By Ben Sharples - Jun 19, 2011
Oil declined for a second day in New York on speculation a weakening global economy and Greece’s debt crisis will lead to lower fuel demand.
Futures fell as much as 1 percent today after the biggest weekly decline in six weeks. European governments failed to agree on releasing a loan payout to spare Greece from default while Japan’s exports fell more than economists forecast in May. A report tomorrow may show U.S. home sales last month slid to the lowest this year.
“The major influence continues to be the European situation,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted oil will average $113 a barrel in the third quarter. “There is this tone of a global slowing in the economy. The data continues to be a bit soft out of the U.S.”
Crude for July delivery fell as much as 90 cents to $92.11 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.14 at 1:31 p.m. Sydney time. The contract expires tomorrow. The August future dropped 92 cents, or 1 percent, to $92.48.
Oil slipped $1.94, or 2 percent, to $93.01 on June 17, the lowest settlement since Feb. 18. Prices slid 6.3 percent last week, the biggest decline since the week ended May 6. Crude is 18 percent higher the past year.
Brent oil for August delivery dropped 94 cents, or 0.8 percent, to $112.27 a barrel on the London-based ICE Futures Europe exchange today. Prices are up 42 percent the past year.
Greek Debt
Euro-area finance ministers pushed Greece to pass laws to cut its deficit and sell state assets. They left open whether the country will get the full 12 billion euros ($17.1 billion) promised for July as part of a bailout package agreed last year, according to Luxembourg Prime Minister Jean-Claude Juncker, after chairing a crisis meeting in his country. Decisions on the next payout and a three-year follow-up package were put off until early next month.
Japan’s exports decreased 10.3 percent from a year earlier after April’s 12.4 percent drop, the Finance Ministry said today. The median estimate of 25 economists surveyed by Bloomberg News was for an 8.4 percent decline. The nation posted a trade deficit of 853.7 billion yen ($10.7 billion) in May.
The National Association of Realtors may say in a report tomorrow that sales of existing homes in the U.S. fell 5 percent to a 4.8 million annual pace, according to the median forecast of 55 economists surveyed by Bloomberg. That would be the weakest since November.
Growth Forecast
The International Monetary Fund cut its forecast for U.S. growth in 2011, warning of further setbacks to the economic recovery, along with potential contagion from the European debt crisis. The economy will grow 2.5 percent this year and 2.7 percent in 2012, down from the 2.8 percent and 2.9 percent projected in April, the IMF said June 17.
The Washington-based fund sees the world economy expanding 4.3 percent this year, down from 4.4 percent in April.
Oil may decrease this week on signals that economic growth in the U.S. and China will slow, curbing fuel use in the world’s biggest crude-consuming countries, a Bloomberg News survey showed. Eighteen of 38 analysts, or 47 percent, forecast prices will decline through June 24.
Thirteen respondents, or 34 percent, predicted prices will increase and seven estimated there will be little change. Last week, 54 percent of respondents said futures would drop.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, June 19, 2011
Saturday, June 18, 2011
Don't go overweight on any single scheme
while building your mutual fund portfolio, opt for a mix of equity diversified and sectoral funds
For a normal investor, investing their money has mostly been just a matter of doing what they have been doing in the past, like investing in fixed deposits (FDs), National Savings Certificates (NSCs), Public Provident Fund (PPF) and so on. However, lately, many people have been investing in mutual fund schemes too. Many among them have understood the significance of Systematic Investment Plans (SIPs) offered by these fund houses. And pay their monthly obeisance without fail.
But then, picking up the right set of schemes for investments remains a challenge. And many investors fail to recognise the need to do so. They just pick up what their friend / colleague has invested in or what is being currently advertised. A favourite among investors is the New Fund Offer (NFO) route. Even after a blizzard of articles specifically debunking the Rs 10 advantage in an NFO and highlighting the negatives of investing in a new scheme without a performance track record and possibly a new fund manager, investors continue to patronise NFOs.
Fund house filter: There are some fund houses which have built expertise in equity or debt fund management. Go to the experts and you would have won half the battle. Asset management companies which have a proven track record in equity asset management would be the fund houses to go to, for equity funds. Such fund houses would have the capacity to manage equity assets better than most, due to their better experienced fund managers, their processes and systems. There are some fund houses with niche capabilities like global investing or commodity stock investing. Go to them for these products.
Fund manager filter: Fund managers play a major role in the scheme’s performance. Though there are systems and processes that tend to minimise the individualistic nature of fund management, fund managers skill is essential for funds to perform well. You will notice that often there is a major difference in the performance of schemes in the same category over different cycles of the market. While some schemes consistently outperform the corresponding index and beat the category average, over various time frames, others in the same category may fail to do so. That’s a fund manager’s skill working for you.
Performance filter: There are some funds which are consistent good performers while there are others which deliver stellar performances, from time to time. At the time of constructing a portfolio, one should look for consistency in performance rather than sudden bursts in the charts. The former is far more desirable and is achieved through proper selection processes, conviction, understanding and correct judgement at various points. Also, one should choose funds which have at least a 3-year performance history. This will help in validating if the fund is worthwhile to consider investing.
Portfolio construction: In order to make this decision, an investor needs to consider his/her goals and the requirements for cashflows, over time. One should also consider their risk taking ability which would consequently dictate the kind of portfolio that one should construct.The portfolios for different people are hence going to be different. But broad principles apply across the board.
The portfolio stability will need to be ensured through a mix of large-cap funds, index funds and equity-oriented balanced funds. Even a debt-oriented fund with a dash of equity, like in the case of monthly income plans (MIPs) would be suitable here. This is to be the bedrock of the portfolio for most people. What proportion of large-caps and index funds you include in your portfolio will depend on the amount of risk you are willing to take for the sake of returns.
Over this, there can be a satellite portfolio comprising of some aggressive funds like mid- and small-cap funds, value and opportunistic funds, multi-cap funds and so on. The satellite portfolio can also comprise of thematic and sector funds. However, one needs to think through why a thematic/sectoral fund is required in their portfolio. A banking sector fund may be superfluous in a portfolio today as most schemes anyway have exposures to finance sector anywhere between 12-20 per cent. Some sectors like pharma, media and entertainment are extremely vast sectors and exposures in them is best achieved through a sectoral fund. Such sectors, if they make sense in the portfolio, can be invested in through sectoral funds. Again, the allocations towards various categories is best left to individual discretion and their expectations for the future.
In one’s portfolio, there could be a need for commodity, gold and global equity exposure too, especially if the portfolio is large and the need to diversify the portfolio is acute. In such a case, choosing appropriate schemes could add value to the portfolio. These should not be included in the portfolio as a fad.
When choosing schemes to invest one can broadly allocate about 10 per cent in a scheme, going up to 15 per cent in select cases. The fund house allocation should not be more than 20 per cent among all the chosen schemes, going up to 30 per cent in select cases. Allocation in equity schemes should be across time frames. SIPs ensure exactly that. Lumpsum investments can also be invested through systematic transfer, after investing in debt funds to tide over the timing risk.
For a normal investor, investing their money has mostly been just a matter of doing what they have been doing in the past, like investing in fixed deposits (FDs), National Savings Certificates (NSCs), Public Provident Fund (PPF) and so on. However, lately, many people have been investing in mutual fund schemes too. Many among them have understood the significance of Systematic Investment Plans (SIPs) offered by these fund houses. And pay their monthly obeisance without fail.
But then, picking up the right set of schemes for investments remains a challenge. And many investors fail to recognise the need to do so. They just pick up what their friend / colleague has invested in or what is being currently advertised. A favourite among investors is the New Fund Offer (NFO) route. Even after a blizzard of articles specifically debunking the Rs 10 advantage in an NFO and highlighting the negatives of investing in a new scheme without a performance track record and possibly a new fund manager, investors continue to patronise NFOs.
Fund house filter: There are some fund houses which have built expertise in equity or debt fund management. Go to the experts and you would have won half the battle. Asset management companies which have a proven track record in equity asset management would be the fund houses to go to, for equity funds. Such fund houses would have the capacity to manage equity assets better than most, due to their better experienced fund managers, their processes and systems. There are some fund houses with niche capabilities like global investing or commodity stock investing. Go to them for these products.
Fund manager filter: Fund managers play a major role in the scheme’s performance. Though there are systems and processes that tend to minimise the individualistic nature of fund management, fund managers skill is essential for funds to perform well. You will notice that often there is a major difference in the performance of schemes in the same category over different cycles of the market. While some schemes consistently outperform the corresponding index and beat the category average, over various time frames, others in the same category may fail to do so. That’s a fund manager’s skill working for you.
Performance filter: There are some funds which are consistent good performers while there are others which deliver stellar performances, from time to time. At the time of constructing a portfolio, one should look for consistency in performance rather than sudden bursts in the charts. The former is far more desirable and is achieved through proper selection processes, conviction, understanding and correct judgement at various points. Also, one should choose funds which have at least a 3-year performance history. This will help in validating if the fund is worthwhile to consider investing.
Portfolio construction: In order to make this decision, an investor needs to consider his/her goals and the requirements for cashflows, over time. One should also consider their risk taking ability which would consequently dictate the kind of portfolio that one should construct.The portfolios for different people are hence going to be different. But broad principles apply across the board.
The portfolio stability will need to be ensured through a mix of large-cap funds, index funds and equity-oriented balanced funds. Even a debt-oriented fund with a dash of equity, like in the case of monthly income plans (MIPs) would be suitable here. This is to be the bedrock of the portfolio for most people. What proportion of large-caps and index funds you include in your portfolio will depend on the amount of risk you are willing to take for the sake of returns.
Over this, there can be a satellite portfolio comprising of some aggressive funds like mid- and small-cap funds, value and opportunistic funds, multi-cap funds and so on. The satellite portfolio can also comprise of thematic and sector funds. However, one needs to think through why a thematic/sectoral fund is required in their portfolio. A banking sector fund may be superfluous in a portfolio today as most schemes anyway have exposures to finance sector anywhere between 12-20 per cent. Some sectors like pharma, media and entertainment are extremely vast sectors and exposures in them is best achieved through a sectoral fund. Such sectors, if they make sense in the portfolio, can be invested in through sectoral funds. Again, the allocations towards various categories is best left to individual discretion and their expectations for the future.
In one’s portfolio, there could be a need for commodity, gold and global equity exposure too, especially if the portfolio is large and the need to diversify the portfolio is acute. In such a case, choosing appropriate schemes could add value to the portfolio. These should not be included in the portfolio as a fad.
When choosing schemes to invest one can broadly allocate about 10 per cent in a scheme, going up to 15 per cent in select cases. The fund house allocation should not be more than 20 per cent among all the chosen schemes, going up to 30 per cent in select cases. Allocation in equity schemes should be across time frames. SIPs ensure exactly that. Lumpsum investments can also be invested through systematic transfer, after investing in debt funds to tide over the timing risk.
Tax pitch for Mauritius cash
India wants capital gains tax imposed on investments routed through the island nation; DTAA talks to resume.
New Delhi will pitch for imposition of capital gains tax in India on investments through Mauritius. The negotiations with the island country on amending a tax treaty are expected to resume soon, after a gap of around three years.
“India wants that it (capital gains tax) should be imposed where source originates, and the source is India because gains are in India. As per the (present) treaty, it is with the resident country, which is Mauritius. It does not impose capital gains tax,” Central Board of Direct Taxes Chairman Prakash Chandra said here on Saturday.
As pressure on the government mounts on the issue of black money stashed away by Indians abroad, it also expects the revised tax treaty with Switzerland to be operational soon as the parliament of that country has approved it and the Cabinet here has given its nod.
It was primarily the capital gains tax issue, which broke the negotiations on Double Taxation Avoidance Agreement (DTAA) between India and Mauritius in 2008. The latter has now shown willingness to renegotiate the treaty, according to Chandra.
However, the bank information under the revised treaty could be obtained only from April 1 and not with retrospective effect prior to that, said Chandra.
But, will Mauritius agree to India’s demand? Chandra said the island nation was willing to have a fresh look. “They (Mauritius) said we could start afresh. We are quite hopeful,” he said, adding that negotiations would begin soon.
When asked whether India would ask for taxing capital gains of those who routed investment through Mauritius or the companies based in Mauritius, the CBDT chairman said the demand would not be confined to anyone but would be for all. He hastened to add: “If these are genuine Mauritius companies, it could be a different thing.”
Chandra said Mauritius was providing bank information without amendments in DTAA. “However, any such information from Mauritius or Switzerland could be for specific purposes and cannot be fishing expeditions,” he added.
A joint working group was constituted in 2006 to negotiate DTAA with Mauritius and its last meeting was held in 2008. The changes in the treaty would change the way foreign investors structured their investments in India.
The negotiations were stalled for several years as Mauritius was not ready to revise DTAA with India as it would have affected interests of its investors.
The review is aimed at preventing evasion of taxes, as over 40 per cent of the total foreign direct investment in India is made through Mauritius, which is a low tax jurisdiction.
India retains the right to tax capital gains arising to non-residents under most of its tax treaties, except Mauritius. Under the treaty only Mauritius has the right to tax such gains, but it does not levy any tax as per its domestic laws.
As a result, a Mauritius-based investor does not pay capital gains tax either in India or Mauritius. This has also resulted in foreign investors of third countries routing their investments through Mauritius, known as treaty shopping in tax jargon. India has already started raising tax demands against the companies and many of these cases are being disputed in various courts. India has also set up an overseas income tax unit in Mauritius. Besides, the Direct Taxes Code, proposed to be implemented in April 2012 will introduce general anti-avoidance rules to override provisions of tax treaties under specific situation.
Chandra said India was in the process of signing Tax Exchange Information with 14 tax havens like Bahamas, Bermuda, British Virgin Island, Cayman Islands and Liberia.
Civil society movement against black money has gathered momentum in India. One of its demands is to disable operations of any bank which belongs to a country that is a tax haven.
New Delhi will pitch for imposition of capital gains tax in India on investments through Mauritius. The negotiations with the island country on amending a tax treaty are expected to resume soon, after a gap of around three years.
“India wants that it (capital gains tax) should be imposed where source originates, and the source is India because gains are in India. As per the (present) treaty, it is with the resident country, which is Mauritius. It does not impose capital gains tax,” Central Board of Direct Taxes Chairman Prakash Chandra said here on Saturday.
As pressure on the government mounts on the issue of black money stashed away by Indians abroad, it also expects the revised tax treaty with Switzerland to be operational soon as the parliament of that country has approved it and the Cabinet here has given its nod.
It was primarily the capital gains tax issue, which broke the negotiations on Double Taxation Avoidance Agreement (DTAA) between India and Mauritius in 2008. The latter has now shown willingness to renegotiate the treaty, according to Chandra.
However, the bank information under the revised treaty could be obtained only from April 1 and not with retrospective effect prior to that, said Chandra.
But, will Mauritius agree to India’s demand? Chandra said the island nation was willing to have a fresh look. “They (Mauritius) said we could start afresh. We are quite hopeful,” he said, adding that negotiations would begin soon.
When asked whether India would ask for taxing capital gains of those who routed investment through Mauritius or the companies based in Mauritius, the CBDT chairman said the demand would not be confined to anyone but would be for all. He hastened to add: “If these are genuine Mauritius companies, it could be a different thing.”
Chandra said Mauritius was providing bank information without amendments in DTAA. “However, any such information from Mauritius or Switzerland could be for specific purposes and cannot be fishing expeditions,” he added.
A joint working group was constituted in 2006 to negotiate DTAA with Mauritius and its last meeting was held in 2008. The changes in the treaty would change the way foreign investors structured their investments in India.
The negotiations were stalled for several years as Mauritius was not ready to revise DTAA with India as it would have affected interests of its investors.
The review is aimed at preventing evasion of taxes, as over 40 per cent of the total foreign direct investment in India is made through Mauritius, which is a low tax jurisdiction.
India retains the right to tax capital gains arising to non-residents under most of its tax treaties, except Mauritius. Under the treaty only Mauritius has the right to tax such gains, but it does not levy any tax as per its domestic laws.
As a result, a Mauritius-based investor does not pay capital gains tax either in India or Mauritius. This has also resulted in foreign investors of third countries routing their investments through Mauritius, known as treaty shopping in tax jargon. India has already started raising tax demands against the companies and many of these cases are being disputed in various courts. India has also set up an overseas income tax unit in Mauritius. Besides, the Direct Taxes Code, proposed to be implemented in April 2012 will introduce general anti-avoidance rules to override provisions of tax treaties under specific situation.
Chandra said India was in the process of signing Tax Exchange Information with 14 tax havens like Bahamas, Bermuda, British Virgin Island, Cayman Islands and Liberia.
Civil society movement against black money has gathered momentum in India. One of its demands is to disable operations of any bank which belongs to a country that is a tax haven.
Friday, June 17, 2011
Ambani’s Reliance Said to Hire 18 Banks for $1.09 Billion Loan
By Katrina Nicholas - Jun 17, 2011
Reliance Industries Ltd. (RIL), India’s biggest company by market value, hired 18 banks for a five-year term loan of $1.09 billion to be used for refinancing debt, according to a person familiar with the matter.
Reliance, controlled by billionaire Mukesh Ambani, plans to replace debt maturing in about two years that has higher interest costs, another person familiar with the matter said last month. Reliance borrowed $1 billion in December and paid a margin of 195 basis points more than the London interbank offered rate, according to data compiled by Bloomberg.
The facility being organized by banks currently will pay a margin of about 150 basis points, one of the people said today, asking not to be identified as the details are private.
Mumbai-based Reliance, India’s fourth-most indebted company, has the equivalent of $10.2 billion of loans maturing before the end of 2017, Bloomberg data show. The petrochemical and textiles maker is seeking to expand in the financial services business as demand increases in the world’s second-fastest growing major economy.
The banks hired include Australia & New Zealand Banking Group Ltd. (ANZ), Bank of America Corp. (BAC), Bank of Nova Scotia (BNS), Bank of Tokyo-Mitsubishi UFJ Ltd., Banco Bilbao Vizcaya Argentaria SA (BBVA), Barclays Plc (BARC), BNP Paribas (BNP) SA, Citigroup Inc. (C), Credit Agricole CIB, DBS Group Holdings Ltd. (DBS), DnB NOR ASA (DNBNOR), HSBC Holdings Plc (HSBA), Intesa Sanpaolo SpA (ISP), Mizuho Financial Group Inc. (8411), Royal Bank of Scotland Group Plc (RBS), Standard Chartered Plc (STAN), State Bank of India (SBIN) and Sumitomo Mitsui Banking Corp., one of the people said.
Ambani is the world’s ninth-richest man with an estimated wealth of $27 billion, according to Forbes magazine. Reliance sold $1 billion of 10-year, 4.5 percent dollar-denominated notes and $500 million of 30-year, 6.25 percent bonds in October, Bloomberg data show.
To contact the reporter on this story: Katrina Nicholas in Singapore on knicholas2@bloomberg.net
To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net
Reliance Industries Ltd. (RIL), India’s biggest company by market value, hired 18 banks for a five-year term loan of $1.09 billion to be used for refinancing debt, according to a person familiar with the matter.
Reliance, controlled by billionaire Mukesh Ambani, plans to replace debt maturing in about two years that has higher interest costs, another person familiar with the matter said last month. Reliance borrowed $1 billion in December and paid a margin of 195 basis points more than the London interbank offered rate, according to data compiled by Bloomberg.
The facility being organized by banks currently will pay a margin of about 150 basis points, one of the people said today, asking not to be identified as the details are private.
Mumbai-based Reliance, India’s fourth-most indebted company, has the equivalent of $10.2 billion of loans maturing before the end of 2017, Bloomberg data show. The petrochemical and textiles maker is seeking to expand in the financial services business as demand increases in the world’s second-fastest growing major economy.
The banks hired include Australia & New Zealand Banking Group Ltd. (ANZ), Bank of America Corp. (BAC), Bank of Nova Scotia (BNS), Bank of Tokyo-Mitsubishi UFJ Ltd., Banco Bilbao Vizcaya Argentaria SA (BBVA), Barclays Plc (BARC), BNP Paribas (BNP) SA, Citigroup Inc. (C), Credit Agricole CIB, DBS Group Holdings Ltd. (DBS), DnB NOR ASA (DNBNOR), HSBC Holdings Plc (HSBA), Intesa Sanpaolo SpA (ISP), Mizuho Financial Group Inc. (8411), Royal Bank of Scotland Group Plc (RBS), Standard Chartered Plc (STAN), State Bank of India (SBIN) and Sumitomo Mitsui Banking Corp., one of the people said.
Ambani is the world’s ninth-richest man with an estimated wealth of $27 billion, according to Forbes magazine. Reliance sold $1 billion of 10-year, 4.5 percent dollar-denominated notes and $500 million of 30-year, 6.25 percent bonds in October, Bloomberg data show.
To contact the reporter on this story: Katrina Nicholas in Singapore on knicholas2@bloomberg.net
To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net
Thursday, June 16, 2011
Inflation forces India into fresh rate rise
By James Lamont in New Delhi
Published: June 16 2011 09:20 | Last updated: June 16 2011 18:06
Stubbornly high inflation has forced India to raise benchmark lending rates for the 10th time in 18 months as its central bank struggles to curb curb rising prices in the absence of tough fiscal action.
India has the highest inflation of any major emerging market, and has battled to bring it under control over the past two years by leaning heavily on monetary policy.
Originally triggered by high food prices, inflation has in recent months become more generalised across the economy. In May, inflation was 9.1 per cent, almost double the level in neighbouring China.
The Reserve Bank of India on Thursday said it had tightened monetary policy in response to “uncomfortable levels” of inflation. It raised the repo rate – the rate at which the central bank lends to commercial banks – to 7.5 per cent, while the reverse repo was increased to 6.5 per cent.
The central bank dispelled fears that the rate hikes had prompted “any sharp or broad-based slowdown” in the world’s fastest growing large economy after China.
The RBI also warned of a worsening global environment, airing its concern about the collapse of a recovery in the US as its ultra-loose monetary policy nears an end and highlighting the threat of high commodity prices to emerging markets.
Rajiv Kumar, director-general of the Federation of Indian Chambers of Commerce and Industry, said the RBI had to act in the face of high inflation but urged the government to take steps to restore investor confidence in the economy.
“The RBI has hardly an option but to raise its rates,” he said. “But it needs to be careful not to administer medicine that pushes the patient into a downward spiral.”
He said the Congress party-led government and the RBI had to “synchronise efforts” better to fight inflation.
The government has faced criticism that it has left the RBI to shoulder the burden of fighting inflation, while continuing to stimulate an economy that grew at 8.5 per cent last year.
There are concerns that New Delhi will fail to cut spending sufficiently to meet its fiscal deficit targets this year, having previously overstimulated the economy in response to the global economic downturn.
There is also frustration that parliamentary paralysis caused by a bitter standoff between the government and the Hindu nationalist opposition is blocking reforms that would otherwise revive business confidence and help trigger investment in expanding industrial capacity.
Many economists expect another rate rise another rate rise within the next six weeks.
Robert Prior-Wandesforde, an economist at Credit Suisse, said he expected the RBI to raise the repo rate another 50bp to 8 per cent by mid-September.
“The obvious danger involved with a sizeable interest rate tightening is that it will discourage the investment spending necessary to help ease the country’s capacity constraints,” he added.
“But at this stage the RBI’s number one priority must be to break the wage-price spiral, which itself is extremely harmful to the country’s investment prospects.”
Other analysts warned that should energy prices not cool and the government fail to push ahead with reforms, the RBI could be forced to raise the repo rate beyond its 9 per cent peak before the global financial crisis.
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
Published: June 16 2011 09:20 | Last updated: June 16 2011 18:06
Stubbornly high inflation has forced India to raise benchmark lending rates for the 10th time in 18 months as its central bank struggles to curb curb rising prices in the absence of tough fiscal action.
India has the highest inflation of any major emerging market, and has battled to bring it under control over the past two years by leaning heavily on monetary policy.
Originally triggered by high food prices, inflation has in recent months become more generalised across the economy. In May, inflation was 9.1 per cent, almost double the level in neighbouring China.
The Reserve Bank of India on Thursday said it had tightened monetary policy in response to “uncomfortable levels” of inflation. It raised the repo rate – the rate at which the central bank lends to commercial banks – to 7.5 per cent, while the reverse repo was increased to 6.5 per cent.
The central bank dispelled fears that the rate hikes had prompted “any sharp or broad-based slowdown” in the world’s fastest growing large economy after China.
The RBI also warned of a worsening global environment, airing its concern about the collapse of a recovery in the US as its ultra-loose monetary policy nears an end and highlighting the threat of high commodity prices to emerging markets.
Rajiv Kumar, director-general of the Federation of Indian Chambers of Commerce and Industry, said the RBI had to act in the face of high inflation but urged the government to take steps to restore investor confidence in the economy.
“The RBI has hardly an option but to raise its rates,” he said. “But it needs to be careful not to administer medicine that pushes the patient into a downward spiral.”
He said the Congress party-led government and the RBI had to “synchronise efforts” better to fight inflation.
The government has faced criticism that it has left the RBI to shoulder the burden of fighting inflation, while continuing to stimulate an economy that grew at 8.5 per cent last year.
There are concerns that New Delhi will fail to cut spending sufficiently to meet its fiscal deficit targets this year, having previously overstimulated the economy in response to the global economic downturn.
There is also frustration that parliamentary paralysis caused by a bitter standoff between the government and the Hindu nationalist opposition is blocking reforms that would otherwise revive business confidence and help trigger investment in expanding industrial capacity.
Many economists expect another rate rise another rate rise within the next six weeks.
Robert Prior-Wandesforde, an economist at Credit Suisse, said he expected the RBI to raise the repo rate another 50bp to 8 per cent by mid-September.
“The obvious danger involved with a sizeable interest rate tightening is that it will discourage the investment spending necessary to help ease the country’s capacity constraints,” he added.
“But at this stage the RBI’s number one priority must be to break the wage-price spiral, which itself is extremely harmful to the country’s investment prospects.”
Other analysts warned that should energy prices not cool and the government fail to push ahead with reforms, the RBI could be forced to raise the repo rate beyond its 9 per cent peak before the global financial crisis.
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
Wednesday, June 15, 2011
India business warns central bank on rates
By James Lamont and James Fontanella-Khan in Mumbai
Published: June 15 2011 18:08 | Last updated: June 15 2011 18:08
India’s top industrialists have pleaded with the central bank not to raise benchmark lending rates on Thursday to combat the highest inflation of any leading emerging market.
In a strongly worded letter, the Federation of Indian Chambers of Commerce and Industry has appealed to the Reserve Bank of India to back off monetary policy tightening, warning that higher borrowing costs will choke off investment and damage an economy projected to grow at 9 per cent this year.
“Aggressive monetary tightening is having an adverse bearing on economic and industrial growth of the country,” Udayan Bose, chairman of the employer association’s corporate finance committee, wrote to Duvvuri Subbarao, the RBI governor.
With inflation running at an annual 9.1 per cent in May the RBI is expected to raise benchmark lending rates 25 basis points at its mid-quarter monetary review meeting on Thursday.
India has the highest inflation of any big emerging market and has struggled to bring it under control for two years. The central bank has responded by raising benchmark lending rates nine times since March last year, making it the most aggressive tighteners of monetary policy among Group of 20 nations.
Last month, the RBI raised the rate at which the central bank lends to commercial banks 50 basis points to 7.25 per cent.
But inflation has defied the central bank and government’s predictions of softening, instead finding impetus in rising food, energy and manufactured product prices.
In their letter, the industrialists said RBI efforts to control inflation, in particular driven by high food prices, with repeated interest rate rises were futile.
They warned that continued monetary tightening threatened social unrest precipitated by destabilised industrial growth, slackening economic growth and weaker job creation.
“Single-mindedly pursuing a policy of [an] interest rate hike could bring us closer to such a [hostile] situation,” Mr Bose wrote.
Analysts share those concerns, and warn that high prices have become structural rather than cyclical. They say borrowing costs of 13 per cent will deter business from investing to expand badly needed supply to meet surging demand among a population of 1.2bn people. They also criticise the RBI for reacting too late and timidly to rising prices.
Suman Bery, an economist, likened policy responses at a time of high inflation to a driver “pushing the brake pedal and accelerator at the same time”.
Sohil Chanda, managing director at Norwest Venture Partners, a fund which invests in infrastructure and power companies, said: “What really worries me is not high interest rates for a short period but that rates will stay high for an undefined period. There seems to be a total mismatch between fiscal and monetary policy . . . You also need to address other supply side problems to bring inflation under control.”
Some policymakers insist India has to pursue a return to low inflation. C. Rangarajan, chief economic adviser to Manmohan Singh, prime minister, said the current bout of high inflation had been triggered by rising food prices and that policymakers had to ensure it was reined in to 4-5 per cent.
“The RBI decision to hike rates month after month has been disastrous for our industry,” said Mohammed Aslam, chief operating officer of residential property at Jones Lang LaSalle in Mumbai. “Since the last time they increased rates [in May] by 50 basis points our sales and bookings went down 20 per cent…the rising cost of borrowing is hurting a lot.”
“A high level of inflation is not conducive to [high] economic growth,” he said. “I am firmly of the opinion that a high growth rate does not warrant high inflation. We should take every effort to bring down inflation.”
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Published: June 15 2011 18:08 | Last updated: June 15 2011 18:08
India’s top industrialists have pleaded with the central bank not to raise benchmark lending rates on Thursday to combat the highest inflation of any leading emerging market.
In a strongly worded letter, the Federation of Indian Chambers of Commerce and Industry has appealed to the Reserve Bank of India to back off monetary policy tightening, warning that higher borrowing costs will choke off investment and damage an economy projected to grow at 9 per cent this year.
“Aggressive monetary tightening is having an adverse bearing on economic and industrial growth of the country,” Udayan Bose, chairman of the employer association’s corporate finance committee, wrote to Duvvuri Subbarao, the RBI governor.
With inflation running at an annual 9.1 per cent in May the RBI is expected to raise benchmark lending rates 25 basis points at its mid-quarter monetary review meeting on Thursday.
India has the highest inflation of any big emerging market and has struggled to bring it under control for two years. The central bank has responded by raising benchmark lending rates nine times since March last year, making it the most aggressive tighteners of monetary policy among Group of 20 nations.
Last month, the RBI raised the rate at which the central bank lends to commercial banks 50 basis points to 7.25 per cent.
But inflation has defied the central bank and government’s predictions of softening, instead finding impetus in rising food, energy and manufactured product prices.
In their letter, the industrialists said RBI efforts to control inflation, in particular driven by high food prices, with repeated interest rate rises were futile.
They warned that continued monetary tightening threatened social unrest precipitated by destabilised industrial growth, slackening economic growth and weaker job creation.
“Single-mindedly pursuing a policy of [an] interest rate hike could bring us closer to such a [hostile] situation,” Mr Bose wrote.
Analysts share those concerns, and warn that high prices have become structural rather than cyclical. They say borrowing costs of 13 per cent will deter business from investing to expand badly needed supply to meet surging demand among a population of 1.2bn people. They also criticise the RBI for reacting too late and timidly to rising prices.
Suman Bery, an economist, likened policy responses at a time of high inflation to a driver “pushing the brake pedal and accelerator at the same time”.
Sohil Chanda, managing director at Norwest Venture Partners, a fund which invests in infrastructure and power companies, said: “What really worries me is not high interest rates for a short period but that rates will stay high for an undefined period. There seems to be a total mismatch between fiscal and monetary policy . . . You also need to address other supply side problems to bring inflation under control.”
Some policymakers insist India has to pursue a return to low inflation. C. Rangarajan, chief economic adviser to Manmohan Singh, prime minister, said the current bout of high inflation had been triggered by rising food prices and that policymakers had to ensure it was reined in to 4-5 per cent.
“The RBI decision to hike rates month after month has been disastrous for our industry,” said Mohammed Aslam, chief operating officer of residential property at Jones Lang LaSalle in Mumbai. “Since the last time they increased rates [in May] by 50 basis points our sales and bookings went down 20 per cent…the rising cost of borrowing is hurting a lot.”
“A high level of inflation is not conducive to [high] economic growth,” he said. “I am firmly of the opinion that a high growth rate does not warrant high inflation. We should take every effort to bring down inflation.”
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
Tuesday, June 14, 2011
Tata Consultancy Hires 70,000 Employees
By Ketaki Gokhale - Jun 14, 2011
Demand for Tata Consultancy Services Ltd. (TCS)’s outsourcing services is so robust the information- technology company hired 70,000 workers last fiscal year and plans to add a further 60,000 this year.
Tata Consultancy projects annual sales, which have quadrupled since 2005 to $8.4 billion, will increase 20 percent a year for the “foreseeable future.” That has it and Indian rivals Infosys Technologies Ltd. (INFO) and Wipro Ltd. (WPRO) hustling to find hundreds of thousands of qualified candidates as global IT purchases grow 7.1 percent this year to $1.7 trillion.
Tata Consultancy’s expertise at so-called “body shopping,” or using low-cost IT workers to replace more expensive labor in developed countries, helped it land contracts with Deutsche Bank AG (DBK), Hilton Worldwide Inc. and Air Liquide SA last fiscal year. The company, Asia’s largest computer-services provider by value, reported record annual income of $2 billion.
“As long as there’s growth, you don’t want to leave business on the table,” said Ajoyendra Mukherjee, Tata Consultancy’s vice president for human resources. “What we’re trying to do is make sure the supply chain is large enough to meet our growth requirements in the future.”
Microsoft, IBM Competition
Keeping the pipeline of talent filled is becoming more important as Microsoft Corp. (MSFT) and International Business Machines Corp. (IBM) open facilities in India, and the local banking, finance and manufacturing industries hire their own computer engineers. Attrition at Tata Consultancy, Infosys and Wipro accelerated to its highest annual levels in the year ending March 31 as a post- recession surge gave workers chances to change jobs for raises of as much as 50 percent.
“The spike in attrition over the last four quarters is essentially because of the pent-up demand,” said Rajan Kohli, chief marketing officer at unit Wipro Technologies. “There wasn’t enough of a bench to fulfill that demand. People ended up hiring from each other.”
To stem the exodus, Mumbai-based Tata Consultancy will offer raises of 12-14 percent, the highest in three years, Mukherjee said April 21. Infosys is expected to boost salaries for domestic workers by 10-12 percent this fiscal year, Chief Operating Officer S. D. Shibulal said April 15.
The IT hiring spree is fueled by the expansion of Asia’s third-largest economy, which the International Monetary Fund said would grow by 8.2 percent this year after hitting 10.4 percent in the prior 12 months.
39 New Clients
The Bombay Stock Exchange Information Technology Index has advanced 18 percent in the last 12 months, compared with a 7.3 percent increase in India’s benchmark Sensitive Index. Tata Consultancy, the technology index’s best performer, advanced 57 percent in that period, while Infosys rose 9.2 percent.
India’s $88.1 billion IT services and outsourcing industries were built on so-called body shopping. Firms hired cheap talent, mostly local, to write computer programs and maintain software for foreign companies looking to lower their own costs.
The industry now employs about 2.5 million people, according to a Feb. 15 report by the National Association of Software & Services Companies, or Nasscom, an industry lobby group.
Tata Consultancy had 198,614 workers on March 31, compared with about 41,000 six years earlier, according to annual reports. Last quarter, it added 39 clients, including Air Liquide, the world’s biggest producer of industrial gasses, and Royal Haskoning, an engineering and environmental consulting firm.
Deutsche Bank, Hilton
In the quarter ending Dec. 31, the company won orders from Deutsche Bank and Hilton Worldwide. Deutsche Bank, Germany’s largest, said it would use Tata Consultancy’s banking- transaction platform in 30 countries. Hilton signed a multiyear deal to modernize its software.
The global IT market will grow 7.1 percent this year and 8.7 percent next year, according to a January report by Forrester Research Inc. in Cambridge, Massachusetts. India faces a shortage of 2 million qualified workers by 2020 because only about 26 percent of the annual 600,000 engineering graduates are considered immediately employable, according to Nasscom.
“The supply coming into the economy is great in terms of quantity, but not great in terms of quality,” said Hitesh Oberoi, chief executive officer of Info Edge India Ltd., which owns the Naukri.com website for jobseekers. “A lot of these people have to be trained again from scratch.”
China Expansions
That dearth of talent has spurred IT hiring in China, the Philippines and Eastern Europe, said Jan Erik Aase, a principal analyst at Forrester Research.
Infosys, India’s No. 2 software exporter, has 3,000 workers in China and plans to double that within 18 months, Chief Operating Officer Shibulal said in a May 1 interview. The Bangalore-based company plans to spend $130 million on a new Shanghai campus.
Tata Consultancy is opening offices in China and Latin America, and hiring locals to staff them, Mukherjee said.
“They’re not limiting themselves to India,” Aase said of all the firms. “There’s too much competition. They have to have other alternatives.”
To ensure a pipeline of domestic talent, companies are molding college programs and spending millions of dollars on training. Tata Consultancy dispatches teams to assess university engineering programs and gives hiring priority to graduates of the more than 500 schools it has accredited so far.
‘There is a Limit’
Wipro, India’s third-largest software exporter, started a program to improve the quality of engineering education at rural colleges. That includes videotaping teachers in the classroom and critiquing their methods, said Nagarjuna Sadineni, the program’s general manager.
Bangalore-based Wipro also set up a four-year academy to teach students from other disciplines, including business and the arts, how to be software engineers, said Saurabh Govil, senior vice president for human resources.
“The biggest challenge for the industry is going to be talent,” Govil said. “It is not only for Wipro, but for the larger good of the industry that we’re working on this one.”
Infosys opened a training center in Mysore with 698 faculty members and capacity for 14,000 new hires, according to its annual report for the 2011 fiscal year. The company spends $184 million a year on training.
Tata Consultancy increased spending on recruitment and training by 91 percent last year to $47 million and is expanding its footprint in Trivandrum, near India’s southern tip. Its Peepul Park center can train a few thousand people, and plans are under way to build another facility nearby to handle 10,000 new hires.
Even as the IT industry booms, companies say they recognize the potential for hiring binges to hamper quality and flexibility. Firms are talking more about finding revenue streams that don’t depend on headcount, such as intellectual property and cloud-computing platforms.
“There is a limit to the number of people you can continuously keep on adding, making it a huge organization to manage and deal with,” Mukherjee said. “This can’t be a long- term kind of a model.”
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Demand for Tata Consultancy Services Ltd. (TCS)’s outsourcing services is so robust the information- technology company hired 70,000 workers last fiscal year and plans to add a further 60,000 this year.
Tata Consultancy projects annual sales, which have quadrupled since 2005 to $8.4 billion, will increase 20 percent a year for the “foreseeable future.” That has it and Indian rivals Infosys Technologies Ltd. (INFO) and Wipro Ltd. (WPRO) hustling to find hundreds of thousands of qualified candidates as global IT purchases grow 7.1 percent this year to $1.7 trillion.
Tata Consultancy’s expertise at so-called “body shopping,” or using low-cost IT workers to replace more expensive labor in developed countries, helped it land contracts with Deutsche Bank AG (DBK), Hilton Worldwide Inc. and Air Liquide SA last fiscal year. The company, Asia’s largest computer-services provider by value, reported record annual income of $2 billion.
“As long as there’s growth, you don’t want to leave business on the table,” said Ajoyendra Mukherjee, Tata Consultancy’s vice president for human resources. “What we’re trying to do is make sure the supply chain is large enough to meet our growth requirements in the future.”
Microsoft, IBM Competition
Keeping the pipeline of talent filled is becoming more important as Microsoft Corp. (MSFT) and International Business Machines Corp. (IBM) open facilities in India, and the local banking, finance and manufacturing industries hire their own computer engineers. Attrition at Tata Consultancy, Infosys and Wipro accelerated to its highest annual levels in the year ending March 31 as a post- recession surge gave workers chances to change jobs for raises of as much as 50 percent.
“The spike in attrition over the last four quarters is essentially because of the pent-up demand,” said Rajan Kohli, chief marketing officer at unit Wipro Technologies. “There wasn’t enough of a bench to fulfill that demand. People ended up hiring from each other.”
To stem the exodus, Mumbai-based Tata Consultancy will offer raises of 12-14 percent, the highest in three years, Mukherjee said April 21. Infosys is expected to boost salaries for domestic workers by 10-12 percent this fiscal year, Chief Operating Officer S. D. Shibulal said April 15.
The IT hiring spree is fueled by the expansion of Asia’s third-largest economy, which the International Monetary Fund said would grow by 8.2 percent this year after hitting 10.4 percent in the prior 12 months.
39 New Clients
The Bombay Stock Exchange Information Technology Index has advanced 18 percent in the last 12 months, compared with a 7.3 percent increase in India’s benchmark Sensitive Index. Tata Consultancy, the technology index’s best performer, advanced 57 percent in that period, while Infosys rose 9.2 percent.
India’s $88.1 billion IT services and outsourcing industries were built on so-called body shopping. Firms hired cheap talent, mostly local, to write computer programs and maintain software for foreign companies looking to lower their own costs.
The industry now employs about 2.5 million people, according to a Feb. 15 report by the National Association of Software & Services Companies, or Nasscom, an industry lobby group.
Tata Consultancy had 198,614 workers on March 31, compared with about 41,000 six years earlier, according to annual reports. Last quarter, it added 39 clients, including Air Liquide, the world’s biggest producer of industrial gasses, and Royal Haskoning, an engineering and environmental consulting firm.
Deutsche Bank, Hilton
In the quarter ending Dec. 31, the company won orders from Deutsche Bank and Hilton Worldwide. Deutsche Bank, Germany’s largest, said it would use Tata Consultancy’s banking- transaction platform in 30 countries. Hilton signed a multiyear deal to modernize its software.
The global IT market will grow 7.1 percent this year and 8.7 percent next year, according to a January report by Forrester Research Inc. in Cambridge, Massachusetts. India faces a shortage of 2 million qualified workers by 2020 because only about 26 percent of the annual 600,000 engineering graduates are considered immediately employable, according to Nasscom.
“The supply coming into the economy is great in terms of quantity, but not great in terms of quality,” said Hitesh Oberoi, chief executive officer of Info Edge India Ltd., which owns the Naukri.com website for jobseekers. “A lot of these people have to be trained again from scratch.”
China Expansions
That dearth of talent has spurred IT hiring in China, the Philippines and Eastern Europe, said Jan Erik Aase, a principal analyst at Forrester Research.
Infosys, India’s No. 2 software exporter, has 3,000 workers in China and plans to double that within 18 months, Chief Operating Officer Shibulal said in a May 1 interview. The Bangalore-based company plans to spend $130 million on a new Shanghai campus.
Tata Consultancy is opening offices in China and Latin America, and hiring locals to staff them, Mukherjee said.
“They’re not limiting themselves to India,” Aase said of all the firms. “There’s too much competition. They have to have other alternatives.”
To ensure a pipeline of domestic talent, companies are molding college programs and spending millions of dollars on training. Tata Consultancy dispatches teams to assess university engineering programs and gives hiring priority to graduates of the more than 500 schools it has accredited so far.
‘There is a Limit’
Wipro, India’s third-largest software exporter, started a program to improve the quality of engineering education at rural colleges. That includes videotaping teachers in the classroom and critiquing their methods, said Nagarjuna Sadineni, the program’s general manager.
Bangalore-based Wipro also set up a four-year academy to teach students from other disciplines, including business and the arts, how to be software engineers, said Saurabh Govil, senior vice president for human resources.
“The biggest challenge for the industry is going to be talent,” Govil said. “It is not only for Wipro, but for the larger good of the industry that we’re working on this one.”
Infosys opened a training center in Mysore with 698 faculty members and capacity for 14,000 new hires, according to its annual report for the 2011 fiscal year. The company spends $184 million a year on training.
Tata Consultancy increased spending on recruitment and training by 91 percent last year to $47 million and is expanding its footprint in Trivandrum, near India’s southern tip. Its Peepul Park center can train a few thousand people, and plans are under way to build another facility nearby to handle 10,000 new hires.
Even as the IT industry booms, companies say they recognize the potential for hiring binges to hamper quality and flexibility. Firms are talking more about finding revenue streams that don’t depend on headcount, such as intellectual property and cloud-computing platforms.
“There is a limit to the number of people you can continuously keep on adding, making it a huge organization to manage and deal with,” Mukherjee said. “This can’t be a long- term kind of a model.”
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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