Indian Central Bank Unexpectedly Raises Interest Rate - Bloomberg

India's central bank raised a key interest rate a month before its scheduled policy review because of a failure to bring down inflation from a near two- year high.

The Reserve Bank of India increased its overnight lending rate by a quarter percentage point today to a 4 1/2 year high of 7.75 percent. The Mumbai-based bank also raised banks' reserve requirements for the third time since December, and said it is shifting policy away from balancing inflation with economic growth to focusing solely on prices.

Governor Yaga Venugopal Reddy has raised borrowing costs six times in 14 months to curb record bank lending and tackle inflation, which has stayed a percentage point above the bank's highest estimate. In the past two weeks, overnight borrowing costs rose to the highest in at least a decade and the rupee rallied to an eight-year high, as Reddy's actions squeezed cash from the banking system.

``The central bank is overdoing it to curb inflation,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``After the aggressive policy tightening so far, one would have thought the central bank would wait for some time to see their impact on inflation. This move will hit growth.''

Analysts Surprised

Analysts have been surprised three times since December by Reddy's actions, inviting criticism from companies including Hero Honda Motors Ltd. Borrowing costs in the overnight money market rose to the highest in at least a decade after companies paid their quarterly tax, forcing banks to sell dollars to replenish cash holdings. This sent the rupee to the highest in almost eight years on March 28.

Bankers and industry officials said Reddy has abandoned the central bank's policy of keeping a firm check on volatility in the rupee-dollar market and allowed the currency to appreciate so that costs of imports would be lowered, in turn reducing inflation.

``The central bank is looking at the rupee as a second instrument to rein in inflation, and that is why it is accepting the volatility,'' said Prabal Banerji, chief financial officer at Hinduja Group in Mumbai, which has businesses in banking, automobiles and entertainment.

The yield on the benchmark 10-year government bonds climbed 39 basis points to 8 percent this quarter as the central bank raised the cost of money and sold bonds to mop liquidity in its battle against inflation.

Reserve Ratio

The Reserve Bank increased the repurchase rate at which it lends overnight to 7.75 percent from 7.5 percent with immediate effect. It raised the cash reserve ratio to 6.5 percent from 6 percent in two stages starting April 14.

Reddy has raised the key overnight lending rate since January 2006, and increased the cash reserve ratio since December to slow loans that have grown at an average 30 percent since 2004, the fastest pace since the central bank started collating data in 1971.

``In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is critical to take demonstrable and determined action on an urgent basis,'' the central bank said in its statement.

The benchmark wholesale price inflation has held at near a two-year high of 6.46 percent for three weeks ending March 17, the government said.

MFs catching up with FIIs in equity spending - FE

... invested over $2 bn in FY07

The Indian mutual fund (MF) players are fast catching up with their international counterparts-- the foreign institutional investors (FIIs) -- in terms of net investments in the stock market. Indian MF players were net buyers to the tune of $2 billion (Rs 9,000 crore) while FIIs, on the other hand, as expected, were net buyers to the tune of over $5 billion during April ’06-March ’07 (FY07). An interesting trend was also witnessed during the volatile year: FIIs were net buyers in equities in those months when the MFs were net sellers and vice-versa.

The FIIs have purchased equities worth Rs 25,646 crore in FY07 and MFs were net buyers at Rs 9,030 crore during this period. The liquidity provided by both the sets of institutional players has played a crucial role in the market achieving new highs during the year. Bombay Stock Exchange (BSE)’s Sensex gained 16% to close the year at 13,072 points on Friday.

According to data released by Sebi, FIIs were net sellers at Rs 7,354 crore in the May meltdown, when the US Fed decided to hike interest rates by 25 basis points. The MFs, on the other hand, were net buyers at Rs 7,893 crore in May 06. Apart from May, FIIs were also net sellers in December '06 at Rs 3,667 crore, while MFs were net sellers at Rs 1,976 crore in June ’06, at Rs 160 crore in July ‘06 and at Rs 24 crore in November ‘06.

Commenting on this trend, Sailav Kaji, analyst, Pioneer Intermediaries, said, “The investment pattern of both MFs and FIIs indicates that MFs are gradually emerging as bigger players in the Indian stock market. That the FIIs’ net inflows will be more than any other set of investors is a foregone conclusion as they are really big in size and operate in various parts of the globe. FII investments are determined by global trends, while investments by MFs is mainly governed by the liquidity situation prevailing in the market at that point of time and the prevailing market level.”

Another interesting aspect of the MFs’ investment pattern is that they were net sellers in the first three months of calendar 2007.

They were net sellers at Rs 944 crore in January,and Rs 274 crore in February. However, both FIIs and MFs were net sellers in March. The FIIs have made net sales of Rs 722 crore and MFs were net sellers at Rs 1,741 crore in March when the market was volatile through the month.

Buy Gammon India: Motilal Oswal

Broking house, Motilal Oswal is bullish on Gammon India and has maintained buy rating on the stock.

Motilal Oswal report on Gammon India:

Book to bill ratio at 3.5x FY07E revenues:

As at Dec 2006, Gammon India’s order backlog stood at Rs75b (up from Rs60.7b as of Dec 2005), which corresponds to 3.5x FY07E revenues. Order book composition stands as: Transport engineering (Roads & Bridges) 35%, Hydro & irrigation 35% and others 30%.

Infrastructure development, real estate can unlock value:

GIPL currently has a portfolio of 11 infrastructure development projects, across segments like roads, ports, hydro power, biomass power and SEZs. GIPL has also submitted financial bids for another 4 projects totalling Rs13.5b, and is pre-qualified for submitting financial bids for 11 projects totalling Rs138b. Several of these financial bids are expected to be opened during 1QFY08, indicating that the news flow will continue to be encouraging. Realty development is also emerging as a key focus area, though at nascent stages currently. and the company intends to enhance its role as project developer. As we understand, the company already has certain land banks in metros, which can be monetized. More details on this would be available over the next few months.

Increased contribution from subsidiaries:

Consolidated profits during FY06 stood at Rs1,446m, vs standalone profits of Rs1,043m, resulting in a net contribution of Rs403m from subsidiaries and associate companies. The management stated that 1) Associated Transrail has order backlog of Rs8.5b as at Dec 06 and FY07 expected revenue is Rs4.5b (up 80% YoY) 2) Gammon Billimoria has order book of Rs5b+, and we expect 25-30% YoY growth rate during FY07.

Recommend Buy:

We expect Gammon to report net profit of Rs914m (up 9.6%) in FY07, Rs1.3b in FY08 (up 43.9%) and Rs1.8b (up 38.5% YoY) in FY09. At the CMP of Rs299, the stock trades at reported PER of 28.4x FY07, 19.7x FY08E and 14.2x FY09E. We value Gammon's 82.5% stake in Gammon Infrastructure at Rs9.9b (Rs114/share), 50.9% stake in Gammon and Billimoria at Rs2.1b (Rs24/share), 28.9% stake in Associated Transrail at Rs1.4b (Rs16/share) and stake in Sadbhav engineering at Rs4/sh. Adjusting for the value of BOT and Investments, the stock trades at PER of 13.4x FY07, 9.3x FY08E and 6.7x FY09E. We maintain Buy.

Disclaimer : These are the views of the broking house. We do not take any responsibility for any loss incurred due to any buy decision based on the above reports.

Call rates upto 80 % due to liquidity crunch

The overnight call money rates surged to a new 10-year peak on Friday as banks refrained from lending ahead of the financial year closure.

Overnight call rates shot up to 70-80%, after opening at 40-50% from Thursday's close of 10-11%.

Today's high of 80% surpassed last week's peak of 70% to be the highest level since 1996, when cash rates had risen to more than 100%.

Call rates jumped to their highest level in more than a decade as most banks are not lending today due to capital adequacy considerations ahead of the end of the financial year on Saturday.

Overnight rates had climbed sharply last week following the outflows of Rs300bn towards year-end advance tax obligations and settlement of bond issues.

Infrastructure key to liquidity

Dr C Rangarajan, chairman of Prime Minister’s Economic Advisory Council, had added a new dimension to the ongoing debate on the “overheating” of the Indian economy. At a public function in the Capital last week he suggested there was no cause for alarm as the overheating of the economy was just cyclical in nature.

However, he added that a host of medium-term policy initiatives must be taken to ensure that the overheating, which is cyclical now, must not be allowed to become structural in nature.

The subtle point Dr Rangarajan had made was there need not be too much alarm about the overheating which is cyclical in nature. The prime minister, too, reiterated this point subsequently at a public forum.

In other words, the message simply is that the economy was on a high growth path and the cyclical factors, like higher inflation, will pass sooner or later through a mix of monetary and fiscal measures. That said, it is equally important that medium-term supply issues need to be taken care of to support what is clearly a fresh investment boom taking place in the economy.

Dr Rangarajan believes that Indian growth story has moved from being consumption-led to being driven by investments now. Industry is clearly in the middle of raising capacity through fresh investments. One reason for the supply constraint in cement, steel and other commodities is that firms are operating at near-full capacity, and are in the process of building fresh capacities.

According to Dr Rangarajan, a medium-term policy framework now must encourage and aid building of fresh capacities in manufacturing and, more importantly, in critical infrastructure. Building adequate supplies through fresh investments would surely prevent the “cyclical overheating” from turning into a structural one.

Recent history has shown that wrong policies can result in financial asset bubbles, which in turn could create lasting problems for the economy. It could cause prolonged demand recession by shaking both consumer and investor confidence.

In this context, the former US treasury secretary Laurence Summers has cited the example of Japan to suggest how after having robust growth in the seventies and eighties, Japan allowed the economy to go into a prolonged demand slump for over 10 years.

Mr Summers argues that what happened in Japan in the eighties and nineties may hold a few lessons for the current emerging economies like China and India. Mr Summers believes Japan became complacent after doing very well for two decades.

Japan failed to take medium-term measures to keep the structural momentum of the economy going. Perhaps by not appreciating the Yen enough against the dollar, it allowed the market to be flooded with liquidity. That created a big asset bubble in the stock market and real estate. When the bubble burst, it caused lasting damage to consumer and business confidence. It also damaged the financial system.

In fact, China’s financial system now would seem to very closely resemble that of Japan’s in the 1990s. The fact that India must avoid this trap at all costs is one aspect which RBI Governor Dr Reddy has also been subtly suggesting for sometime now. This is one aspect of policy which must be monitored very closely. If we falter on this count, the cyclical overheating could well turn into a structural one, as Dr Rangarajan has warned.

Therefore, what is really needed in the medium term is creation of adequate real assets, partly through infrastructure provision, so that excess liquidity gets absorbed by productive assets.

Global economy integrating

Legend has it that this saying originated after the Wall Street Crash of 1929; the U.S. crash sent many European economies into even larger depressions than our own.

But if the recent events of Feb. 27, 2007, told us anything, it's that America isn't the only market capable of spreading an economic cold anymore. The 9% drop in the Chinese market that Tuesday prompted a near 4% drop in the S&P 500; the U.K. FTSE 100 fell 2%, and the Indian BSE slid 4%.

Even smaller global events have had major impacts on the markets. Just three years ago, an uprising in Nigeria sent oil prices over $50 for the first time and roiled the global markets for a few days.

The development toward highly correlated global markets has become a reality in a very short period of time. According to a recent article in The Economist, international markets have revealed a 95% correlation with the S&P 500 -- this figure once sat as low as 40% in the mid-1990s!

In other words, the global markets are dancing in step more than ever before, so while adding international stocks to your portfolio can still lead to big returns, the days of getting a "free lunch" from international diversity may be coming to an end.

Why this is a good thing

The Economist cites various phenomena that are contributing to converging global markets. Among them: reduced controls on capital, a larger number of cross-border listings, and multinational mergers.

In just the past few months alone, some of the world's biggest stock exchanges have announced agreements or mergers to integrate trading systems. NYSE Group (NYSE: NYX) recently merged with European market, Euronext. The European Union's internal market commissioner, Charlie McCreevy, said that the NYSE/Euronext union marks the beginning of stock market mergers and "at some point we will see moves toward a common pool of liquidity."

Furthermore, many companies are listed in multiple global markets in order to gain access to foreign capital. Just as some foreign companies appear on U.S. exchanges like China Life Insurance (NYSE: LFC) and Brazil's Companhia Vale do Rio Doce (NYSE: RIO), U.S. companies such as NVIDIA (Nasdaq: NVDA) and Amgen (Nasdaq: AMGN) are listed on the Frankfurt and London exchanges.

Finally, a few major international mergers have taken place in the past five years, including Alcatel-Lucent (NYSE: ALU) and Arcelor Mittal (NYSE: MT). The effects of such unions increase global market correlation because the newly formed companies are known in multiple countries and generate revenues in multiple markets.

You can still profit

These signs seem to point toward one global stock market, where an investor can trade any stock from anywhere in the world at any time. Even though the "free lunch" benefits of international diversification dwindles as this becomes a reality, the growth potential of international stocks remains promising, particularly in emerging markets such as Taiwan and South Africa.

The secret is finding these companies early in their growth stages. Early investors in Chinese wireless community NetEase.com, for instance, have seen their shares appreciate 10,000% since March 2002. The thing is, NetEase's rise wasn't a miracle -- it showed the signs of a strong, promising company in 2002. With a founder/CEO with significant ownership at the helm, a strong balance sheet, and a wide market opportunity, NetEase was well positioned for growth, and indeed, it has done just that.

Need some help finding a few good international stocks? Fool senior analyst Bill Mann and the Motley Fool Global Gains team are a great resource -- they take the time to explain the intricacies of the global markets and teach you what to look for and what to avoid.

India Time Now

Financial planners can be forgiven for lumping India among global or emerging markets portfolio investments, rather than taking a view on a country basis. Yet India and its investment environment and markets warrant serious consideration for their own investment allocation.

Exposure to India via a global investment fund is no longer enough. India has something that other countries do not: a unique combination of demographics, politics and economics within a diversified investment market, allowing planners and investors to consider a specific country allocation.

The issue for Australians investing into India is accessing funds that have the right licensing and compliance structures for this market.

Global and emerging market funds are often slower to move on specific opportunities, are often constrained by their asset allocation and benchmarked to the larger stock markets.

Why is now the right time for India ?

Widespread market deregulation within India has fostered a dynamic market culture that has driven growth through increased consumer demand.

A continuing policy of market deregulation and liberalisation of India’s foreign direct investment guidelines, which commenced in 1991, has boosted gross domestic product (GDP) performance. Foreign investment has steadily increased, with approximately 25 per cent of Indian companies owned by foreign investors, which is always a good indicator that investments are secure.

Since 2001, the Indian stock market has outperformed the Chinese and Australian stock markets.

Growing affluence within a large sector of the population and rising incomes will fuel demand for goods and services in the future, with private consumption forecast to increase by an average of 6.8 per cent in 2007 and 2008.

Twenty-six years of positive GDP growth is revolutionising the Indian economy. Growth has roughly doubled that of Australia and the US, and is likely to reach the Indian Government’s target of 10 per cent growth per annum by 2010.

India is now a favoured private equity destination, surpassing China and Japan, and is set to become one of the biggest merger and acquisitions markets during 2007, according to the Asian Venture Capital Journal.

Continuing deregulation has fostered the development of globally significant Indian companies in sectors including pharmaceuticals, auto components, information technology and business process outsourcing.

As a result, the Indian economy has steadily diversified, with no one industry sector dominating the BSE 200 Index.

This market diversity is a crucial difference between India and other members of the BRIC (Brazil, Russia, India and China) countries.

Brazil and Russia by comparison are commodity-driven economies, which makes growth more volatile.

In Russia, more than 70 per cent of market capitalisation is oil-related businesses, whereas in India’s diversified market no individual sector accounts for more than 20 per cent of index composition.

From an Australian investor’s perspective, the important point is exposure to India will not generally affect the position (weighting) to resources and this particular sector’s risks.

Sector opportunities

So which sectors have the potential to grow faster than the Indian economy over the next few years? Any sector hinged to the three big drivers of India (demographics, outsourcing and infrastructure) provides the biggest opportunities.

Demographics are behind an internal consumption boom, which is forcing further change. While almost every other major economy faces an ageing population, India is set to be one of the youngest nations for the next 50 years, driving internal demand and capacity.

Currently, over 45 per cent of the Indian population is under 20 years of age, with two million graduates every year from its universities and colleges.

The cumulative wealth of India’s affluent sector was US$203 billion in 2005, but it will be US$322 billion in two years. A whopping 1.1 million individuals will have liquid wealth of US$100,000, not to mention the 83,000 Indian millionaires.

This has led a growing number of India’s 1.1 billion people to demand better quality services in banking and finance, insurance, organised retailing and mobile telecommunications.

These sectors currently have very low penetration levels: less than one in 30 Indians now have access to credit cards, mortgages and consumer loans; organised retail has a penetration of less than 3 per cent, compared to 20 to 30 per cent in other emerging countries and 70 to 80 per cent in the US and Europe. This represents a huge opportunity for high sustained growth rates in these sectors.

Infrastructure is another long-term opportunity. Its rate of implementation is important for the Indian economy to maintain its growth rate, and it is therefore also a key risk. Infrastructure development has been slow and is currently poor compared to China, but change is underway and India will use public private partnerships for the next phase. More than $300 billion is forecast to be invested in infrastructure over the next five to seven years.

No other country in the world has India’s combination of demographics, population size, financial liberation and growth.

Planners and investors have much to gain when considering India as a specific country allocation as part of their long-term investment plans, because the time for ‘incredible India’ is right now.

John Pereira is the chief executive of India Equities Fund.

Nishit's View on I Flex

I-Flex today touched Rs 2085. The last open offer was made at rs 2100.I have been tracking this stock closely and since Mar 19th, Gudi Padwa both volumes and price has picked up.

Volumes have gone on somedays ten fold and price has gone up from Rs 1850 to Rs 2085 a gain of 12.70 pct.

Those who have been sitting on a combination of cash and I flex since early february instead of losses would be in profit right now.Increase in volumes and price usually points out to some insider info.

I strongly another open offer, preferential allotment to fund some acquisition might just take place especially if other tech stocks tumble on poor guidance.

Such an offer at Rs 2500 or thereabouts would make it very tempting for existing shareholders to cash out.I would suggest watch the stock carefully and enjoy the ride up.

Asian Market Rise on Japanese Economy Reports

Asian stocks rose, led by Mizuho Financial Group Inc., after industrial production and household spending reports in Japan boosted confidence in the growth outlook for the region's biggest economy.
``There's a sense of recovery there and that's providing support to the market,'' said Hideyuki Ookoshi, who oversees $365 million at Chiba-Gin Asset Management Co. in Tokyo. ``If production recovers, the Japanese economy could take off from its current plateau around mid-year.''

The Morgan Stanley Capital International Asia-Pacific Index climbed 0.3 percent to 144.90 as of 1:33 p.m. in Tokyo. The benchmark has gained 3.3 percent this year, set for its third straight quarterly advance.

Japan's Nikkei 225 Stock Average rose 0.2 percent to 17,284.22, while the broader Topix index added 0.4 percent. Markets advanced, apart from in Hong Kong, China and New Zealand. South Korea, Taiwan and Singapore were little changed.

Inpex Holdings Inc. led energy stocks higher after crude oil prices rose for a ninth day. Australia's Fairfax Media Ltd. gained on speculation of industry mergers after ownership restrictions are removed next week. Samsung Electronics Co. fell after Citigroup Inc. cut its estimate for the company's earnings.

U.S. stocks climbed yesterday a government report showed the world's biggest economy grew at a faster pace last quarter than some economists expected.

Oil-enriched Arab Investors Turning Away from U..S Dollar & U.S. Investments

Investors from the oil rich Gulf Arab nations are “eager” to diversify away from the U.S. currency. Reuters reports movement to the Euro and Asia “to invest windfall oil revenue, eager to ride the rise of China and India.” On Monday, Reuters reported that the Dubai International Financial Centre Authority said “More Gulf economies will move away from a dollar currency peg and shift foreign exchange reserves away from dollar to other currencies.”

The articles indicate concern over security and the potential of further attacks in the U.S. They also report that the International Monetary Fund “argued ‘extraordinarily aggressively’ for a correction in exchange rates, above all so as to reduce the massive U.S. current account deficit.” The Chinese yuan and currency of Gulf oil states “should all appreciate” according to the report of the World Economic Outlook due to be published in April. And, the European Central Bank will “not require further interest rate increase.”

According to Reuters there has also been “a marked shift . . . in the types of investments.” The Gulf investors are now investing more in “real estate, infrastructure, telecoms, and banking” rather than “stocks and bonds” after learning the lessons of investing in speculative stocks. This will become seen as a “reverse globalization” where Gulf oil states purchase developed institutions.

Thus, as the U.S. economy falls further into debt, due to the cost of the war and the rising cost of oil, the Middle East and Asia will become wealthier. And, as the dollar depreciates the U.S. consumer will feel the loss of wealth of the United States.

Consistent growth in next few years: Mather & Platt Pumps

Ravindra Bhatia, Managing Director of Mather and Platt Pumps says that he sees a considerable and consistent growth coming in the next few years. He adds that only few manufacturers around the globe can match the product line that Mather & Platt has. He hopes that they will be seeing consistent growth in the years to come - both in the domestic as well as the export markets.

Excerpts from CNBC - TV18’s exclusive interview with Ravindra Bhatia:

Q: Is that correct - 13% is what institutions hold at the moment?

A: Yes, more or less.

Q: How much can FIIs go up to?

A: As far as we are concerned the promoter company holds roughly about 62% and balance is with the public and financial institutions and that keeps changing.

Q: What is the permitted amount? Is it 24% or do you have a Board approval to take FII holding to a larger stake or is it 24%?

A: Very frankly I don’t see any limit on that in the sense that the balance that is not held by the promoters is with the public and the financial institutions.

Q: Your company became WILO company after your Indian promoters sold their stake in 2004, how has that changed your market?

A: With WILO coming in our earlier promoters were into diverse fields but now it is exclusively a pump company. We are part of a pump group so that has brought in customers confidence into our company.WILO is financially very strong and that again gives lot of confidence specially to the infrastructure projects where we are dealing with larger customers. We also have WILO subsidiaries in 42 countries who will be going around selling our products so that has changed quite a bit for us.

Q: What is your order book like at the moment?

A: In rupee terms it should be somewhere in the range of Rs 100 crore plus.

Q: Could you take us through the kind of expansion you have seen on the export side of your turnover because that has ramped up considerably in CY06. What is the kind of growth target that you are keeping for the export side of the business?

A: That should be growing at the rate of roughly 35-40% every year for the next few years to come.

Q: At this point in time is there a defined outlay that you have laid out in terms of expansion plans? Do you require any funds and is there any expansion plan that you require to fund?

A: We have expansion plans and the funds are required for that but given the financial strength of WILO that is not the issue at all. It will be coming from the parent company itself.

Q: So you are not going to be looking at any time in the near future of placing a stake or looking at any kind of placement with an FII. Have you been approached by any FII considering the holding in your company is quite significant?

A: All the options are open. We will be considering every option but no such offer has been made by any FII to us.

Q: A quick take on how you see exports to domestic sales growing in the next two years?

A: Our products go to infrastructure. We see a considerable and consistent growth coming in the next few years. Easy figure could be in the range of 35-40% and this will be uniform in domestic as well as export markets because the product line that Mather and Platt has very few manufacturers around the globe have that. We will be seeing consistent growth in the years to come both in domestic as well as in export markets.

Experts speak on rupee hitting 7-yr high - Moneycontrol.com

Sanjeev Sanyal, Regional Economist of Deutsche Bank Asia says that whole rupee appreciation is being driven by the liquidity squeeze that is happening right now and calls it a year-end phenomenon. Akhil Jindal, President of Welspun India says that there is no point in keeping any currency open at any juncture but at the end of the day the currencies across the globe are appreciating against rupee.

Excerpts from CNBC-TV18's exclusive interview with Sanjeev Sanyal and Akhil Jindal:

Q: The Bernanke statement yesterday was interpreted by the market to mean slightly more hawkish than what it was prepared for and in India itself we are seeing the RBI using a money market route and that has kept the dollar much cheaper than one anticipated. Where do you see the dollar-rupee headed in the next one quarter given the moves from the two central banks?

Sanjeev Sanyal: This whole thing is being driven by a liquidity squeeze, which is happening right now. One must remember that this is a year-end phenomenon. There are longer-term issues as far as inflation is concerned, because of which the RBI had tightened. But remember that this particular episode is being exacerbated by year-end factors as well. So into the beginning of April this will ease off.

The Reserve Bank is at the end of the day not all that pleased with the rapidly appreciating rupee. They had been intervening throughout and even now they continue to accumulate reserves. Another thing going against the rupee right now is the fact the Reserve Bank is concerned about long term competitiveness issues. Given these two facts we think that once this episode is over the pressure on the rupee will ease off.

Q: We also see that the current account deficit is worsening with each quarter. But given all that we are seeing a genuine appreciation of the rupee happening, what really is your target for the rupee a quarter down the line and maybe by December 31?

Sanjeev Sanyal: Its difficult to put numbers on quarter by quarter but generally speaking we think that the rupee once this particular episode is over will probably stabilise and in fact even drift weaker, the current account continues to worsens. There are very large capital inflows coming into the country, which is pushing it up. But at the same time it is also being helped by the fact that other Asian currencies are appreciating against the dollar. So this is not just about the rupee appreciating but also about the dollar depreciating.But all put together the fact remains that the longer term competitiveness is something that we have to keep in mind.

Q: The rupee has gone from 45 to 43 over the last one month. Do you hedge and how much of a hit has this actually accounted for in terms of the end towards the last part of this quarter in terms of earnings that you would report?

Akhil Jindal: We always keep our currency fully hedged; there is no point of keeping any currency open at any juncture. But the point that my colleague from Deutsche has made is that at the end of the day the currencies across the globe are appreciating against rupee. Particularly when we have to compete against China, which have a very artificially pegged currency, if Chinese currency is allowed to float the way it is in India, it would easily appreciate by more than 30%.

So one can really figure out that at the end of the day if we have to preserve the competitiveness of the industry, we have to preserve the export going up, then in that case we need a complete sterilization as the way RBI is doing it. At the end of the day we must also remember that textile is one of the largest export provider or foreign currency earner and Welspun with its own product line has emerged as a 7th largest importer in the US from the entire world.

Q: If the dollar remains firmed, how much will your realizations be hit by?

Akhil Jindal: Nothing in the immediate future because every realization has been pre-sold, every dollar has been already sold for the next 6-9 months. But it affects our long term competitiveness if we are booking any order for mid of 2008. We have to look into the current exchange rate other than the rate at which we have booked.

Q: Could you on a more academic note tell us if the rupee appreciates by about Rs 1? How much of a hit is that in terms of earnings per share and profitability?

Akhil Jindal: Its again difficult to quantify. It all depends upon the hedging at that point of time.

Q: How much are hedged at currently?

Akhil Jindal: We are hedged at 44.5.

Q: In the light of that with the rupee at close to 43, how much of a hit would it take at EPS?

Akhil Jindal: It will only contribute to the EPS because at the end of the day all our dollars realisations are at 44.5. So to that extent we are protected from this sharp movement that has taken place over last 15 days or so. Once the currency comes back to its original level which is at 44 around we will be in the safe zone.

Infra management is the new hot spot

Infrastructure management (IM) services is emerging as one of the fastest growing service lines for IT companies spurred by falling telecom costs and web-enabled tools that make remote management easier.

Over the last one year, IMS has been growing at over 60% for companies like Wipro and HCL Technologies, almost double their total sales growth, which is around 30%. The practice is still small for most companies because it has started gaining momentum only over the last couple of years.

“Earlier, there was a reluctance to outsource infrastructure management. Enterprises preferred nearshore operations because the costs of telecom pipes were high.

Security was also a big concern but now resources can be managed remotely without having to download any data because of web-based platforms,” said Ram C Mohan, vice-president and head of infrastructure management & technical support services, Mindtree Consulting. Mindtree launched IM and tech support services about nine months ago because of the growth being witnessed in the area.

Infrastructure management refers to the maintenance and management of the infrastructure of any company. The recent Idea Cellular-IBM deal is one such example where infrastructure management was significant part of the total contract that was outsourced.

In the context of many of the Indian IT companies, IM refers specifically to the management of the IT infrastructure and includes services like network management, desktop management and application portfolio management.

“IM has been growing at 50% year-on-year for IT companies. The entire infrastructure is managed remotely at a network operating centre,” says Hitesh Zaveri, analyst with Edelweiss Securities.

He estimates that in FY07, Tata Consultancy Services (TCS) could see well over 100% growth in this segment touching about $ 250 million, while Wipro would see 70% growth to over $ 250 million. For Satyam Computer Services and HCL Technologies too, the growth is estimated at well over 60%.

“Last year Satyam saw IM services grow by 32%. This year it should be around 62%,” according Zaveri. Companies are increasing their focus on IM because it also provides them with a predictable revenue stream.

“Unlike projects, where the revenues are based on the duration of the project, IM provides annuity-based revenues,” said Mr Mohan. Typically, IM functions also require the companies to provide an IT help desk that provides voice, e-mail and chat support. About 10-20% of the staff may be involved in such support services.

Is Fixed Maturity Plan better than FD?

It just may be your last chance to get more than 10% on your fixed deposits as many banks are windng up their schemes on March 31. But CNBC-TV18 reports that even if you have missed these schemes, there are better options from mutual funds.

Just three more days for depositors to get that 10% interest rate on fixed deposits! PSU Banks like Canara, Bank of Baroda, Bank of India, SBI and Union Bank have all higer deposit rates to attract depositors, but only for a limited period - till March 31. Foreign and private banks are also willing to pay interest rates up to 20%, but only for bulk deposits over Rs 1 crore.

Financial planners say they are advising clients to reinvest their existing FDs for better returns. Surjit Mishra, Senior VP, Bajaj Capital says, "When the inflation rate is as high 7%, we have advised clients to break their FDs which are at lower rates and re-invest with the current bank or any other bank."

Though bank FDs are offering 10% returns, post tax returns will be only 7.5%. Besides, when depositors break their FDs before the maturity date, then they have to bear a pre-mature withdrawal penalty of 1-1.5%, which means post tax returns will be even lower.

In comparison, Fixed Maturity Plans, or FMP offered by the mutual funds offer higher returns. "If you looked at the alternative then there is a much superior alternative funds' fixed maturity plans, which are giving you a 10% post-tax return and pre-tax returns of 13.5-14%; so it is like investing in a 14% FD," says Rajiv Bajaj, Managing Director of Bajaj Capital.

Fixed maturity plans are currently the rage and the mutual fund industry has managed to garner around Rs 70000 crore to Rs 80,000 crore through these schemes because they earn a better post-tax return.

But for those who prefer the simplicity of FDs, the good news is that even if some high yielding deposit products close on March 31, bank FDs will continue to fetch high returns given the RBI's preference to keep rates high.

Sterlite Optical Technology gets order from Power Grid

Pune-based Sterlite Optical Technologies Ltd., India's leading global provider of Power Transmission Conductors, Optical Fibers and Telecommunication Cables announced that it has been chosen by Power Grid Corporation of India (PGCIL) for manufacture and supply of ACSR Lapwing Power Transmission Conductors for India's first 500kV HVDC lines suited for transmission of over 2500MW power. These conductors would be installed in the +/-500 kV HVDC Ballia - Bhiwadi Transmission Line. The contracts, valued at approximately Rs 1.8 Billion, were received during Q3 2006-07. Deliveries are scheduled over the next 21 months.

Says Mr Pravin Agarwal - Director, Sterlite Optical Technologies Ltd, "We are honored to partner with PGCIL in its landmark project in India. With over a decade of experience with the varying requirements of customers in global markets in the Power Sector, Sterlite is uniquely positioned to be a significant contributor to India's vision of Power for All by Year 2012"

The Government of India's Transmission Perspective Plan focuses on the creation of a 'National Grid' in a phased manner by adding over 60,000 km of Transmission Network by 2012. Such an integrated grid shall evacuate additional 1, 00,000 MW by the year 2012 and carry 60% of the power generated in the country. The existing inter-regional power transfer capacity is 9,000 MW, which is to be further enhanced to 30,000 MW by 2012 through creation of "Transmission Super Highways". For creation of such a grid, an investment of Rs. 710 Billion is envisaged.

Sterlite is a significant contributor to India's power sector through indigenous manufacture of a complete range of power transmission conductors at Extra High Voltages (400kV - 800kV), High Voltages (66kV - 220kV) and power distribution conductors (11kV- 33kV) Sterlite currently supplies about 23% of India's total demand for power transmission & distribution conductors. Sterlite Optical Technologies acquired the Power Transmission Business from Sterlite Industries (India) Ltd in August 2006

Sourced From: Pink & White Consulting (Public Relations)

Govt cautious on wheat procurement issue

Sharad Pawar is a worried man and that's not just because of the Indian cricket team's poor performance, but the threat of another wheat crisis that is giving him sleepless nights.

Farmers were upset about reports that the government wants private buyers to stay away from wheat markets and those reports forced the Agriculture Minister to call media.

He said that he had not banned private players like Cargill or ITC from procuring wheat at prices higher than the Centre's Minimum Support Price (MSP) of Rs 850 a quintal but hoarding has to be in check.

However, despite the Minister's claims it's no secret that the Finance Minister had called these companies and asked them not to procure wheat till the FCI has bought 15 million tonne.

In a statement issued by Cargill, the company said that private companies normally procure from states like MP, Rajasthan and UP.

They suggested that they have no plans to procure from states like Punjab, which the government focuses on. So reports that they were offering prices higher than the MSP in Punjab were wrong.

Surplus year

On the other hand FCI officials said that threats from farmers unions like the Bharat Kisan Union not to sell to FCI should not be taken seriously because in the past they have never implemented their threat.

Besides, they said that production figures are higher by 40 lakh tonne and in a surplus year it's unlikely that private traders will pick up more wheat than their requirement of 10 lakh tonne.

Daily Market Update - 3/29/2007

t was yet another day of sluggish trade wherein the markets opened on a flat note and proceeded to trade rangebound amid extreme volatility. It was a quite day despite being F&O expiry date but gained some momentum during the late trade due to buying interest seen in the FMCG, Capital goods and IT stocks, however the banking, auto and metal stocks remained under pressure through the day and consequently managed to shut shop in green after three consecutive decline.

At 15.48 pm IST, the Sensex is up 95.32 points or 0.74% at 12979.66, and the Nifty up 37.00 points or 0.98% at 3798.1. About 1547 shares have advanced, 918 shares declined, and 69 shares are unchanged.

BSE Midcap closed in green, up 22.59 points or 0.43% at 5,319.17 and Smallcap was up 65.34 points or 1.04% at 6,377.79.

BSE Auto index ended in red, was down 16.27 points or 0.34% at 4,803.59. Ashok Leyland, Sundaram and TVS Motors declined most.

BSE Bankex closed down 27.60 or 0.42% at 6,507.65. UTI Bank, HDFC Bank and Bank of India ended low.

BSE Metal index ended down 28.29 points or 0.34% at 8,346.06. Sesa Goa, Jindal Steel and Sterlite Industries were the hardest hit scrip.

BSE Capital Goods index was up 108.51 points or 1.22% at 9,000.14. KEC Infra, Aban Offshore and L&T were the top gainers.

BSE FMCG index ended up 34.97 points or 2.08% at 1,712.21. HLL, ITC and United Spirits gained most.

BSE Pharma index closed up 35.53 point or 1% at 3,581.82. Glenmark, Ranbaxy and Sun Pharma were the top gainers.

BSE IT index was up 43.23 points or 0.89% at 4,875.08. TCS, Mphasis and HCL Tech surged.

BSE Oil & Gas index ended up 27.39 points or 0.43% at 6,391.51. BPCL, ONGC and Chennai Petroleum were top gainers.

Markets today:

• Market gains in late trade on expiry day
• Sensex up 0.74% or 95.32 points at 12979.66; Nifty up nearly 1% or 37 points at 3798
• BSE FMCG Index up 2%; HLL up 3.72%, ITC up 2.5%
• BSE Capital Goods Index up 1.22%; L&T up 3.15%, Suzlon up 2.17%
• Index Gainers; HCL Tech up 4.5%, Zee Ent up 4.47%, BPCL up 4.30%, TCS up 3.94%
• CNX Midcap Index up 0.18%; led by construction cos
• Sobha Developers up 8.70%, Akruti Nirman up 5.95%, Indiabulls Real Estate up 5.85%
• BSE Small-cap Index up 1.04%; Nitin Spinners, Shreyas Spinning up 20% each
• NSE Advance Decline ratio at 3:2
• Total market turnover at Rs 64695.09 cr Vs Rs 56773.14 cr

Turnover today:

• NSE Cash - Rs 10057.08 cr
• NSE F&O - Rs 50961.50 cr
• BSE Cash - Rs 3676.51 cr
• Total - Rs 64695.09 cr

Japanese Stock Fall on Bernanke's Inflation Concern

Japanese stocks dropped after Federal Reserve Chairman Ben S. Bernanke said inflation remains his main concern, even in the face of evidence the U.S. economy is slowing.

Toyota Motor Corp. led declines by exporters after the yen strengthened against the dollar, cutting the value of their overseas sales.

``The Japanese market has to be conscious of the implications of Bernanke's comments,'' said Juichi Wako, a strategist at Nomura Securities Co. in Tokyo. ``The recent tendency toward a stronger yen makes it hard to buy the exporters.''

Inflation A Risk

``Our policy is still oriented towards control of inflation, which we consider to be at this time to be the greater risk,'' the Fed's Bernanke told the Joint Economic Committee of Congress in Washington yesterday.

Those comments came a week after the central bank dropped a reference to possible ``additional firming'' of monetary policy in a statement accompanying its latest interest rate decision. That cheered investors who believed the path was being paved for rate cuts.

Corporate help must to double farm growth: Montek

Agriculture growth cannot double without the involvement of the corporate sector, which has the capacity in marketing, supporting diversified agriculture base and bringing in modern technologies, according to Mr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission.

Addressing a seminar on `Corporate's role in rural development' organised by the Madras Management Association, Mr Ahluwalia, said the State Governments need to include the role of corporate sector in their strategies on agriculture growth, especially in areas like contract farming, marketing, logistics and input supply.

The Centre has not failed to recognise the role the corporate sector has to play in agriculture growth. It would be possible to double the growth rate in agriculture to 4 per cent only with a broad based agriculture production involving horticulture, livestock, dairy, and poultry and increasing agriculture productivity. Relying on cereals alone would support only 2 per cent growth, he said.

Diversification can only happen with modern technology in production, post-harvest processing, transportation and widening market - domestic and export. The corporate sector and possibly the cooperative sector but with a `modern corporate structure' have to play a key role, he said.

Unlike the green revolution of the 1960s, modern revolution in agriculture cannot come from a single crop or be public sector led. 'The world was different then,' Mr Ahluwalia said.

Private sector plays a large role in research; India is the fourth largest user of genetically modified seeds. IPR issues and modern infrastructure like reliable power and efficient water use need to be addressed. 'The challenge today is more difficult than the green revolution challenges,' he said.

A fundamental constraint is that the farmer alone could own the land and the corporate sector cannot.

But within the existing framework the companies and the farmers could be brought together, he said. Mr Ahluwalia said there is 'fairly deep suspicion' of the corporate sector involvement in agriculture because of the presumption of its bargaining power. But there were enough and more success stories - including traditional sugar mill operations, which are examples of corporate contract farming - that can be replicated with appropriate policy support.

Shree Precoated to merge Anik Development with itself

Shree Precoated Steel is planning to amalgamate Anik Development Corporation with itself. The board had earlier approved investing 15% in Jolly Brothers and in Ajmera Water 'n' Amusement Park.

“We are closing the year with steel business at Rs 1500 crores and real estate business at 300 crore. For FY08 the estimation for real estate business is at Rs 1100 crore whereas steel is at 2000 crore," says Rajnikant Ajmera, Managing Director of Shree Precoated steel.

Anik Development has venture called Bhakti Park situated at Wadala, which has approx 25 lakh sq feet of saleable FSI. The whole project will be completed in next three years.

"We are mostly into residential buildings where we buy and develop lands," he adds.

Elecon Engineering to supply gear boxes to Aircraft Carrier

Elecon Engineering Co.Ltd,Gujarat has recently bagged a prestigious contract for supplying the main propulsion gearboxes for India's first indigenous aircraft carrier. India is one of the few countries in the world to have developed the capability for building an aircraft carrier and it is equally a proud achievement for Elecon to be part of this landmark project. This is the company's second major endeavor in sophisticated marine gears technology after successful delivery of gearboxes for Navy's new stealth warships under construction at Mazagon Docks Ltd.

The marine gearboxes for the aircraft carrier would be one of the largest and most complex to be installed on the ships and would need precision manufacturing technology to achieve stringent quality and reliability standards laid down for marine applications. In keeping with its credo to be in the forefront of technology, Elecon has entered into a technical collaboration with Renk AG. They are acknowledged for its wide experience in design, manufacture and testing of high-quality special gears for marine propulsion.

The Company's thrust on continued modernization and upgradation of its manufacturing facilities and appropriate tie-ups has ensured that it is always a step ahead in technology.

Real Estate cooling off in Andhra Pradesh

Andhra Pradesh was hoping to rake in Rs 1800 crore from the sale of 60 acres of land. But the auction had barely any takers, reports CNBC-TV18.

The first phase of the Hyderabad Knowledge City remains unsold. The Andhra Pradesh Infrastructure and Industries Corporation had put two 30-acre plots under the hammer at a reserve price of Rs 16 crore rupees per acre and it expected the winning bid to be twice as much given the booming property market. While one of the plots received no bids at all, the other plot received only one bid at Rs 16.1 crore.

The APIIC is now awaiting the advice from the state government as to whether the plot should be handed over to the sole bidder or whether the auction should be invalidated altogether.

Hyderabad property consultants pin the blame on the new service tax on commercial rentals. This land was meant exclusively for an IT park and at Rs 16 crore an acre it would have to be leased out at Rs 55 per sq ft to break even. A rate higher than some parts of Mumbai.This coupled with a dampening of sentiment in the overheated property market would explain why the government's price was considered too high!

The rupee touched a 7-year high

The rupee touched a 7-year high of 43.01 against the dollar, as the Reserve Bank of India chose to stay on the sidelines of the forex market on Thursday.

Exporters, however, bet on a dollar rebound, stashing their export proceeds in foreign currency accounts while importers bought the dollar at lower levels to cover their positions.

The local currency has appreciated by more than 9% over the past 8 months, closing at 43.04/05 levels against the dollar on Wednesday, compared to the 3-year low of 47, in July 2006. The rupee on Monday had ended at 43.29/30 levels. The rupee was propped up by high interest rates caused by tightness in money markets.

Call rates the day in a range of 7-9%, after rising to 30% during the day. The central bank infused a total of Rs 27,395 crore through the repo operations under the two sessions of liquidity adjustment. On the other hand, it mopped up bids worth Rs 3215 crore through reverse repo operations.

Once the local currency breaches the 43-mark against the dollar, then it’s quite possible to foresee a level of 42.50 in the next few days, contend senior treasury officials. A report by Barclays Capital has talked about the possibility of rupee finding support in the 41-40.8 range.

However, exporters have already started postponing their receivables. On exposures, which are extremely short-term in nature, exporters are choosing to park funds in the exchange earners foreign currency (EEFC) accounts. They plan to convert these funds into rupees once current liquidity conditions ease and the local currency moves back to more secular levels over the next couple of weeks.

“Liquidity conditions are expected to ease in the first week of April as most money market participants view the current rise more as a function of the tightness in liquidity than any currency market-related issue,” said a senior treasury official.

The onset of April will see government borrowing picking up, alongside payments of salaries. Among the exporter clan, the smaller rung of players is expected to be the worst-hit, as they do not seek much recourse to hedging instruments. TCS, for instance, has currently hedged up to $580 million, which accounts for about 70% of its net foreign currency exposure.

Reliance to sell electronic goods too

Billionaire Mukesh Ambani's retail venture will soon start selling electronics goods like refrigerators, TVs and computers, even as it prepares to open its 100th fresh food and vegetables outlet in the country.

Reliance Retail, which has spent about Rs 2,000 crore (Rs 20 billion) on real estate acquisitions in the national capital, is likely to open its 100th Reliance Fresh store in New Delhi this week.

Separately, the company also plans to open its first Digital Electronics Store, possibly in the national capital region, for selling TVs, refrigerators and other goods. The outlet would be spread over an area of 50,000 sq ft.

"The 100th store will be opened soon possibly in Delhi or Pune," a Reliance Retail official said, but did not elaborate.

The company has so far opened 99 Reliance Fresh stores, spread over a total carpet area of 2,50,000 sq ft, across cities since its launch in Hyderabad in November last year.

Reliance Retail, whose parent Reliance Industries Ltd has earmarked an investment of Rs 25,000 crore (Rs 250 billion) by 2012 in the retail business, targets a revenue of Rs 90,000 crore (Rs 900 billion) from its various formats like hypermarkets, supermarkets and speciality stores by 2010.

So far, the company has unveiled only fresh food stores, which industry sources say, have been averaging a sale of Rs 3.5 to Rs 4 lakh a day.

The NCR alone has 24 stores that account for over a quarter of its total fresh food business. Reliance Fresh stores sell farm fresh products like vegetables and fruits and dairy products, besides frozen foods, groceries and cutlery.

'No proof of capital mkt being used by terrorists'

There is no evidence that money raised from the Indian capital market has been used for terrorist activities, SEBI Chairman M Damodaran said.

"We do not have any evidence that money raised from the Indian capital market has been used for terrorist activities," Damodaran told a press conference.

Responding to queries regarding National Security Advisor M K Narayanan's comments that terrorists were using the stock markets to raise funds, Damodaran said his remarks were used by the media out of context.

"His comments were not country-specific. He identified seven different channels through which terrorists raise funds, one of which was the stock market," Damodaran said.

The SEBI chief said all money that comes to the market was routed through banks.

"Banks follow 'know your customer' norms. Intermediaries in the market are also subject to follow certain norms and thus it is not possible for terrorists to make use of stock markets," he said.

He, however, said, "We don't monitor end-use of money raised. If anyone makes use of the funds for other purposes, we cannot do anything. That is not our mandate. There are other government agencies to do it."

Tech stocks could lose 12-15% in 3-4 weeks

The market is not looking to stabilise at a particular level. It is too volatile now a days. Since February, the Sensex has slipped over 8% and the Nifty by 7.67% till Monday, March 26, 2007.

In the same period, BSE IT Index lost 6.33%. Some technology stocks could lose 12-15% in the next 3-4 weeks, said Technical Analyst Gautam Shah of JMMS Technicals. He also believes that the next leg of the downtrend has begun.

In an interview with CNBC-TV18, Shah said, "I guess clearly there is something wrong somewhere in technology. Last week, you saw the Sensex gain 1000 points and Infosys just did not move. So I guess there is something on the charts, which suggests that some of these technology stocks could lose as much as 12-15% in the next 3-4 weeks, we are maintaining our view."

"Therefore, investors holding on to some of the technology stocks can either just get out, maybe buy back 15% lower or look to hedge their positions because technology and telecom, which have been the best performers in the last one year are likely to be the worst hit in the next few months", he suggests.

Today technology stocks have been hammered more than other stocks. The BSE IT Index is down nearly 3%, which includes, HCL Technologies is the top loser, down nearly 5.5% following TCS by 4.8% and Patni by 4.3%.

Stock	28-Mar-07	26-Mar-07	% Gain/Loss
HCL Tech	285.40	301.85	-5.45
TCS	1,201.00	1,261.25	-4.78
Patni Computer	373.30	390.20	-4.33
Wipro	562.00	586.15	-4.12
Satyam	453.95	472.25	-3.88
Hexaware Tech	159.20	165.10	-3.57
Infosys	2,001.00	2,057.00	-2.72
Mphasis	273.30	280.30	-2.50
Moser Baer	295.70	300.50	-1.60
HCL Info	134.00	135.65	-1.22