Sunday, August 1, 2010

NEWS THAT YOU SHOULD KNOW

INDIAN ECONOMY
Trai wont sign on DoTted lines
Telecom regulator Trai has warned the communications ministry against making any modifications to licences of existing mobile phone firms without consulting the authority. The regulator has indicated that it will not concede any space in its turf war with the communications ministry. Trais move to stand firm comes after solicitor general Gopal Subramanium last month endorsed the ministry's demand that it be allowed to break free from the control of the telecom regulator. The solicitor general had said it was not mandatory for the telecom department to seek Trais recommendations when making policy changes or modifying licence conditions for existing players. But, Trai has now also told the government that it should first consult the regulator before taking any decision on the opinion of the solicitor general,indicating that it will fight any attempts by the government to bypass it. The solicitor generals opinion may lead to enormous power with the ministry, which faces charges of corruption and accusations of manipulating licence process. These developments will be keenly watched by other ministries as its outcome will define the scope of regulators in the country.

Uncertainty over life insurers index funds as Irda refuses to relax norms 
Uucertainity hangs over index funds launched by life insurance companies with the regulator refusing to relax prudential norms for these funds. One life company has decided to close down its life fund,two others have abandoned their plans to launch one,while a few are still hopeful of a favourable dispensation from the regulator. The crux of the issue is the investment norms prescribed by IRDA. Any insurance fund cannot have more than 10% equity exposure in a single company stock. However, Reliance Industries (RIL) weightage in Nifty alone is more than 10% which would mean that an index fund would automatically violate investment guidelines. Index Funds, which are launched under the unit linked insurance plan (ULIP) platform by insurance companies, replicate the portfolio of a particular index such as the BSE Sensitive index or S&P NSE 50 index (Nifty). These schemes invest in the securities in the same weightage comprising an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index,though not exactly by the same percentage. Insurance companies and asset management companies have index funds available for investment. Insures were hopeful of a special dispensation from the regulator since the plan was shared with the regulator. However, the regulator has clarified that its accepting an index fund product does not amount to waiver of the investment guidelines. 

World Economy
Crude oil prices may revolve around $76-80
WTI (West Texas Intermediate) oil prices may move largely between $76 and $80 this week. Crude oil fell in the middle of last week after EIA data showed a 7.3 million barrel increase in US crude oil inventories in the week ended 23 July. Later in the week,crude oil rose above $78 as a weakening US dollar helped support prices. Support for oil is coming from seasonally stronger demand for gasoline in the Northern Hemisphere. According to EIA data, gasoline demand averaged 9.8 million barrels per day in the week ended 23 July, the highest weekly figure seen since Aug 2007. Prices are capped by high inventory crude oil levels. While the weather appears less likely to disrupt supply this week, a turn in weather in the Gulf of Mexico could push oil toward $82. 

Gold likely to fall further this week
Gold prices will be vulnerable to further declines,but bargain hunting may increase given recent relatively low prices. Gold fell last week to trade below $1,160, although by weeks end it had recovered. Prices have trended lower after reaching record highs in June. Since late June,support levels have been tested as short term investors took profits and shortselling increased. With the roll of the futures contract in the New York mostly complete toward the end of this week,support for prices may be reduced. Gold could head toward $1,140 if current support at $1,160 is forcefully broken. That said, longer-term investors continue to hold large amounts of gold.

UAE to suspend blackberry service
Blackberry maker Research In Motion (RIM) was hit with its first major ban on Sunday after the United Arab Emirates, citing security risks, said BlackBerry services would be barred in October. The move, which will affect half a million users as well as visitors to the Gulf state, follows a warning from Bahrain in April against using Blackberry Messenger software to distribute local news and security concerns raised by India last week. The UAE, home to Gulf financial hub Dubai, said it would halt Blackberry services on October 11 until an "acceptable solution" is developed and applied. "It's a final decision but we are continuing discussions with them," Mohammed Al Ghanem, director general of the UAE's Telecommunications Regulatory Authority (TRA) told Reuters. "Censorship has got nothing to do with this. What we are talking about is suspension due to the lack of compliance with UAE telecommunications regulations." The UAE objects to BlackBerry data being exported offshore and managed by a "foreign, commercial operation." The regulator said only Blackberry data services operate in that method. The decision will not affect users of rival Nokia and Apple's iPhone smartphones. 

China's growth in manufacturing at 17-month low
China's manufacturing grew at the slowest pace in 17 months in July as the government clamped down on property speculation and investment in energy- intensive and polluting factories. The Purchasing Managers' Index fell to 51.2 from 52.1 in June, the Federation of Logistics and Purchasing said on its website today. That was less than the median forecast of 51.4 in a Bloomberg News survey of 15 economists. A reading above 50 shows an expansion. A deeper Chinese slowdown could weaken a global recovery already constrained by the debt burdens and unemployment of advanced economies. While growth is cooling, China's full-year expansion may be as much as 9.5 per cent, up from 9.1 per cent in 2009, State Council researcher Zhang Liqun said today Corporate News
ESPN STAR to spend 45 cr on CLT20 promotion
ESPN STAR Sports, which will telecast the Champions League Twenty20, will spend more than Rs 45 crore, or four times what it spend during the inaugural season, for promoting the international club tournament being held in South Africa next month, industry officials familiar with the development said. he sports channel hopes to pocket $18-20 million (about Rs 90 crore) from this tournament, said officials requesting anonymity. It is charging between Rs 2.5 lakh to Rs 3.25 lakh per ten seconds of ad time, media-buying executives said. ESPN Star will soon roll out a high decibel campaign, created by McCann Erickson and featuring Amitabh Bachchan as the brand ambassador. The campaign will promote the tournament as Ab Hoga Asli Muqabala. The channel had appointed international brand consultants Saffron to arrive at the positioning strategy for the CLT20. The study shows that the tournament was perceived as quality cricket, said a spokesman of ESPN STAR. But because of the newness of the concept viewers were not as tuned in as one would expect, he added. Crompton makes $400-mn bid for Emerson's transformer business
In what could be its biggest acquisition, power equipment maker Crompton Greaves has offered $400 million (Rs 1,860 crore) for the transformer division of the US-based Emerson Electric Company, three investment bankers familiar with the development told Business Standard. Missouri-based Emerson Electric is a diversified global technology company with a $37.3 billion market capitalisation. Its industrial automation business has a division for power transmission solutions, which it wants to divest. Crompton Greaves is one of the companies that have made a bid for this division. The names of the other bidders could not be ascertained. "Emerson Electric wants to concentrate on control automation, which is the mainstay for industrial automation business," said one of the investment bankers. "The acquisition will help Crompton Greaves strengthen its position in the US market," he said. 



Market
PE firms in exit mode to avoid market blush 
A sustained recovery in the stock market and pervasive belief that the rise in share prices is too good to last are giving private equity and venture capital companies a strong cue to exit investments. The scramble for the door among PE firms has vaulted the valuation of exit deals in the sector to $2.47 billion in 2010, past last years $1.79 billion, says a recent study by Delhi-based research agency Four-S Services. At 59, the number of exits by PE and VC firms so far this year is sniffing at the 63 deals recorded during 2009, says the study. "Many first-generation funds are now looking to sell after the recent rise in equity markets, "said JM Financial executive director Anant Kulkarni. Typically, private equity firms invest in unlisted enterprises and nurture them over three-to-five years until they are ripe for a stock offering, the signal to say bye with a tidy profit. In such deals, promoters buy back the stake held by PE investors. Or, sensing greater potential in the company,peer investors purchase the stake owned by a PE firm. In companies that have gone public, PE investors buy stocks when share prices are trading at a discount and exit when there is a significant rise in the stock price. In market parlance,such transactions are known as private investment in public equity, or PIPE. The two trends are currently playing out. 

Fund houses lose Rs 8,000 cr in equity assets; survival of many in danger
First, there was outrage. Then, there were outflows. A year after the Securities and Exchange Board of India (Sebi) decided to ban entry load, the mutual fund industry's equity assets are down by Rs 8,000 crore (net outflows), according to data from the Association of Mutual Funds in India (Amfi). This, despite the equity diversified funds outperforming the indices significantly. The annualised returns from the Bombay Stock Exchange's benchmark equity index, the Sensex, have been 16.12 per cent. The equity diversified category returned 27.9 per cent. The ban on entry load, according to the regulator, was a necessity to curtail rampant mis-selling. There are cases where distributors sold the same investor new fund offers (NFOs) every three months, thereby pocketing a tidy sum. "Apart from distributors who made super-normal profits, neither the industry nor the investor gained much," said K N Vaidyanathan, executive director, Sebi 
Banking
UBI,PNB raise PLR by 75 to 50 bps
Union Bank of India and Punjab National Bank has raised prime lending rate (PLR) by 75 to 50 basis points however neither of the bank have revised their base rate the new system of pricing loans. According to a statement issued by these banks PNB has raised its PLR to 11.75% from 11% and Union Bank of India has raised its PLR to 12.25% from 11.75%. The revision in lending rates will impact only those borrowers who have availed floating rate loan prior to July 1, 10. Both banks have pegged their base rate at 8%. 

Bank of India net rises 69% to 725 cr
The government-owned Bank of India (BoI) has reported a 69% rise in net profit to 725 crore in the first quarter of June 10 up from 584 crore in comparable period a year ago. The rise in net profit is largely on account of a 33% rise in net interest income which rose to 1,740 crore. A marginal rise in interest expenses also helped banks shore up its net profit. Interest expense was up 0.13% on a year on year basis to 3,018 crore. 

IPO
Emaar MGF to test IPO market a third time
Real estate company Emaar MGF will soon set off an initial public offering ( IPO) process for a third time in as many years,probably at a valuation one-fourths of what it hoped for in 2008. Its preparing a prospectus with plans to sell 10% of the company for 1,500 crore from the 7,000 crore it aimed for in 2008, when the market began to melt forcing it to abandon roadshows. It may seek regulatory approval by the month- end, said two people familiar with the plans. A company spokesman declined comment. The joint venture between the Dubai-based Emaar and auto lender MGF has been at the receiving end of the market for nearly three years, forcing it to trim valuations while rivals such as DLF managed to raise funds at record valuations. The second time, when it planned to raise funds after an 81% rally in stocks in 2009, investors shunned the sector due to what they perceived to be unreasonable valuations, given the supply glut and sharp jump in home prices that may be unsustainable. Real estate has underperformed the broader market, including DLF which is at 301.3,down 43% from an IPO price of 525 apiece in 2007. Oberoi Realty, Lodha Developers and BPTP are among the real estate companies waiting to list. 

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