Countdown to money market purge
Lending leeway for insurers
JK readyto offer stake to foreign firm
Nortel shadow on Infy, Wipro earnings
Mitsui, BHP may teamup to bid for IISCO
Sierra Optima on profit alert
Duty wall to protect small units
McDowell plans brand revamp
Auto dealers run into roadblock
Foreign Exchange, Bullion, Stock Indices

 
 
COUNTDOWN TO MONEY MARKET PURGE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 29: 
A technical group constituted by the Reserve Bank of India (RBI) today suggested ways to turn the money market into a trading hub open only to banks.

The drill should start with booting out companies, who are allowed to lend under the current system, immediately. The facility that allows financial institutions, including mutual funds and insurance companies, to extend loans can be whittled down in three stages. At present, the operations of non-bank entities in the money market are restricted to lending.

The group has recommended caps on lending based on the average daily figure for the current financial year (2000-01). The process, spread over three well-defined phases, is designed to keep all non-bank participants out of the money market so that a risk-free, short-term yield curve can be mapped out.

In the first stage, non-bank entities will be allowed to lend up to 70 per cent of their average daily lending in the call money market during 2000-01 for three months after March 31. In the second, the access should be reduced to 40 per cent.

The final stage should either coincide with the setting up of a clearing corporation, or start three months after the second one is over — whichever is later. This phase, by which time the clearing corporation (for money and securities settlement) is expected to be in place, should be over in three months. Participants other than banks will be permitted to lend no more than 10 per cent of their average daily loans made in the call money market during 2000-01 in this period.

“This is considered necessary to enable non-bank participants to become familiar with the operations of the clearing corporation. After this stage they will not be permitted to lend in call money market at all,” the group says.

It conceded there is a strong need to pack off non-banks from the money market and to nudge them into the repo market, but it feels that firms which route their funds through primary dealers (PDs) should be banished immediately. These companies have the option of placing their funds with PDs through the inter-corporate deposits (ICDs) route.

The technical group was constituted in the mid-term review of monetary and credit policy unveiled in October to recommend ways in which the access of non-bank participants to the money market could be restricted. It had representatives who were drawn from banks and non-bank entities.

Non-bank agencies which hold current and subsidiary general ledger (SGL) accounts with the RBI are allowed to enter into repo and reverse repo deals, but the ease of trading and low transaction costs — arising out of documentation and the same-day settlement — lures them into call/notice money market.

The group said this prevents the emergence of a risk-free, short-term yield curve. Once non-bank bodies have been sent out, the group was of the view that the repo segment would emerge as a vibrant short-term money market for banks and non-banks. The central bank, it points out, has already taken some steps to make the market more active.

Following the amendment to the Securities Contract (Regulations) Act, 1956 in March 2000 delegating regulatory powers to RBI to regulate, inter alia, dealings in government securities and money market instruments, all non-bank entities maintaining current account and SGL account with RBI had been permitted to undertake repo and reverse-repo transactions. In addition, the minimum maturity for repo transactions was reduced to a day, and the facility has now been extended to state government securities.

Currently, banks and primary dealers are allowed to borrow and lend in the money market while non-bank participants can only advance loans.

The group said it was aware of the need for regular borrowers to reduce their call money borrowings following the tighter asset-management guidelines to make the financial system safer.

Borrowers could face certain problems in transition but with sufficient time for a phaseout, they would be able to adjust their portfolios without disrupting the market. Banks with surplus statutory liquidity ratio securities may act as conduits for funds for repo market to call market.

   

 
 
LENDING LEEWAY FOR INSURERS 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, March 29: 
The Reserve Bank of India (RBI) has temporarily opened the call money market and bill-rediscounting scheme to the new-generation private insurance companies.

HDFC Standard Life Insurance Company and Iffco-Tokio General Insurance Company can trade in the call money market (overnight call money and short-notice money taken for period up to 14 days) and a bill-rediscounting scheme.

“Insurance firms sought permission to participate in the money market. We allowed them after they agreed to meet some conditions. Earlier, we had permitted General Insurance Company,” a senior RBI official said from Mumbai.

Call money is the cash lent by commercial banks to discount houses overnight or for a week. Insurance companies collect premiums, but the decision to invest the money is taken at board meetings held every three months. Since there is a time lag, firms want to earn returns on the amounts by parking them in short-term instruments, the RBI official said.

The official said one of the reasons why insurers have been allowed is the under-developed nature of the country’s money market. Once the repo (ready forward) segment matures and evolves, the call money market will be limited to banks. This implies that the permission to allow insurance companies remains, at best, a temporary measure.

The rediscounting scheme was designed to make bill popular as an instrument to make payments, and move towards the financing of receivables from funding inventories. The scheme has, however, not taken off on the scale it was expected to.

Rediscounting means discounting a debt instrument, such as a bill of exchange, for the second time.

Financing post-sale operations against a bill of exchange gives banks an added source of income on instruments that are short term in tenor, self-liquidating in nature and can be rediscounted. In addition, it provides the drawee immediate credit.

“The entry of insurers will boost the bill financing market,” the official said.

   

 
 
JK READYTO OFFER STAKE TO FOREIGN FIRM 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, March 29: 
JK Industries is ready to offer a minority holding to a foreign company but has not set itself a deadline for doing so. All it is willing to say at this stage is that the stake will be transferred through a preferential issue.

The move remains only an idea, but the company has betrays a bias towards the preferential route.

“The preferential route is always open to us,” said A. K. Kinra, finance director of JK Industries. He did not say how much the promoters hold in the existing equity structure of the company. Nor did he disclose the size of the stake to be given to the foreign company.

“At present, there is no specific proposal that we have in our hand to discuss the matter. We are not clear about the manner or the magnitude of the stake which could be provided to the foreign firm,” Kinra said. Asked if the company is thinking about initiating such a proposal, he said since it still remains an idea, it would be premature to give away details.

German Grant Continental, a company which has a technical collaboration with JK Tyre, is believed to be in the reckoning, but Kinra was not willing to confirm it.

“All we are saying is that we are willing to provide a minority holding to a foreign player,” he said. He made it clear that the stake would not be ‘offloaded’, leaving behind the implication that the shares would be ‘sold’ through a preferential issue.

JK Tyre has increased the capacity of its Banmore plant in Madhya Pradesh, which makes radials, from 8.76 lakh tyres per annum to 12.75 lakh. The company hopes higher levels of production will lead to greater exports — which were valued at Rs 202 crore last year — and meet the demand from the domestic market. The company’s plant at Kankroli in Rajasthan manufactures traditional (non-radial) tyres.

JK Industries, which acquired Vikrant Tyres four years ago, completely synergised the sales and marketing operations of the two companies last year. Its net profit (profit after tax ) last year was Rs 53.43 crore, which included an amount of Rs 17.68 crore carried over as surplus from the previous year. Income from sales and other income stood at Rs 1346.26 crore.

   

 
 
NORTEL SHADOW ON INFY, WIPRO EARNINGS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 29: 
The profit warning flashed recently by Canadian giant Nortel Networks, has triggered fresh concerns that the earnings of India’s top two IT majors, Azim Premji’s Wipro Ltd and N. R. Narayana Murthy’s Infosys Technologies, may be hit.

What has set the alarm bells ringing is that Nortel figures among the list of top clients of both these software services companies.

In fact, the scare is more pronounced in the case of Wipro, as Nortel was its largest customer for the third quarter just gone by. Nortel, together with General Electric and Lucent, are said to account for over 17 per cent of Wipro’s third quarter sales. In the case of Infosys, it is learnt that the Canadian company accounts for around 4 per cent of its revenues.

Though there is no immediate cause for alarm, sources aver that revenues of both these companies may take a hit if Nortel were to reduce its spending or seek lower billing rates following the warning. “I think that Infosys and Wipro will now face the prospects of either a flat revenue growth or a negative growth from this client,” an analyst observed.

According to Credit Lyonnais, which has reiterated its ‘sell’ recommendation on Wipro, citing high valuations relative to the software sector and large exposure to the telecom and technology sectors, the company’s sales growth will be at risk due to severe business pressures on its clients, despite impressive client relationships. Credit Lyonnais added the Azim Premji-owned company’s incremental growth from outsourcing will take a beating as technology vendors defer entry into new markets and postpone launching new products due to the US economic slowdown.

However, others feel that Nortel’s warning is unlikely to affect the trailblazing growth rates set by both these companies.

The fall-out of Nortel’s profit warning had its impact on the share prices of both Infosys and Wipro, which met with huge selling pressure on the bourses today. Infosys tumbled by over 6.45 per cent or Rs 304.40 to finish at Rs 4411.20, while Wipro dropped by over 5 per cent to Rs 1416.50 over their respective previous closes.

Wipro, which posted a turnover of Rs 215 crore for the nine-month period, saw well over 58 per cent of its revenue coming from global IT sourcing.

   

 
 
MITSUI, BHP MAY TEAMUP TO BID FOR IISCO 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, March 29: 
Australian mining major, Broken Hill Proprietary (BHP) and Japanese trading giant Mitsui, today began a joint due diligence exercise on Indian Iron and Steel Company Ltd (IISCO).

Though neither side has said so, the very fact that the two have teamed up to conduct a due diligence exercise together, has sparked off speculation in steel circles that the two giants might join hands in bidding for IISCO.

The two companies are pitted against Russian engineering giant Tyazpromexport, which completed its due diligence exercise last week.

The BHP team visiting Burnpur, IISCO’s headquarters, comprises Gary Fietz, Tom Peterson, Joe Knight and Kamalendra Jha, while Mitsui has sent N. Nokasa and U. S. Tilve. They are expected to visit IISCO’s huge mining reserves at Guna and Chiria.

Unfortunately for the 125 year-old steel maker, buyers seem more interested in its mines, reportedly worth more than Rs 8,000 crore, than in the 75 year-old steel mill or in its workforce, rated as one of the most efficient in the Indian steel industry. IISCO owns an integrated steel plant at Burnpur, foundries at Kulti (both in West Bengal), and iron ore mines and coking coal mines in Jharkhand.

Analysts doubt whether either of the three firms currently doing a due diligence will be willing to pay a full asset value price plus a premium for controlling rights in the steel maker. If they don’t, it could spark off yet another controversy which the central government may not wish to take on. Its present owner, public sector steel behemoth Steel Authority of India Ltd , wants to sell off IISCO and use the cash to liquidate part of its huge debt overhang.

This is not the government’s first attempt to sell IISCO. In 1992, it had almost awarded control of IISCO to the Viren Shah-controlled Mukand Iron. But allegations of a scam from BJP party MPs ended that bid.

IISCO ended the year 1999-2000 with a net loss of Rs 210.37 crore on a turnover of Rs 918.06 crore.

   

 
 
SIERRA OPTIMA ON PROFIT ALERT 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, March 29: 
Sierra Optima, a Hyderabad-based software services company, today flashed a profit warning, the fifth firm to do so this year, saying revenues and profits will be under pressure because of the slowdown in the US economy.

In a communication sent to stock exchanges today, Sierra said its finances will be crimped in the current and next quarter due to the recently implemented wage-revision package and a slowdown in the US economy. At present, 85 percent of its business comes from Sierra Atlantic Inc., a US-based major which also holds a equity stake in the company.

   

 
 
DUTY WALL TO PROTECT SMALL UNITS 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, March 29: 
Under pressure from Swadeshi lobbyists within the Bharatiya Janata Party-led alliance, the government will build a duty shield for small industry even as it opens up goods being produced by them to imports in the forthcoming Exim policy.

The government will also be freeing about 24 canalised items from import restrictions, excluding the two precious metals — gold and silver.

This implies petroleum products and urea will be decanalised. However, export canalisation of products like iron ore will remain.

The import of canalised items are being freed as the government sees no justification for continuing them as trade preserve of a few state-controlled monopolies.

However, canalisation control will remain on import of bullion as the government feels unbridled trade in these two precious metals could adversely affect the country’s balance of payments position.

Export canalisation will also continue, mainly, to give Minerals and Metals Trading Corporation (MMTC) time to adjust to market realities and to fetch a better price for the state-owned trading company once it is sold off in the market.

Officials said, the commerce ministry as well as other economic ministers had received representations from a large number of “Swadeshi minded political leaders” and domestic small business associations seeking such a shield.

Besides BJP members of Parliament, leaders of ally parties such as Samata, Shiv Sena and Akalis have made strong pleas to protect small businesses.

Officials said, not only has the Prime Minister’s Office (PMO) repeatedly stressed the need to take these political inputs into account but the home minister’s office also has stressed the need for a Swadeshi shield for these producers.

In order to allay apprehensions of cheap imports swamping small scale manufacturers, officials have recommended imposing duty which is either at the bound rate proposed by the World Trade Organization (WTO) or near it for the consumer items being freed from import restrictions.

More than 700 products, some of them consumer goods currently being produced only by the small scale sector under a reservation policy, will be opened up to imports after March 31 this year.

A committee headed by Prabir Sengupta has consequently sent their list of recommendations to the finance ministry on duty shields which could give small business time to turn more cost-efficient and face competition.

The Sengupta Committee’s task has been made easier as many of the items being freed are not covered by any mandatory ceiling and duties of even double or triple the value of the good can be imposed.

The duty shield is being seen as a temporary cover as ultimately the government plans to end the policy of reserving production of particular goods for the small scale sector only.

The long term plan is to allow large scale industries to enter any small scale industry sector if they export up to 30 per cent of their production in three years.

   

 
 
MCDOWELL PLANS BRAND REVAMP 
 
 
BY A STAFF REPORTER
 
Calcutta, March 29: 
McDowell & Co, the spirits division of the UB Group, which achieved a 25 per cent market share in the current financial year, plans to increase it by another 3 per cent in 2001-02, by introducing new brands and repositioning existing ones.

“We will launch a new brand in the regular whisky segment where the company currently has a 20 per cent market share,” Ashwin Malik, executive vice-president of the company said.

The company has two brands in this segment — Diplomat and Gold Riband.

Bagpiper whisky is the market leader in the segment.

“We may launch another brand. However, we have yet to decide the spirit category in which it will be launched,” he said.

The company has also decided to increase adspend, including event sponsorship, from Rs 35 crore to Rs 45 crore in the next financial year. Out of the Rs 45 crore, about Rs 5 crore has been set aside for launching the new brand.

The company also plans to reposition its Blue Riband gin, which currently enjoys a 60 per cent market share. “Only 2 per cent of the spirit drinkers consume gin. It is perceived as an effeminate drink. But we would like to reposition gin as a more stronger drink,” Malik said. A new campaign for the product is on the anvil.

The company’s No1 McDowells Celebration Rum has been received well in the eastern market, particularly in Calcutta.

The company has sold 2.3 million cases of Celebration Rum in 2000-01, of which, about one million cases have been sold in the eastern market.

The brand was first launched in Calcutta in 1990 and achieved 1 million case sales by 1996-97. It enjoys an 80 per cent market share in the city. The company has an overall 66 per cent market share in this spirit segment.

Its McDowell No1 brandy, sold mostly in south India, sold 2.3 million cases in the current financial year.

Similarly, the company’s premium brand, Signature Whisky, has shown a quantum growth. From 20,000 cases two years back, sales are expected to touch 1,10 lakh cases by the end of the current fiscal, he said.

The company’s sales across all categories of spirits stood at 7 million cases in 2000-01.

   

 
 
AUTO DEALERS RUN INTO ROADBLOCK 
 
 
BY A STAFF REPORTER
 
Calcutta, March 29: 
The car dealership business is going through a rough patch. As existing dealers struggle to retain their traditional business amid shrinking margins, new entrants are simply unable to get adequate returns on their investment.

About 20 city-based members of the Federation of Automobile Dealers Association (FADA), narrated their experience of running their car dealership business in the current scenario, at a press conference here on Wednesday.

A simmering dispute is on between automobile manufacturers and dealers on payment of margins and compensation for the vehicle stock held by the latter before the Union budget.

The automobile dealers, especially those dealing in two wheelers, have lost several crores of rupees on account of excise duty changes announced in the budget. The car and two-wheeler manufacturers have so far refused to compensate the dealers, members of the Federation of Automobile Dealers Association, said here on Wednesday.

Intense negotiations are on between the manufacturers and dealers for compensating the stock of depreciated vehicles following the reduction of special excise duties. But, as Vinay Nevatia, a past president of FADA said, the manufacturers have so far refused to budge.

According to one estimate, the dealers of two-wheelers have lost over Rs 30 crore as there was no indication of the reduction in excise duty on the products. Unlike car manufacturers, who were expecting a lowering of the duty in the budget, two-wheeler manufacturers made no prior commitments for reimbursement in case of reduction in the excise duty.

Some car manufacturers also were yet to settle the differences, Nevatia noted. Added to the dealers’ woes are margins as low as 2-2.5 per cent, as against international levels of 6-7 per cent.

City-based members of FADA, blamed the domestic manufacturers for keeping the rates low, which has led to international players operating in India maintaining the low commissions.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs.46.63	HK $1	Rs.  5.90*
UK £1	Rs.67.21	SW Fr1	Rs. 26.65*
Euro	Rs.41.35	Sing $1	Rs. 25.60*
Yen 100	Rs.37.86	Aus $1	Rs. 22.65*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs.4330		Gold Std(10 gm)	Rs.4260
Gold 22 carat	Rs.4090		Gold 22 carat	Rs.3940
Silver bar (Kg)	Rs.7400		Silver (Kg)	Rs.7335
Silver portion	Rs.7500		Silver portion	Rs.7340

Stock Indices

Sensex		3751.56		-36.65
BSE-100		1766.30		-25.58
S&P CNX Nifty	1195.10		-11.10
Calcutta	 124.12		- 0.73
Skindia GDR	 639.86		+ 4.41
   
 

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