Dalal Street

The appointment of Dr. Subbarao as the new RBI Governor has seen as a Political move by Foreign Financial Institutions effectively designed to put a halt to the progressive monetary tightening that Governor Reddy has implemented since he took the job in September 2003.

On 28 July, Dr. Subbarao spoke to Bloomberg and quoted that raising rates is the “obvious” answer to surging prices. So we can expect interest rate calls unchanged, envisaging 50bps of repo rate hikes and 50-75bps on the CRR by end CY2008. The rate reductions will only begin in 2H CY2009 when growth may have slipped below 7%.

A period of below trend growth, which the monetary tightening may well engineer, is likely to be deemed as an inevitable consequence of controlling inflation expectations and easing the many bottlenecks in the economy.

We have reliably learnt that HCL technologies is preparing a counter bid to Infosys’ bid for Axon. We had covered the implications of Axon takeover by Infosys on the 26th of August and had clarly stated at the end that a counter bid is not ruled out.

Our due dilligence indicates that HCL Technologies has $100 mn in cash and maybe upto $500 mn including short term investments. HCL has appointed Merill to help it counter bid and arrange for part financing the deal.

HCL Technologies is not present in the SAP domain and the acqusition will complement its existing vericals and strengthen is base in Europe. HCL already is one of the best local employers in the European union and may not face any hurdles while obtaing the clearance if it wins the bid.

Automobile dealer dispatches were mixed this month with strong dispatches in two wheelers (especially Hero Honda), and relatively weaker trends visible in the passenger car segment.

Impressive growth was driven by Hero Honda dealer dispatches (+27% Y/Y). Bajaj Auto’s domestic sales declined 7% Y/Y, whilst TVS’ domestic sales rose a modest 6% Y/Y. Hero Honda continues to build inventory levels ahead of the festive season. Sequentially, both motorcycle and 2 wheeler sales were up ~6% and 5% respectively.