July 24 (Bloomberg) -- U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will slump after climbing to an eight-month high, as Microsoft Corp., American Express Co. and Amazon.com Inc. posted disappointing quarterly results.
Microsoft retreated 6.9 percent on lower profit and sales than analysts estimated. American Express slipped 5 percent after saying earnings decreased as the recession made it harder for cardholders to keep up with payments. Amazon.com lost 6.6 percent following price cuts that caused the online retailer’s revenue to miss projections.
S&P 500 futures expiring in September declined 0.4 percent to 964.70 at 10:26 a.m. in Tokyo. Dow Jones Industrial Average futures dropped 29 points, or 0.3 percent, to 8,962. U.S. stocks surged yesterday, sending the Dow above 9,000 for the first time since January, as EBay Inc., Ford Motor Co. and AT&T Inc. beat estimates and home resales increased more than forecast.
“At these levels in the market, there’s not a lot of room for error,” said Mark Freeman, who helps manage $7.5 billion at Westwood Management Corp. in Dallas. “Anything that deviates brings about a reevaluation by the market.”
Yesterday, the S&P 500 climbed to the highest level since President Barack Obama was elected on Nov. 4, advancing 2.3 percent to 976.29. The Dow gained 188.03 points, or 2.1 percent, to 9,069.29, the highest since one session after Election Day. The Nasdaq Composite Index surged 2.5 percent to 1,973.60 for a 12th straight gain, its longest winning streak since 1992.
Record Pace
Microsoft, American Express and Amazon.com’s worse-than- estimated results followed two weeks of earnings reports that exceeded projections. Among S&P 500 companies that have posted second-quarter results, 74.1 percent beat the average analyst forecast, according to data compiled by Bloomberg. That would be the highest full-quarter figure on record, Bloomberg data going back to 1993 show. Three-hundred three S&P 500 companies have yet to report for the period.
Microsoft fell 6.9 percent to $23.80 in late trading in New York. The biggest software maker reported a 29 percent drop in fiscal fourth-quarter earnings and posted sales that missed analysts’ estimates, a sign that demand for Windows and Office software is still declining. Per-share profit excluding some items was 36 cents, missing the average forecast by 2.4 percent.
American Express retreated 5 percent to $27.99. The credit- card issuer reported second-quarter sales of $6.09 billion, or 1.4 percent less than analysts projected. Net income from continuing operations decreased 48 percent to $342 million.
Free Shipping
Amazon.com lost 6.6 percent to $87.66. The world’s largest Internet retailer has sought to ward off competitors by cutting prices and adding products, such as low-cost laptops and outdoor equipment. Its low prices and free-shipping offers have started to eat into profit, said Aaron Kessler, an analyst at Kaufman Brothers LP. Sales of $4.65 billion were 1 percent less than analysts estimated on average.
EBay rallied 11 percent yesterday as its earnings signaled consumers’ appetite for online commerce is starting to recover. Ford jumped 9.4 percent after topping analyst estimates by paring expenses and adding market share. AT&T added 2.6 percent as new customers of Apple Inc.’s iPhone bolstered profit. D.R. Horton Inc. led all 13 stocks in an index of homebuilders higher as sales of existing homes increased for a third straight month. Before yesterday, the Dow last exceeded 9,000 on Jan. 6.
“With the round number of 9,000 not being there for a significant amount of time, it’s encouraging,” Michael Koskuba, who helps oversee $44 billion at Victory Capital Management Inc. in New York, said of yesterday’s rally. “It’s really a result of companies reporting better-than-expected news. That’s encouraging given that we are in a difficult economic environment.”
Thursday, July 23, 2009
Philippines Targets Taxis, Hotels as Arroyo Seeks More Revenue
July 24 (Bloomberg) -- The Big Mouth deli was starting what promised to be another busy June day on the central Philippine vacation island of Boracay when 29 tax officers and policemen came to shut it down.
Since the 48-seat restaurant opened July 2008, it avoided paying an estimated 983,000 pesos ($20,437) in taxes by using unregistered cash machines and false sales receipts, according to the Bureau of Internal Revenue.
“This is really psychological warfare,” said Deputy Commissioner Nelson Aspe, who flew from Manila to supervise the closure of three Boracay businesses June 8. “We are sending a strong signal to our taxpayers that we mean business.”
President Gloria Arroyo is taking unprecedented steps in her final year in office to tackle an entrenched culture of tax evasion that’s contributed to the budget deficit and hampered growth while neighbors prospered. Moody’s Investors Service raised the Philippines’ debt rating yesterday, saying efforts to boost revenue will help improve the country’s finances.
“The country’s long-term fiscal outlook would improve with more progress in shoring up government revenues, both through tightened administration and the introduction of new tax measures,” Tom Byrne, a Moody’s senior vice president, said in a statement from Singapore.
The internal-revenue agency, seeking to recover about 560 billion pesos of lost taxes annually, has increased collection targets and plans to hire 3,000 more accountants and lawyers. By cross-checking taxpayer records with local authorities, it has discovered 30,000 unregistered businesses in Manila’s Marikina municipality alone.
Counting Bed Sheets
Agents are counting hotel bed sheets and will soon scour electricity bills to expose companies that under-declare income. A meter system for taxis was implemented in June.
Authorities have closed 58 restaurants, hotels and shops since January, including Big Mouth, which began getting warning letters in February, the tax bureau said. When the bureau got no response, it closed the restaurant.
“This is unfortunate because business is doing good,” said Randy David, Big Mouth’s manager, as authorities padlocked the shop. He declined to comment on the government’s allegations and said the head office in Manila handled taxes.
Benjamin Diokno, a professor at the University of the Philippines who served as budget secretary under former President Joseph Estrada, said the campaign will have “marginal” effect. “Poor governance and lack of political will” mean enforcers target only “small fry,” he said.
Least Efficient
The Philippines is the fourth-least-efficient tax collector in the world, according to Fitch Ratings. In 2007 and 2008, it booked revenue amounting to 14 percent of gross domestic product a year, two-thirds of the 21 percent the government estimates it should have received, Finance Undersecretary Gil Beltran said.
The only countries with lower revenue-to-GDP ratios are Guatemala, Bermuda and Costa Rica, according to Fitch. It rates Philippine debt BB, two levels below investment grade.
In the past 20 years, the Philippine economy expanded an average 3.9 percent annually, lagging behind Thailand’s 5.4 percent, Malaysia’s 6.5 percent and Singapore’s 6.7 percent. Growth slumped to a decade low of 0.4 percent in the first quarter as exports collapsed, crimping company profits and taxes, which were reduced to 30 percent from 35 percent by a 2005 law that took effect this year.
Revenue Drain
Arroyo, whose presidency ends in 2010, has exacerbated the revenue drain with programs to help Filipinos cope with inflation that soared to a 16-year high of 12.4 percent in August 2008. Last year, she exempted half a million minimum-wage workers from income tax and raised exemptions for salaried employees.
To help ease the crunch, Finance Secretary Gary Teves is asking lawmakers to simplify the cigarette- and liquor-levy structure and reduce tax incentives to boost collections by at least 35 billion pesos annually.
The government trimmed its 2009 spending target last month to 1.489 trillion pesos from 1.495 trillion after revenue declined 5.4 percent in January through May. It has widened the 2009 budget-deficit estimate three times this year to 250 billion pesos, the most since Bloomberg data began in 1985.
“There’s an urgency to bring about change, but how much change can really be achieved” during an economic slump, asked Vishnu Varathan, an economist at Forecast Singapore Pte. “It’s not the right time.”
Caught in Dragnet
Alice Matsuo was caught in the dragnet. Her Alice in Wonderland Boracay Resort failed to pay an estimated 5 million pesos of taxes after she fell ill with cervical cancer in 2006. Authorities closed it June 8.
Matsuo, 55, said there wasn’t anyone to do the paperwork when she got sick. “We weren’t able to pay for two years, but others haven’t been paying for years. They just keep bribing.”
The government has charged 108 tax and customs officers with corruption as part of a program started in 2003 to weed out dishonest officials, Department of Finance data show.
Taxes account for two-thirds of government revenue, putting pressure on people like Araceli Francisco, Internal Revenue regional director for the central island provinces of Samar and Leyte. She must collect 3.44 billion pesos this year from her region, 21 percent more than 2008.
“What we need is support in terms of manpower, logistics and training,” Francisco said. “Collection is becoming harder.”
Since the 48-seat restaurant opened July 2008, it avoided paying an estimated 983,000 pesos ($20,437) in taxes by using unregistered cash machines and false sales receipts, according to the Bureau of Internal Revenue.
“This is really psychological warfare,” said Deputy Commissioner Nelson Aspe, who flew from Manila to supervise the closure of three Boracay businesses June 8. “We are sending a strong signal to our taxpayers that we mean business.”
President Gloria Arroyo is taking unprecedented steps in her final year in office to tackle an entrenched culture of tax evasion that’s contributed to the budget deficit and hampered growth while neighbors prospered. Moody’s Investors Service raised the Philippines’ debt rating yesterday, saying efforts to boost revenue will help improve the country’s finances.
“The country’s long-term fiscal outlook would improve with more progress in shoring up government revenues, both through tightened administration and the introduction of new tax measures,” Tom Byrne, a Moody’s senior vice president, said in a statement from Singapore.
The internal-revenue agency, seeking to recover about 560 billion pesos of lost taxes annually, has increased collection targets and plans to hire 3,000 more accountants and lawyers. By cross-checking taxpayer records with local authorities, it has discovered 30,000 unregistered businesses in Manila’s Marikina municipality alone.
Counting Bed Sheets
Agents are counting hotel bed sheets and will soon scour electricity bills to expose companies that under-declare income. A meter system for taxis was implemented in June.
Authorities have closed 58 restaurants, hotels and shops since January, including Big Mouth, which began getting warning letters in February, the tax bureau said. When the bureau got no response, it closed the restaurant.
“This is unfortunate because business is doing good,” said Randy David, Big Mouth’s manager, as authorities padlocked the shop. He declined to comment on the government’s allegations and said the head office in Manila handled taxes.
Benjamin Diokno, a professor at the University of the Philippines who served as budget secretary under former President Joseph Estrada, said the campaign will have “marginal” effect. “Poor governance and lack of political will” mean enforcers target only “small fry,” he said.
Least Efficient
The Philippines is the fourth-least-efficient tax collector in the world, according to Fitch Ratings. In 2007 and 2008, it booked revenue amounting to 14 percent of gross domestic product a year, two-thirds of the 21 percent the government estimates it should have received, Finance Undersecretary Gil Beltran said.
The only countries with lower revenue-to-GDP ratios are Guatemala, Bermuda and Costa Rica, according to Fitch. It rates Philippine debt BB, two levels below investment grade.
In the past 20 years, the Philippine economy expanded an average 3.9 percent annually, lagging behind Thailand’s 5.4 percent, Malaysia’s 6.5 percent and Singapore’s 6.7 percent. Growth slumped to a decade low of 0.4 percent in the first quarter as exports collapsed, crimping company profits and taxes, which were reduced to 30 percent from 35 percent by a 2005 law that took effect this year.
Revenue Drain
Arroyo, whose presidency ends in 2010, has exacerbated the revenue drain with programs to help Filipinos cope with inflation that soared to a 16-year high of 12.4 percent in August 2008. Last year, she exempted half a million minimum-wage workers from income tax and raised exemptions for salaried employees.
To help ease the crunch, Finance Secretary Gary Teves is asking lawmakers to simplify the cigarette- and liquor-levy structure and reduce tax incentives to boost collections by at least 35 billion pesos annually.
The government trimmed its 2009 spending target last month to 1.489 trillion pesos from 1.495 trillion after revenue declined 5.4 percent in January through May. It has widened the 2009 budget-deficit estimate three times this year to 250 billion pesos, the most since Bloomberg data began in 1985.
“There’s an urgency to bring about change, but how much change can really be achieved” during an economic slump, asked Vishnu Varathan, an economist at Forecast Singapore Pte. “It’s not the right time.”
Caught in Dragnet
Alice Matsuo was caught in the dragnet. Her Alice in Wonderland Boracay Resort failed to pay an estimated 5 million pesos of taxes after she fell ill with cervical cancer in 2006. Authorities closed it June 8.
Matsuo, 55, said there wasn’t anyone to do the paperwork when she got sick. “We weren’t able to pay for two years, but others haven’t been paying for years. They just keep bribing.”
The government has charged 108 tax and customs officers with corruption as part of a program started in 2003 to weed out dishonest officials, Department of Finance data show.
Taxes account for two-thirds of government revenue, putting pressure on people like Araceli Francisco, Internal Revenue regional director for the central island provinces of Samar and Leyte. She must collect 3.44 billion pesos this year from her region, 21 percent more than 2008.
“What we need is support in terms of manpower, logistics and training,” Francisco said. “Collection is becoming harder.”
Wednesday, July 22, 2009
Most Asian Stocks Rise; Funai Gains, National Australia Falls
July 23 (Bloomberg) -- Most Asian stocks rose, led by manufacturers that rely on U.S. demand as American housing prices unexpectedly gained. Financial companies declined after National Australia Bank Ltd. set the price for a share sale.
Funai Electric Co., which gets 71 percent of its revenue in North America, added 3.4 percent in Osaka. National Australia Bank, the nation’s top lender by assets, slumped 5.1 percent after pricing its stock sale at a discount. Woolworths Ltd., Australia’s biggest retailer, sank 2.8 percent as Royal Bank of Scotland Group Plc downgraded the stock on valuations.
“The sentiment is one of cautious optimism,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State, which holds about $110 billion. “The economy and markets are not likely to continue to recover in a straight line. There are going to be ebbs and flows.”
Almost five stocks gained for every three that declined on the MSCI Asia Pacific Index, which added 0.2 percent to 106.86 as of 11:53 a.m. in Tokyo. The gauge has gained 9 percent in the past eight days, the longest winning streak since January.
Hong Kong’s Hang Seng Index climbed 2.2 percent. Japan’s Nikkei 225 Stock Average added 0.1 percent, while Australia’s S&P/ASX 200 Index lost 0.2 percent.
South Korea’s Kospi Index dropped 0.3 percent. STX Pan Ocean Co., the country’s biggest bulk carrier, lost 1.3 percent after shipping fees slid for a third day.
Futures on the U.S. Standard & Poor’s 500 Index gained 0.3 percent. The gauge was little changed yesterday.
U.S. Housing
Average U.S. home prices rose 0.9 percent in May from April, the Federal Housing Finance Agency said yesterday. Prices were estimated to drop 0.2 percent, according to an economist survey.
Funai climbed 3.4 percent to 3,990 yen in Osaka trading. James Hardie Industries NV, the biggest seller of home siding in the U.S., rose 2.1 percent to A$4.85 in Sydney. Toyota Motor Corp., the world’s biggest automaker by market value, added 1.7 percent to 3,660 yen.
“Housing is no longer the drag on the market that kept pulling everything down,” said Mitsushige Akino, who oversees the equivalent of $522 million at Ichiyoshi Investment Management Co. in Tokyo. “Volumes remain light though, so shares are likely to remain range-bound until we can get some new sense of direction.”
National Australia Bank slumped 5.1 percent to A$22.39. The bank said it will sell shares at A$21.50 each ($18), a discount of 8.8 percent from the previous closing price. Rival Suncorp- Metway Ltd. lost 1.5 percent to A$6.80 and Bank of Queensland Ltd. slid 1.6 percent to A$10.33.
Broker Downgrade
Woolworths slumped 2.8 percent to A$26.80. Royal Bank of Scotland Group Plc slashed the rating on the stock to “hold” from “buy,” citing valuations.
The MSCI Asia Pacific Index’s eight-day rally has come amid better-than-expected earnings from U.S. companies including Apple Inc. and International Business Machines Corp. Shares in the gauge are valued at 24 times estimated net income, near the highest in almost four months.
“The market has really run ahead of itself in the last week or so,” Arjuna Mahendran, Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversees $494 billion in assets, said on Bloomberg Television. “We have reasonable optimism that the spate of above-expectation earnings that have been coming out will continue.”
STX dropped 1.3 percent to 11,650 won, while Korea Line Corp., South Korea’s No. 2 shipping line, sank 2.9 percent to 60,300 won. The Baltic Dry Index, a measure of shipping costs for commodities, slid 1.4 percent in London yesterday, bringing its three-day slump to 3.8 percent.
Oil Prices
Inpex Corp., Japan’s top oil explorer, sank 2.1 percent to 714,000 yen, while closest domestic rival Japan Petroleum Exploration Co. fell 2.5 percent to 4,650 yen. Mitsui & Co., a trading company that gets more than half its profit from commodities, sagged 1.6 percent to 1,121 yen.
Crude oil futures in New York dropped as much as 0.6 percent in electronic trading today, extending yesterday’s 0.3 percent decline.
Disco Corp., a Japanese maker of precision machinery, rose 3.6 percent to 4,330 yen. First-quarter revenue jumped 42 percent from the previous three months as demand recovered, the company said yesterday in a preliminary report.
Funai Electric Co., which gets 71 percent of its revenue in North America, added 3.4 percent in Osaka. National Australia Bank, the nation’s top lender by assets, slumped 5.1 percent after pricing its stock sale at a discount. Woolworths Ltd., Australia’s biggest retailer, sank 2.8 percent as Royal Bank of Scotland Group Plc downgraded the stock on valuations.
“The sentiment is one of cautious optimism,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State, which holds about $110 billion. “The economy and markets are not likely to continue to recover in a straight line. There are going to be ebbs and flows.”
Almost five stocks gained for every three that declined on the MSCI Asia Pacific Index, which added 0.2 percent to 106.86 as of 11:53 a.m. in Tokyo. The gauge has gained 9 percent in the past eight days, the longest winning streak since January.
Hong Kong’s Hang Seng Index climbed 2.2 percent. Japan’s Nikkei 225 Stock Average added 0.1 percent, while Australia’s S&P/ASX 200 Index lost 0.2 percent.
South Korea’s Kospi Index dropped 0.3 percent. STX Pan Ocean Co., the country’s biggest bulk carrier, lost 1.3 percent after shipping fees slid for a third day.
Futures on the U.S. Standard & Poor’s 500 Index gained 0.3 percent. The gauge was little changed yesterday.
U.S. Housing
Average U.S. home prices rose 0.9 percent in May from April, the Federal Housing Finance Agency said yesterday. Prices were estimated to drop 0.2 percent, according to an economist survey.
Funai climbed 3.4 percent to 3,990 yen in Osaka trading. James Hardie Industries NV, the biggest seller of home siding in the U.S., rose 2.1 percent to A$4.85 in Sydney. Toyota Motor Corp., the world’s biggest automaker by market value, added 1.7 percent to 3,660 yen.
“Housing is no longer the drag on the market that kept pulling everything down,” said Mitsushige Akino, who oversees the equivalent of $522 million at Ichiyoshi Investment Management Co. in Tokyo. “Volumes remain light though, so shares are likely to remain range-bound until we can get some new sense of direction.”
National Australia Bank slumped 5.1 percent to A$22.39. The bank said it will sell shares at A$21.50 each ($18), a discount of 8.8 percent from the previous closing price. Rival Suncorp- Metway Ltd. lost 1.5 percent to A$6.80 and Bank of Queensland Ltd. slid 1.6 percent to A$10.33.
Broker Downgrade
Woolworths slumped 2.8 percent to A$26.80. Royal Bank of Scotland Group Plc slashed the rating on the stock to “hold” from “buy,” citing valuations.
The MSCI Asia Pacific Index’s eight-day rally has come amid better-than-expected earnings from U.S. companies including Apple Inc. and International Business Machines Corp. Shares in the gauge are valued at 24 times estimated net income, near the highest in almost four months.
“The market has really run ahead of itself in the last week or so,” Arjuna Mahendran, Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversees $494 billion in assets, said on Bloomberg Television. “We have reasonable optimism that the spate of above-expectation earnings that have been coming out will continue.”
STX dropped 1.3 percent to 11,650 won, while Korea Line Corp., South Korea’s No. 2 shipping line, sank 2.9 percent to 60,300 won. The Baltic Dry Index, a measure of shipping costs for commodities, slid 1.4 percent in London yesterday, bringing its three-day slump to 3.8 percent.
Oil Prices
Inpex Corp., Japan’s top oil explorer, sank 2.1 percent to 714,000 yen, while closest domestic rival Japan Petroleum Exploration Co. fell 2.5 percent to 4,650 yen. Mitsui & Co., a trading company that gets more than half its profit from commodities, sagged 1.6 percent to 1,121 yen.
Crude oil futures in New York dropped as much as 0.6 percent in electronic trading today, extending yesterday’s 0.3 percent decline.
Disco Corp., a Japanese maker of precision machinery, rose 3.6 percent to 4,330 yen. First-quarter revenue jumped 42 percent from the previous three months as demand recovered, the company said yesterday in a preliminary report.
Indian Two-Year Bonds to Rally on Bank Demand, Policy, RBS Says
July 23 (Bloomberg) -- India’s two-year bonds will rally as banks, the biggest buyers of government debt, shun longer-dated notes on concern officials will have trouble cutting the nation’s budget deficit, Royal Bank of Scotland Group Plc said.
The Reserve Bank of India will tailor its monetary policy to aid the government’s record borrowing, while surplus cash at lenders flush with deposits will fuel demand for the securities, Britain’s biggest state-owned bank said in a research report yesterday. The government’s pledge to reduce its budget gap to 4 percent of gross domestic product in two years from 6.8 percent is “challenging” and will continue to “unsettle financial markets,” the report said.
“Banks are worried about the long-term fiscal consolidation strategy, which is why they are not buying longer- term bonds even as liquidity is ample,” Sanjay Mathur, RBS’s Singapore-based economist, said in an interview.
Investors should buy the 9.39 percent note due in 2011 at yields above 5.25 percent, RBS’s interest-rate strategist Nhan Ngoc Le wrote in the report. Nhan forecast the rate will slide 1 percentage point over six months, compared with a projected 30 basis point, or 0.3 percentage point, drop for 10-year debt. Investors should sell two-year notes if yields climb to 5.5 percent, he said.
The benchmark two-year bond last traded on July 20 at 108.10 rupees per 100-rupee face amount, to yield 4.97 percent.
Nhan recommended avoiding bonds maturing in five years and more “given weak demand, uncertainty about long-term issuance and thin cushion against a potential rise in rates.”
Budget Shortfall
India’s Finance Minister Pranab Mukherjee, in his Budget speech on July 6, estimated the budget deficit will reach a 16- year high in the fiscal year ending March 31. His ministry set an unprecedented borrowing target of 4.5 trillion rupees ($93 billion) as Prime Minister Manmohan Singh increases spending to revive an economy expanding at the slowest pace in six years.
The central bank has cut its overnight lending rate, or repurchase rate, six times since mid-October to a record-low 4.75 percent to stimulate demand in Asia’s third-biggest economy.
India’s rupee will strengthen 10.3 percent to 44 per dollar in the third quarter as the nation’s improving balance of payments becomes “the most dominant driver,” Mathur and Nhan wrote. The broad measure of capital inflows and outflows turned to a surplus of $300 million in the quarter ended March 31, from a record $17.9 billion deficit in the previous three months.
The rupee, which has appreciated 3.8 percent in the past three months, closed at 48.52 per dollar yesterday in Mumbai, according to data compiled by Bloomberg.
The Reserve Bank of India will tailor its monetary policy to aid the government’s record borrowing, while surplus cash at lenders flush with deposits will fuel demand for the securities, Britain’s biggest state-owned bank said in a research report yesterday. The government’s pledge to reduce its budget gap to 4 percent of gross domestic product in two years from 6.8 percent is “challenging” and will continue to “unsettle financial markets,” the report said.
“Banks are worried about the long-term fiscal consolidation strategy, which is why they are not buying longer- term bonds even as liquidity is ample,” Sanjay Mathur, RBS’s Singapore-based economist, said in an interview.
Investors should buy the 9.39 percent note due in 2011 at yields above 5.25 percent, RBS’s interest-rate strategist Nhan Ngoc Le wrote in the report. Nhan forecast the rate will slide 1 percentage point over six months, compared with a projected 30 basis point, or 0.3 percentage point, drop for 10-year debt. Investors should sell two-year notes if yields climb to 5.5 percent, he said.
The benchmark two-year bond last traded on July 20 at 108.10 rupees per 100-rupee face amount, to yield 4.97 percent.
Nhan recommended avoiding bonds maturing in five years and more “given weak demand, uncertainty about long-term issuance and thin cushion against a potential rise in rates.”
Budget Shortfall
India’s Finance Minister Pranab Mukherjee, in his Budget speech on July 6, estimated the budget deficit will reach a 16- year high in the fiscal year ending March 31. His ministry set an unprecedented borrowing target of 4.5 trillion rupees ($93 billion) as Prime Minister Manmohan Singh increases spending to revive an economy expanding at the slowest pace in six years.
The central bank has cut its overnight lending rate, or repurchase rate, six times since mid-October to a record-low 4.75 percent to stimulate demand in Asia’s third-biggest economy.
India’s rupee will strengthen 10.3 percent to 44 per dollar in the third quarter as the nation’s improving balance of payments becomes “the most dominant driver,” Mathur and Nhan wrote. The broad measure of capital inflows and outflows turned to a surplus of $300 million in the quarter ended March 31, from a record $17.9 billion deficit in the previous three months.
The rupee, which has appreciated 3.8 percent in the past three months, closed at 48.52 per dollar yesterday in Mumbai, according to data compiled by Bloomberg.
Singh’s Win to Boost ‘Seductive’ India, Duggal Says
July 23 (Bloomberg) -- Sanjiv Duggal, who manages the world’s largest India fund, said investors should buy the nation’s stocks as Prime Minister Manmohan Singh’s re-election allows him to push asset sales and ease investment rules.
Stocks will benefit as the government implements policies to lure foreign investment and boost growth in Asia’s third- largest economy, said Duggal, Singapore-based investment director at HSBC Holdings Plc’s Halbis Capital Management.
“India is a seductive investment story,” Duggal, 45, who oversees about $6 billion in Indian equities, said in a phone interview from London. “Given that we have a stable government, one could argue that India’s trading multiple could be higher.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, has surged 82 percent from this year’s low on March 9, outperforming the BRIC countries that include Brazil, Russia and China. Singh’s election victory in May reduced his dependence on allies such as the communist parties, who opposed asset sales and looser foreign investment policies during his first term.
Duggal’s Luxembourg-based $4.6 billion Indian Equity Fund, which targets overseas investors, rose 78 percent this year, the best-performing Indian equity fund with assets of more than $500 million, data compiled by Bloomberg show.
Duggal predicted in March that stocks would rally from a near three-year low on cheaper valuations and government stimulus plans, allowing him to recoup losses after the fund dropped 70 percent in 2008.
Positioned for Growth
“We positioned ourselves for growth and that showed in our performance,” Duggal said yesterday. “The market had built in a worst-case scenario for election results, which turned out very different and acted as a catalyst for the market rally.”
The fund holds more shares of materials producers and carmakers than represented in its benchmark S&P/IFC Emerging Markets Investable India Index. It also owns more real estate and health-care companies compared with the benchmark, he said.
His top 10 investments include Maruti Suzuki India Ltd., the nation’s largest carmaker, and DLF Ltd., the biggest developer. Duggal added Unitech Ltd. and Indiabulls Real Estate Ltd. among developers as concerns about their ability to repay debt eased after raising funds, he said.
Indiabulls, Unitech
Indiabulls and Unitech led Indian companies in raising 55 billion rupees ($1.1 billion) from the sale of shares to large investors in the second quarter, the most since a record 130 billion rupees was raised in the three months ended Dec. 31, 2007, data compiled by Bloomberg show. His fund is “underweight” on consumer, telecommunications, financial, energy and utility stocks, in contrast to the benchmark index.
Brian Jackson, a senior emerging-markets strategist at Royal Bank of Canada, said this week the rally has made Indian stocks expensive. The Sensex now trades at 17 times reported earnings, twice the 8.8 times in March, data compiled by Bloomberg show.
“Although the election results have improved the prospects for reform to some degree, we believe this positive surprise is now priced into Indian asset valuations and are wary of claims the improved political situation justifies further near-term gains,” Jackson said at a conference in Taipei on July 21.
Indian stocks fell the most in six months on July 6 after the government forecast the widest budget deficit in 16 years, increasing the risk of a cut in sovereign ratings.
‘Realistic’ Budget
The government plans to borrow a record 4.51 trillion rupees to fund spending on roads, power and aid for the poor, while it was expected to raise foreign direct investment limits in banks and insurers, Care Ratings said. The Sensex has since risen 5.7 percent.
“The budget was a more realistic one, though it didn’t touch on things the market was looking for,” says Duggal. “Still, we were fine with the budget, so when markets corrected post the event, we told investors it’s an opportunity to add equities.”
Singh’s government is focused on reviving consumer and investment demand as the nation’s $1.2 trillion economy, pummeled by the global recession, grew 6.7 percent in the year ended March, the weakest pace since 2003.
“If the government can push through reforms, then we would be pretty happy to buy the markets and use dips to increase our exposure,” Duggal said. “The platform is there to deliver a good story.”
Valuations
Valuations of Indian equities are in line with the 10-year average and are lower than those in the past five years, Duggal said. Indian stocks are also trading at half the 36 multiple China’s benchmark Shanghai Composite is valued at, according to data compiled by Bloomberg.
Duggal expects India’s corporate earnings to increase between 15 and 20 percent for the year ending March 2011 even as profit rises less than 10 percent this year, he said. He also expects the rupee to appreciate, without giving a forecast.
“India will remain one of the fastest-growing economies,” Duggal said. “If India does what China has done, then you really have to be invested in India.”
Stocks will benefit as the government implements policies to lure foreign investment and boost growth in Asia’s third- largest economy, said Duggal, Singapore-based investment director at HSBC Holdings Plc’s Halbis Capital Management.
“India is a seductive investment story,” Duggal, 45, who oversees about $6 billion in Indian equities, said in a phone interview from London. “Given that we have a stable government, one could argue that India’s trading multiple could be higher.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, has surged 82 percent from this year’s low on March 9, outperforming the BRIC countries that include Brazil, Russia and China. Singh’s election victory in May reduced his dependence on allies such as the communist parties, who opposed asset sales and looser foreign investment policies during his first term.
Duggal’s Luxembourg-based $4.6 billion Indian Equity Fund, which targets overseas investors, rose 78 percent this year, the best-performing Indian equity fund with assets of more than $500 million, data compiled by Bloomberg show.
Duggal predicted in March that stocks would rally from a near three-year low on cheaper valuations and government stimulus plans, allowing him to recoup losses after the fund dropped 70 percent in 2008.
Positioned for Growth
“We positioned ourselves for growth and that showed in our performance,” Duggal said yesterday. “The market had built in a worst-case scenario for election results, which turned out very different and acted as a catalyst for the market rally.”
The fund holds more shares of materials producers and carmakers than represented in its benchmark S&P/IFC Emerging Markets Investable India Index. It also owns more real estate and health-care companies compared with the benchmark, he said.
His top 10 investments include Maruti Suzuki India Ltd., the nation’s largest carmaker, and DLF Ltd., the biggest developer. Duggal added Unitech Ltd. and Indiabulls Real Estate Ltd. among developers as concerns about their ability to repay debt eased after raising funds, he said.
Indiabulls, Unitech
Indiabulls and Unitech led Indian companies in raising 55 billion rupees ($1.1 billion) from the sale of shares to large investors in the second quarter, the most since a record 130 billion rupees was raised in the three months ended Dec. 31, 2007, data compiled by Bloomberg show. His fund is “underweight” on consumer, telecommunications, financial, energy and utility stocks, in contrast to the benchmark index.
Brian Jackson, a senior emerging-markets strategist at Royal Bank of Canada, said this week the rally has made Indian stocks expensive. The Sensex now trades at 17 times reported earnings, twice the 8.8 times in March, data compiled by Bloomberg show.
“Although the election results have improved the prospects for reform to some degree, we believe this positive surprise is now priced into Indian asset valuations and are wary of claims the improved political situation justifies further near-term gains,” Jackson said at a conference in Taipei on July 21.
Indian stocks fell the most in six months on July 6 after the government forecast the widest budget deficit in 16 years, increasing the risk of a cut in sovereign ratings.
‘Realistic’ Budget
The government plans to borrow a record 4.51 trillion rupees to fund spending on roads, power and aid for the poor, while it was expected to raise foreign direct investment limits in banks and insurers, Care Ratings said. The Sensex has since risen 5.7 percent.
“The budget was a more realistic one, though it didn’t touch on things the market was looking for,” says Duggal. “Still, we were fine with the budget, so when markets corrected post the event, we told investors it’s an opportunity to add equities.”
Singh’s government is focused on reviving consumer and investment demand as the nation’s $1.2 trillion economy, pummeled by the global recession, grew 6.7 percent in the year ended March, the weakest pace since 2003.
“If the government can push through reforms, then we would be pretty happy to buy the markets and use dips to increase our exposure,” Duggal said. “The platform is there to deliver a good story.”
Valuations
Valuations of Indian equities are in line with the 10-year average and are lower than those in the past five years, Duggal said. Indian stocks are also trading at half the 36 multiple China’s benchmark Shanghai Composite is valued at, according to data compiled by Bloomberg.
Duggal expects India’s corporate earnings to increase between 15 and 20 percent for the year ending March 2011 even as profit rises less than 10 percent this year, he said. He also expects the rupee to appreciate, without giving a forecast.
“India will remain one of the fastest-growing economies,” Duggal said. “If India does what China has done, then you really have to be invested in India.”
Wipro Net Income Exceeds Analyst Estimates on Orders
July 22 (Bloomberg) -- Wipro Ltd., India’s third-largest software exporter, reported profit that exceeded analyst estimates after the company won more orders and froze pay.
Net income, according to U.S. accounting standards, rose 31 percent to 10.7 billion rupees ($221 million) in the three months ended June 30, from 8.14 billion rupees a year earlier, Bangalore-based Wipro said today. Profit beat the 9.2 billion- rupee median of 26 analyst estimates compiled by Bloomberg. Sales gained 6 percent.
Wipro joins larger rivals Tata Consultancy Services Ltd. and Infosys Technologies Ltd. in surpassing analyst expectations, signaling demand for India’s software services may be returning as the global recession eases. Billionaire Chairman Azim Premji, who pared costs by freezing pay for Wipro’s almost 100,000 employees, has acquired businesses to boost sales and aims to increase revenue from markets such as the Middle East and Brazil.
“What we are seeing is that things are better than expected,” Gopal Agrawal, head of equities at Mirae Asset India Investment Co. in Mumbai, said by phone. “Even the U.S. results in the IT space are actually much better than expected, that is why this sector will remain attractive to investors,” said Agrawal, who oversees $50 million including technology shares.
Wipro fell 1.6 percent to close at 451.5 rupees in Mumbai trading, after gaining as much as 4.4 percent. The Bombay Stock Exchange’s Sensitive Index declined 1.5 percent. The stock has climbed 93 percent this year, outpacing the benchmark index’s 54 percent advance.
Sales in the quarter rose to 63.2 billion rupees, lagging behind the analysts’ 64.2 billion rupees projection. Wipro reported profit of 10.1 billion rupees on revenue of 63.9 billion rupees in the period as per International Financial Reporting Standards.
Pricing Pressure
Wipro still faces some pressure from clients to lower rates for its computer services and pricing will continue to have a slightly negative bias, Suresh Vaswani, joint chief executive officer of the information-technology-services unit, said in a televised interview on CNBC-TV18 network.
“We are cautious” about the economic environment, Wipro’s Chief Financial Officer Suresh Senapaty said today. “There has been demand from multiple customers for price changes. So far most of them have gone through; part of it could get impacted in the current quarter.”
Infosys, India’s second-biggest software provider, in April forecast its first annual decline in sales after clients delayed orders. Chief Executive Officer Senapathy Gopalakrishnan in May said India’s biggest technology companies won’t see a rebound in demand until the middle of next year.
“The quarterly numbers are good but I don’t think that it’s entirely correct to say that the clouds have gone away from the sector,” said Apurva Shah, head of research at Mumbai-based Prabhudas Lilladher Pvt. which has a “reduce” rating on Wipro. “The IT services business continues to remain under pressure.”
‘Signs of Stability’
Wipro, which also makes hydraulic equipment and soaps, earned 77 percent of revenue from its information-technology- services business in the quarter. The unit manages computer networks, operates call centers and provides back-office support for clients including Cisco Systems Inc. and Boeing Co.
“We are starting to see the first signs of stability in the business as ramp-downs start to taper off and volumes start to stabilize,” Premji said in a company release today.
The software exporter said sales at its IT-services business declined to $1.03 billion in the quarter, from $1.07 billion, and matched Wipro’s April projection of between $1.01 billion and $1.03 billion. The company forecast revenue at the unit will drop to between $1.04 billion and $1.05 billion in the three months to Sept. 30, from $1.11 billion a year earlier.
New Contracts
Wipro said it added 26 clients in the quarter and won two multimillion dollar deals in the period.
The company said in May it won a nine-year order from Unitech Ltd.’s wireless unit in India to build and maintain the mobile-phone operator’s computer network, without specifying its value. The same month, Sunoco Inc. renewed a contract worth $34 million over four years with Wipro’s Infocrossing unit.
Wipro in March received an 11.8 billion rupee order to create an online user system for the Indian government’s Employees’ State Insurance Corporation, the company said.
Tata Consultancy Chief Executive Officer Subramanian Ramadorai said on July 20 Citigroup Inc. is helping lead a recovery in demand from financial clients, the Indian software- services company’s biggest contributors to revenue.
The Mumbai-based industry leader, last week, reported profit rose 23 percent to 15.2 billion rupees in the first quarter, beating analysts’ 12.9 billion rupee projection.
International Business Machines Corp., the world’s biggest computer-services provider, on July 16 reported second-quarter earnings that topped analysts’ estimates and raised its full- year forecast.
The U.S. economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession, a Bloomberg News survey of economists earlier this month showed.
Net income, according to U.S. accounting standards, rose 31 percent to 10.7 billion rupees ($221 million) in the three months ended June 30, from 8.14 billion rupees a year earlier, Bangalore-based Wipro said today. Profit beat the 9.2 billion- rupee median of 26 analyst estimates compiled by Bloomberg. Sales gained 6 percent.
Wipro joins larger rivals Tata Consultancy Services Ltd. and Infosys Technologies Ltd. in surpassing analyst expectations, signaling demand for India’s software services may be returning as the global recession eases. Billionaire Chairman Azim Premji, who pared costs by freezing pay for Wipro’s almost 100,000 employees, has acquired businesses to boost sales and aims to increase revenue from markets such as the Middle East and Brazil.
“What we are seeing is that things are better than expected,” Gopal Agrawal, head of equities at Mirae Asset India Investment Co. in Mumbai, said by phone. “Even the U.S. results in the IT space are actually much better than expected, that is why this sector will remain attractive to investors,” said Agrawal, who oversees $50 million including technology shares.
Wipro fell 1.6 percent to close at 451.5 rupees in Mumbai trading, after gaining as much as 4.4 percent. The Bombay Stock Exchange’s Sensitive Index declined 1.5 percent. The stock has climbed 93 percent this year, outpacing the benchmark index’s 54 percent advance.
Sales in the quarter rose to 63.2 billion rupees, lagging behind the analysts’ 64.2 billion rupees projection. Wipro reported profit of 10.1 billion rupees on revenue of 63.9 billion rupees in the period as per International Financial Reporting Standards.
Pricing Pressure
Wipro still faces some pressure from clients to lower rates for its computer services and pricing will continue to have a slightly negative bias, Suresh Vaswani, joint chief executive officer of the information-technology-services unit, said in a televised interview on CNBC-TV18 network.
“We are cautious” about the economic environment, Wipro’s Chief Financial Officer Suresh Senapaty said today. “There has been demand from multiple customers for price changes. So far most of them have gone through; part of it could get impacted in the current quarter.”
Infosys, India’s second-biggest software provider, in April forecast its first annual decline in sales after clients delayed orders. Chief Executive Officer Senapathy Gopalakrishnan in May said India’s biggest technology companies won’t see a rebound in demand until the middle of next year.
“The quarterly numbers are good but I don’t think that it’s entirely correct to say that the clouds have gone away from the sector,” said Apurva Shah, head of research at Mumbai-based Prabhudas Lilladher Pvt. which has a “reduce” rating on Wipro. “The IT services business continues to remain under pressure.”
‘Signs of Stability’
Wipro, which also makes hydraulic equipment and soaps, earned 77 percent of revenue from its information-technology- services business in the quarter. The unit manages computer networks, operates call centers and provides back-office support for clients including Cisco Systems Inc. and Boeing Co.
“We are starting to see the first signs of stability in the business as ramp-downs start to taper off and volumes start to stabilize,” Premji said in a company release today.
The software exporter said sales at its IT-services business declined to $1.03 billion in the quarter, from $1.07 billion, and matched Wipro’s April projection of between $1.01 billion and $1.03 billion. The company forecast revenue at the unit will drop to between $1.04 billion and $1.05 billion in the three months to Sept. 30, from $1.11 billion a year earlier.
New Contracts
Wipro said it added 26 clients in the quarter and won two multimillion dollar deals in the period.
The company said in May it won a nine-year order from Unitech Ltd.’s wireless unit in India to build and maintain the mobile-phone operator’s computer network, without specifying its value. The same month, Sunoco Inc. renewed a contract worth $34 million over four years with Wipro’s Infocrossing unit.
Wipro in March received an 11.8 billion rupee order to create an online user system for the Indian government’s Employees’ State Insurance Corporation, the company said.
Tata Consultancy Chief Executive Officer Subramanian Ramadorai said on July 20 Citigroup Inc. is helping lead a recovery in demand from financial clients, the Indian software- services company’s biggest contributors to revenue.
The Mumbai-based industry leader, last week, reported profit rose 23 percent to 15.2 billion rupees in the first quarter, beating analysts’ 12.9 billion rupee projection.
International Business Machines Corp., the world’s biggest computer-services provider, on July 16 reported second-quarter earnings that topped analysts’ estimates and raised its full- year forecast.
The U.S. economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession, a Bloomberg News survey of economists earlier this month showed.
Software AG Eyes Eastern Europe, Asia for Future Acquisitions
July 22 (Bloomberg) -- Software AG Chief Executive Officer Karl-Heinz Streibich said he plans to expand Germany’s second- largest software maker into Eastern Europe and Asia with the help of purchases as consolidation in the industry gains pace.
The Darmstadt, Germany-based company will resume takeovers once it has absorbed IDS Scheer AG, which Software AG agreed to buy for 477 million euros ($676.4 million) this month, Streibich said in an interview today. Future acquisitions may be similar in size to IDS Scheer or WebMethods Inc., for which Software AG paid $546 million in June 2007, Streibich said.
“Size plays an important role in the software business to reach profitability and visibility in the market,” he said. “Once we have paid back our loans for IDS Scheer in two to three years, we are free again for new loans and more acquisitions.”
Streibich has made at least nine acquisitions since taking over in October 2003, and IDS Scheer was the largest purchase in Software AG’s 40-year history. Software AG operates in more than 70 countries, and still lacks the size needed to compete with rivals in all but 15 of these markets, the CEO said.
“Consolidation always takes place, and it is important that smaller companies don’t remain small but grow,” Streibich said. Combining with IDS Scheer will lift Software AG’s annual sales to more than 1 billion euros, the CEO said.
Software AG today reported net income of 28.9 million euros for the second quarter. Sales rose 5 percent to 176.4 million euros. Streibich said Software AG will meet its revenue growth target of between 4 percent and 8 percent in 2009 and a margin on its earnings before interest and taxes of between 24.5 percent and 25.5 percent, excluding the integration of IDS.
Revenue growth in the second half will be similar to the preceding six months, when sales rose 4 percent to 341.7 million euros, Streibich predicted.
The Darmstadt, Germany-based company will resume takeovers once it has absorbed IDS Scheer AG, which Software AG agreed to buy for 477 million euros ($676.4 million) this month, Streibich said in an interview today. Future acquisitions may be similar in size to IDS Scheer or WebMethods Inc., for which Software AG paid $546 million in June 2007, Streibich said.
“Size plays an important role in the software business to reach profitability and visibility in the market,” he said. “Once we have paid back our loans for IDS Scheer in two to three years, we are free again for new loans and more acquisitions.”
Streibich has made at least nine acquisitions since taking over in October 2003, and IDS Scheer was the largest purchase in Software AG’s 40-year history. Software AG operates in more than 70 countries, and still lacks the size needed to compete with rivals in all but 15 of these markets, the CEO said.
“Consolidation always takes place, and it is important that smaller companies don’t remain small but grow,” Streibich said. Combining with IDS Scheer will lift Software AG’s annual sales to more than 1 billion euros, the CEO said.
Software AG today reported net income of 28.9 million euros for the second quarter. Sales rose 5 percent to 176.4 million euros. Streibich said Software AG will meet its revenue growth target of between 4 percent and 8 percent in 2009 and a margin on its earnings before interest and taxes of between 24.5 percent and 25.5 percent, excluding the integration of IDS.
Revenue growth in the second half will be similar to the preceding six months, when sales rose 4 percent to 341.7 million euros, Streibich predicted.
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