Category: Economy, Markets and Macro Views

Investors have so far focused on risk to pricing, but a reset of volumes could surprise on the downside. Morgan Stanley says cases of banks resetting overall portfolio spending on offshore vendors, leading to significant cuts in offshore spending. Resetting business volumes with existing clients is the biggest concern for IT vendors. Lower budgets and rationalization of portfolios is on the cards of major FIs.

Although companies have been able to maintain pricing for contracts so far, rates could come under severe pressure if overall volumes were to contract. (more…)

The spectacular rise in capital flows from FY05 (fiscal year ending March 2005) had significantly reinforced India’s growth and asset price cycles. The termination of this episode of strong capital flows, a fall-out of the current global credit crisis, is unleashing a significantly more challenging macro environment characterised by lower growth, structural fiscal deterioration and constrained liquidity.

India’s medium term potential growth rate should shift to a lower trajectory of 6.5% from the lofty 9% averaged during FY05-09. (more…)

Sterlite announced that it has signed a revised agreement to acquire the operating assets of Asarco for US$1.7bn in cash, with US$1.1bn payable on conclusion of the transaction which the company expects in the next 4-5 months, and the balance US$600mn payable in installments over nine years. Sterlite had net cash of only Rs 44 bn (US$900 mn) at the standalone level at 3Q09 end.

The assets include three open-pit copper mines, a copper smelter and down stream units. In 2008, Asarco sold 237kt of refined copper and reported revenue of US$1.9 bn, and PBT of US$393mn. (more…)

The Indian Income Tax Authorities have simultaneously raided the offices of Jai Corp Ltd and its Chairman – Anand Jain’s residence as well. Various press reports indicate that the raid was conducted due to Large amounts of Land Dealings which are shady [Ofcourse Real Estate in India is nothing but a parallel black money economy] (more…)

RBI has reduced the Repo and Reverse repo rate under LAF window by 50 bps each to 5.0% and 3.5%, respectively with immediate effect.

The cut in policy rates by 50 bps each is likely to signal the banks to reduce their lending rates. The reverse repo rate 3.5% would make it less attractive for banks to park money with the RBI.

Now question arises – Can we expect rates to come down dramatically?
(more…)

Strong farming income, especially in northern India, and the ongoing wedding season boosted “two-wheeler” (motorcycles, scooters) sales. Hero Honda was the key beneficiary – sales volumes in February were up 24% y-o-y. We expect sales to be aided by elections, which will be held during April-May. However, the outlook remains bleak on exports; Bajaj Auto saw its exports decline 20% y-o-y.

Car makers also benefited from implementation of the Sixth Pay Commission recommendations in October 2008. Maruti Suzuki was the key gainer; the central government employees’ contribution doubled to 15% of its sales in January 2009. (more…)