Investeurs chronicles 15

March 2011, Volume: 15Sensex 18815.64 Nifty 5654.25 Dollar 44.66 Gold 20870 Silver 56400 Crude Oil ($) 115.84 Investeurs Chronicles ,[object Object],The government will borrow 2.5 trillion rupees ($56 billion) in the first half of the fiscal year that begins April 1, Economic Affairs Secretary R. Gopalan said, which is 60 percent of the full-year target. India's market borrowings in the next fiscal year that begins on April 1 will be a mix of medium and long-term bonds. The source said the government would likely issue debt of 100 billion-120 billion rupees each week on average. More…..SMEs have seen a 70% rise in private equity investments in the first two months of the calendar year, indicating willingness of entrepreneurs to open up and increased accessibility to PE funds in the country. PE funds invested $663.9 million during January and February as against $386.19 million during the same period last year. Even the average deal size has gone up by 80% to $22.54 million. More…..Current Chronicles State-run energy explorer Oil and Natural Gas Corp (ONGC) hopes to launch its follow-on share sale in June-July, Chairman AK Hazarika said. The government, which owns 74.14% of ONGC, plans to sell 5% in the offering that could raise about $2.6 billion at current market prices. The sale was initially planned by March 15, but has been delayed due to insufficient number of government nominees on its board. More…National Payments Corporation has finalized the proposed unique India Card which once commercially launched would be an domestic alternative to the global real-time payment processing firms like Visa and MasterCard . The official further said the leading financial consultancy firm E&Y will develop and roll out the entire architecture, including the design and software for the Rupay card rollout. More…State governments will enjoy virtual veto power on matters concerning the proposed goods and services tax, with the Centre ceding ground to opposition-ruled states on the Constitutional Amendment Bill in an attempt to build consensus in Parliament. The legislation stipulates that every decision of the goods and services council, a joint decision making body of states and Centre, must be supported by all the members present, giving every state the power to block a proposal. More…India's finance minister introduced a long-awaited pension bill in parliament or private players in the sector and help cut government spending. The Pension Regulatory and Development Authority (PFRDA) bill, which would allow part investment of the corpus in the stock market, will take time for parliamentary approval as the current session of parliament ends on 25th March. The bill provides powers to the PFRDA to oversee multiple pension funds in the country. More… Cover Story Japan's triple disaster—Earthquake, Tsunami and Nuclear Radiation The tragic earthquake on March 11 in Japan with a magnitude 9 on the Richter scale—the most powerful in the country’s recorded history and fourth most severe in the world—and the subsequent tsunami are a stark reminder of the unpredictable dangers posed by natural hazards. The loss of life and infrastructure has been heartbreaking. Still worse are the uncertainties and challenges posed by the unfolding issue of nuclear radiation in Japan. This earthquake has brought back the memories of the Kobe earthquake that struck Southern Japan in 19 Source: Government of Japan and private estimates and projections as of March 17, 2011*Note: AIR world estimatesMarch 11, 2011 northeast earthquake and tsunami- estimatesThe 1995 Kobe earthquakeDamage Estimates range from $122 to 235 billion (2.5 to 4 percent of GP)$100 billion (around 2 percent of GP)Death toll 15,214 (dead and missing)6,434Cost to private insurance$14–33 billion*$783 millionNational budget for reconstruction$12 billion from current budget. Much more in FY2011.$38 billion over 2 fiscal yearsJapan's triple disaster—Earthquake, Tsunami and Nuclear RadiationThe tragic earthquake on March 11 in Japan with a magnitude 9 on the Richter scale—the most powerful in the country’s recorded history and fourth most severe in the world—and the subsequent tsunami are a stark reminder of the unpredictable dangers posed by natural hazards. The loss of life and infrastructure has been heartbreaking. Still worse are the uncertainties and challenges posed by the unfolding issue of nuclear radiation in Japan. This earthquake has brought back the memories of the Kobe earthquake that struck Southern Japan in 1995 summarized below:95 summarized Economic TsunamiThe earthquake has added woes to Japan’s already struggling economy with nuclear industry taking the worst hit. Japan's nuclear industry supplies a third of the country's electricity. In total, 11 of Japan's 50 nuclear reactors were shut down following the earthquake reducing electricity production to 80% of pre quake levels for a long time.Other prominent impact is on global supply chain the quake and tsunami damaged or closed down key ports, and some airports, disrupting supplies of semiconductor products, including NAND flash, an indispensable electronic part of Apple's iPad; wings, landing gears and other major parts of Boeing's 787 Dreamliner. The other industry that could be affected is the auto industry. Automakers Toyota, Nissan, Honda, Mitsubishi and Suzuki temporarily suspended production. A total of 22 plants, including Sony, were shut in the area.With the quake hitting the north-east section of Japan which is responsible for 6-8% of Japan's GDP, damages could exceed 15 trillion yen (3% of GDP). World Bank has put the economic damage resulting from the disaster at as much as $235 billion, around 4% of Japan’s GDP. That figure would make this disaster the costliest since comparable records began in 1965.Equity markets around the world declined amid fears that the natural disaster will slow economic growth and hurt asset prices. Japan’s Nikkei 225 index fell 6.4 percent, extending a 6.2 percent loss. It was the deepest two-day drop since 2008. The S&P 500 fell 0.6 percent. Treasury prices rose. However, the Japanese economy currently accounts for only six per cent of global economic output, which is why the impact of the disaster is very limited worldwide. In the worst-case scenario it could reduce global growth by 0.1 per cent. Nevertheless, economic implications of this natural fury are more pronounced for Japan. Japan's economy had just started to recover from a 20-year deflationary period and recession, posting a robust 3% increase in GDP -- the fastest growth in 20 years. It was expected to pick up further with stronger exports to fast-growing neighbors in Asia. However, the earthquake has added to Japan's economic challenges of government debt, rising commodity prices and a shrinking labor pool. Although the Bank of Japan is providing market liquidity to ensure the stability of financial markets, the long-term impact will be negative to the country's struggling economy. Rebuilding will lift the economy a bit; it will be outweighed by the probable increase to the national debt -- already twice as big as Japan's annual economic output. Japan may sell U.S. Treasuries (it's the second largest holder) to pay for rebuilding. This would lower the value of the dollar, increasing the cost of imports to the U.S. Also, the cost to insurers well may rival the record $62 billion that could be the largest insurance loss of all time. All these connotations point towards economy going off gas for the next two quarters.Cover Story Costliest Disaster for Ever ,[object Object]

Big government versus reform agenda—all eyes on the Trans-Pacific Partnership - The disaster requires a unified and coordinated policy response. First signs are good—the monetary authorities are out aggressively, and politicians across all parties have pledged to push through a quick and decisive rebuilding programme. However, the content of the response inevitably pushes Japan back down the road of "big government" and more public sector intervention in private sector affairs.An impressive programme seeking agricultural liberalization to become part of the Trans-Pacific Partnership now needs heroic effort to proceed in wake of the current natural disaster. However, Japan's failure to enter TPP would be a further step towards relegation to second rate nation on the global power stage. Moreover, corporate Japan sees sizable profit opportunities from supplying high-grade top quality food produce to the increasingly wealthy Asia gourmets.Moreover, the push for higher taxes on consumers—something advocated by the ruling Democrats—is poised to become stronger. Already several policy makers suggest part of the reconstruction should be funded by abandoning the extra child-support implemented by the Democrats last year. Clearly, Japan needs both—more children and a rapid rebuilding of the destroyed infrastructure. Both work to lift the potential growth rate. Japan has the necessary savings surplus and financial wherewithal to afford both. An all-out pro-growth strategy would be welcome, including a long overdue fundamental review of Japan's rules and regulatory framework.Rebuilding and reforming is the real Samurai challenge. Japan and the world are watching!Cover Story Costliest Disaster for EverDust from the Blackberry issue had not settled when governments around the world moved to wield a greater power on the internet services. Faced with increasing demonstrations and increasingly violent protest marches, the Egyptian government had shut off the Internet citing mass pro democracy protests being organized using social media sites. Censorship of this magnitude jolted not only Egypt, but the entire world which has seen some form of government intervention in the net space in the recent past. Be it government blocking social media sites in Iran, internet manipulation in Tunisia and excessive net regulation in China, we thought we had seen it all, until the new ‘kill switch’ agenda crossed the minds of various politicians around the globe.Security threat or government’s paranoia?Governments, unanimously, point to security maintenance issues and combating cyber warfare as objectives behind ban on blackberry service and/or switching off internet. Arguments in favor point to terrorists using Internet and mobile communication as the most potent tool to rope in youths and carry out espionage operations in countries. Investigations in Mumbai terror attacks vindicate this point.IntroductionAmong the various high profile controversies occupying public imagination in the country, one controversial move, though equally contentious, has failed to generate adequate ripples. The Indian government has armed itself with powers to 'switch off' or kill the internet during times of national emergencies, becoming one of the first few countries to assume such far reaching authority.This moves comes at close heels to the dispute over smartphone maker Research In Motion being unwilling (or unable, as it claims) to provide the government with means to intercept communications sent through its BlackBerry services, the department of telecommunications (DoT) has provided makers of smartphones a deadline of 31st March to provide facility to security agencies to intercept their services. What these moves/controversies bring to focus is the intention of government behind such draconian crackdowns on the freedom of their citizens. Whether our politicians have too much power over technology, especially internet? In a world where technology is so interwoven with the society, such a move is hard to imagine.Universal PhenomenonIndia has been after RIM as well as Google and Skype to set up local servers in the country so that government and law enforcement agencies could easily monitor network data. Not only India, but, several other countries in the recent past have made similar moves. Saudi Arabia was the first country to take the necessary steps for a ban on blackberry services to ensue with United Arab Emirates right behind them. However, the ban was withdrawn after a compromise was struck between the government and RIMOpen Forum information networks using dial-up modems. Moreover while Egypt was relatively simple to switch off, developed countries, like, UK and USA with its advanced digital infrastructure would be much harder which has several thousands of independent ISPs, several national mobile operators and undersea high-speed fibre cables .Precisely, internet structure in these countries has no definable beginning or end. All in all, as long as the balance between freedom of information and protection of the public is maintained, few may argue against having what amounts to a national firewall at a time when cyber warfare is arguably the fastest growing threat to national security.Open Forum However, majority point towards China using similar rhetoric for masking their program which is focused around silencing anyone who criticizes the state. Infact, it appears that fears surrounding cybersecurity have been hyped to mask the real agenda behind the kill switch bills, which is to strangle the runaway growth of alternative and independent media outlets which are exposing government atrocities, cover-ups and cronyism like never before. It is a direct encroachment on freedom of expression, similar to that in non democratic states.ConclusionThe implications of such moves are immense as they give the government overriding powers over a fast-growing and widely used resource, and one that is becoming increasingly crucial in conducting commerce and social interaction. However, as the authorities in Egypt discovered, the net kill-switch can be circumvented. During the shutdown there, telephone lines remained active and tech-savvy protesters were able to set up information networks using dial-up modems. Moreover while Egypt was relatively simple to switch off, developed countries, like, UK and USA with its advanced digital infrastructure would be much harder which has several thousands of independent ISPs, several national mobile operators and undersea high-speed fibre cables .Precisely, internet structure in these countries has no definable beginning or end. All in all, as long as the balance between freedom of information and protection of the public is maintained, few may argue against having what amounts to a national firewall at a time when cyber warfare is arguably the fastest growing threat to national security. South Africa: Rates remain on holdThe Reserve Bank left its repo rate unchanged at 5.5% on Thursday, which was widely expected by analysts. The decision came after a slew of data showed that SA's economic growth was on track. Consumer price inflation for February remained unchanged at 3.7%.The repo rate was cut by 50 basis points in November, taking it to 5.5% and making it the lowest in almost 30 years. The Reserve Bank has cut the repo rate by 650 basis points since December 2008, in a bid to boost economic growth after the downturn.Argentine economy surges, current account shrinksArgentina's economy grew by a lightning-quick 9.2 percent last year, but a surge in imports fed by sizzling domestic demand eroded the current account surplus.The government said that gross domestic product also expanded 9.2 percent in the fourth quarter versus the same period of 2009 and grew 2.5 percent from the third quarter, showing a sustained rebound in Latin America's No. 3 economy. Argentina's economy is driven by robust consumer spending, lucrative grains exports and industrial production, led by the automotive sector. The trade surplus, however, has been shrinking as imports grow at more than double the rate of exports. High inflation is pushing up local production costs, and a fairly stable exchange rate reduces the relative cost of imports.Hermitage attacks leniency of Russia in tax fraud 'cover-upHermitage Capital has accused the Russian state of pressing ahead with a cover up of the biggest tax fraud in Russian history after one of the men behind the scam was given a suspiciously light sentence.The UK-based investment fund spoke out after a Moscow court confirmed it had found 43-year-old Vyacheslav Khlebnikov, a former convicted felon, guilty of taking part in the £144m fraud. Hermitage claims that Khlebnikov and his associates stole taxes it had paid to the Russian state in 2006 by using company seals stolen from its offices in trumped up police raids.Russia's Nomos Bank plans $700m London floatThe $700m initial public offering of Nomos Bank is expected to see Roman Korbachka sell his entire holding for about $580m. The float, which Nomos hopes will raise $190m from the sale of new shares and is set to take place before summer, will value the bank at $3.5bn, according to a source close to the deal. Back in 1997 Nomos was not ranked as one of the 100 largest banks in Russia by assets. However, after rapid growth in the intervening 14 years Nomos is now rated as one of the country's 10 largest banks, with assets 530bn rubles (£11.5bn).Indonesia: RI enjoys Rp 18.5 trillion surplus in 2011 budget as of FebruaryIndonesia enjoyed an Rp 18.5 trillion (approximately US$2.1 billion) surplus in its 2011 state budget as of February, a result of unexpected extra revenues from several sectors, the government says. Indonesia booked incomes totaling Rp 130 trillion in January and February, 11.8 percent higher than that targeted in the 2011 state budget. Bambang said the surplus was attributable to, among other things, crude palm oil (CPO) revenues, which contributed Rp 5.1 trillion more than had been targeted. The increase came following an increase in international CPO prices. Philippines: BSP hikes policy rates by 25 basis pointsThe Bangko Sentral ng Pilipinas (BSP) hiked its policy rates by 25 basis points on 24th March after keeping this at record-low since July 2009 on account of the increasing inflation pressures.The central bank’s overnight borrowing or reverse repurchase (RRP) facility rate is now at 4.25 percent and the overnight lending or repurchase (RP) facility rate at 6.25 percent, both of which were increased after maintained at record-low for 14 consecutive MB policy meetings.Emerging Markets Zinc prices touched its peak in 2006, to a near balanced position in 2007 and eventually to a sizeable surplus in 2008. But when we discuss about last two years, it has been a dramatic 24 months for zinc. In the wake of Lehman Brothers collapse, the zinc prices slumped to slightly over $1000 /t. However, by the middle of 2009, investors’ belief in commodities and their rising appetite for risk resulted in a sharp recovery in the zinc price, to around $1600 /t. At the end of 2009, investor buying momentum had pushed the zinc-price above $2000 /t and as a result world’s zinc producers book profits at least on cash basis.The rise in prices resulted in both zinc miners and smelters increasing production despite 6.2% decline in zinc demand due to global recession. In value terms, demand was just over 1Mt.In 2010, there was rebound in global zinc demand of 11.3% and the continued interest of investors has supported the zinc price at elevated levels. There was volatility in the prices, prices traded in between $1600 /t to $2600 /t. The annual average price was $2157 /t.In 2011 and 2012, the pace of expansion in mine and smelter production is forecast to slow while demand growth will remain robust. As in 2010, China remains the main driver of zinc demand growth and even outside China, demand has rebounded strongly on the back of restocking. In 2011 and 2012, 6.5% growth in demand is expected. As a consequence, while global stocks are forecast to continue to rise, the scale of the mismatch between supply and demand will be smaller. The resulting global surplus of refined zinc will contract from almost 1Mt in 2010 to 0.5Mt in 2011 and 0.3Mt in 2012.With global refined zinc stocks forecast to remain at elevated levels throughout 2011 and 2012, there is little upside potential left in the zinc prices. It is expected that prices of zinc will rise in the first half of 2011 before falling later in the year. However, high stocks will have some effect and the cash zinc price is forecast to drift lower over the forecast period from its 2010 average of 97.9 c/lb to 83.9 c/ld in 2012.Outlook on Swiss FrancOutlook Call Rates as on 25th March 2011 6.10%-7.70%CommoditiesAluminum (1 kgs) 116.40Copper (1 Kg) 438.95Zinc (1 kg)106.35Steel (L) (1000kg)30050.00As on 25th March 2011ForexForward Rates against INR as on 25th March, 2011Spot Rate1 mth3 mth6 mthUS44.9445.2445.8046.57Euro63.0963.4864.1865.12Sterling71.7672.2273.0474.16Yen55.0155.3956.1057.11Swiss Franc48.9249.2649.8950.77Source: Hindu BusinessLineLibor Rates as on March 25, 2011Libor %1 mth3 mth6 mth12 mthUS0.240.300.460.77Euro0.871.151.471.91Sterling0.610.811.121.59Yen0.150.200.340.56Swiss Franc0.130.180.250.55Forward Cover % as on March 11, 20111 mth3 mth6 mthUS 8.12%7.76%7.35%Euro7.52%7.01%6.52%Sterling7.80%7.23%6.78%Yen8.40%8.04%7.74%Swiss Franc8.46%8.04%7.67%Source: Hindu BusinessLine ,[object Object],Answer of Quiz: 13(1) Notional value (2) Services sector (3) Indo-Nigerian Merchant Bank (4) Hindustan Petroleum (5) Mobile (Cell) Phone (6) Chennai (7) Lacoste (8) The Silent Spring (9) Hindustan Petroleum (10) Watches

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