Markets shudder as US guns boom
India Inc’s furrow lines deepen
Govt reviews contingency measures
Local shippers chart course to stay afloat
Haldia Petro solution possible: IDBI
Fat payouts under new VRS proposed
IFCI in search of foreign ally
Steel minister sounds Sinha to save IISCO
Cellular phone makers rush to grab orders
Foreign Exchange, Bullion, Stock Indices

 
 
MARKETS SHUDDER AS US GUNS BOOM 
 
 
OUR BUREAUX
 
Oct. 8: 

Gold zooms, rupee & sensex claw back

The markets recoiled in fear and uncertainty the night after the US-led forces rained missiles on targets in Afghanistan, but the jangled nerves were calmed by reassurances from the finance minister and soothing reports that crude prices were in check.

The Bombay Stock Exchange (BSE) sensex had shed 90 points at one point in the day’s trading, but closed with a 47-point loss as the inevitability of the retaliation sank in.

The rupee, however, was buffeted by the wave of revenge strikes, ending at a record low of 48.13 against the dollar. Gold added more sheen, zooming to a 55-month high in Delhi.

Asian markets wrapped up the day with mild losses. US bourses were also down in early trading. The Dow Jones was off 0.41 per cent at 9082.54 while the Nasdaq Composite index stood 0.16 per cent lower at 1602.67 points (9.50 pm IST).

Back home, the Reserve Bank (RBI) talked up the rupee when it was pounded to the day’s low of 48.24, helping it claw back to 48.13 at the close.

Governor Bimal Jalan said in Delhi that the central bank had a close eye on the situation and would do everything to “remove temporary demand-supply imbalances”. He said forex reserves of $ 45 billion would be used to ensure orderly conditions in the inter-bank forex market.

Jalan’s fear-busting remarks lent much-needed comfort to a market haunted by fear of how the war would affect the country’s already floundering economy. Companies, many of which rely heavily on imports to keep their businesses going, found solace in the statements and decided to stop chasing greenbacks.

Analysts say the rupee is likely to hover around 48.15/48.20 over the next few days as the developments in Afghanistan and West Asia keep importers on tenterhooks.

A treasury chief with a private sector bank said the relative stability in global crude prices — which remained within the Opec-set limit of $ 22 on Monday — would help cushion the rupee’s depreciation.

In the money market, prices of key government securities, though clobbered in the early hours, shot up after a statement from Jalan that the central bank would maintain its low-interest rate bias for the moment.

Bids for the benchmark 10-year 11.50 per cent security were received at a price of Rs 114.50 against Rs 115.55 on Friday; it scaled an intra-day high of Rs 115.30, before surrendering some of its gains to end at Rs 115.15.

On Dalal Street, the 30-share index dipped to the day’s low of 2,718.41 but rallied after finance minister Yashwant Sinha said the retaliatory attacks would not hurt India.

The sensex had plunged to a low of 2,718.41, but recovered on buying support and closed at 2,765.37 against Friday’s close of 2,812.90, a net loss of 47.53 points.

The CMC share rocketed the maximum permissible 20 per cent, remaining locked in the upper-end circuit filter for much of the day. The mood was perked up by the government’s sale of its stake in the company. The Tatas, who have picked up the holding, are expected to give investors a better deal when they announce an open offer.

Zee Telefilms was hammered 10 per cent on mounting concerns that its earnings would take a knock.

Bullion firmed up shot today following a rise in precious metal prices overseas in the aftermath of the strikes against Afghanistan.

In Mumbai, standard gold (per 10 gms) opened higher at Rs 4850 and closed at much the same level in an increase of Rs 50 over its previous close of Rs 4,800. Prices of the metal have, therefore, risen by around Rs 275 after the September 11 terrorist attacks on US landmarks.

   

 
 
INDIA INC’S FURROW LINES DEEPEN 
 
 
OUR BUREAU
 
New Delhi, Oct. 8: 
As America’s Top Guns take to the skies, the Big Guns of Corporate India are hunkering down to assess the collateral damage on their business fiefdoms.

No one’s hitting the panic button as yet, but the consensus is that the already-roiled India Inc will face hard times if the war in Afghanistan goes on for more than two weeks.

While the chambers of commerce are pretty confident that the economy will be resilient enough to withstand the tremors in the war-torn region, individual companies are getting ready to tighten their belts by a couple of notches.

“If the war remains limited and does not spread to the oil-rich areas of the Middle East, there will be no significant increase in domestic inflation and the GDP growth rate would hover around the 5 per cent mark. Therefore, there is no need to panic”, says Ficci chairman Chirayu R. Amin.

CII president Sanjiv Goenka’s response is more measured: “Some sectors like travel, tourism and hospitality are going to be affected badly. The immediate cause of concern for the industry will be a hike in insurance premia, increase in the import bill, and export competitiveness due to a hike in the cargo bills.”

He adds, “The Indian economy needs to emerge stronger in this situation. With the right reinforcement from the government that should not be a problem. The government’s insurance coverage should be extended to the private airlines also.”

Sources in the chambers said the US air strikes in Afghanistan had been expected. Most reckoned that Indian businesses had already factored it into their projections and future strategies.

The furrow lines are the deepest in the travel and tourism businesses. Anil Bhandari, managing director of International Travel House Ltd, says the war scenario spells big trouble. The World Tourism Organisation has already predicted a negative growth of 30 per cent.

Even before the war broke out, 50 per cent of bookings in the in-bound leisure travel segment for the September-March peak season were cancelled. “This can go up to 70 per cent if the war continues,” he said. The out-bound leisure business is about 50 per cent of last year’s levels, an indication that the Fat Cats are deferring holidays.

Carmakers are also bracing for another dip in the already-limp demand. “Demand is a function of income, but also of the market sentiment. War will most definitely stop big purchases. It will become more difficult for the already demand starved economy. Some measures will definitely be taken if the war prolongs. But it is still too early to discuss any concrete plans,” said, P Balendran, vice president of General Motors.

Perversely, the television makers are expecting a surge in demand as more people will want to catch all the action on TV. “We are still confident that the festival season along with live-war telecast will drive up sales,” said Rajeev Karwal, president of the Consumer Electronics Manufacturers Association (Cetma) and senior vice-president of Philips. Says Kwang-Ro Kim, managing director LG Electronics India Ltd (LGEIL), “We have piled up inventory due to low demand. There will not be any cut in investment plans but probably we will have to cut down production if demand worsens. But even after the outbreak of war, I am hoping for a sales increase in the Diwali season.”

PNB Gilts managing director Arun Kaul reckons that interest spreads may tighten at a time when the world economy is under considerable pressure.

Advertising agencies are nervous too. Says Shovon Chowdhury of Bates, “Indian subsidiaries may be asked to retrench as part of global downsizing even as pressure increases to raise revenues. Agencies that handle insurance, airlines, hotel and tourism are likely to be the most affected.”

   

 
 
GOVT REVIEWS CONTINGENCY MEASURES 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Oct. 8: 
A series of high-level meetings were held today to review contingency plans on currency, trade and oil reserves, even as the government asserted that the US-led attacks against Afghanistan will have no impact on the Indian economy.

Finance minister Yashwant Sinha and Reserve Bank governor Bimal Jalan reviewed the state of the economy, interest rates and fluctuations in the currency market.

Later speaking to reporters, Jalan said the bias towards softer interest rates would continue, a statement which is being taken as a signal of further reduction in lending rates in the forthcoming credit policy. Sinha, on his part, tried to allay fears of the war impacting the Indian economy

The meeting decided that the Indian currency would be allowed to find its own base level and intervention would be limited to check any sharp fall. This implies that the government will only intervene if the rupee falls too sharply. Jalan indicated as much: “The RBI is there to meet temporary demand and supply imbalance. We will meet it.”

An internal study by the finance ministry indicates that the rupee-dollar rate is likely to fall to as low as Rs 52 a dollar by March next year if the war prolongs. The exchange rate is expected to be Rs 48 plus a dollar during the next quarter in any case, officials said.

Ministry and RBI officials agreed that foreign institutional investors (FIIs) are likely to take out their money in the wake of the war which would hit the bourses hard. But as this would be almost a global phenomenon, there was little the country could do to avert it.

The inflow of foreign exchange from Indian workers in West Asia was also likely to be affected in case the war dragged on or became more widespread. With oil prices expected to rise to over $ 30 a barrel, ministry officials said they expected forex reserves to come down to slightly below $ 44.5 billion.

The general feeling at a meeting of the commerce ministry to assess the impact on trade was that India’s basket of exports, which mainly consists of consumer goods, was likely to be hit hard by the war. US consumption expenditure growth is forecast to fall to just over 2.5 per cent compared with 5.3 per cent a year back. The overall growth in industrialised countries is expected to be between 1-1.5 per cent only.

It was also felt that while a fall in rupee value vis-à-vis the dollar could help exports, this was “unlikely to be much.” To counter this, it was decided that the government should try to step up exports to south-east Asia. Meetings have been held with chambers of commerce and the foreign ministry on this, commerce ministry officials said.

A high-level inter-ministry meet today also reviewed the country’s oil stocks and decided that the two months’ stocks currently with India’s refineries and oil companies was sufficient if the conflict did not spread beyond Afghanistan.

However, if the war spreads to Iraq, officials felt there could be severe disruption in oil supplies and in such case this stock may not be adequate. Efforts are consequently likely to be taken up to augment oil stocks.

   

 
 
LOCAL SHIPPERS CHART COURSE TO STAY AFLOAT 
 
 
FROM SATISH JOHN
 
Mumbai, Oct. 8: 
Shocked by the decision of insurance majors to raise the war risk hull insurance rates steeply, local shipping companies—which are badly hit by the terrorist attack on the US and the subsequent uncertainty—have decided to approach the government for a rollback.

Insurance majors, led by General Insurance Corporation, have recently notified the local shippers that war risk hull insurance rates would go up by almost two-to-three times from October 20.

The DG shipping, who is based in Mumbai, has called an emergency meeting tomorrow to discuss the matter.

The Indian National Ship Owners Association (INSA) is also expected to make a representation before the government to force the insurers to roll back the rates as they feel it is too steep and unjustifiable.

The increase would mean an additional burden of $ 100-150 per container for any ship traversing the Suez canal. As it is, the shipping companies are charged $ 60,000-70,000 every time their ship uses the Suez canal.

Local shipping companies said if the charges are given effect, they will have no option but to pass it on to their customers (exporters). It is said that almost 80 per cent of sea traffic in the world cross the Suez canal. Indian exports to US and Europe also go through this route.

Top sources in the shipping industry argue that Indian shipping companies are hampered by the government regulation which compels them to use only Indian insurers. This is in view of the fact that rates charged by Indian insurers are already four to five times higher than that of foreign insurers. “The rate for basic war insurance charged by foreign insurers for hull and machinery is in the region of 0.0175 per cent, while Indian insurers charged 0.08 per cent. Thus Indian rates are four to five times greater than the competitive rates offered by overseas insurers.

On September 27, international insurers levied an additional war risk insurance premium of 0.01 to 0.05 per cent depending on the extent of hostilities. For instance, for ships sailing in the Red Sea the premium charged will be 0.01 per cent while for ships traversing the seas across Iraq will pay 0.05 per cent. Thus the average premium will be around 0.02 per cent to 0.025 per cent.

In comparison, the Indian insurers slapped a 0.05 per cent irrespective of the location which is two to three times higher.

   

 
 
HALDIA PETRO SOLUTION POSSIBLE: IDBI 
 
 
BY A STAFF REPORTER
 
Calcutta, Oct. 8: 
Industrial Development Bank of India (IDBI) chairman P.P. Vora today held talks with chief minister Buddhadeb Bhattacharjee, finance minister Asim Dasgupta and industry minister Nirupam Sen at Writers’ Buildings on the debt-recast plan of Haldia Petrochemicals (HPL).

“It was intended to be a courtesy call, but we ended up discussing Haldia at length,” Vora said after emerging from the meeting. He refused to disclose the issues that figured during his interface with the state government top-brass, but held out hope that problems in the project could be solved.

Later, speaking at the Indian Chamber of Commerce, Vora said the industry and the financial institutions need to address the problem of rising non-performing assets (NPAs) in right earnest.

Accounting for the rise in bad loans, he said much of the mess was created when projects ran into rough weather because promoters failed to bring in their funds in time. This resulted in time and cost overruns. The shortfall, Vora emphasised, should be financed by equity, not debt.

“The three leading development financial institutions – ICICI, IDBI and IFCI – have combined assets of Rs 1,40,000 crore. With such a large asset base, the development financial institutions must reduce their NPAs, which now stand at a little over 10 per cent of total advances,” Vora said.

“To start with, we have to ensure that the incremental NPA is below 5 per cent. For this to happen, the industry and the development financial institutions should jointly address the problem,” he said. He called for an individual, case-by-case examination of NPAs, bereft of generalisations.

Speaking to a panel of industrialists, Vora said he expected aggregate demand to pick up from November. “The monsoons this year were good, and I am optimistic that consumer demand will improve. The government’s decision to invest Rs 20,000 crore in projects like the Golden Quadrilateral highway plan can also help recovery,” he added.

   

 
 
FAT PAYOUTS UNDER NEW VRS PROPOSED 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Oct. 8: 
The Union Cabinet is likely to clear a new voluntary retirement package for public sector employees tomorrow despite stiff opposition from the finance ministry.

This package is likely to serve as a model for another Cabinet note to be put up shortly for a VRS package for central government officials.

The significantly improved new package will allow profitable PSUs to pay as much as three months’ wages for every year of service, nearly double the VRS compensation packages for units which are sick or facing closure as well as broaden the meaning of wages for VRS to include house rent allowance (HRA) and incentives also.

The Cabinet note states that in a large number of cases, public sector units, especially those that are sick or facing closure, have not had any wage revisions for as many as 14 years.

This makes their VRS packages paltry and unattractive. The current scheme also tends to reward older workers with heavy compensation packages and youngsters with small amounts.

To remedy this, the Cabinet note has ruled that in the case of PSUs where the last pay revision was in 1987, the compensation package would be raised by as much as 100 per cent over whatever is the current calculated package.

In cases where the last pay revision was in 1992, the increase would be to the extent of 50 per cent. The rule that compensation packages shall not exceed salary and wages which an employee could earn during the period of service left, too, would be relaxed for these companies to allow this hike.

In cases where the last pay revision was in 1997, the minimum compensation package would be pegged at Rs 5 lakh for workers, Rs 5 lakh plus 25 per cent to supervisory staff, and Rs 5 lakh plus 50 per cent to executives.

Profitable companies likewise would be allowed to give up to 90 days’ pay per year of service to its workers as VRS.

Till now they were allowed to pay a maximum of 60 days’ wages. However, this had turned into a stumbling block with few takers for the VRS plan. Consequently, the VRS scheme is being improved.

Since many profitable PSUs, especially in the oil sector, give generous HRA and productivity-linked incentives with monthly pay packages, the government wants to re-define the meaning of pay for purposes of calculating VRS.

Currently, it means just the basic pay plus dearness allowance. It will be redefined to include HRA and incentives. However, the finance ministry has strongly objected to most of these proposals as it feels the money outgo would be huge, much to the chagrin of administrative ministries, almost all of whom have supported the note drafted by the industry ministry.

   

 
 
IFCI IN SEARCH OF FOREIGN ALLY 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct. 8: 
IFCI, the beleaguered development financial institution (FI), has decided to enter into a strategic alliance with a foreign investment bank.

The Delhi-based FI is also trying to reposition itself as a financial solutions provider for mid-sized companies in areas of both fund and non-fund based activities with a sanction limit not exceeding Rs 100 crore.

Outlining the strategy to turn around the ailing institution, IFCI’s new chairman V.P. Singh, in his first official interaction with newspersons, said the term-lending institution has decided not to become a universal bank as it does not want to do retail banking by becoming a commercial bank.

“We prefer to turn ourselves into an investment bank and shift our focus from long-term lending to all financial activities, including advisory activities in infrastructure, telecom and textiles, besides initiating cost-cutting measures to shore up our bottomlines, which includes making more call options on high-cost borrowings,” he said. Last year, a call option worth Rs 1,500 crore was exercised and this year around Rs 400 crore has already been exercised by way of call option.

According to Singh, the strategic alliance with a foreign investment bank will provide technical expertise besides access to cheaper finance and distribution reach. IFCI already has KfW of Germany as a strategic investor.

Asked whether KfW would be roped in as a strategic alliance partner, Singh said nothing had been finalised so far. “This is an idea which has to be ratified by the board following which we will zero in on the probable partners so as to begin our talks with them,” he said.

Singh said IFCI is also planning to reduce its exposure in sectors having high non performing assets like steel and is considering converting debt into equity or quasi-equity in those companies which are having chronic cases of default and recovery problems.

   

 
 
STEEL MINISTER SOUNDS SINHA TO SAVE IISCO 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Oct. 8: 
In a last ditch effort to save the ailing Indian Iron & Steel Company (IISCO) from imminent closure, steel minister Braja Kishore Tripathy has approached Union finance minister Yashwant Sinha for a revival package.

The Board for Industrial and Financial Reconstruction (BIFR), to which IISCO was referred way back in 1994-95, has already threatened that IISCO will have to be wound up if the government or Steel Authority of India Limited (SAIL) fails to submit a revival package latest by November 5.

Sources in the steel ministry said SAIL has washed its hands of its subsidiary in West Bengal citing acute financial crunch.

SAIL has “forwarded” the Rs 600-crore revival package, prepared by Mecon, to the government in order to arrive at a tangible solution to the IISCO crisis, in which the fate of over 23,000 employees is involved.

Sources have also pointed out that SAIL has sought at least a part of the revival package during the current fiscal so that IISCO can be saved.

“But, frankly speaking, none of us here know exactly what is awaiting IISCO,” sources said.

Earlier, SAIL proposed to sell majority stake in IISCO for which it floated a tender.

The BHP-Mitsui combine and Russian steel major, TyazPromExport (TPE) carried out due diligence but later backed out.

The closure, if announced, will directly affect 17,000 employees who are working in IISCO’s two plants, one each at Burnpur and Kulti.

The SAIL management has reportedly called a meeting with IISCO’s five unions on October 12. The agenda, however, is unknown and the SAIL authorities are tight-lipped about the issue.

A senior SAIL official said closure of IISCO will be costlier for the steel major than its revival since over Rs 1,100 crore will have to be coughed up for the voluntary retirement scheme.

Moreover, SAIL will lose a host of long products, which currently has a good market.

   

 
 
CELLULAR PHONE MAKERS RUSH TO GRAB ORDERS 
 
 
FROM M RAJENDRAN
 
New Delhi, Oct. 8: 
The leading cellular phone equipment manufacturers are in a tearing hurry to bag the contract from the five mobile cellular service providers who were recently given licences by the government following their successful bids.

The telecom equipment manufacturers using the global system for mobile communications technology expect a minor revival for them in the already sluggish market condition, which has been further vitiated by the war against terrorism launched by the US. However, the domestic telecom equipment manufacturers are not happy.

N.K. Goyal, secretary general of Telecom Equipment Manufacturers Association (Tema), while welcoming the government’s initiative to quickly award the licences to the successful companies in fourth round of bidding, was unhappy that existing duty structures do not allow domestic telecom equipment manufacturers to take advantage of such chances.

“The present duty regime is not attractive enough for the telecom service providers to procure locally manufactured telecom equipment. Tema has always requested for appropriate measures in this regard,” said Goyal.

Under project imports, equipment attract only 5 per cent duty. But if the local manufacturers import it they have to pay a 15 per cent duty on the components.

While Bharti and Birla AT&T have already placed orders for purchase of GSM equipment, the other three — Reliable Internet Service Ltd of the Reliance group, Barakambha Sales and Services Ltd and Escorts Communications Ltd — which were recently given the licences are likely to soon call for bids for procuring equipment.

“It does open up a market for us. But the cake is too small while the players are many. Other services providers, including Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd should procure more equipment as their customer base increases. Then equipment manufacturers will get the necessary support for revival,” said a senior executive in Nokia.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.13	HK $1	Rs.  6.10*
UK £1	Rs. 70.95	SW Fr 1	Rs. 29.40*
Euro	Rs. 44.36	Sing $1	Rs. 26.45*
Yen 100	Rs. 40.52	Aus $1	Rs. 24.00*

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4945	Gold Std (10 gm)Rs. 4850
Gold 22 carat	Rs. 4670	Gold 22 carat	    NA
Silver bar (Kg)	Rs. 7900	Silver (Kg)	Rs. 7960
Silver portion	Rs. 8000	Silver portion	    NA

Stock Indices

Sensex		2765.37		-47.53
BSE-100		1280.03		-21.25
S&P CNX Nifty	 901.95		-12.65
Calcutta	  94.76		- 2.45
Skindia GDR	 422.57		+ 4.33
   
 

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