Sinha bets on infrastructure
Laffer Curve junked
Telecom woes cloud Wipro profit picture
Yields at gilt auction in line with expectations
Guj Propack to change hands
Debt travails greet HPL chief
Power funds linked to reform initiative
PowerGrid bid to save cost
Foreign Exchange, Bullion, Stock Indices

New Delhi, Oct. 15: 
The government intends to shortly announce a slew of incentives to strengthen the infrastructure sector and stoke sputtering demand in the economy, finance minister Yashwant Sinha said today.

The measures are part of the government’s efforts to insulate the already-faltering economy from the withering effects of the global slowdown after Terror Tuesday.

Speaking to reporters on the sidelines of a Ficci seminar here today, Sinha said: “The terrorist attacks on the US and the consequent backlash will definitely have a negative impact on exports. We will step up our initiatives in the infrastructure sector which will spur demand in the domestic sectors. Increased demand will enable us to sell the goods in domestic market which we are unable to sell in the international markets.”

Sinha agreed that the war clouds in the region would have a baneful impact on some sectors like the stock market, tourism, aviation, foreign investment inflow and exports. But he did not feel that the overall impact would be too great.

Sinha said he was concerned about the sluggish 1.8 per cent growth in industrial production during August compared with 5 per cent in the year-ago month.

Inflation measured on the basis of wholesale price index (WPI) was down to 3.32 per cent, one of the lowest levels in decades.

Sinha also seemed to suggest that the interest rate cut strategy adopted by Alan Greenspan and the Federal Reserve Board had limited success as a magic cure for wrenched economies.

“The rate cut is one of the factors that drives the economy. It has not created magic elsewhere in the world, and it has not created a magic here also. The interest rate is the lowest-ever in a decade. More has to be done to get it down.”

Sinha said: “In this situation, the government should look at second generation reforms. A lot of it will depend on the growth of the insurance sector as this is one area where we have succeeded and further success will create an environment for what we are looking for,” he said.

He said the government would consider the private insurers’ plea for an increase in the foreign stake from 26 per cent to 49 per cent only after they were able to show results.

N. Rangachary, chairman of the Insurance Regulatory Authority of India (IRDA), said: “Insurance companies will have to fulfil all obligations laid down by Section 42 of Insurance Act. We are trying to tone down Section 42 when it comes to certain companies. There should be a change in Sections 42 & 42D.”


New Delhi, Oct. 15: 
It’s a curve ball that Yashwant Sinha is ready to smash out of the park.

The finance minister isn’t ready to buy the Laffer Curve—the eponymous economic theory that Arthur Laffer sketched on the back of a paper napkin back in 1974 and which underpinned Reagonomics in the eighties.

“I am not sure that it will be successful in India,” Sinha told reporters here today, scotching any hope of a cut in tax rates to shore up plummeting tax revenues.

The theory is pretty simple: it is predicated on the assumption that there is an optimal tax rate at which governments can expect greatest tax compliance.

Laffer, who later became an economic advisor to Ronald Reagan, had suggested that as taxes increased from fairly low levels, tax revenue would also increase. However, as tax rates rose, there would come a point where people would not regard it as worth working so hard. This lack of incentives would lead to a fall in income and therefore a fall in tax revenue.

The theory suggested that since excessively high tax rates resulted in less government revenue, it made a strong case for cutting tax rates if revenues were actually going down.

The finance minister indicated that he was not in favour of any amnesty scheme or further lowering of tax rates to shore up revenue collections as the industry had not adequately responded to earlier baits.

On Monday, the government came out with provisional estimates for tax collections in the first half (April-September) that showed a negative 6.2 per cent growth at Rs 77,422 crore compared with Rs 82,539.18 crore in the corresponding period last year. The slump was mainly due to a steep fall in corporate tax and customs duties revenue.

While the total direct tax collection comprising income and corporate taxes recorded a negative 7.5 per cent growth, indirect collections of excise and customs duties showed a decline of 5.6 per cent.


Mumbai, Oct. 15: 
The amount of business coming from telecom will be one of the closely watched facts when Wipro unveils second-quarter results on Thursday.

Concerns over whether the battered telecom sector will dent the bottomline have been accompanied by intense speculation on kind of growth the company will report in the last quarter, and forecasts for those ahead.

Some analysts reckon Wipro will leave the past behind and better industry growth rates, but the optimism is tempered by the realisation that heavy reliance on telecom could send many calculations awry.

Wipro Technologies, the group’s global IT services division, generates 50 per cent of its revenues from telecom. The division, touted as the company’s fastest-growing wing, provides research and development services for hardware and software design to technology companies, besides software application development services to corporate enterprises. Its top clients include the likes of Lucent, NCR, Nortel and Compaq.

“It will not be the growth figures, but the risk in terms of its exposure to the telecom sector and specifics such as Nortel that will be tracked extensively,” said an analyst with a private sector bank. Analysts foresee a profit of Rs 220 crore and revenues of over Rs 850 crore in the second quarter. This would translate into a growth of around 10 per cent on a sequential basis in revenue, and 5 per cent in profits. According to Tejas Barfiwala, an analyst at Khandwala Securities, the company is likely to revise downwards its growth forecasts of 40-45 per cent due to slowdown and dependence on telecom.

“The company will now have to achieve excellent performances during the third and fourth quarters, which is not improbable, but challenging,” he added.


Mumbai, Oct. 15: 
The Reserve Bank of India (RBI) today fixed a cut-off yield of 9.85 per cent and 10.06 per cent on government securities maturing in 14 and 26 years respectively.

The yield — often seen by the market as a sign of where the monetary authorities want interest rates to rule —was in line with expectations for the 14-year bond, but higher than what they had reckoned for the 26-year security. Money markets had expected between 9.82-89 per cent and 9.98 per cent for the two securities. That there were no devolvements — the Reserve Bank did not have to buy the bonds itself — indicated that there is enough sufficient liquidity in the system.

The 14-year stock drew 333 bids, yielding Rs 12,176.89 crore against the notified amount of Rs 6,000 crore. The RBI accepted 176 bids. There were apprehensions of a devolvement because of the high notified amount.

The 10.18 per cent 2026 bond, which was re-issued, attracted 97 bids for Rs 3,135.74 crore. Of these, the central bank accepted 62 bids, at a cut-off price of Rs 101.10.

The auctions, signifying record mobilisation by the government on a single day, were keenly watched. Some pressure is now expected on call rates due to the outflow.

However, the increase will be temporary because the existing liquidity is enough will limit the impact. “We may see call rates going up. However, it will not last longer as there is enough cash,” said an analyst.

The success of the auction has led money market circles to believe the central bank to lower the cash reserve ratio by 25-50 basis points in the next few days.


Mumbai, Oct. 15: 
Cosmo Films Ltd has signed an agreement to buy out the entire stake of the promoters—Bharat Patel and Associates—in Gujarat Propack Ltd (GPL).

According to the pact, the Delhi-based Cosmo Films will buy the 76.51 per cent stake at Rs 29.25 per share aggregating Rs 17.44 crore.

The offer price is at a premium of 116 per cent over GPL’s closing price of Rs 13.50 on the Bombay Stock Exchange today.

The deal translates into an enterprise valuation of around Rs 87 crore, CFL said in a statement.

The acquisition will make Cosmo Films the largest bi-axially-oriented poly propylene (BOPP) player in India and among the five largest in Asia. GPL will become a subsidiary of Cosmo and its debt burden of Rs 53 crore will be reflected in CFL’s books.

Briefing the press, Ashok Jaipuria, chairman & managing director of Cosmo Films, said: “Our strategy is to attain a leadership position in the Indian BOPP sector through organic and inorganic routes while enhancing shareholder value.”

“The acquisition of Gujarat Propack brings together two of the best performing companies on this sector and provides us the opportunity to leverage on the considerable strengths in these two companies,” he added.

The acquisition would be funded through internal accruals and small bridge loans of Rs 4 crore, Jaipuria said.

GPL managing director Bharat Patel said the company’s dues to financial institutions were close to Rs 55 crore and “we wanted the company to grow without difficulties and hence decided to agree for sale.”

Cosmo Films will make an open offer to acquire an additional 20 per cent from the public at the same price of Rs 29.25 a share. This would translate into acquiring 1.56 million shares at a total cost of Rs 4.55 crore.

DSP Merrill Lynch was the adviser to Cosmo Films in the deal, while Bharat Patel and Associates were advised by Kotak Mahindra Capital Company.

Gujarat Propack is the second largest player in the Indian BOPP films industry with over 27 per cent market share. It has three manufacturing lines at two plants in Baroda and Cosmo Films has film packaging facility at Aurangabad.

On a combined basis, Cosmo Films will become the leading player both in the domestic market and in the export market for BOPP films. While Cosmo Films has a stronghold in the export market, GPP is the second largest player in the domestic market with a 27 per cent market share.

The acquisition would enable the two companies to synergise their initiatives and co-ordinate their capabilities in the two markets.


Calcutta, Oct. 15: 
Haldia Petrochemicals Ltd, the beleaguered company which, in recent times, has become the benchmark of industrial progress in Bengal, is set to get a new chairman. Tarun Das, director general of Confederation of Indian Industry, is going to take charge and he will join the HPL board at its next meeting scheduled to be held on Wednesday.

Das will be succeeding Tapan Mitra who resigned as chairman during the last meeting board meeting held on September 28.

During the interim period, Ashok Gupta, principal secretary, planning and development, was the acting chairman but, according to sources, he quit last week.

Confirming the move, HPL officials said the board will discuss three things—induction of Tarun Das as chairman of the company, Indian Oil Corporation’s participation as the fourth equity partner and the status of the debt restructuring proposal that had been sent to Industrial Development Bank of India.

It is learnt that the induction of Das as the chairman has been by and large accepted by all the three promoters, including Purnendu Chatterjee of The Chatterjee Group.

TCG sources said that 62-year old Das is known for his excellent relationship with both the corporate and the financial world and his induction will help HPL to wriggle out of the financial crisis.

Sources said that Wednesday’s board meeting will assume significance as some concrete decision relating to IOC is expected to be taken. One of the HPL board member said, “The board will take a fresh look at IOC’s proposal and a decision is expected to emerge on whether IOC will be invited as the fourth equity partner or not.”

The debt restructuring proposal and IDBI’s view on it will also be discussed at the board meeting.

The institutions has said that finalisation of participation by IOC would have to be decided first before asking for a debt restructuring package.


Calcutta, Oct. 15: 
Worried over the lack of progress in implementing reforms, power minister Suresh Prabhu has asked chief ministers to work out a time-bound strategy to improve the way they produce and sell electricity, if they want a slice of central funds for the sector.

“We have seen that government decisions are not implemented due to lack of participation at various levels,” Prabhu said in his letter sent to chief ministers.

State power ministers and chief secretaries, he said, should be asked to hold road-shows — a campaign to spread awareness about the problems and prospects — for one-and-half-months, beginning today. The chief secretary has been told to send out instructions to authorities down to the district level for conducting campaigns aimed at deepening the reform cult.

States have been asked to submit reports on the progress of reforms and the financial assistance needed to implement them.

The campaign will seek to show how pilferage affects the supply of quality power and the massive losses it inflicts on agencies that produce and distribute it. The road-shows will have to be conducted in all districts with the active participation of ministry of power, the Central Electricity Authority and the public sector units under the ministry of power.

Prabhu has pointed out to chief ministers that 80,000 villages have to be electrified after more than 50 years of independence.

“We have taken upon ourselves a time-bound programme to electrify all villages by 2007, and all households by 2012. To provide power on demand, a capacity addition of approximately 1,00,000 MW in the next 10-12 years is needed.

The task is enormous and calls for a staggering investment of Rs 4,00,000 crore. An equal amount would be required for transmission and distribution,” Prabhu said.


New Delhi, Oct. 15: 
It’s a classic case of both conservation of energy and conservation of money. PowerGrid, the public sector transmission company, plans to wheel surplus power from the east to the south at a cheaper rate than the government-approved project cost.

The estimated cost for the transmission link from east to south was pegged at Rs 3,865 crore but PowerGrid is expected to complete it at a cost of Rs 2,627 crore, thereby saving a neat Rs 1,238 crore for the government.

It also plans to link the eastern region with other regions as part of the plan to complete the national grid before 2005.

“This is an effort which is bound to help the company to evacuate surplus power from east to the southern region which is facing a heavy power shortage,” said PGCIL chairman R.P. Singh.

The 500 kilo volt power line, covering a distance of 1,400 kilometres will link Talcher in the east to Kolar in the south along with alternate current transmission lines beyond Kolar to distribute power to Karnataka, Tamil Nadu, Andhra Pradesh, Kerala and Pondicherry.

The power to be wheeled by PGCIL will be generated by National Thermal Power Corporation at the Talcher super thermal power project.



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