Sensex plunges to its lowest level in 5 months.
The ghost of participatory notes (P-notes) has returned to haunt Indian stock markets. Spooked by a possible government crackdown in the wake of a recent controversy over black money, some investors are offloading their equity holdings, say leading stockbrokers.
According to data from the Securities & Exchange Board of India (Sebi), foreign institutional investors (FIIs) have already sold equity worth Rs 4,837 crore from the beginning of this year up to January 27. Brokerage firms dealing with large institutions say most of this is off-loading P-note positions.
As a result of the sell-off, the Bombay Stock Exchange Sensex fell to its lowest level in nearly five months on Friday. The 30-stock index, which opened at 18,708.62, closed at 18,395.97, down 1.54 per cent, or 288.46 points. It fell to as low as 18,235.45 during the day, but recouped some losses on short covering. The BSE Sensex has shed more than 10 per cent this month so far.
At the National Stock Exchange, the broader 50-stock S&P CNX Nifty ended below the 5,600-level on Friday. It lost 92.15 points, or 1.64 per cent, to close at 5,512.15. The index closed below its 200-day moving average of 5,621 — considered an important technical level — for the second straight day.
Moreover, index counters, including Reliance Industries, DLF, Jaiprakash Associates, Reliance Capital and Reliance Infrastructure, where P-note positions are considered to be high are all trading near their annual lows.
“P-note holders and ETFs (exchange-traded funds) are on a selling spree. In fact, the fall was sharp in the past couple of days as stop-losses of this class of investors seem to have been triggered,” said Deven Choksey, managing director of Mumbai-based K R Choksey Shares & Securities.
In a clear attempt to reassure markets, a senior finance ministry official told Business Standard on Friday that the market fall over the last few days was due more to nervousness than anything else. He pointed out that the nervousness was on account of inflation and a “few other concerns”.
This “nervousness is not warranted”, stressed the official. On the likely inflation scenario in coming months, however, another senior official from the ministry said that it was expected to go down a bit next month, but might pick up again.
P-notes are off-shore derivative contracts whose holders do not want to bring money directly into the country to avoid scrutiny. Institutions issuing these ‘hot money’ instruments are mainly registered in tax havens. Large players in this trade include Morgan Stanley, Merrill Lynch, Citigroup, Goldman Sachs and CLSA. Somewhat similar are ETFs, in which large funds mainly put their money, making it difficult to track the ultimate beneficiary.
Just over a week ago, Sebi had issued a circular asking FIIs to furnish more details and report P-note holdings with a six-month lag. The regulator had also declared 188 FIIs as non-compliant for operating as multi-class vehicles and protected cell companies, which makes it easy to camouflage the identity of the ultimate investors and encourages inflows of unaccounted for money.
This comes at a time when the government is looking into ways to bring back black money stashed abroad. However, when asked by reporters earlier this week if the government is planning to ban P-notes, Finance Minister Pranab Mukharjee refused to comment, saying any statement on the matter could impact the markets. The Supreme Court has also asked the government to disclose the names of those holding black money overseas.
The value of FII investments in the country is estimated to be around Rs 11 lakh crore. Market players say after the recent pullout of funds in January, the net equity positions of FIIs through P-notes would be at historic lows, which will be confirmed only when Sebi publishes its data next month. FIIs have to provide the regulator with P-note details every month.
P-note unwinding was also witnessed in December, when Sebi was thinking of imposing stricter reporting norms for P-note issuers. Last month, when the FII investment in country was at its peak, P-note holdings had dropped. They fell from around 13.6 per cent to 12.2 per cent of FII holdings.
P-note positions had reached 60 per cent of FII investments in 2007, after which Sebi imposed a ban on their issuance. This was revoked by incumbent Sebi Chairman C B Bhave in 2009.
Friday, January 28, 2011
Thursday, January 27, 2011
Crisis Panel’s Report Parsed Far and Wide
WASHINGTON — Behind closed doors, Ben S. Bernanke, the Federal Reserve chairman, called it “the worst financial crisis in global history, including the Great Depression.”
He said that 12 of the country’s 13 most important financial institutions, including Goldman Sachs, had been on the verge of collapse “within a week or two.” (The apparent exception: JPMorgan Chase.)
Imagining the impact of a Citigroup bankruptcy, he recalled, was “sort of like saying, ‘Well, four out of your five heart ventricles are fine, and the fifth one is lousy.’ ” (The human heart actually has two.)
Mr. Bernanke’s remarks, from a November 2009 interview with government investigators, were among the fresh details in the blow-by-blow chronicle of regulatory negligence and Wall Street recklessness released Thursday by a federal commission.
The report by the Financial Crisis Inquiry Commission draws on more than 700 interviews, millions of e-mail exchanges and other records that have not previously been disclosed.
While the official 633-page document comes after the Dodd-Frank law tightened up financial regulation, its findings are certain to be pored over for years — and not just by historians.
On Wall Street, analysts were already scouring 1,200 supporting documents the panel released on its Web site; an additional 700 documents and some 300 transcripts of audio interviews are to be posted before the panel’s mandate expires Feb. 13.
The report examined the risky mortgage loans that helped build the housing bubble; the packaging of those loans into exotic securities that were sold to investors; and the heedless placement of giant bets on those investments.
Enabling those developments, the panel found, were a bias toward deregulation by government officials, and mismanagement by financiers who failed to perceive the risks.
The Fed, under Mr. Bernanke’s predecessor, Alan Greenspan, failed to develop mortgage lending standards that could have stemmed the flow of bad mortgages into the financial pipeline, the panel found. “The Federal Reserve was clearly the steward of lending standards in this country,” said one commissioner, John W. Thompson, a technology executive. “They chose not to act.”
Mr. Greenspan declined to comment.
Just as the 10-member commission splintered along partisan lines — with the four Republican members offering two separate dissents — so did the response to the document.
“We certainly applaud the efforts of the commission,” the White House press secretary, Robert Gibbs, said, in remarks echoed by Senator Tim Johnson, Democrat of South Dakota, the new chairman of the Senate Banking Committee.
But Representative Spencer T. Bachus, Republican of Alabama and the new chairman of the House Financial Services Committee, said that the panel had “failed to reach even a rough consensus on the causes of the financial crisis” and that the Democratic majority had been “minimizing the role of Fannie Mae and Freddie Mac in causing the crisis.”
Those two mortgage finance entities, the main report found, contributed to the 2008 crisis but were not among its chief causes.
It concluded that Fannie and Freddie had loosened underwriting standards, bought and guaranteed riskier loans and increased their purchases of mortgage-backed securities because they were fearful of losing more market share to Wall Street competitors.
The main report said that was not because of the government’s affordable-housing goals, which conservatives like Peter J. Wallison, a Republican commissioner, believed were the primary culprit.
The culpability of the housing finance agencies is likely to influence debate in Congress over the future of housing finance. But the bulk of the report consists of a long, well-known narrative that is largely beyond dispute.
The report offered new details about how Citigroup and the American International Group, which received bailouts, were internally divided as the crisis worsened: some parts of each company continued to invest in housing-related investments even as others pulled away.
It offered new evidence that officials at Citigroup and Merrill Lynch had portrayed mortgage-related investments to investors as being safer than they really were. It noted — Goldman’s denials to the contrary — that “Goldman has been criticized — and sued — for selling its subprime mortgage securities to clients while simultaneously betting against those securities.”
It showed that the Fed and the Treasury Department had been plunged into uncertainty and hesitation after Bear Stearns was sold to JPMorgan Chase in March 2008, which contributed to a series of “inconsistent” bailout-related decisions later that year.
Neither the Fed nor the Treasury commented on the report, nor did most of the financial institutions mentioned in it, though a spokeswoman said Citigroup was “a fundamentally different company today than it was before the crisis.”
Sprinkled throughout the report were vivid quotes from major players.
Sabeth Siddique, a top Fed regulator, described how his 2005 warnings about the surge in “irresponsible loans” had prompted an “ideological turf war” within the Fed — and resistance from bankers who had accused him of “denying the American dream” to potential home borrowers.
The Office of Thrift Supervision, a soon-to-be-closed agency that was supposed to regulate A.I.G., was so outmatched that its former director, John M. Reich, compared it to “a gnat on an elephant.”
Some bankers came across as simply bumbling. E. Stanley O’Neal, chief executive of Merrill Lynch, told the commission about a “dawning awareness” through September 2007 that mortgage securities had been causing disastrous losses at the firm; weeks later, the report noted, he walked away with a severance package worth $161.5 million.
The Lehman Brothers bankruptcy in September 2008, which sent markets into a tailspin and led to a string of costly bailouts and was probably the most dramatic moment of the crisis, was reviewed in depth in the report.
The prominent Wall Street banking lawyer H. Rodgin Cohen, who represented Lehman among other big banks, said he thought the government, in refusing to bail out Lehman, had seemed that it was “playing a game of chicken,” hoping that other institutions would save Lehman.
The commission’s chairman, Phil Angelides, said he hoped the report would help bear witness to a preventable catastrophe. “Some on Wall Street and Washington with a stake in the status quo may be tempted to wipe from memory this crisis or to suggest again that no one could have seen or prevented it,” he said.
But little on Wall Street has changed. One commissioner, Byron S. Georgiou, a Nevada lawyer, said the financial system was “not really very different” today from before the crisis.
“In fact, the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions,” he said.
He said that 12 of the country’s 13 most important financial institutions, including Goldman Sachs, had been on the verge of collapse “within a week or two.” (The apparent exception: JPMorgan Chase.)
Imagining the impact of a Citigroup bankruptcy, he recalled, was “sort of like saying, ‘Well, four out of your five heart ventricles are fine, and the fifth one is lousy.’ ” (The human heart actually has two.)
Mr. Bernanke’s remarks, from a November 2009 interview with government investigators, were among the fresh details in the blow-by-blow chronicle of regulatory negligence and Wall Street recklessness released Thursday by a federal commission.
The report by the Financial Crisis Inquiry Commission draws on more than 700 interviews, millions of e-mail exchanges and other records that have not previously been disclosed.
While the official 633-page document comes after the Dodd-Frank law tightened up financial regulation, its findings are certain to be pored over for years — and not just by historians.
On Wall Street, analysts were already scouring 1,200 supporting documents the panel released on its Web site; an additional 700 documents and some 300 transcripts of audio interviews are to be posted before the panel’s mandate expires Feb. 13.
The report examined the risky mortgage loans that helped build the housing bubble; the packaging of those loans into exotic securities that were sold to investors; and the heedless placement of giant bets on those investments.
Enabling those developments, the panel found, were a bias toward deregulation by government officials, and mismanagement by financiers who failed to perceive the risks.
The Fed, under Mr. Bernanke’s predecessor, Alan Greenspan, failed to develop mortgage lending standards that could have stemmed the flow of bad mortgages into the financial pipeline, the panel found. “The Federal Reserve was clearly the steward of lending standards in this country,” said one commissioner, John W. Thompson, a technology executive. “They chose not to act.”
Mr. Greenspan declined to comment.
Just as the 10-member commission splintered along partisan lines — with the four Republican members offering two separate dissents — so did the response to the document.
“We certainly applaud the efforts of the commission,” the White House press secretary, Robert Gibbs, said, in remarks echoed by Senator Tim Johnson, Democrat of South Dakota, the new chairman of the Senate Banking Committee.
But Representative Spencer T. Bachus, Republican of Alabama and the new chairman of the House Financial Services Committee, said that the panel had “failed to reach even a rough consensus on the causes of the financial crisis” and that the Democratic majority had been “minimizing the role of Fannie Mae and Freddie Mac in causing the crisis.”
Those two mortgage finance entities, the main report found, contributed to the 2008 crisis but were not among its chief causes.
It concluded that Fannie and Freddie had loosened underwriting standards, bought and guaranteed riskier loans and increased their purchases of mortgage-backed securities because they were fearful of losing more market share to Wall Street competitors.
The main report said that was not because of the government’s affordable-housing goals, which conservatives like Peter J. Wallison, a Republican commissioner, believed were the primary culprit.
The culpability of the housing finance agencies is likely to influence debate in Congress over the future of housing finance. But the bulk of the report consists of a long, well-known narrative that is largely beyond dispute.
The report offered new details about how Citigroup and the American International Group, which received bailouts, were internally divided as the crisis worsened: some parts of each company continued to invest in housing-related investments even as others pulled away.
It offered new evidence that officials at Citigroup and Merrill Lynch had portrayed mortgage-related investments to investors as being safer than they really were. It noted — Goldman’s denials to the contrary — that “Goldman has been criticized — and sued — for selling its subprime mortgage securities to clients while simultaneously betting against those securities.”
It showed that the Fed and the Treasury Department had been plunged into uncertainty and hesitation after Bear Stearns was sold to JPMorgan Chase in March 2008, which contributed to a series of “inconsistent” bailout-related decisions later that year.
Neither the Fed nor the Treasury commented on the report, nor did most of the financial institutions mentioned in it, though a spokeswoman said Citigroup was “a fundamentally different company today than it was before the crisis.”
Sprinkled throughout the report were vivid quotes from major players.
Sabeth Siddique, a top Fed regulator, described how his 2005 warnings about the surge in “irresponsible loans” had prompted an “ideological turf war” within the Fed — and resistance from bankers who had accused him of “denying the American dream” to potential home borrowers.
The Office of Thrift Supervision, a soon-to-be-closed agency that was supposed to regulate A.I.G., was so outmatched that its former director, John M. Reich, compared it to “a gnat on an elephant.”
Some bankers came across as simply bumbling. E. Stanley O’Neal, chief executive of Merrill Lynch, told the commission about a “dawning awareness” through September 2007 that mortgage securities had been causing disastrous losses at the firm; weeks later, the report noted, he walked away with a severance package worth $161.5 million.
The Lehman Brothers bankruptcy in September 2008, which sent markets into a tailspin and led to a string of costly bailouts and was probably the most dramatic moment of the crisis, was reviewed in depth in the report.
The prominent Wall Street banking lawyer H. Rodgin Cohen, who represented Lehman among other big banks, said he thought the government, in refusing to bail out Lehman, had seemed that it was “playing a game of chicken,” hoping that other institutions would save Lehman.
The commission’s chairman, Phil Angelides, said he hoped the report would help bear witness to a preventable catastrophe. “Some on Wall Street and Washington with a stake in the status quo may be tempted to wipe from memory this crisis or to suggest again that no one could have seen or prevented it,” he said.
But little on Wall Street has changed. One commissioner, Byron S. Georgiou, a Nevada lawyer, said the financial system was “not really very different” today from before the crisis.
“In fact, the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions,” he said.
Asian Stocks Fall for First Day This Week After Oil, Gold Prices Decline
Asian stocks fell, dragging down a regional benchmark index for the first time this week, as Japanese banks dropped after Standard & Poor’s cut the nation’s credit rating, and commodity shares declined.
Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s two biggest publicly traded banks, sank more than 2 percent in Tokyo. BHP Billiton Ltd., the world’s largest mining company, declined 1.1 percent and Newcrest Mining Ltd, Australia’s No. 1 gold producer, lost 3.6 percent in Sydney as oil and gold prices slumped. Advantest Corp. plunged 5.6 percent after Goldman Sachs Group Inc. lowered its share-price estimate on the maker of chip-testing equipment.
Japan’s rating cut “is negative for banks that hold government bonds,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo.
The MSCI Asia Pacific Index fell 0.4 percent to 137.77 as of 10:17 a.m. Tokyo, paring this week’s gain to 1 percent. About two stocks declined for each that advanced in the gauge, which had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
Japan’s Nikkei 225 Stock Average lost 0.9 percent and the Topix lost 1 percent, the steepest drops among benchmark equity indexes in the Asia-Pacific region. South Korea’s Kospi Index declined 0.2 percent. Australia’s S&P/ASX 200 Index fell 0.5 percent.
Futures on the Standard & Poor’s 500 Index dropped 0.2 percent today. The index gained 0.2 percent yesterday in New York, rising for a fifth straight day, as home sales and Qualcomm Inc.’s forecast beat projections by economists and analysts, offsetting higher-than-estimated jobless claims.
Earnings, Estimates
Of the 106 companies in the MSCI index that have reported earnings for the latest quarter, 48 have exceeded analysts’ estimates, while 45 have missed them, according to data compiled by Bloomberg. On Jan. 31, 86 of the 1,019 companies in the gauge are scheduled to release results.
Japan’s credit rating was cut yesterday for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.
Japan, the world’s most indebted nation, had its rating cut to AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said yesterday in a statement. The outlook for the rating is stable, S&P said.
Oil, Gold
Crude oil for March delivery tumbled $1.69 to $85.64 a barrel yesterday in New York, the lowest settlement price since Nov. 30. Gold futures for April delivery fell 1.1 percent to settle at $1,319.80 an ounce in New York yesterday. In after- hours electronic trading, the price touched $1,311, the lowest since Oct. 1.
The MSCI Asia Pacific Index increased 0.4 percent this year to yesterday, compared with gains of 3.3 percent for the S&P 500 and 2.6 percent for the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan’s two biggest publicly traded banks, sank more than 2 percent in Tokyo. BHP Billiton Ltd., the world’s largest mining company, declined 1.1 percent and Newcrest Mining Ltd, Australia’s No. 1 gold producer, lost 3.6 percent in Sydney as oil and gold prices slumped. Advantest Corp. plunged 5.6 percent after Goldman Sachs Group Inc. lowered its share-price estimate on the maker of chip-testing equipment.
Japan’s rating cut “is negative for banks that hold government bonds,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo.
The MSCI Asia Pacific Index fell 0.4 percent to 137.77 as of 10:17 a.m. Tokyo, paring this week’s gain to 1 percent. About two stocks declined for each that advanced in the gauge, which had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
Japan’s Nikkei 225 Stock Average lost 0.9 percent and the Topix lost 1 percent, the steepest drops among benchmark equity indexes in the Asia-Pacific region. South Korea’s Kospi Index declined 0.2 percent. Australia’s S&P/ASX 200 Index fell 0.5 percent.
Futures on the Standard & Poor’s 500 Index dropped 0.2 percent today. The index gained 0.2 percent yesterday in New York, rising for a fifth straight day, as home sales and Qualcomm Inc.’s forecast beat projections by economists and analysts, offsetting higher-than-estimated jobless claims.
Earnings, Estimates
Of the 106 companies in the MSCI index that have reported earnings for the latest quarter, 48 have exceeded analysts’ estimates, while 45 have missed them, according to data compiled by Bloomberg. On Jan. 31, 86 of the 1,019 companies in the gauge are scheduled to release results.
Japan’s credit rating was cut yesterday for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.
Japan, the world’s most indebted nation, had its rating cut to AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said yesterday in a statement. The outlook for the rating is stable, S&P said.
Oil, Gold
Crude oil for March delivery tumbled $1.69 to $85.64 a barrel yesterday in New York, the lowest settlement price since Nov. 30. Gold futures for April delivery fell 1.1 percent to settle at $1,319.80 an ounce in New York yesterday. In after- hours electronic trading, the price touched $1,311, the lowest since Oct. 1.
The MSCI Asia Pacific Index increased 0.4 percent this year to yesterday, compared with gains of 3.3 percent for the S&P 500 and 2.6 percent for the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, compared with 13.6 times for the S&P 500 and 11.3 times for the Stoxx 600.
Tata Motors Looks at Selling Nano in Asia Outside India in 2011
Tata Motors Ltd. may expand sales of the Nano, the world’s cheapest car, to countries such as Thailand, Sri Lanka and Bangladesh as early as this year as demand for the egg-shaped vehicle rebounds in India.
“We will go after these markets one after another,” Tata Chief Executive Officer Carl-Peter Forster said yesterday at an auto-industry event in Bochum, Germany. “The Nano is a raw diamond that needs polishing.”
Nano sales are likely to climb to 8,000 to 10,000 cars a month “soon” from a current rate of 6,000 to 7,000 deliveries as the Mumbai-based automaker expands marketing for the model and continues to offer 100 percent financing to customers who can’t afford a down payment, Forster said.
The Nano’s registrations in December rose to 5,784 cars from a record low of 509 in November, Tata Motors said on Jan. 1. The manufacturer has more than doubled warranties and offered easier financing to promote the model. The December tally, a 60 percent increase from a year earlier, was below the 9,000-car monthly sales record reached in July.
Tata delivered the Nano to its first customer in July 2009. The car, which costs as little as 137,555 rupees ($3,000) in New Delhi, went on sale in India nationwide on Jan. 3 through Tata’s 874 dealerships. Deliveries had been limited to 12 states as the company worked through initial orders and ramped up production at a new factory that opened in June with annual capacity to build 250,000 of the car.
Maintenance Packages
Tata Motors is also offering maintenance packages, including one for 99 rupees a month, and inviting prospective customers to meetings with Nano owners to overcome the concerns of first-time car buyers.
The model’s sales fell on a month-on-month basis from July through November because of price increases and safety concerns following reports of at least three fires with the model. In response to the drop, Tata began a television advertising campaign and adding sales points in smaller towns in December, the same month it lengthened warranties to four years or 60,000 kilometers (37,300 miles) and introduced the maintenance plan.
The carmaker said in November that it would retrofit Nanos with additional protection in exhaust and electrical systems after the fires. Investigations concluded that reasons for the fires were “specific” to the vehicles involved, Tata Motors has said.
Tata rose 2.6 percent to 1,195.85 rupees yesterday in Mumbai trading. The shares gained 65 percent last year, the second-best performance on the benchmark Sensitive Index of the Bombay Stock Exchange.
“We will go after these markets one after another,” Tata Chief Executive Officer Carl-Peter Forster said yesterday at an auto-industry event in Bochum, Germany. “The Nano is a raw diamond that needs polishing.”
Nano sales are likely to climb to 8,000 to 10,000 cars a month “soon” from a current rate of 6,000 to 7,000 deliveries as the Mumbai-based automaker expands marketing for the model and continues to offer 100 percent financing to customers who can’t afford a down payment, Forster said.
The Nano’s registrations in December rose to 5,784 cars from a record low of 509 in November, Tata Motors said on Jan. 1. The manufacturer has more than doubled warranties and offered easier financing to promote the model. The December tally, a 60 percent increase from a year earlier, was below the 9,000-car monthly sales record reached in July.
Tata delivered the Nano to its first customer in July 2009. The car, which costs as little as 137,555 rupees ($3,000) in New Delhi, went on sale in India nationwide on Jan. 3 through Tata’s 874 dealerships. Deliveries had been limited to 12 states as the company worked through initial orders and ramped up production at a new factory that opened in June with annual capacity to build 250,000 of the car.
Maintenance Packages
Tata Motors is also offering maintenance packages, including one for 99 rupees a month, and inviting prospective customers to meetings with Nano owners to overcome the concerns of first-time car buyers.
The model’s sales fell on a month-on-month basis from July through November because of price increases and safety concerns following reports of at least three fires with the model. In response to the drop, Tata began a television advertising campaign and adding sales points in smaller towns in December, the same month it lengthened warranties to four years or 60,000 kilometers (37,300 miles) and introduced the maintenance plan.
The carmaker said in November that it would retrofit Nanos with additional protection in exhaust and electrical systems after the fires. Investigations concluded that reasons for the fires were “specific” to the vehicles involved, Tata Motors has said.
Tata rose 2.6 percent to 1,195.85 rupees yesterday in Mumbai trading. The shares gained 65 percent last year, the second-best performance on the benchmark Sensitive Index of the Bombay Stock Exchange.
Wednesday, January 26, 2011
India’s inflation deters foreign investors
Few would have guessed a year ago that a rise in the price of onions would put a brake on the stellar growth of India’s stock market and force investors to rethink exposure to Asia’s third-largest economy.
That, though, is what has happened. A sharp jump in food prices has revived fears that high inflation in India could threaten its economy, which last year attracted billions of dollars from overseas.
EDITOR’S CHOICE
India raises rates in inflation fight - Jan-25
Indian industrialists fear rate rise too far - Jan-25
Raising rates but extending liquidity - Jan-25
beyondbrics: Investors lose faith in Indian growth - Jan-25
New Delhi to act on soaring prices of food - Jan-13
Production data spark India growth fears - Jan-12
On Tuesday, the Reserve Bank of India raised interest rates for the seventh time in less than a year in an effort to curb food price inflation. This could also undermine growth prospects, and the likely returns for foreign investors.
Duvvuri Subbarao, the RBI’s governor, has warned that “should global recovery be faster than expected, it may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India”.
Goldman Sachs, Credit Suisse, Morgan Stanley and Nomura are among a number of banks to have recently warned clients of the risk of slower growth.
After a deluge of foreign investment last year, when inflows into India’s equity market hit a record $29.4bn, many investors have been advised to cash in their gains and take a “detox” period from Indian stocks. Since the start of this year, foreign institutional investors, the main drivers of Indian equities, have sold more shares than they have bought, leading to a net capital outflow of $711.5m, according to data released by India’s market regulator.
The effect on India’s stock market has been sizeable. Bombay’s benchmark Sensex index, which hit an all-time high in November, has since tumbled nearly 8 per cent.
India’s wholesale price index, the country’s main inflation indicator, rose to 8.43 per cent year on year in December.
The more politically sensitive food inflation measure rose to about 16 per cent, as vegetable prices, in particular for onions and garlic, spiked 70.7 per cent year on year in January. At the same time, state-run fuel retailers have been increasing petrol prices – by as much as 22 per cent since the government deregulated the market in June. This has added to pressure on manufacturers struggling to keep costs down.
A recent rise of between 17 per cent and 30 per cent in minimum wages across different Indian states has benefited rural incomes, but is also likely to add to inflationary pressure, economists believe.
Optimism, therefore, is limited, at least in the short term. Ridham Desai, chief India strategist at Morgan Stanley, says: “Our recent investor interactions and investor survey underpin a rather bearish sentiment for India in 2011. Only one-fourth of the buyside investors believe that India will outperform emerging markets in 2011.”
Rohini Malkani, economist at Citigroup, says last year’s benign domestic macroeconomic environment has been jolted by the rise in inflation and a widening current account deficit, at a record 4.1 per cent of gross domestic product.
Food prices
FT In depth: News, comment and analysis on rising concerns about food security and prices
Abby Joseph Cohen, investment strategist at Goldman Sachs, said recently the group had an optimistic view of developed markets this year, as their economies recovered and valuations looked attractive. “From the valuation perspective, the developed markets look more attractive than the developing market at least from the six to 12 months perspective,” she told the ET, an Indian business daily. “This is not necessarily our long-term view.”
Indian stocks have been trading for more than a year on a price-to-earnings ratio well above their long-term average for forward earnings of 13.8 times.
Even after the latest correction, the ratio is between 19 and 22 times. This is substantially above the ratio for the MSCI Emerging Market index, which is 12, and for the developed world, which is about 12.5 times. On a price-to-book ratio, Indian shares do not look that expensive in historic terms, but look pricey compared with emerging market peers, at 2.7 times versus 1.8 times.
Last year, many investors were content to keep investing in Indian stocks on the grounds that they could look forward to double-digit growth. That was the case for most of 2010 as the MSCI India index outperformed the MSCI EM index in nine out of 12 months. However, as economists revise their overall growth outlooks downward, few investors see value in buying assets that look to be overpriced.
Assuming India’s inflation is dealt with, however, economists’ long-term view is far from pessimistic.
“India has, in the last decade, seen both near-term and long-term obstacles pop up. However, these have been consistently overshadowed by larger and broader opportunities. We believe this tussle will persist through 2011, but opportunities will continue to overwhelm these obstacles,” says Ms Malkani.
That, though, is what has happened. A sharp jump in food prices has revived fears that high inflation in India could threaten its economy, which last year attracted billions of dollars from overseas.
EDITOR’S CHOICE
India raises rates in inflation fight - Jan-25
Indian industrialists fear rate rise too far - Jan-25
Raising rates but extending liquidity - Jan-25
beyondbrics: Investors lose faith in Indian growth - Jan-25
New Delhi to act on soaring prices of food - Jan-13
Production data spark India growth fears - Jan-12
On Tuesday, the Reserve Bank of India raised interest rates for the seventh time in less than a year in an effort to curb food price inflation. This could also undermine growth prospects, and the likely returns for foreign investors.
Duvvuri Subbarao, the RBI’s governor, has warned that “should global recovery be faster than expected, it may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India”.
Goldman Sachs, Credit Suisse, Morgan Stanley and Nomura are among a number of banks to have recently warned clients of the risk of slower growth.
After a deluge of foreign investment last year, when inflows into India’s equity market hit a record $29.4bn, many investors have been advised to cash in their gains and take a “detox” period from Indian stocks. Since the start of this year, foreign institutional investors, the main drivers of Indian equities, have sold more shares than they have bought, leading to a net capital outflow of $711.5m, according to data released by India’s market regulator.
The effect on India’s stock market has been sizeable. Bombay’s benchmark Sensex index, which hit an all-time high in November, has since tumbled nearly 8 per cent.
India’s wholesale price index, the country’s main inflation indicator, rose to 8.43 per cent year on year in December.
The more politically sensitive food inflation measure rose to about 16 per cent, as vegetable prices, in particular for onions and garlic, spiked 70.7 per cent year on year in January. At the same time, state-run fuel retailers have been increasing petrol prices – by as much as 22 per cent since the government deregulated the market in June. This has added to pressure on manufacturers struggling to keep costs down.
A recent rise of between 17 per cent and 30 per cent in minimum wages across different Indian states has benefited rural incomes, but is also likely to add to inflationary pressure, economists believe.
Optimism, therefore, is limited, at least in the short term. Ridham Desai, chief India strategist at Morgan Stanley, says: “Our recent investor interactions and investor survey underpin a rather bearish sentiment for India in 2011. Only one-fourth of the buyside investors believe that India will outperform emerging markets in 2011.”
Rohini Malkani, economist at Citigroup, says last year’s benign domestic macroeconomic environment has been jolted by the rise in inflation and a widening current account deficit, at a record 4.1 per cent of gross domestic product.
Food prices
FT In depth: News, comment and analysis on rising concerns about food security and prices
Abby Joseph Cohen, investment strategist at Goldman Sachs, said recently the group had an optimistic view of developed markets this year, as their economies recovered and valuations looked attractive. “From the valuation perspective, the developed markets look more attractive than the developing market at least from the six to 12 months perspective,” she told the ET, an Indian business daily. “This is not necessarily our long-term view.”
Indian stocks have been trading for more than a year on a price-to-earnings ratio well above their long-term average for forward earnings of 13.8 times.
Even after the latest correction, the ratio is between 19 and 22 times. This is substantially above the ratio for the MSCI Emerging Market index, which is 12, and for the developed world, which is about 12.5 times. On a price-to-book ratio, Indian shares do not look that expensive in historic terms, but look pricey compared with emerging market peers, at 2.7 times versus 1.8 times.
Last year, many investors were content to keep investing in Indian stocks on the grounds that they could look forward to double-digit growth. That was the case for most of 2010 as the MSCI India index outperformed the MSCI EM index in nine out of 12 months. However, as economists revise their overall growth outlooks downward, few investors see value in buying assets that look to be overpriced.
Assuming India’s inflation is dealt with, however, economists’ long-term view is far from pessimistic.
“India has, in the last decade, seen both near-term and long-term obstacles pop up. However, these have been consistently overshadowed by larger and broader opportunities. We believe this tussle will persist through 2011, but opportunities will continue to overwhelm these obstacles,” says Ms Malkani.
Monday, January 24, 2011
Uncertainty Over Economy Clouds Obama Speech
Once burned, twice shy.
A year ago, the economy looked as if it were speeding down the runway, only to stall out in the spring.
Now tentative signs of a pickup are emerging across the country again. Factory production, retail sales and existing-home sales are rising, while unemployment claims are trending down. Companies like General Motors and Macy’s have recently announced hiring plans, and bank lending to businesses is starting to expand. Investor sentiment is strengthening, as major stock market indexes climb to their highest levels since mid-2008.
This time, though, economists and business leaders are more measured in their optimism about the recovery. Growth is real, they say, though they remain unconvinced it will accelerate all that much.
As President Obama prepares to tackle the economy in his State of the Union address Tuesday night, economists and industry executives are likewise sifting through the data.
The darkest clouds that marred the economic landscape last summer and fall have indeed lifted, but expectations have also been reined in. Many of the factors that have restrained growth, including heavy household debt and strained state and local budgets, remain. Parts of Europe are still unstable, and higher food and energy prices could crimp household spending. The construction industry has not yet staged a comeback.
The unemployment rate, stubbornly high at 9.4 percent, could climb higher as more people who stopped looking for work return to the job search. And few see enough jobs being created over the next year to help more than a small portion of the eight million people who lost work during the recession.
So even if the economy is picking up steam, and the president is hoping to ride its momentum, making a significant dent in joblessness will probably remain frustratingly difficult for him and his new economic advisers.
“It’s really a muddle-through economy,” said David Rosenberg, chief economist and strategist for the investment firm Gluskin Sheff & Associates.
Part of what has changed is simply a growing belief that unlike in previous recoveries, the economy will not suddenly ignite.
“After a normal recession, once the economy starts growing again, within six months, you’re back to where you started,” said Kenneth S. Rogoff, a professor at Harvard and co-author, with Carmen M. Reinhart, of “This Time Is Different,” a history of financial crises. “We’re still just crawling back to where we started.” He added, “It’s going to take a few more years, really, before we’re back at whatever normal is.”
One reason that hope was crushed last spring was that debt crises in Europe’s weak countries destabilized the stock markets, in turn unnerving consumers. And when fiscal stimulus measures expired, like the tax credit for first-time homebuyers, the housing market sagged.
Unlike last year, hardly anyone is expecting skyrocketing growth in coming months. Industry leaders instead talk of stable improvement.
“We don’t expect a big upswing in sales,” said Tom Henderson, a spokesman for General Motors. “It’s just slow and steady, which is tracking along what we’re seeing in the economy.”
The automaker announced on Monday that it was beginning a third shift at its pickup truck assembly plant in Flint, adding 750 jobs. Most of those slots will be filled by people who were laid off in recent years.
Overall sales are starting to improve, and bank lending to businesses rose in the fourth quarter of last year for the first time since the end of 2008, according to an analysis of Federal Reserve data by Mark Zandi of Moody’s Analytics.
Small businesses — which represented about two-thirds of job growth in the last recovery — are still cautious.
“It’s not that sales haven’t been improving, but it’s improving from a really horrible level of a year ago,” said William C. Dunkelberg, chief economist for the National Federation of Independent Business. “We still haven’t got Main Street firing on many pistons.”
Some small businesses are having trouble getting bank loans because they do not have the collateral. Ami Kassar, chief executive of MultiFunding, a small-business lending broker in Plymouth Meeting, Pa., said that many of his clients had seen the values of their homes, office buildings and warehouses fall so much that banks would not accept them as security.
Mr. Kassar said that when his clients did procure loans, they often used the money to cover payrolls rather than to hire new workers, in part because many of their largest customers were taking longer to pay their bills.
A year ago, the economy looked as if it were speeding down the runway, only to stall out in the spring.
Now tentative signs of a pickup are emerging across the country again. Factory production, retail sales and existing-home sales are rising, while unemployment claims are trending down. Companies like General Motors and Macy’s have recently announced hiring plans, and bank lending to businesses is starting to expand. Investor sentiment is strengthening, as major stock market indexes climb to their highest levels since mid-2008.
This time, though, economists and business leaders are more measured in their optimism about the recovery. Growth is real, they say, though they remain unconvinced it will accelerate all that much.
As President Obama prepares to tackle the economy in his State of the Union address Tuesday night, economists and industry executives are likewise sifting through the data.
The darkest clouds that marred the economic landscape last summer and fall have indeed lifted, but expectations have also been reined in. Many of the factors that have restrained growth, including heavy household debt and strained state and local budgets, remain. Parts of Europe are still unstable, and higher food and energy prices could crimp household spending. The construction industry has not yet staged a comeback.
The unemployment rate, stubbornly high at 9.4 percent, could climb higher as more people who stopped looking for work return to the job search. And few see enough jobs being created over the next year to help more than a small portion of the eight million people who lost work during the recession.
So even if the economy is picking up steam, and the president is hoping to ride its momentum, making a significant dent in joblessness will probably remain frustratingly difficult for him and his new economic advisers.
“It’s really a muddle-through economy,” said David Rosenberg, chief economist and strategist for the investment firm Gluskin Sheff & Associates.
Part of what has changed is simply a growing belief that unlike in previous recoveries, the economy will not suddenly ignite.
“After a normal recession, once the economy starts growing again, within six months, you’re back to where you started,” said Kenneth S. Rogoff, a professor at Harvard and co-author, with Carmen M. Reinhart, of “This Time Is Different,” a history of financial crises. “We’re still just crawling back to where we started.” He added, “It’s going to take a few more years, really, before we’re back at whatever normal is.”
One reason that hope was crushed last spring was that debt crises in Europe’s weak countries destabilized the stock markets, in turn unnerving consumers. And when fiscal stimulus measures expired, like the tax credit for first-time homebuyers, the housing market sagged.
Unlike last year, hardly anyone is expecting skyrocketing growth in coming months. Industry leaders instead talk of stable improvement.
“We don’t expect a big upswing in sales,” said Tom Henderson, a spokesman for General Motors. “It’s just slow and steady, which is tracking along what we’re seeing in the economy.”
The automaker announced on Monday that it was beginning a third shift at its pickup truck assembly plant in Flint, adding 750 jobs. Most of those slots will be filled by people who were laid off in recent years.
Overall sales are starting to improve, and bank lending to businesses rose in the fourth quarter of last year for the first time since the end of 2008, according to an analysis of Federal Reserve data by Mark Zandi of Moody’s Analytics.
Small businesses — which represented about two-thirds of job growth in the last recovery — are still cautious.
“It’s not that sales haven’t been improving, but it’s improving from a really horrible level of a year ago,” said William C. Dunkelberg, chief economist for the National Federation of Independent Business. “We still haven’t got Main Street firing on many pistons.”
Some small businesses are having trouble getting bank loans because they do not have the collateral. Ami Kassar, chief executive of MultiFunding, a small-business lending broker in Plymouth Meeting, Pa., said that many of his clients had seen the values of their homes, office buildings and warehouses fall so much that banks would not accept them as security.
Mr. Kassar said that when his clients did procure loans, they often used the money to cover payrolls rather than to hire new workers, in part because many of their largest customers were taking longer to pay their bills.
Asian Stocks Rise as U.S. Takeovers, Buybacks Enhance Outlook; Rio Gains
Asian stocks rose, driving the regional benchmark index higher for the second day as U.S. takeovers, share buybacks and dividend prospects drove the Dow Jones Industrial Average to its highest close since June 2008.
Toyota Motor Corp., a Japanese automaker that earns about 70 percent of its revenue abroad, climbed 1.6 percent in Tokyo. Elpida Memory Inc. advanced 2.5 percent after Texas Instruments Inc., the largest analog chipmaker, reported higher profit. Rio Tinto Group, the world’s third-bigest mining company, gained 1.1 percent in Sydney as metal prices advanced.
The MSCI Asia Pacific Index rose 0.9 percent to 138.36 as of 11:11 a.m. in Tokyo, with about four stocks advancing for each that declined, and consumer and technology stocks leading gains. The gauge had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
“This is the perfect time for consolidation,” said James Holt, who helps manage about $40 billion in Sydney at BlackRock Investment Management Australia) Ltd. “We expect that U.S. companies which undertook massive cost cutting during the global financial crisis will, as they regain confidence, deploy their record cash balances into mergers and acquisitions or new business investment.”
Japan’s Nikkei 225 Stock Average rose 0.9 percent and South Korea’s Kospi Index gained 0.8 percent. Australia’s S&P/ASX 200 Index advanced 0.6 percent and New Zealand’s NZX 50 Index increased 0.3 percent. Hong Kong’s Hang Seng Index advanced 0.6 percent. Shanghai Composite Index retreated 0.6 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index increased 0.6 percent in New York yesterday and the Dow Jones climbed 0.9 percent to 11,980.52.
Valuations Slip
The MSCI Asia Pacific Index dropped 0.4 percent this year to yesterday, compared with gains of 2.6 percent for the S&P 500 and 2.2 percent for the Stoxx Europe 600 Index.
Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, from 14.3 on June 30. Over the same period, shares in the S&P 500 have risen to 13.5 times estimated earnings from 12.7 times. Valuations for the Stoxx 600, at 11.2 times, are the same as they were at the end of the first half of 2010.
Intel Corp., the world’s largest chipmaker, gained after adding $10 billion to its share-buyback plan, Smurfit-Stone Container Corp. surged after agreeing to be acquired, and Warren Buffett’s Berkshire Hathaway Inc. advanced amid speculation the company may start paying a dividend this year.
Blue Chips ‘Targets’
Separately, Texas Instruments, the largest maker of analog chips, reported a 44 percent gain in fourth-quarter profit.
“International blue chips will likely be the main targets for investors to buy, leading gauges to further gains,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.
Toyota rose 1.6 percent to 3,470 yen in Tokyo and Canon Inc., the world’s largest camera maker, climbed 1.1 percent to 4,135 yen. Elpida advanced 2.5 percent to 1,162 yen, while in Seoul, Samsung Electronics Co., the world’s No. 1 maker of televisions, rose 0.6 percent to 977,000 won.
A measure of material stocks tracked by the Asia-Pacific gauge also climbed today, following metals prices higher.
Rio Tinto gained 1.1 percent to A$86.07 in Sydney, while BHP Billiton Ltd., the world’s largest mining company, rose 0.7 percent to A$45.21. Mitsubishi Corp., Japan’s No. 1 commodities trader, added 1 percent to 2,339 yen in Tokyo.
Copper prices gained for a second straight session on signs of rebounding demand in China, the world’s largest buyer, and a recovery in Europe, while tin reached a record. The London Metal Exchange Index of six metals including copper and aluminum gained 0.4 percent yesterday, rising for a second day.
Toyota Motor Corp., a Japanese automaker that earns about 70 percent of its revenue abroad, climbed 1.6 percent in Tokyo. Elpida Memory Inc. advanced 2.5 percent after Texas Instruments Inc., the largest analog chipmaker, reported higher profit. Rio Tinto Group, the world’s third-bigest mining company, gained 1.1 percent in Sydney as metal prices advanced.
The MSCI Asia Pacific Index rose 0.9 percent to 138.36 as of 11:11 a.m. in Tokyo, with about four stocks advancing for each that declined, and consumer and technology stocks leading gains. The gauge had its first weekly drop in 1 1/2 months last week amid concern faster-than-expected economic growth in China will add pressure on policy makers to accelerate efforts to tame inflation.
“This is the perfect time for consolidation,” said James Holt, who helps manage about $40 billion in Sydney at BlackRock Investment Management Australia) Ltd. “We expect that U.S. companies which undertook massive cost cutting during the global financial crisis will, as they regain confidence, deploy their record cash balances into mergers and acquisitions or new business investment.”
Japan’s Nikkei 225 Stock Average rose 0.9 percent and South Korea’s Kospi Index gained 0.8 percent. Australia’s S&P/ASX 200 Index advanced 0.6 percent and New Zealand’s NZX 50 Index increased 0.3 percent. Hong Kong’s Hang Seng Index advanced 0.6 percent. Shanghai Composite Index retreated 0.6 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index increased 0.6 percent in New York yesterday and the Dow Jones climbed 0.9 percent to 11,980.52.
Valuations Slip
The MSCI Asia Pacific Index dropped 0.4 percent this year to yesterday, compared with gains of 2.6 percent for the S&P 500 and 2.2 percent for the Stoxx Europe 600 Index.
Stocks in the Asian benchmark were valued at 14.1 times estimated earnings on average at the last close, from 14.3 on June 30. Over the same period, shares in the S&P 500 have risen to 13.5 times estimated earnings from 12.7 times. Valuations for the Stoxx 600, at 11.2 times, are the same as they were at the end of the first half of 2010.
Intel Corp., the world’s largest chipmaker, gained after adding $10 billion to its share-buyback plan, Smurfit-Stone Container Corp. surged after agreeing to be acquired, and Warren Buffett’s Berkshire Hathaway Inc. advanced amid speculation the company may start paying a dividend this year.
Blue Chips ‘Targets’
Separately, Texas Instruments, the largest maker of analog chips, reported a 44 percent gain in fourth-quarter profit.
“International blue chips will likely be the main targets for investors to buy, leading gauges to further gains,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.
Toyota rose 1.6 percent to 3,470 yen in Tokyo and Canon Inc., the world’s largest camera maker, climbed 1.1 percent to 4,135 yen. Elpida advanced 2.5 percent to 1,162 yen, while in Seoul, Samsung Electronics Co., the world’s No. 1 maker of televisions, rose 0.6 percent to 977,000 won.
A measure of material stocks tracked by the Asia-Pacific gauge also climbed today, following metals prices higher.
Rio Tinto gained 1.1 percent to A$86.07 in Sydney, while BHP Billiton Ltd., the world’s largest mining company, rose 0.7 percent to A$45.21. Mitsubishi Corp., Japan’s No. 1 commodities trader, added 1 percent to 2,339 yen in Tokyo.
Copper prices gained for a second straight session on signs of rebounding demand in China, the world’s largest buyer, and a recovery in Europe, while tin reached a record. The London Metal Exchange Index of six metals including copper and aluminum gained 0.4 percent yesterday, rising for a second day.
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