about $22bn by the end of March 2012, according to HSBC.
DE Shaw has extensive experience in India, where it employs more than 1,300 people in corporate debt and portfolio management, making Asia’s third-largest economy its biggest base for operations outside the US.
Analysts say that Reliance’s financial war chest and powerful brand within India are a good match with DE Shaw’s technology and sectoral experience to build a solid and profitable retail banking network.
However, the ambitions of the man who ranked ninth in the Forbes March 2011 global rich list with a fortune of $27bn could be thwarted by India’s central bank.
The Reserve Bank of India, which regulates the industry, is divided over whether conglomerates should be permitted to own banks. “Conflicts of interest, concentration of economic power, likely political affiliations, potential for regulatory capture, governance and safety net issues are the main concerns,” it says.
The central bank was expected to make a call on the matter by the end of March but has postponed the decision indefinitely. Analysts, however, expect a verdict by the end of this year.
That delay partly explains Mr Ambani’s reluctance to disclose details about his intentions, as the central bank’s call on whether conglomerates can own banks will determine his plans in the financial services sector, says one analyst.
Even if the central bank’s verdict is No, Mr Ambani plans at least a private equity business, energy trading, a mutual fund and an infrastructure lending unit, say people familiar with the situation.
What is also certain is that Mr Ambani would be competing directly with his younger brother Anil, whose Reliance Capital is a significant operator in the financial services sector and a likely competitor for a banking licence.
The two brothers could be setting the scene for another battle, given the prevailing view that even if the central bank does give conglomerate ownership the green light, it is unlikely to allow both Ambani brothers to have fully fledged retail banking institutions.
Yields at 2009 High as RBI Tells Banks to Ready for Defaults: India Credit
Relative borrowing costs for India’s companies reached a two-year high after the central bank raised benchmark interest rates more than economists forecast and asked lenders to set aside more money to cover potential defaults.
The difference between three-year yields for the highest- rated company debt and government bonds widened to 188 basis points yesterday, the most since June 2009, according to data compiled by Bloomberg. The average rate for AAA borrowers of 9.56 percent compares with 3.26 percent in China and 1.38 percent in the U.S.
Banks will need to set aside cash for 25 percent of loans that have been classed as “doubtful” for up to one year from 20 percent earlier, the Reserve Bank of India said yesterday after raising borrowing costs 50 basis points. Mumbai-based IndusInd Bank Ltd. and Pramerica Asset Managers Pvt. predict corporate borrowing costs will reach 10 percent by June.
“There is a limit to which rates can be passed on to borrowers without triggering defaults,” Jagdish Pai, Bangalore- based executive director at state-run Canara Bank, said in an interview yesterday. “We are reaching those levels.”
Earnings Impact
India’s benchmark government bonds dropped yesterday as the Reserve Bank lifted the repurchase rate, at which it lends, to 7.25 percent. Seven of 25 economists in a Bloomberg survey had predicted the move, while the rest forecast a quarter-point increase. The yield on the 7.8 percent note due April 2021 rose nine basis points, or 0.09 percentage point, the most since the security started trading on April 11, to 8.23 percent, according to data compiled by Bloomberg.
The rate on ICICI Bank Ltd.’s 7.2 percent rupee notes due in May 2015 increased two basis points to 9.35 percent and the yield on HDFC Bank Ltd.’s 7.5 percent security maturing June 2015 climbed one basis point to 9.34 percent, according to data compiled by Bloomberg. Lenders will need to set aside cash for 40 percent of loans classified as “doubtful” for three years, the Reserve Bank said.
“There will be a net impact on earnings in the short term” for banks, said Sampath Kumar, an analyst at Mumbai-based brokerage India Infoline Ltd. “But it eventually means the banks will have better balance sheets.”
The new provisions will hurt some industries more than others, according to IndusInd Bank. Property developers are set for “large-scale distress” sales as they need to repay 1.8 trillion rupees ($40.4 billion) of debt in the coming two to three years, according to the local unit of London-based Knight Frank LLP.
Real-Estate Sector
“The RBI’s objective is to prepare banks if there is an economic downturn and non-performing loans balloon,” J Moses Harding, a Mumbai-based executive vice-president at IndusInd Bank, said in an interview yesterday. “The degree of impact will be higher for some sectors such as real estate and consumer durables.”
The central bank is monitoring real-estate prices in Mumbai, Governor Duvvuri Subbarao said at a press conference yesterday. The weighted average price of homes in the nation’s commercial capital rose to a record 9,234 rupees a square foot in the first quarter even as sales dropped to lowest since 2009, Mumbai-based Liases Foras Real Estate Rating & Research Pvt estimated.
The central bank is “fairly liberal” with debt provisioning and made it easy for lenders to restructure non- performing loans, Anil Agarwal, an analyst at Morgan Stanley, wrote in a report dated May 2. Restructuring typically requires banks to change the lending terms or replace an existing loan with new debt when a borrower struggles with the repayment.
Rupee Performance
“Banks have been on a restructuring spree for the last two years,” Agarwal wrote. “On these restructured loans, the provisioning requirement can be as low as 1 percent. Even when loans become NPLs, banks are required to make only minuscule provisions.”
India’s rupee has advanced 0.4 percent this year as three increases to the repurchase rate since Dec. 31 added to the currency’s yield appeal. The rupee fell 0.4 percent yesterday to 44.52 per dollar. The difference in yields between the nation’s government debt and U.S. Treasuries due in a decade has widened to 497 basis points from a nine-month low of 436 reached April 8.
India’s bonds are down 0.5 percent this month after a 1 percent drop in April, the worst performance among 10 Asian local-currency debt markets outside Japan, indexes compiled by HSBC Holdings Plc show.
The increase in provisions is unlikely to hurt banks as most lenders have sufficient capital, according to state-run Union Bank of India. The percentage of lenders’ capital to risk- weighted assets, or the capital adequacy ratio, must be at least 9 percent, according to the central bank.
‘Well-Capitalized’
“The banking system is well-capitalized to manage any default risks,” S.C. Kalia, Mumbai-based executive director at Union Bank, said in an interview yesterday.
Five-year credit-default swaps on State Bank of India, the nation’s largest lender that some investors regard as a proxy for the sovereign, has climbed three basis points this year to 164 basis points, according to CMA in New York. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
“Because of the rate hike, if there is a slowdown in growth and if there is a huge impact on a particular sector, there is a possibility” companies will have trouble repaying debt, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said in an interview yesterday.
The difference between three-year yields for the highest- rated company debt and government bonds widened to 188 basis points yesterday, the most since June 2009, according to data compiled by Bloomberg. The average rate for AAA borrowers of 9.56 percent compares with 3.26 percent in China and 1.38 percent in the U.S.
Banks will need to set aside cash for 25 percent of loans that have been classed as “doubtful” for up to one year from 20 percent earlier, the Reserve Bank of India said yesterday after raising borrowing costs 50 basis points. Mumbai-based IndusInd Bank Ltd. and Pramerica Asset Managers Pvt. predict corporate borrowing costs will reach 10 percent by June.
“There is a limit to which rates can be passed on to borrowers without triggering defaults,” Jagdish Pai, Bangalore- based executive director at state-run Canara Bank, said in an interview yesterday. “We are reaching those levels.”
Earnings Impact
India’s benchmark government bonds dropped yesterday as the Reserve Bank lifted the repurchase rate, at which it lends, to 7.25 percent. Seven of 25 economists in a Bloomberg survey had predicted the move, while the rest forecast a quarter-point increase. The yield on the 7.8 percent note due April 2021 rose nine basis points, or 0.09 percentage point, the most since the security started trading on April 11, to 8.23 percent, according to data compiled by Bloomberg.
The rate on ICICI Bank Ltd.’s 7.2 percent rupee notes due in May 2015 increased two basis points to 9.35 percent and the yield on HDFC Bank Ltd.’s 7.5 percent security maturing June 2015 climbed one basis point to 9.34 percent, according to data compiled by Bloomberg. Lenders will need to set aside cash for 40 percent of loans classified as “doubtful” for three years, the Reserve Bank said.
“There will be a net impact on earnings in the short term” for banks, said Sampath Kumar, an analyst at Mumbai-based brokerage India Infoline Ltd. “But it eventually means the banks will have better balance sheets.”
The new provisions will hurt some industries more than others, according to IndusInd Bank. Property developers are set for “large-scale distress” sales as they need to repay 1.8 trillion rupees ($40.4 billion) of debt in the coming two to three years, according to the local unit of London-based Knight Frank LLP.
Real-Estate Sector
“The RBI’s objective is to prepare banks if there is an economic downturn and non-performing loans balloon,” J Moses Harding, a Mumbai-based executive vice-president at IndusInd Bank, said in an interview yesterday. “The degree of impact will be higher for some sectors such as real estate and consumer durables.”
The central bank is monitoring real-estate prices in Mumbai, Governor Duvvuri Subbarao said at a press conference yesterday. The weighted average price of homes in the nation’s commercial capital rose to a record 9,234 rupees a square foot in the first quarter even as sales dropped to lowest since 2009, Mumbai-based Liases Foras Real Estate Rating & Research Pvt estimated.
The central bank is “fairly liberal” with debt provisioning and made it easy for lenders to restructure non- performing loans, Anil Agarwal, an analyst at Morgan Stanley, wrote in a report dated May 2. Restructuring typically requires banks to change the lending terms or replace an existing loan with new debt when a borrower struggles with the repayment.
Rupee Performance
“Banks have been on a restructuring spree for the last two years,” Agarwal wrote. “On these restructured loans, the provisioning requirement can be as low as 1 percent. Even when loans become NPLs, banks are required to make only minuscule provisions.”
India’s rupee has advanced 0.4 percent this year as three increases to the repurchase rate since Dec. 31 added to the currency’s yield appeal. The rupee fell 0.4 percent yesterday to 44.52 per dollar. The difference in yields between the nation’s government debt and U.S. Treasuries due in a decade has widened to 497 basis points from a nine-month low of 436 reached April 8.
India’s bonds are down 0.5 percent this month after a 1 percent drop in April, the worst performance among 10 Asian local-currency debt markets outside Japan, indexes compiled by HSBC Holdings Plc show.
The increase in provisions is unlikely to hurt banks as most lenders have sufficient capital, according to state-run Union Bank of India. The percentage of lenders’ capital to risk- weighted assets, or the capital adequacy ratio, must be at least 9 percent, according to the central bank.
‘Well-Capitalized’
“The banking system is well-capitalized to manage any default risks,” S.C. Kalia, Mumbai-based executive director at Union Bank, said in an interview yesterday.
Five-year credit-default swaps on State Bank of India, the nation’s largest lender that some investors regard as a proxy for the sovereign, has climbed three basis points this year to 164 basis points, according to CMA in New York. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
“Because of the rate hike, if there is a slowdown in growth and if there is a huge impact on a particular sector, there is a possibility” companies will have trouble repaying debt, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said in an interview yesterday.
Subbarao Tweaks India’s Rate-Rise Playbook as Inflation Undermines Bonds
The Reserve Bank of India’s decision to double the magnitude of interest-rate increases signals it is ready to step up the battle against inflation even at the risk of damping the nation’s economic growth.
The central bank’s half a percentage point increase in the benchmark repurchase rate to 7.25 percent yesterday was the biggest move since July 2008. Governor Duvvuri Subbarao indicated he would tighten borrowing costs further and predicted inflation will stay at “elevated levels” until September.
Bond yields rose to the highest level in more than three months yesterday as Subbarao accelerated monetary tightening after eight quarter-point moves since mid-March 2010. India’s inflation, already the fastest among Asia’s major economies, may quicken as surging oil costs put pressure on Prime Minister Manmohan Singh to allow higher fuel prices this year.
“The RBI’s focus on inflation over growth signals a major shift in its policy,” said Samiran Chakraborty, Mumbai-based chief economist at Standard Chartered Plc. “Controlling prices must be the priority now, even if it comes at the cost of sacrificing growth in the short term.”
The yield on the 7.80 percent note due April 2021 gained nine basis points to 8.23 percent at the close of trading in Mumbai. The rate is the highest level for a 10-year security since Jan. 17. A basis point is 0.01 percentage point.
‘Significantly Overshot’
Indian stocks dropped the most among major indexes in the world yesterday, with the Bombay Stock Exchange’s Sensitive Index losing 2.4 percent, the biggest decline since Feb. 24. The Indian rupee weakened 0.4 percent to 44.5175 per dollar, a one- week low.
India’s benchmark wholesale-price inflation accelerated to 8.98 percent in March and exceeded the central bank’s 8 percent estimate, prompting Subbarao to say yesterday that price gains have “significantly overshot even the most pessimistic projections over the past few months.”
By comparison, consumer prices rose 5.4 percent in China and 4.2 percent in South Korea.
“There is going to be some sacrifice of growth,” Reserve Bank Deputy Governor Subir Gokarn told Bloomberg-UTV in an interview yesterday. “The choice was to address the more significant risk and that is why we decided to shift our orientation by taking a more aggressive action.”
Growth Forecast
Rising borrowing costs will slow India’s economic growth this year and help ease inflation to 6 percent “with an upward bias” by March 31, 2012, Subbarao said. India’s economy may expand “around 8 percent” in the year through March from 8.6 percent in the previous 12 months, he estimated.
“With 9 to 10 percent levels of inflation, the RBI has no option but to slow the pace of growth in the near-term,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai and a former economic adviser in India’s finance ministry. “Growth has to be sacrificed now if you want to keep it going in the medium-term.”
The Reserve Bank yesterday sought to curtail risks tied to defaults by borrowers that may emerge if economic growth slows, asking lenders to set aside more funds to cover bad loans and double provisions for restructured debt.
The move came less than two weeks after it asked commercial banks to keep surplus funds as a buffer for when the economy slumps. India’s central bank is joining global policy makers in seeking to toughen rules after the 2008 credit crisis forced U.S. and European regulators to bail out lenders including Citigroup Inc. and Royal Bank of Scotland Group Plc.
Fuel Prices
“The inflation rate will remain close to the March 2011 level over the first half of 2011-12, before declining,” Subbarao said in yesterday’s statement. “These projections factor in an upward revision of petrol and diesel prices.”
The end of provincial elections gives the government room to ease fuel-price controls on state refiners such as Indian Oil Corp., the nation’s biggest refiner.
Goldman Sachs Group Inc. (GS) said in a report April 27 that the government may start allowing Indian Oil and others to charge more for the fuels once elections in four states and one union territory conclude on May 10.
Prime Minister Singh has sought to appease voters with price caps on diesel, kerosene and cooking gas after inflation triggered nationwide protests earlier this year.
Policy Stance
Inflation erodes spending power in India, where the per capita income is about $1,230, versus $40,580 in the U.S.
Indian Oil hasn’t increased diesel prices since June 26 and gasoline since Jan. 16, according to the company’s website.
Oil has climbed 23 percent in New York this year as revolts that overthrew governments in Tunisia and Egypt raised concern that supplies from the Middle East would be disrupted as protests spread.
“While the persistence of inflation over the next few months has been incorporated in this policy, the Reserve Bank will continue to persevere with its anti-inflationary stance,” Subbarao said.
Recent economic indicators such as the purchasing managers’ index and credit expansion signal consumer demand is holding up, stoking price pressures.
Factory output grew at the fastest pace in five months, with the purchasing managers’ index climbing to 58 in April from 57.9 in March, HSBC Holdings Plc (HSBA) and Markit Economics said May 2. A number above 50 indicates expansion.
Loan Growth
Commercial loans rose 22 percent from the previous year as of April 8, more than the 20 percent rate prescribed by the Reserve Bank.
Inflation pressures are also building up as companies including Videocon Industries Ltd. and Maruti Suzuki India Ltd. (MSIL) increase prices to counter higher costs of raw materials.
“The relentless rise in input costs is adding to the cost of doing business,” Suresh M. Hegde, head of finance at Videocon, an Indian maker of washing machines and television sets, said in an April 29 interview. “We are also facing wage pressures and will be forced to raise prices.”
Maruti, India’s largest carmaker, boosted prices of its vehicles by as much as 9,000 rupees ($202), the automaker’s sales chief, Mayank Pareek, said April 5.
“The extent to which the increase in input prices translates into output prices will have an influence on the inflation path,” the central bank said.
The central bank’s half a percentage point increase in the benchmark repurchase rate to 7.25 percent yesterday was the biggest move since July 2008. Governor Duvvuri Subbarao indicated he would tighten borrowing costs further and predicted inflation will stay at “elevated levels” until September.
Bond yields rose to the highest level in more than three months yesterday as Subbarao accelerated monetary tightening after eight quarter-point moves since mid-March 2010. India’s inflation, already the fastest among Asia’s major economies, may quicken as surging oil costs put pressure on Prime Minister Manmohan Singh to allow higher fuel prices this year.
“The RBI’s focus on inflation over growth signals a major shift in its policy,” said Samiran Chakraborty, Mumbai-based chief economist at Standard Chartered Plc. “Controlling prices must be the priority now, even if it comes at the cost of sacrificing growth in the short term.”
The yield on the 7.80 percent note due April 2021 gained nine basis points to 8.23 percent at the close of trading in Mumbai. The rate is the highest level for a 10-year security since Jan. 17. A basis point is 0.01 percentage point.
‘Significantly Overshot’
Indian stocks dropped the most among major indexes in the world yesterday, with the Bombay Stock Exchange’s Sensitive Index losing 2.4 percent, the biggest decline since Feb. 24. The Indian rupee weakened 0.4 percent to 44.5175 per dollar, a one- week low.
India’s benchmark wholesale-price inflation accelerated to 8.98 percent in March and exceeded the central bank’s 8 percent estimate, prompting Subbarao to say yesterday that price gains have “significantly overshot even the most pessimistic projections over the past few months.”
By comparison, consumer prices rose 5.4 percent in China and 4.2 percent in South Korea.
“There is going to be some sacrifice of growth,” Reserve Bank Deputy Governor Subir Gokarn told Bloomberg-UTV in an interview yesterday. “The choice was to address the more significant risk and that is why we decided to shift our orientation by taking a more aggressive action.”
Growth Forecast
Rising borrowing costs will slow India’s economic growth this year and help ease inflation to 6 percent “with an upward bias” by March 31, 2012, Subbarao said. India’s economy may expand “around 8 percent” in the year through March from 8.6 percent in the previous 12 months, he estimated.
“With 9 to 10 percent levels of inflation, the RBI has no option but to slow the pace of growth in the near-term,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai and a former economic adviser in India’s finance ministry. “Growth has to be sacrificed now if you want to keep it going in the medium-term.”
The Reserve Bank yesterday sought to curtail risks tied to defaults by borrowers that may emerge if economic growth slows, asking lenders to set aside more funds to cover bad loans and double provisions for restructured debt.
The move came less than two weeks after it asked commercial banks to keep surplus funds as a buffer for when the economy slumps. India’s central bank is joining global policy makers in seeking to toughen rules after the 2008 credit crisis forced U.S. and European regulators to bail out lenders including Citigroup Inc. and Royal Bank of Scotland Group Plc.
Fuel Prices
“The inflation rate will remain close to the March 2011 level over the first half of 2011-12, before declining,” Subbarao said in yesterday’s statement. “These projections factor in an upward revision of petrol and diesel prices.”
The end of provincial elections gives the government room to ease fuel-price controls on state refiners such as Indian Oil Corp., the nation’s biggest refiner.
Goldman Sachs Group Inc. (GS) said in a report April 27 that the government may start allowing Indian Oil and others to charge more for the fuels once elections in four states and one union territory conclude on May 10.
Prime Minister Singh has sought to appease voters with price caps on diesel, kerosene and cooking gas after inflation triggered nationwide protests earlier this year.
Policy Stance
Inflation erodes spending power in India, where the per capita income is about $1,230, versus $40,580 in the U.S.
Indian Oil hasn’t increased diesel prices since June 26 and gasoline since Jan. 16, according to the company’s website.
Oil has climbed 23 percent in New York this year as revolts that overthrew governments in Tunisia and Egypt raised concern that supplies from the Middle East would be disrupted as protests spread.
“While the persistence of inflation over the next few months has been incorporated in this policy, the Reserve Bank will continue to persevere with its anti-inflationary stance,” Subbarao said.
Recent economic indicators such as the purchasing managers’ index and credit expansion signal consumer demand is holding up, stoking price pressures.
Factory output grew at the fastest pace in five months, with the purchasing managers’ index climbing to 58 in April from 57.9 in March, HSBC Holdings Plc (HSBA) and Markit Economics said May 2. A number above 50 indicates expansion.
Loan Growth
Commercial loans rose 22 percent from the previous year as of April 8, more than the 20 percent rate prescribed by the Reserve Bank.
Inflation pressures are also building up as companies including Videocon Industries Ltd. and Maruti Suzuki India Ltd. (MSIL) increase prices to counter higher costs of raw materials.
“The relentless rise in input costs is adding to the cost of doing business,” Suresh M. Hegde, head of finance at Videocon, an Indian maker of washing machines and television sets, said in an April 29 interview. “We are also facing wage pressures and will be forced to raise prices.”
Maruti, India’s largest carmaker, boosted prices of its vehicles by as much as 9,000 rupees ($202), the automaker’s sales chief, Mayank Pareek, said April 5.
“The extent to which the increase in input prices translates into output prices will have an influence on the inflation path,” the central bank said.
India lifts rates to curb inflation
India has aggressively raised benchmark interest rates as the central bank tacitly acknowledged that the incremental steps it had taken over the past year to tighten monetary policy had failed to tackle rampant inflation.
The Reserve Bank of India on Tuesday increased its two main monetary policy rates by 50 basis points – double most economist forecasts. The measure was taken as the bank warned inflation was higher than expected, threatening prospects for economic growth.
However, industry figures warned the move would hit investment and growth.
Headline inflation jumped to 8.9 per cent in March, compared with an official RBI target of 4-5 per cent.
“Elevated rates of inflation pose significant risks to future growth. Bringing them down ... even at the cost of some growth in the short run, should take precedence,” said Duvvuri Subbarao, RBI governor.
Tuesday’s move took the repo rate – the rate at which the central bank lends to commercial banks – to 7.25 per cent. The reverse repo – the rate at which the RBI absorbs money from the system – was raised to 6.25 per cent.
The rate rise was the ninth in just over a year and has raised questions over the effectiveness of RBI efforts to curb inflation. “The 50bp hike is a clear sign they are starting to get a little desperate,” said A. Prasanna, chief economist at ICICI Securities. “The RBI has few shots left to tackle inflation.”
India’s manufacturing sector has been hard hit by the persistent rate rises, which have sharply increased borrowing costs and hurt investment plans.
“Going after inflation the way the RBI is, is like chasing your own shadow,” said Shankar Raman, senior vice-president at Larsen & Toubro, the heavy engineering and construction group. “With these rates we are going to have more tough times ahead.”
He said that many of the country’s vital infrastructure projects, which were primarily financed with debt, would be hindered by the hawkish monetary policy.
Chandrajit Banerjee, director-general of the Confederation of Indian Industry, said the rate rise would have “an adverse impact” on growth and investment: “The continued monetary tightening without any movement on structural reforms to address supply side bottlenecks will have an added impact on capacity creation and expansion.”
Ashutosh Limaye, a director at Jones Lang LaSalle India, the property agent, said the rate rise would also hurt India’s real estate sector as companies struggle to raise funds amid high credit costs.
The RBI on Tuesday also approved a new regulatory framework that imposes a 24 per cent interest rate cap and a 10-12 per cent margin on microloans for the poor.
The industry has been in crisis since October, when the state of Andhra Pradesh ordered a halt to microlending in a backlash over interest rates and debt collection tactics. The move prompted banks to cut the flow of credit to microlenders amid uncertainty over the industry’s ability to operate across the country.
SKS Microfinance, India’s largest microlender, said the new rules brought “regulatory clarity”.
The Reserve Bank of India on Tuesday increased its two main monetary policy rates by 50 basis points – double most economist forecasts. The measure was taken as the bank warned inflation was higher than expected, threatening prospects for economic growth.
However, industry figures warned the move would hit investment and growth.
Headline inflation jumped to 8.9 per cent in March, compared with an official RBI target of 4-5 per cent.
“Elevated rates of inflation pose significant risks to future growth. Bringing them down ... even at the cost of some growth in the short run, should take precedence,” said Duvvuri Subbarao, RBI governor.
Tuesday’s move took the repo rate – the rate at which the central bank lends to commercial banks – to 7.25 per cent. The reverse repo – the rate at which the RBI absorbs money from the system – was raised to 6.25 per cent.
The rate rise was the ninth in just over a year and has raised questions over the effectiveness of RBI efforts to curb inflation. “The 50bp hike is a clear sign they are starting to get a little desperate,” said A. Prasanna, chief economist at ICICI Securities. “The RBI has few shots left to tackle inflation.”
India’s manufacturing sector has been hard hit by the persistent rate rises, which have sharply increased borrowing costs and hurt investment plans.
“Going after inflation the way the RBI is, is like chasing your own shadow,” said Shankar Raman, senior vice-president at Larsen & Toubro, the heavy engineering and construction group. “With these rates we are going to have more tough times ahead.”
He said that many of the country’s vital infrastructure projects, which were primarily financed with debt, would be hindered by the hawkish monetary policy.
Chandrajit Banerjee, director-general of the Confederation of Indian Industry, said the rate rise would have “an adverse impact” on growth and investment: “The continued monetary tightening without any movement on structural reforms to address supply side bottlenecks will have an added impact on capacity creation and expansion.”
Ashutosh Limaye, a director at Jones Lang LaSalle India, the property agent, said the rate rise would also hurt India’s real estate sector as companies struggle to raise funds amid high credit costs.
The RBI on Tuesday also approved a new regulatory framework that imposes a 24 per cent interest rate cap and a 10-12 per cent margin on microloans for the poor.
The industry has been in crisis since October, when the state of Andhra Pradesh ordered a halt to microlending in a backlash over interest rates and debt collection tactics. The move prompted banks to cut the flow of credit to microlenders amid uncertainty over the industry’s ability to operate across the country.
SKS Microfinance, India’s largest microlender, said the new rules brought “regulatory clarity”.
Monday, May 2, 2011
Infosys to Hire More People in U.S., China to Boost Profit, Curb Attrition
Infosys Technologies Ltd. (INFO), India’s second-largest software exporter, plans to step up hiring in the U.S., China and other overseas markets as it seeks to check rising employee turnover and boost profit.
“Our customers are global, so we want to create a global footprint,” S.D. Shibulal, chief operating officer, said in an interview on May 1. “We really need to get talent in the Philippines, in China, in the Czech Republic and Brazil,” said the 56-year-old executive, who was last week named to take over as the company’s chief executive officer from Aug. 21.
Infosys plans to hire as many as 1,500 workers in the U.S., its biggest market, in the year started in April and will more than double the workforce in China in 18 months by adding a new campus in Shanghai, Shibulal said. The Bangalore-based company is expanding overseas after earnings missed estimates for a third time in four quarters and employee attrition worsened.
“A lot of work is done from high-cost locations despite the cost because of the value that is being provided there,” said Hitesh Shah, vice president of research at IDFC Securities Ltd. in Mumbai. “It could be a type of work that needs to be delivered from close to the client’s premises. Having a local resource might be more valuable than somebody you send from India.”
Shanghai Campus
The software exporter plans to spend $130 million for the Shanghai campus where it will hire as many as 4,000 employees over 18 months. Infosys currently has 3,000 workers in China.
Infosys rose 0.6 percent to 2,922.55 rupees at the 3:30 p.m. close in Mumbai trading yesterday. The stock has slumped 15 percent this year, compared with a 7.4 percent drop in the Bombay Stock Exchange’s benchmark Sensitive Index. Larger rival Tata Consultancy Services Ltd. (TCS) has lost 0.6 percent in the period.
The company plans to add people also in Mexico, Shibulal said. Infosys boosted revenue 14-fold in the past 10 years, while increasing its workforce 13-fold to 130,820 employees.
“China is a very good place to have centers similar to India because they produce a similar number of engineering graduates,” he said. “Mexico is a very good place to have a near-shore center for the U.S.”
Employee attrition at Infosys accelerated to 17 percent in the year ended in March, its highest annual rate in at least 13 years. The company may give wage increases of 1 to 2 percent to its workers outside India in the current year, while offering staff within the country pay raises of as much as 12 percent, Shibulal said April 15.
“One of the challenges of the industry is to expand the value chain and increase high value work,” Shibulal said. “That is why it is also important to look at global talent to leverage.”
“Our customers are global, so we want to create a global footprint,” S.D. Shibulal, chief operating officer, said in an interview on May 1. “We really need to get talent in the Philippines, in China, in the Czech Republic and Brazil,” said the 56-year-old executive, who was last week named to take over as the company’s chief executive officer from Aug. 21.
Infosys plans to hire as many as 1,500 workers in the U.S., its biggest market, in the year started in April and will more than double the workforce in China in 18 months by adding a new campus in Shanghai, Shibulal said. The Bangalore-based company is expanding overseas after earnings missed estimates for a third time in four quarters and employee attrition worsened.
“A lot of work is done from high-cost locations despite the cost because of the value that is being provided there,” said Hitesh Shah, vice president of research at IDFC Securities Ltd. in Mumbai. “It could be a type of work that needs to be delivered from close to the client’s premises. Having a local resource might be more valuable than somebody you send from India.”
Shanghai Campus
The software exporter plans to spend $130 million for the Shanghai campus where it will hire as many as 4,000 employees over 18 months. Infosys currently has 3,000 workers in China.
Infosys rose 0.6 percent to 2,922.55 rupees at the 3:30 p.m. close in Mumbai trading yesterday. The stock has slumped 15 percent this year, compared with a 7.4 percent drop in the Bombay Stock Exchange’s benchmark Sensitive Index. Larger rival Tata Consultancy Services Ltd. (TCS) has lost 0.6 percent in the period.
The company plans to add people also in Mexico, Shibulal said. Infosys boosted revenue 14-fold in the past 10 years, while increasing its workforce 13-fold to 130,820 employees.
“China is a very good place to have centers similar to India because they produce a similar number of engineering graduates,” he said. “Mexico is a very good place to have a near-shore center for the U.S.”
Employee attrition at Infosys accelerated to 17 percent in the year ended in March, its highest annual rate in at least 13 years. The company may give wage increases of 1 to 2 percent to its workers outside India in the current year, while offering staff within the country pay raises of as much as 12 percent, Shibulal said April 15.
“One of the challenges of the industry is to expand the value chain and increase high value work,” Shibulal said. “That is why it is also important to look at global talent to leverage.”
U.S. Business Has High Tax Rates but Pays Less
The United States may soon wind up with a distinction that makes business leaders cringe — the highest corporate tax rate in the world.
Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.
But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.
The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals “world leaders in tax avoidance,” according to Edward D. Kleinbard, a professor at the University of Southern California who was head of the Congressional joint committee on taxes. This has profound implications for businesses, the economy and the federal budget.
As Congress wrestles with how to get the deficit under control, one big point of contention is whether spending cuts will need to be accompanied by an increase in taxes on some individuals or businesses. Facing a full-court press from business leaders who say the tax system is outdated and onerous, President Obama, Congress and business leaders have been warily negotiating various proposals, though mostly about whether to cut the top corporate rate and to tighten tax laws and not about whether to increase revenue.
The United States is virtually alone in trying to tax its multinational corporations on their foreign earnings, but it allows companies to avoid those taxes indefinitely by keeping profits overseas. That encourages companies to use accounting maneuvers to shift profits to low-tax countries and to invest profits offshore, says David S. Miller, a partner at Cadwalader, Wickersham & Taft in New York.
Honeywell International, the New Jersey company that makes things as diverse as aerospace components and First Alert smoke detectors, reported in regulatory filings that in the last five years, it paid cash income taxes in the United States and abroad equal to 15 percent of its profits. On Friday, a Honeywell spokeswoman pointed out that the company had since made a large pension contribution, which effectively cut its profits and made its tax rate closer to 22 percent.
A major domestic competitor, United Technologies, reported an average of 24 percent over that time. A German rival, Siemens, reported 29 percent of its total profit.
In addition to being complex and uneven, the United States corporate tax code is inefficient and has become a diminishing source of revenue. Corporate taxes accounted for about 9 percent of all federal revenue in 2010. At $191 billion, they were equal to 1.3 percent of the nation’s gross domestic product. Most industrial countries collect more from companies, about 2.5 percent of output. Only a portion of that disparity can be explained by the many types of businesses in the United States that elect to be taxed at an individual rate.
“Whether the test is fairness or efficiency, the U.S. system gets really low marks,” said Michelle Hanlon, an M.I.T. professor who says the country needs to completely revamp the way it taxes corporations.
Not all American companies are willing or able to reduce their taxes drastically. Taxes vary more by industry here than abroad, according to a study released in February by Kevin S. Markle of Dartmouth and Douglas A. Shackelford of the University of North Carolina. At the high end, American retailers paid 31 percent in total income taxes, construction 30 percent and manufacturers 26 percent. Financial services companies paid an average of 20 percent, real estate 19 percent and mining 6 percent.
(Measuring taxes paid by companies is imprecise because tax filings remain private. In many cases, the estimates reported in a company’s financial filings with regulators overstate taxes paid in a year because they include deferred taxes. Nonetheless, academics, economists and elected officials use the estimates for comparative purposes.)
Because some companies are so effective at minimizing taxes, the average works out to far less than the official rate. United States companies pay about a quarter of their profits in federal income taxes, a few percentage points higher than the rate paid by companies in most other major industrial countries, according to a number of studies and tax experts.
Assorted proposals being discussed in Washington call for the rate to be lowered officially to about 25 percent and some tax breaks to be eliminated so that revenue remains unchanged.
But some prominent business leaders, including the chief executive of Procter & Gamble, are pushing for the rate to be reduced without reining in tax shelters. That would make the United States virtually the only country to change corporate taxes in recent years in a way that ended up adding to its deficit.
“One fact we know is that in all of the countries that have lowered their corporate rates in recent years, they still collected the same amount in revenues or more,” said Reuven S. Avi-Yonah, an international tax lawyer who teaches at the University of Michigan. “This means that they were broadening the base of the profits that corporations were actually taxed on.”
Procter & Gamble, whose products include Tide detergent and Crest toothpaste, paid an average of 24 percent of its profits in worldwide income taxes over the last three years, according to regulatory filings. That is nearly the same rate reported by two big European rivals, Unilever and Henkel.
Yet Robert A. McDonald, P.& G.’s top executive, testified before a Congressional committee this year about the need to cut the United States tax rate without ending tax breaks and shelters. “We need a tax system that addresses today’s hypercompetitive global marketplace,” Mr. McDonald said, arguing that the playing field was tilted away from American businesses.
Many liberal groups counter that ending the breaks, subsidies and shelters in the corporate tax code could provide enough money to lower the rate several percentage points and still increase revenue.
Furthermore, some business owners complain that the American system unfairly rewards disingenuous bookkeeping rather than innovation. It forces companies to compete “based not on product quality and services, but on accounting gymnastics,” said Paul Egerman, former chairman and chief executive of eScription, a medical transcription service in Boston.
No one is certain how much creative accounting costs the federal government in lost revenue, but most estimates say it easily exceeds $50 billion a year. Targeted tax preferences, which Congress created to intentionally benefit specific companies or industries, cost an estimated $100 billion more a year.
Many tax analysts are skeptical that Congress, business leaders and the Obama administration will be able to reach a deal before the 2012 election.
“It’s human nature that people are going to fight harder to preserve a benefit they already have than to get some new benefit,” said Clint Stretch, a principal at Deloitte Tax and a former counsel to the Congressional Joint Committee on Taxation. “The only way tax reform makes everyone happy is if everyone wins. And with the federal budget where it is today, that’s not possible.”
Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.
But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.
The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals “world leaders in tax avoidance,” according to Edward D. Kleinbard, a professor at the University of Southern California who was head of the Congressional joint committee on taxes. This has profound implications for businesses, the economy and the federal budget.
As Congress wrestles with how to get the deficit under control, one big point of contention is whether spending cuts will need to be accompanied by an increase in taxes on some individuals or businesses. Facing a full-court press from business leaders who say the tax system is outdated and onerous, President Obama, Congress and business leaders have been warily negotiating various proposals, though mostly about whether to cut the top corporate rate and to tighten tax laws and not about whether to increase revenue.
The United States is virtually alone in trying to tax its multinational corporations on their foreign earnings, but it allows companies to avoid those taxes indefinitely by keeping profits overseas. That encourages companies to use accounting maneuvers to shift profits to low-tax countries and to invest profits offshore, says David S. Miller, a partner at Cadwalader, Wickersham & Taft in New York.
Honeywell International, the New Jersey company that makes things as diverse as aerospace components and First Alert smoke detectors, reported in regulatory filings that in the last five years, it paid cash income taxes in the United States and abroad equal to 15 percent of its profits. On Friday, a Honeywell spokeswoman pointed out that the company had since made a large pension contribution, which effectively cut its profits and made its tax rate closer to 22 percent.
A major domestic competitor, United Technologies, reported an average of 24 percent over that time. A German rival, Siemens, reported 29 percent of its total profit.
In addition to being complex and uneven, the United States corporate tax code is inefficient and has become a diminishing source of revenue. Corporate taxes accounted for about 9 percent of all federal revenue in 2010. At $191 billion, they were equal to 1.3 percent of the nation’s gross domestic product. Most industrial countries collect more from companies, about 2.5 percent of output. Only a portion of that disparity can be explained by the many types of businesses in the United States that elect to be taxed at an individual rate.
“Whether the test is fairness or efficiency, the U.S. system gets really low marks,” said Michelle Hanlon, an M.I.T. professor who says the country needs to completely revamp the way it taxes corporations.
Not all American companies are willing or able to reduce their taxes drastically. Taxes vary more by industry here than abroad, according to a study released in February by Kevin S. Markle of Dartmouth and Douglas A. Shackelford of the University of North Carolina. At the high end, American retailers paid 31 percent in total income taxes, construction 30 percent and manufacturers 26 percent. Financial services companies paid an average of 20 percent, real estate 19 percent and mining 6 percent.
(Measuring taxes paid by companies is imprecise because tax filings remain private. In many cases, the estimates reported in a company’s financial filings with regulators overstate taxes paid in a year because they include deferred taxes. Nonetheless, academics, economists and elected officials use the estimates for comparative purposes.)
Because some companies are so effective at minimizing taxes, the average works out to far less than the official rate. United States companies pay about a quarter of their profits in federal income taxes, a few percentage points higher than the rate paid by companies in most other major industrial countries, according to a number of studies and tax experts.
Assorted proposals being discussed in Washington call for the rate to be lowered officially to about 25 percent and some tax breaks to be eliminated so that revenue remains unchanged.
But some prominent business leaders, including the chief executive of Procter & Gamble, are pushing for the rate to be reduced without reining in tax shelters. That would make the United States virtually the only country to change corporate taxes in recent years in a way that ended up adding to its deficit.
“One fact we know is that in all of the countries that have lowered their corporate rates in recent years, they still collected the same amount in revenues or more,” said Reuven S. Avi-Yonah, an international tax lawyer who teaches at the University of Michigan. “This means that they were broadening the base of the profits that corporations were actually taxed on.”
Procter & Gamble, whose products include Tide detergent and Crest toothpaste, paid an average of 24 percent of its profits in worldwide income taxes over the last three years, according to regulatory filings. That is nearly the same rate reported by two big European rivals, Unilever and Henkel.
Yet Robert A. McDonald, P.& G.’s top executive, testified before a Congressional committee this year about the need to cut the United States tax rate without ending tax breaks and shelters. “We need a tax system that addresses today’s hypercompetitive global marketplace,” Mr. McDonald said, arguing that the playing field was tilted away from American businesses.
Many liberal groups counter that ending the breaks, subsidies and shelters in the corporate tax code could provide enough money to lower the rate several percentage points and still increase revenue.
Furthermore, some business owners complain that the American system unfairly rewards disingenuous bookkeeping rather than innovation. It forces companies to compete “based not on product quality and services, but on accounting gymnastics,” said Paul Egerman, former chairman and chief executive of eScription, a medical transcription service in Boston.
No one is certain how much creative accounting costs the federal government in lost revenue, but most estimates say it easily exceeds $50 billion a year. Targeted tax preferences, which Congress created to intentionally benefit specific companies or industries, cost an estimated $100 billion more a year.
Many tax analysts are skeptical that Congress, business leaders and the Obama administration will be able to reach a deal before the 2012 election.
“It’s human nature that people are going to fight harder to preserve a benefit they already have than to get some new benefit,” said Clint Stretch, a principal at Deloitte Tax and a former counsel to the Congressional Joint Committee on Taxation. “The only way tax reform makes everyone happy is if everyone wins. And with the federal budget where it is today, that’s not possible.”
India Central Bank Signals Higher Rates on Growing Price Risks
India’s inflation risks have “amplified” because of higher commodity prices and “policy interventions” are needed, the central bank said, signaling the possibility of increasing borrowing costs today.
“Persistence of inflation warrants continuation of anti- inflationary monetary policy stance for sustaining growth,” the Reserve Bank of India said in a report yesterday. The rate decision is scheduled to be unveiled at 11 a.m. in Mumbai.
Governor Duvvuri Subbarao may boost the central bank’s benchmark repurchase rate to 7 percent from 6.75 percent, according to 18 of 25 economists in a Bloomberg News survey. The remaining seven including HSBC Group Plc predict a half percentage-point move to contain India’s inflation, which is the highest among the so-called BRICS nations after Russia.
“The hawkish comments indicate more monetary tightening today is a given,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai, and who expects a quarter-point increase. “Inflation will remain elevated in the near future.”
The Bombay Stock Exchange’s Sensitive Index declined 0.7 percent at the close of trading in Mumbai yesterday, while the yield on the 7.8 percent bond due April 2021 gained one basis point to 8.14 percent. The rupee fell 0.3 percent to 44.33 per dollar.
India’s benchmark wholesale-price inflation quickened to 8.98 percent in March, more than the central bank’s 8 percent estimate, prompting Goldman Sachs Group Inc. (GS), Standard Chartered Plc and Barclays Plc to raise their forecast for rate increases this year.
BRICS Inflation
By comparison, consumer prices rose 5.4 percent in March, 9.5 percent in Russia, 6.3 percent in Brazil and 4.1 percent in South Africa.
Goldman Sachs April 21 estimated India’s central bank will probably increase rates by another 1.25 percentage points in 2011, more than the half-point increase predicted earlier. Standard Chartered forecast on April 18 the repurchase rate will rise by 1 percentage point in six months, while Barclays predicted a 75-basis point increase, compared with original calls of 50 basis points.
Inflation may average 7.5 percent in the year ending March 31, according to a survey compiled by the central bank of forecasts from agencies including the International Monetary Fund and the Asian Development Bank, yesterday’s report showed. The survey in January projected inflation of 6.6 percent.
India’s economy may expand 8.2 percent in the current financial year, the survey said, scaling down its previous estimate of 8.5 percent.
Growth Risks
“Given the risk that high and persistent inflation in itself could jeopardize the growth momentum and inclusive growth, the policy has to focus on anchoring inflationary expectations as well as limiting the second-round impact of supply shocks,” according to the report.
Risks to inflation have increased because of the “uncertain outlook” on global commodity prices and as local costs haven’t aligned to those prevailing abroad, central bank said.
Prime Minister Manmohan Singh, facing state elections in five provinces, has sought to appease voters with price caps on diesel, kerosene and cooking gas after inflation triggered nationwide protests earlier this year.
Goldman Sachs said in a report April 27 that the government may start allowing Indian Oil Corp. and others to charge more for the fuels once elections in the four states and one union territory conclude on May 10.
Fuel Prices
Indian Oil hasn’t increased diesel prices since June 26 and gasoline since Jan. 16, according to the company’s website.
Oil has climbed 31 percent in London and 23 percent in New York this year as revolts that overthrew the governments in Tunisia and Egypt raised concern that supplies from the Middle East would be disrupted as protests spread.
A report yesterday showed that India’s manufacturing grew in April at the fastest pace in five months, a sign that consumer demand remains strong even after Subbarao raised borrowing costs by 200 basis points since mid-March 2010.
The Purchasing Managers’ Index rose to 58 from 57.9 in March, HSBC Holdings Plc (HSBA) and Markit Economics said in the report. A number above 50 indicates expansion.
“Persistence of inflation warrants continuation of anti- inflationary monetary policy stance for sustaining growth,” the Reserve Bank of India said in a report yesterday. The rate decision is scheduled to be unveiled at 11 a.m. in Mumbai.
Governor Duvvuri Subbarao may boost the central bank’s benchmark repurchase rate to 7 percent from 6.75 percent, according to 18 of 25 economists in a Bloomberg News survey. The remaining seven including HSBC Group Plc predict a half percentage-point move to contain India’s inflation, which is the highest among the so-called BRICS nations after Russia.
“The hawkish comments indicate more monetary tightening today is a given,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai, and who expects a quarter-point increase. “Inflation will remain elevated in the near future.”
The Bombay Stock Exchange’s Sensitive Index declined 0.7 percent at the close of trading in Mumbai yesterday, while the yield on the 7.8 percent bond due April 2021 gained one basis point to 8.14 percent. The rupee fell 0.3 percent to 44.33 per dollar.
India’s benchmark wholesale-price inflation quickened to 8.98 percent in March, more than the central bank’s 8 percent estimate, prompting Goldman Sachs Group Inc. (GS), Standard Chartered Plc and Barclays Plc to raise their forecast for rate increases this year.
BRICS Inflation
By comparison, consumer prices rose 5.4 percent in March, 9.5 percent in Russia, 6.3 percent in Brazil and 4.1 percent in South Africa.
Goldman Sachs April 21 estimated India’s central bank will probably increase rates by another 1.25 percentage points in 2011, more than the half-point increase predicted earlier. Standard Chartered forecast on April 18 the repurchase rate will rise by 1 percentage point in six months, while Barclays predicted a 75-basis point increase, compared with original calls of 50 basis points.
Inflation may average 7.5 percent in the year ending March 31, according to a survey compiled by the central bank of forecasts from agencies including the International Monetary Fund and the Asian Development Bank, yesterday’s report showed. The survey in January projected inflation of 6.6 percent.
India’s economy may expand 8.2 percent in the current financial year, the survey said, scaling down its previous estimate of 8.5 percent.
Growth Risks
“Given the risk that high and persistent inflation in itself could jeopardize the growth momentum and inclusive growth, the policy has to focus on anchoring inflationary expectations as well as limiting the second-round impact of supply shocks,” according to the report.
Risks to inflation have increased because of the “uncertain outlook” on global commodity prices and as local costs haven’t aligned to those prevailing abroad, central bank said.
Prime Minister Manmohan Singh, facing state elections in five provinces, has sought to appease voters with price caps on diesel, kerosene and cooking gas after inflation triggered nationwide protests earlier this year.
Goldman Sachs said in a report April 27 that the government may start allowing Indian Oil Corp. and others to charge more for the fuels once elections in the four states and one union territory conclude on May 10.
Fuel Prices
Indian Oil hasn’t increased diesel prices since June 26 and gasoline since Jan. 16, according to the company’s website.
Oil has climbed 31 percent in London and 23 percent in New York this year as revolts that overthrew the governments in Tunisia and Egypt raised concern that supplies from the Middle East would be disrupted as protests spread.
A report yesterday showed that India’s manufacturing grew in April at the fastest pace in five months, a sign that consumer demand remains strong even after Subbarao raised borrowing costs by 200 basis points since mid-March 2010.
The Purchasing Managers’ Index rose to 58 from 57.9 in March, HSBC Holdings Plc (HSBA) and Markit Economics said in the report. A number above 50 indicates expansion.
Indian economic growth adds to inflation woes
India’s manufacturing sector expanded strongly in April, adding fresh pressure to inflation, but the pace of growth cooled slightly in the big industrial centres of east Asia, according to the latest monthly data.
Purchasing Managers’ Index data for India, published on Monday by HSBC, confirmed that growth remained robust in spite of eight increases in interest rates by the Reserve Bank of India over the past year in an attempt to conquer inflation, currently 9 per cent.
The April PMI index showed a rise to 58.0, compared with 57.9 in March, indicating that the pace of growth in manufacturing activity strengthened slightly from its high level in March. PMI figures of more than 50 indicate expansion, with numbers below that level indicating contraction.
Detailed figures for sub-indices showed that input prices continued to rise rapidly, suggesting that upward pressure on inflation was likely to continue. However, the pace of growth in input prices moderated slightly, with the index falling for the first month since mid-2010, from 68.7 to 66.3.
Leif Eskesen, HSBC’s chief economist for India, said the strong PMI numbers were likely to “keep the RBI hawkish”, with a further increase in interest rates possible as soon as Tuesday.
In contrast to the rising pace of expansion in India, manufacturing PMI data for South Korea, also released on Monday, showed a slight easing in the pace of growth, as did official and unofficial PMI reports for China, released at the weekend.
China’s Federation of Logistics and Purchasing said its PMI measure fell to 52.9 in April from 53.4 in the previous month, indicating continuing growth but at a slightly slower pace.
Zhang Liqun, an analyst at the federation, said the official data suggested that growth was slowing in line with demand, according to state media. If sustained, the easing of the pace of growth would help to slow the economy and reduce inflationary pressures.
HSBC’s unofficial China PMI index was flat at 51.8, reflecting “relatively soft market demand”. China has increased interest rates four times since October, but inflation jumped to 5.4 per cent in March, mainly because of rising food prices.
South Korea’s PMI slipped to 51.7 from 52.8 in March, signalling a moderation in growth that economists said might reflect a slowdown in export orders caused by the March 11 earthquake and tsunami in Japan.
Japan’s PMI, released on Thursday by the Japan Materials Management Association and Markit, the economics consultancy, showed a further decline caused by the continuing impact of the earthquake.
The index hit a two-year low of 45.7, down from 46.4 in March, indicating a significant contraction of activity. The level of incoming new business fell sharply, with the rate of decline the fastest since March 2009, said JMMA/Markit.
Purchasing Managers’ Index data for India, published on Monday by HSBC, confirmed that growth remained robust in spite of eight increases in interest rates by the Reserve Bank of India over the past year in an attempt to conquer inflation, currently 9 per cent.
The April PMI index showed a rise to 58.0, compared with 57.9 in March, indicating that the pace of growth in manufacturing activity strengthened slightly from its high level in March. PMI figures of more than 50 indicate expansion, with numbers below that level indicating contraction.
Detailed figures for sub-indices showed that input prices continued to rise rapidly, suggesting that upward pressure on inflation was likely to continue. However, the pace of growth in input prices moderated slightly, with the index falling for the first month since mid-2010, from 68.7 to 66.3.
Leif Eskesen, HSBC’s chief economist for India, said the strong PMI numbers were likely to “keep the RBI hawkish”, with a further increase in interest rates possible as soon as Tuesday.
In contrast to the rising pace of expansion in India, manufacturing PMI data for South Korea, also released on Monday, showed a slight easing in the pace of growth, as did official and unofficial PMI reports for China, released at the weekend.
China’s Federation of Logistics and Purchasing said its PMI measure fell to 52.9 in April from 53.4 in the previous month, indicating continuing growth but at a slightly slower pace.
Zhang Liqun, an analyst at the federation, said the official data suggested that growth was slowing in line with demand, according to state media. If sustained, the easing of the pace of growth would help to slow the economy and reduce inflationary pressures.
HSBC’s unofficial China PMI index was flat at 51.8, reflecting “relatively soft market demand”. China has increased interest rates four times since October, but inflation jumped to 5.4 per cent in March, mainly because of rising food prices.
South Korea’s PMI slipped to 51.7 from 52.8 in March, signalling a moderation in growth that economists said might reflect a slowdown in export orders caused by the March 11 earthquake and tsunami in Japan.
Japan’s PMI, released on Thursday by the Japan Materials Management Association and Markit, the economics consultancy, showed a further decline caused by the continuing impact of the earthquake.
The index hit a two-year low of 45.7, down from 46.4 in March, indicating a significant contraction of activity. The level of incoming new business fell sharply, with the rate of decline the fastest since March 2009, said JMMA/Markit.
Sunday, May 1, 2011
Shell Tries to Calm Fears on Drilling in Alaska
SAVOONGA, Alaska — Shell Oil will present an ambitious proposal to the federal government this week, seeking permission to drill up to 10 exploratory oil wells beneath Alaska’s frigid Arctic waters.
The forbidding ice-clogged region is believed to hold vast reserves of oil, potentially enough to fuel 25 million cars for 35 years. And with production in Alaska’s North Slope in steep decline, the oil industry is eager to tap new offshore wells.
Shell has led the way, working for five years to convince regulators, environmentalists, Native Alaskans and several courts that it could manage the process safely, protect polar bears and other wildlife, safeguard air quality for residents and respond quickly to any spill in the region. But BP’s Deepwater Horizon disaster a year ago put a chill on new offshore drilling.
Shell’s renewed application will pose a test for President Obama, who promised to put safety first after the BP spill. But he has also reiterated his support for offshore drilling amid voter worries about rising gasoline prices.
Environmental groups say a spill in the Arctic’s inaccessible waters could be even more catastrophic than the Gulf of Mexico accident. Republicans, meanwhile, are threatening to excoriate the president for turning his back on energy security if he says no to Shell.
“Americans are reeling from staggering prices at the pump,” said Representative Cory Gardner, a Colorado Republican on the House Energy and Commerce Committee. “So the president has to justify to the American people why we are not replacing Saudi Arabian oil imports with U.S.-produced oil.”
Whatever the administration decides, it will anger somebody. “If the Obama administration approves drilling in the Arctic, it will demonstrate that they have learned nothing from the gulf spill,” said Brendan Cummings, senior counsel at the Center for Biological Diversity, which is suing to stop Shell.
Administration officials say only that they will thoroughly review Shell’s new proposal. “We need to continue to take a cautious approach in the Arctic that is guided by science and the voices of North Slope communities,” said Kendra Barkoff, a spokeswoman for the Interior Department, which oversees most of the process.
The politics extend as far as Alaska’s remotest villages, where support from Native Alaskans, or at least their acquiescence, is essential to win several permits. With that in mind, Pete Slaiby, Shell’s top executive in Alaska, was glad-handing last week in Savoonga, a village on an island in the Bering Sea. He passed out raffle tickets, bought a trinket and congratulated the Yupik hunters for harpooning two bowhead whales.
One hunter waved a copy of the movie “An Inconvenient Truth,” and launched into an attack on oil as a cause for the warming temperatures that are melting the Arctic ice. Other hunters pressed Mr. Slaiby on concerns that the migrating walruses they depend on for food would suffer from the noise if drilling operations began north of here.
Mr. Slaiby said Shell was concerned about climate change too, and promised that the company would take painstaking precautions to protect wildlife. “We won’t be successful here if we deprive people of their subsistence,” he said. “If the oil companies are doing well and the people living around them are not, it’s a recipe for disaster.”
Shell has already spent $3.7 billion on the 10-year offshore leases and preparations for exploration, although the company has yet to drill a single hole. Shell will formally present its new proposal — to drill up to 10 wells over the next two years in remote waters north of Alaska, in the Chukchi and Beaufort seas — in the next few days. If the plan is approved within nine months or so, exploration could begin next year.
Just as in the past, executives realize they need to fight the battle on multiple regulatory and legal fronts. “It’s like holding a bunch of pins in your hand, and trying to make sure not one drops,” said Brian Malnak, Shell’s vice president of government affairs.
Perhaps the toughest hurdle this year will be convincing the government that Shell could protect the Arctic from a devastating spill. An Interior Department agency recently estimated that a “hypothetical” blowout of an oil well in the Chukchi Sea could release 1.4 million barrels of crude over a 39-day period before a relief well could be drilled. A leak of that magnitude would severely test the capacity of the boats, barges, skimmers and a spill containment tanker that Shell plans to deploy around its rigs, although the company promises to add whatever equipment regulators find necessary.
Shell is proposing to use two drill ships, each capable of drilling a relief well for the other in case of the kind of blowout that destroyed the Deepwater Horizon rig. The company is also promising to add more testing and an extra set of shears to its blowout preventers and to keep emergency capping systems near drilling sites to capture any potential leaks.
Alaska once accounted for a third of the nation’s oil production, but its fields are now in steep decline. The decrease in production threatens the continued safe use of the Trans-Alaska Pipeline System, also known as TAPS, which requires a steady flow of oil to avert corrosion and spills.
The Alaskan Arctic potentially holds 27 billion barrels of oil. “If we could open the Arctic to oil exploration,” said Alaska’s governor, Sean Parnell, “we can fill that TAPS line in a way to preserve it for another 50 to 100 years.” Major production from the Arctic would probably be a decade away, however.
Environmentalists contend that the risks of drilling are too great. They warn that hurricane-force winds, high seas, and frigid cold and ice would make cleaning up a spill far more difficult than in the gulf, and they say that oil operations could disturb migration and reproduction of marine mammals.
“We believe there need to be more spill drills, more testing, more inspections of the drill rig and blowout preventer before they begin,” said Marilyn Heiman, director of the United States Arctic Program of the Pew Environment Group.
In his presentation in Savoonga, Mr. Slaiby said Shell and other companies had safely drilled in Alaska’s Arctic waters in the 1980s and 1990s, without a spill or major damage to wildlife. And he noted that the wells Shell intended to drill here were far shallower than BP’s ill-fated Macondo well, making the possibility of a blowout more remote.
“We’ve never told people that what we do doesn’t entail risk,” Mr. Slaiby said, “but the risks are different from the Gulf of Mexico.”
The forbidding ice-clogged region is believed to hold vast reserves of oil, potentially enough to fuel 25 million cars for 35 years. And with production in Alaska’s North Slope in steep decline, the oil industry is eager to tap new offshore wells.
Shell has led the way, working for five years to convince regulators, environmentalists, Native Alaskans and several courts that it could manage the process safely, protect polar bears and other wildlife, safeguard air quality for residents and respond quickly to any spill in the region. But BP’s Deepwater Horizon disaster a year ago put a chill on new offshore drilling.
Shell’s renewed application will pose a test for President Obama, who promised to put safety first after the BP spill. But he has also reiterated his support for offshore drilling amid voter worries about rising gasoline prices.
Environmental groups say a spill in the Arctic’s inaccessible waters could be even more catastrophic than the Gulf of Mexico accident. Republicans, meanwhile, are threatening to excoriate the president for turning his back on energy security if he says no to Shell.
“Americans are reeling from staggering prices at the pump,” said Representative Cory Gardner, a Colorado Republican on the House Energy and Commerce Committee. “So the president has to justify to the American people why we are not replacing Saudi Arabian oil imports with U.S.-produced oil.”
Whatever the administration decides, it will anger somebody. “If the Obama administration approves drilling in the Arctic, it will demonstrate that they have learned nothing from the gulf spill,” said Brendan Cummings, senior counsel at the Center for Biological Diversity, which is suing to stop Shell.
Administration officials say only that they will thoroughly review Shell’s new proposal. “We need to continue to take a cautious approach in the Arctic that is guided by science and the voices of North Slope communities,” said Kendra Barkoff, a spokeswoman for the Interior Department, which oversees most of the process.
The politics extend as far as Alaska’s remotest villages, where support from Native Alaskans, or at least their acquiescence, is essential to win several permits. With that in mind, Pete Slaiby, Shell’s top executive in Alaska, was glad-handing last week in Savoonga, a village on an island in the Bering Sea. He passed out raffle tickets, bought a trinket and congratulated the Yupik hunters for harpooning two bowhead whales.
One hunter waved a copy of the movie “An Inconvenient Truth,” and launched into an attack on oil as a cause for the warming temperatures that are melting the Arctic ice. Other hunters pressed Mr. Slaiby on concerns that the migrating walruses they depend on for food would suffer from the noise if drilling operations began north of here.
Mr. Slaiby said Shell was concerned about climate change too, and promised that the company would take painstaking precautions to protect wildlife. “We won’t be successful here if we deprive people of their subsistence,” he said. “If the oil companies are doing well and the people living around them are not, it’s a recipe for disaster.”
Shell has already spent $3.7 billion on the 10-year offshore leases and preparations for exploration, although the company has yet to drill a single hole. Shell will formally present its new proposal — to drill up to 10 wells over the next two years in remote waters north of Alaska, in the Chukchi and Beaufort seas — in the next few days. If the plan is approved within nine months or so, exploration could begin next year.
Just as in the past, executives realize they need to fight the battle on multiple regulatory and legal fronts. “It’s like holding a bunch of pins in your hand, and trying to make sure not one drops,” said Brian Malnak, Shell’s vice president of government affairs.
Perhaps the toughest hurdle this year will be convincing the government that Shell could protect the Arctic from a devastating spill. An Interior Department agency recently estimated that a “hypothetical” blowout of an oil well in the Chukchi Sea could release 1.4 million barrels of crude over a 39-day period before a relief well could be drilled. A leak of that magnitude would severely test the capacity of the boats, barges, skimmers and a spill containment tanker that Shell plans to deploy around its rigs, although the company promises to add whatever equipment regulators find necessary.
Shell is proposing to use two drill ships, each capable of drilling a relief well for the other in case of the kind of blowout that destroyed the Deepwater Horizon rig. The company is also promising to add more testing and an extra set of shears to its blowout preventers and to keep emergency capping systems near drilling sites to capture any potential leaks.
Alaska once accounted for a third of the nation’s oil production, but its fields are now in steep decline. The decrease in production threatens the continued safe use of the Trans-Alaska Pipeline System, also known as TAPS, which requires a steady flow of oil to avert corrosion and spills.
The Alaskan Arctic potentially holds 27 billion barrels of oil. “If we could open the Arctic to oil exploration,” said Alaska’s governor, Sean Parnell, “we can fill that TAPS line in a way to preserve it for another 50 to 100 years.” Major production from the Arctic would probably be a decade away, however.
Environmentalists contend that the risks of drilling are too great. They warn that hurricane-force winds, high seas, and frigid cold and ice would make cleaning up a spill far more difficult than in the gulf, and they say that oil operations could disturb migration and reproduction of marine mammals.
“We believe there need to be more spill drills, more testing, more inspections of the drill rig and blowout preventer before they begin,” said Marilyn Heiman, director of the United States Arctic Program of the Pew Environment Group.
In his presentation in Savoonga, Mr. Slaiby said Shell and other companies had safely drilled in Alaska’s Arctic waters in the 1980s and 1990s, without a spill or major damage to wildlife. And he noted that the wells Shell intended to drill here were far shallower than BP’s ill-fated Macondo well, making the possibility of a blowout more remote.
“We’ve never told people that what we do doesn’t entail risk,” Mr. Slaiby said, “but the risks are different from the Gulf of Mexico.”
Asian Stocks Rise as U.S. Earnings Top Estimates, Oil Advances
Asian stocks rose, driving the regional benchmark index to the highest level in almost four months, after U.S. companies reported earnings that topped analysts’ estimates, easing concerns that global economic growth may slow.
Komatsu Ltd., the world’s No. 2 maker of construction equipment, advanced 1.8 percent after Caterpillar Inc. posted earnings that beat estimates. Seiko Epson Corp., a Japanese printer maker, rose 5 percent after forecasting net income will jump 66 percent this fiscal year. GS Engineering & Construction Corp., a South Korea builder, jumped 2.7 percent in Seoul after the government announced policy measures to aid troubled builders and boost the property market. BHP Billiton Ltd., the world’s biggest mining company, slumped 0.6 percent in Sydney.
The MSCI Asia Pacific Index increased 0.4 percent to 140.09 at 11:17 a.m. in Tokyo, the highest level since Jan. 19. Almost three stocks rose for each that fell on the gauge. The measure climbed 0.5 percent last week after the Federal Reserve renewed its pledge to stimulate growth in the U.S., the world’s biggest economy, with low interest rates, boosting the outlook for exporters.
“In addition to U.S. companies having good earnings, Japanese companies’ earnings were not so bad. That’s improving investors’ sentiment in the market,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “Excessive worries about the future of the economy and companies’ earnings are receding.”
Nikkei, Kospi
Japan’s Nikkei 225 Stock Average rose 1 percent to the highest level since the March 11 earthquake and tsunami. South Korea’s Kospi Index added 1.3 percent. New Zealand’s NZX 50 Index slipped 0.5 percent.
Australia’s S&P/ASX 200 Index lost 0.7 percent, reversing an earlier gain of 0.3 percent, after the nation’s currency rose above $1.10 for the first time since foreign-exchange controls were scrapped in 1983. Australia’s manufacturing contracted in April for the seventh time in eight months as a record-high currency and consumer caution hurt textile and other producers, a report showed today.
BHP dropped 0.6 percent, the second-biggest drag on the MSCI Asia Pacific Index. Woodside Petroleum Ltd., Australia’s No. 2 oil and gas producer, declined 1.7 percent. Westpac Banking Corp. slid 1.1 percent.
Consumer Spending
Futures on the Standard & Poor’s 500 Index was little changed today. In New York, the index rose 0.2 percent to 1,363.61 on April 29.
Caterpillar, the world’s largest maker of construction equipment, posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in developing countries.
Goodyear Tire & Rubber Co., the largest U.S. tiremaker, reported first-quarter adjusted earnings of 51 cents a share, more than quadrupling the 11-cent average estimate of analysts.
Also, a government report showed consumer spending in the U.S. climbed in March as Americans spent more on food and fuel. Purchases rose 0.6 percent after a revised 0.9 percent gain in February that was higher than previously estimated, Commerce Department figures showed on April 29.
Komatsu advanced 1.8 percent to 2,891 yen in Tokyo. Canon Inc., the world’s biggest manufacturer of cameras, climbed 2 percent to 3,875 yen. Toyota Motor Corp., the world’s No. 1 carmaker, increased 1.6 percent to 3,280 yen. Hyundai Heavy Industries Co., the world’s largest shipyard, which receives 89 percent of its revenue abroad, increased 0.8 percent to 539,000 won in Seoul.
Seiko, Cosmo
In Tokyo, Seiko Epson jumped 5 percent to 1,482 yen, headed for its highest close since Jan. 21. The company forecast net income will jump 66 percent to 17 billion yen this fiscal year. Cosmo Oil Co., a refiner, advanced 3.4 percent to 274 yen. The company had 28 billion yen in net income for the year ended March 31, up 56 percent from its forecast, according to a preliminary earnings statement.
Electric Power Development Co., Japan’s biggest power wholesaler, leapt 4.7 percent to 2,225 yen. The company projected full-year net income will increase 33 percent to 26 billion yen.
The MSCI Asia Pacific Index increased 1.3 percent this year through April 29, compared with gains of 8.4 percent by the Standard and Poor’s 500 Index and 2.9 percent by the Stoxx Europe 600 Index.
Stocks in the Asian benchmark were valued at 13.5 times estimated earnings on average, compared with 13.8 times for the S&P 500 and 11.5 times for the Stoxx 600.
Aid for Builders
In Seoul, GS Engineering and other South Korean builders advanced in Seoul trading after the government announced policy measures to aid troubled builders and boost the property market.
GS Engineering rose 2.7 percent to 132,500 won. Daewoo Engineering & Construction Co. added 3.1 percent to 11,750 won. Daelim Industrial Co. climbed 3.3 percent to 125,000 won.
South Korea’s government announced policy measures to aid troubled builders and the property market, including tax incentives for real-estate investment trusts that buy unsold housing. South Korea will establish a bank to purchase soured loans owed by builders and developers, the financial regulator said.
Komatsu Ltd., the world’s No. 2 maker of construction equipment, advanced 1.8 percent after Caterpillar Inc. posted earnings that beat estimates. Seiko Epson Corp., a Japanese printer maker, rose 5 percent after forecasting net income will jump 66 percent this fiscal year. GS Engineering & Construction Corp., a South Korea builder, jumped 2.7 percent in Seoul after the government announced policy measures to aid troubled builders and boost the property market. BHP Billiton Ltd., the world’s biggest mining company, slumped 0.6 percent in Sydney.
The MSCI Asia Pacific Index increased 0.4 percent to 140.09 at 11:17 a.m. in Tokyo, the highest level since Jan. 19. Almost three stocks rose for each that fell on the gauge. The measure climbed 0.5 percent last week after the Federal Reserve renewed its pledge to stimulate growth in the U.S., the world’s biggest economy, with low interest rates, boosting the outlook for exporters.
“In addition to U.S. companies having good earnings, Japanese companies’ earnings were not so bad. That’s improving investors’ sentiment in the market,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “Excessive worries about the future of the economy and companies’ earnings are receding.”
Nikkei, Kospi
Japan’s Nikkei 225 Stock Average rose 1 percent to the highest level since the March 11 earthquake and tsunami. South Korea’s Kospi Index added 1.3 percent. New Zealand’s NZX 50 Index slipped 0.5 percent.
Australia’s S&P/ASX 200 Index lost 0.7 percent, reversing an earlier gain of 0.3 percent, after the nation’s currency rose above $1.10 for the first time since foreign-exchange controls were scrapped in 1983. Australia’s manufacturing contracted in April for the seventh time in eight months as a record-high currency and consumer caution hurt textile and other producers, a report showed today.
BHP dropped 0.6 percent, the second-biggest drag on the MSCI Asia Pacific Index. Woodside Petroleum Ltd., Australia’s No. 2 oil and gas producer, declined 1.7 percent. Westpac Banking Corp. slid 1.1 percent.
Consumer Spending
Futures on the Standard & Poor’s 500 Index was little changed today. In New York, the index rose 0.2 percent to 1,363.61 on April 29.
Caterpillar, the world’s largest maker of construction equipment, posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in developing countries.
Goodyear Tire & Rubber Co., the largest U.S. tiremaker, reported first-quarter adjusted earnings of 51 cents a share, more than quadrupling the 11-cent average estimate of analysts.
Also, a government report showed consumer spending in the U.S. climbed in March as Americans spent more on food and fuel. Purchases rose 0.6 percent after a revised 0.9 percent gain in February that was higher than previously estimated, Commerce Department figures showed on April 29.
Komatsu advanced 1.8 percent to 2,891 yen in Tokyo. Canon Inc., the world’s biggest manufacturer of cameras, climbed 2 percent to 3,875 yen. Toyota Motor Corp., the world’s No. 1 carmaker, increased 1.6 percent to 3,280 yen. Hyundai Heavy Industries Co., the world’s largest shipyard, which receives 89 percent of its revenue abroad, increased 0.8 percent to 539,000 won in Seoul.
Seiko, Cosmo
In Tokyo, Seiko Epson jumped 5 percent to 1,482 yen, headed for its highest close since Jan. 21. The company forecast net income will jump 66 percent to 17 billion yen this fiscal year. Cosmo Oil Co., a refiner, advanced 3.4 percent to 274 yen. The company had 28 billion yen in net income for the year ended March 31, up 56 percent from its forecast, according to a preliminary earnings statement.
Electric Power Development Co., Japan’s biggest power wholesaler, leapt 4.7 percent to 2,225 yen. The company projected full-year net income will increase 33 percent to 26 billion yen.
The MSCI Asia Pacific Index increased 1.3 percent this year through April 29, compared with gains of 8.4 percent by the Standard and Poor’s 500 Index and 2.9 percent by the Stoxx Europe 600 Index.
Stocks in the Asian benchmark were valued at 13.5 times estimated earnings on average, compared with 13.8 times for the S&P 500 and 11.5 times for the Stoxx 600.
Aid for Builders
In Seoul, GS Engineering and other South Korean builders advanced in Seoul trading after the government announced policy measures to aid troubled builders and boost the property market.
GS Engineering rose 2.7 percent to 132,500 won. Daewoo Engineering & Construction Co. added 3.1 percent to 11,750 won. Daelim Industrial Co. climbed 3.3 percent to 125,000 won.
South Korea’s government announced policy measures to aid troubled builders and the property market, including tax incentives for real-estate investment trusts that buy unsold housing. South Korea will establish a bank to purchase soured loans owed by builders and developers, the financial regulator said.
Subscribe to:
Posts (Atom)
Posts
