Shaken and stirred, markets await new dawn
Rupee skates on thin ice
Raisina Hill on a war footing
Stake respite for private banks
Maruti to launch Versa by year-end
Nitish rules out moves to privatise railways

 
 
SHAKEN AND STIRRED, MARKETS AWAIT NEW DAWN 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Sept. 16: 

Taut nerves on Dalal Street

The million dollar question a day before stock markets at home start the new week — where are we headed?

A simple query with no clear answers, as India waits with bated breath for Wall Street and Nasdaq to return after a traumatic six-day shutdown caused by the terror strikes on the heart of America’s economic fraternity.

Stock markets at home, having been mauled last week, saw shareholder wealth on the Bombay Stock Exchange (BSE) plummet from Rs 5,12,850 crore to Rs 4,61,500 crore.

The fall in share values was seen across the board. The fear rankling pundits and plebians alike is whether the plunge over the next five days will be as steep, or worse.

“The markets will continue to drift till the Americans reveal their strategy on how they intend to retaliate,” a dealer said.

Bourses here will have wrapped up trading on Monday by the time screens on Wall Street and Nasdaq come alive again, but the mere fact that they are resuming business will influence the way investors in India behave.

For now, the outlook is grim. Foreign institutional investors (FIIs) — who kept pouring in money even while others scampered out — are dumping key shares.

They have little choice, say analysts, if they are swamped by redemption requests from clients back home. To the extent that happens, the fear is that FIIs will scoot.

Among local institutions, UTI, LIC and other insurance firms are hesitating from staking big bets at this juncture. There are several reasons for it. While the scam-scarred mutual fund major is strapped for cash, especially for investments in equity, the insurance monolith is not sure about the depth — or the shallowness — of the stock markets.

The Prime Minister and finance minister have hinted at harsh policy decisions, leaving investors and companies to digest what exactly that would mean.

Jignesh Shah, a strategist at Ask RJ Investment Advisory Services, said 2740 will be an important psychological threshold. This was the point from which the BSE sensex took off to scale new highs in October 1998. “If the index slips below that, the markets will move sideways for the next two years,” he said.

While the optimists see the steep fall on Friday as a one-off occurrence, Shah perceived it differently. He points out that the 157-point plunge on Dalal Street was spontaneous and the trends in volumes were worrying.

“What the US does in the next two days would be keenly watched. On the other hand, when the NYSE and Nasdaq open on Monday, Indian stock markets would have already closed.

“As a result, Monday may be a roller-coaster ride in the markets,” dealers said, adding the real effect would be gauged on Tuesday.

   

 
 
RUPEE SKATES ON THIN ICE 
 
 
FROM VIVEK NAIR
 
Mumbai, Sept. 16: 
In an attempt to shore up the battered rupee, the Reserve Bank of India (RBI) is expected to announce measures which could target exporters and importers if its threat to intervene, directly or indirectly, does not lead to the right results.

The central bank, sources say, is likely to take steps that push exporters to bring in their dollars stacked overseas faster than they would have normally done. Alternatively, it could do things to regulate demand for dollars from importers if the rupee continues on its crash course in the days ahead.

However, analysts say the RBI can do things it has done before to stop the rupee from being clobbered further. One is to slap a 25 per cent interest surcharge on overdue export bills and the other is to impose an interest rate surcharge of 50 per cent on import finance to throttle demand for dollars. It can also withdraw credit facilities against the export earners’ foreign currency accounts.

Though the RBI said on Saturday it would be prepared to sell foreign exchange directly or indirectly to meet any unusual supply-demand gap, a section of the forex market is sceptical about its effectiveness. “The forex markets are still jittery. At the most, the Reserve Bank statement could result in speculators unloading their positions early next week. But any gain for the rupee will be temporary,” said N. Subramanian, senior forex analyst with e-Mecklai.

Dealers say the forex markets may still be caught in the familiar predicament —how to minimise the impact of mounting demand from importers and the tendency of exporters to hold dollars abroad.

“The rupee will hover around 47.70-75 in the immediate term. It may even depreciate below 48, which could prompt rescue efforts,” said another dealer.

   

 
 
RAISINA HILL ON A WAR FOOTING 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Sept. 16: 
Forget the public posturing, the finance ministry is alarmed at the possibility of a war-like scenario in the country’s neighbourhood impacting the economy.

The department of economic affairs is worried that oil prices — already hovering round $ 30 per barrel — will boil over even as India’s exports contract. Besides its own internal analysis of the situation, it has also received a worrying report on the likely scenario from the government’s think tank — the Institute of Economic Growth (IEG).

The IEG has, in fact, revised its export growth forecast for the quarter from an already low of 4.7 per cent to just 2.7 per cent. The department of economic affairs strongly believes that oil prices are likely to soar despite the petroleum ministry’s assertions to the contrary.

All this is expected to severely hit the country’s trade balance and forex reserves and lead to a further depreciation of the rupee. The Reserve Bank has already been sounded on the possibility of intervening in the forex market, but officials feel that with world currencies falling, the intervention’s impact may well be limited.

The only silver lining, feels B.B. Bhattacharya of the IEG, is that “recessionary trends in the US economy as well as a decline in the dollar’s strength against the euro and yen might actually protect the rupee from too sharp a fall.”

FII investment is also expected to constrict keeping the sensex weak. Foreign institutional investment, which had touched $ 265 million in May this year, is likely to turn negative over the next quarter.

The industrial growth rate is also expected to remain sluggish, hovering around 2 to 3.5 per cent in the next three months.

However, software exports are expected to get a boost from the conflict as well as from New York-based companies who are now rebuilding systems and databases after facing the brunt of last week’s terrorist attacks.

Inflation is also expected to rear its head and inch towards the 6 per cent mark. IEG feels the main reason for the cost of living going up will be the higher price of oil, power, fruits and vegetables.

   

 
 
STAKE RESPITE FOR PRIVATE BANKS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Sept. 16: 
The Reserve Bank of India (RBI) is likely to give private banks some leeway in ensuring that their parent’s stake is reduced to 40 per cent. The relaxation is expected because poor conditions in the capital markets appear to have hampered plans of some of these banks to sell their holding.

Providing indications to this effect, senior RBI officials said the apex bank was examining the plans of all private banks on a case to case basis. They confirmed no new deadline has been set for private banks to scale down their parent’s stake to 40 per cent, but said there was an understanding of the problems in complying with the norm because of the slump on bourses. Earlier, private banks were asked to dilute the stake by March 31, 2001.

However, even after this, three leading banks, including UTI Bank, ICICI Bank and IDBI Bank, are yet to get their parents reduce their stake to 40 per cent.

Among the three, while the Industrial Development Bank of India holds around 58 per cent in its banking subsidiary (IDBI Bank), the holding of Unit Trust of India (UTI) in UTI Bank stands at around 61 per cent. ICICI, on the other hand, controls 46 per cent of ICICI Bank’s equity .

So far, ICICI Bank has been the only one among the three banks to have seen its promoters reduce their holding to comply with the RBI guidelines — even though it has not touched the 40 per cent mark. The parent had offloaded its stake to foreign institutional investors (FIIs) in separate deals recently.

Recently, a senior official of ICICI had indicated that the institution was in no hurry to divest the remaining stake. He had, however, said it was open to further divestitures if the RBI wants it. This statement assumed significance against the backdrop of the FI’s plan to convert itself into a universal bank.

Sources believe that the poor market conditions is one of the factors which is prompting institutions to seek more time in divesting their stakes in banks. “The institutions feel that they will not be able to obtain a good premium on their stake if they divest in the present circumstances’’, said a market analyst.

However, a senior official of UTI Bank told The Telegraph that despite the poor market conditions, the bank was going ahead with its plans to bring down the promoters holding. He divulged that while it was engaged in discussions with around three potential strategic partners, a decision is likely in two to three weeks.

   

 
 
MARUTI TO LAUNCH VERSA BY YEAR-END 
 
 
FROM SHASHWATI GHOSH
 
New Delhi, Sept. 16: 
Maruti Udyog Limited’s multi-purpose vehicle, due to be launched by the end of this year, has been christened Versa.

To be priced at Rs 6.5-7 lakh, the multi-purpose vehicle will be positioned in the C segment.

Versa will compete with sedans like Ford’s Ikon and Hyundai’s Accent in India. Internationally, the model falls in the segment of Daimler Chrysler’s Voyager and Honda’s Odyssey.

Sources said that over a period of time this model will create a new segment in the domestic market.

Keeping this in mind, MUL chose this model from a range of Suzuki’s international offerings. The eight-seater Versa will have sliding doors and a 1300 MPFI engine. Maruti at present commands a 23 per cent market share in the C segment.

Following the launch of Versa, Maruti Udyog will unveil the compatible mechanical and electrical accessories for this multi-purpose vehicle.

It will give a boost to the non-manufacturing business of the company which is expected to touch Rs 30 crore this fiscal.

A few months ago Maruti launched Alto VXI, a variant of Alto, priced at Rs 3.77 lakh in an attempt to consolidate its presence in the mid-segment car market, where they have a 44 per cent market share.

Maruti has a 20 per cent market share in the B-segment through a number of models, including Zen and Alto.

It hopes to grab 50 per cent market share by the year-end through the launch of new variants.

   

 
 
NITISH RULES OUT MOVES TO PRIVATISE RAILWAYS 
 
 
FROM M RAJENDRAN
 
Vadodara, Sept. 16: 
Responding to a barrage of criticism from employee unions, railway minister Nitish Kumar said there was no move to privatise an organisation that is the largest public-sector employer.

He allayed fears that privatisation would follow corporatisation in a sector that the Centre considers “strategic”.

“This government, or for that matter any government, can not allow railways to go out of its hand. But at the same time, we have to ensure that it does not become sick,” he told a workshop discussing the Rakesh Mohan Committee report on restructuring the railways.

Unions ripped apart the report, asking the government to re-examine its recommendations even before it is discussed at the sub -committee level.

Emotional speeches by trade union leaders marked the second day of the workshop.

The unions said railways as an organisation is ready for an introspection but no restructuring should be undertaken before that is completed.

While opposing corporatisation and divestment or sale of any form of its production units, the trade union leaders highlighted the benefits of these organisations in the portfolio of railways.

Refuting suggestions in the report that political interference can be minimised if the railways are corporatised, union leaders alleged that the move would backfire and the minister would be less accountable to Parliament.

   
 

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