- News>
- Analysis
How`s Business (Sep 17 - Sep 24)
By M K Venu, Business Editor, Zee News
The ripple effect!
Finance Minister Yashwant Sinha`s immediate response to the massive upheaval in the United States was typical - that India won`t feel any impact in economic terms. Quite amazingly, he even argued last week that India is fairly insulated from the global recession. However, the terrorist strikes in the US have begun showing their impact on India. The equity markets have gone for a toss as US based portfolio management funds have begun selling their holdings in Indian stocks in a big way. Leading market movers like Reliance Industries, Infosys etc have already touched their 52 week lows. The Sensitive Index has fallen over 400 points in three trading sessions after the terrorist attack in America. More FII sell-off could come this week as there appears to be a temporary liquidity problem among US based financial institutions. This is the reason why the American and European Central Banks have pledged over $70 billion to market players in the US to get over liquidity problems. Indian policy makers are quite anxious about the impact on the Indian economy of the temporary financial problems in the United States.
In the near term, India is worried about the regular knocks being taken by the stock market and the rupee`s exchange rate. The Bombay Sensitive index is now well below the 3000 mark with a sharp fall in many blue chip scrips over the past few trading sessions.
The currency is also under pressure due to expectation that portfolio inflows in the Indian stock market and foreign investment from the US will be on hold for sometime. This, coupled with exports registering a negative growth and the prospect of the oil import bill rising in the coming months has put pressure on the currency.
India has $44 billion of reserves, but when sentiment turns decisively adverse any amount of forex reserves might seem inadequate as witnessed in East Asia or Latin America between 1995 and 1998.
There is some hope that the OPEC will enhance production to check increase in oil prices. Some of the OPEC countries have promised that. But if the US launches a wide scale attack on any country seen as abetting terrorism, then there is no knowing what happens to oil prices. The global markets are showing nervousness on this count too.
The Indian economy itself has been in a prolonged deflationary phase. So, the American crises could not have come at a worse time for India. India was evolving new strategies to revive the economy when the current crisis hit the world markets.
RBI Governor Bimal Jalan`s soft interest rate policy therefore may be reversed in the short run and we could see short term interest rates rising, if only to prevent speculative attacks on the rupee.
Already the rupee`s exchange rate vis-à-vis the dollar has breached the Rs 48 mark. The forex market is quite thin and any attempt by FIIs to withdraw more funds from India could provide an opportunity to speculators.
The net FII investment on the stock markets has turned negative for the first time in September.
Overall the RBI is keeping a tight vigil on the market. It may come out with more liquidity sucking measures, if there is undue speculation against the rupee. JPC`s poser to Bimal Jalan
A senior member of the Joint Parliamentary Committee looking into the stock market crash early this year stunned the RBI Governor Bimal Jalan in one of the hearings recently. The JPC member gave elaborate details of how there was massive irregularity in the merger of Bank of Madura with the ICICI Bank, with obvious insider trading having taken place.
The senior member said a leading non banking finance company Kotak Mahindra had an equity stake in the Bank of Madura and it was also advising ICICI Bank on the merger. There was clear conflict of interest and possibility of insider trading. The RBI Governor did not know how to respond and asked the JPC member to give details of the information he had and assured that the RBI would formally reply to the JPC on the whole affair. Prime Minister`s tough measures
There is a lot of speculation as to what Prime Minister Atal Behari Vajpayee had meant specifically when he said in his broadcast to the nation that tough economic measures would be required in these difficult times. The terrorist attack in the United States has provided the government the opportunity take tough decisions which otherwise would attract widespread criticism.
One such measure the finance ministry is actively discussing is to raise tax rates. It could be in the form of a surcharge on direct and indirect taxes.
The revenues of the government have collapsed and there is a quarterly shortfall of over Rs.5000 crore.
On current reckoning an annual shortfall of Rs.20,000 crore is not ruled out. This will send the fiscal into a tailspin.
So Indian corporates and the citizenry better be prepared for a fresh dose of taxes.
Of course, the stock market will not like such a move which will be seen as anti industry. Market blues
The volatility in the global markets will result in some major equity issues by Indian companies being put on hold. Reliance Industries Ltd had got permission from the government to sell its stake in Reliance Petroleum (RPL) in the GDR/ADR market abroad.
RIL was hoping to raise at least $500 million from the issue. This may have to wait as global markets will take some time to recover. Besides, the RPL share price in the domestic stock exchange has crashed to its 52-week low of Rs 27. The Ambanis may also want to wait until the price of RPL recovers somewhat. The Ambanis were planning to use the funds partly to invest in their telecom projects.
In the domestic primary market the only big issue awaited this year was Bharti Telecom`s offer of about Rs.1200 crore. This again will be put on hold.
The domestic primary market has so far seen equity issues worth no more than Rs.4 crore, a record low.
The Indian primary market had never fallen on such bad days.
Author`s e-mail ID is venumk@zeenetwork.com
Illustrations by Sharad Sharma
The ripple effect!
Finance Minister Yashwant Sinha`s immediate response to the massive upheaval in the United States was typical - that India won`t feel any impact in economic terms. Quite amazingly, he even argued last week that India is fairly insulated from the global recession. However, the terrorist strikes in the US have begun showing their impact on India. The equity markets have gone for a toss as US based portfolio management funds have begun selling their holdings in Indian stocks in a big way. Leading market movers like Reliance Industries, Infosys etc have already touched their 52 week lows. The Sensitive Index has fallen over 400 points in three trading sessions after the terrorist attack in America. More FII sell-off could come this week as there appears to be a temporary liquidity problem among US based financial institutions. This is the reason why the American and European Central Banks have pledged over $70 billion to market players in the US to get over liquidity problems. Indian policy makers are quite anxious about the impact on the Indian economy of the temporary financial problems in the United States.
In the near term, India is worried about the regular knocks being taken by the stock market and the rupee`s exchange rate. The Bombay Sensitive index is now well below the 3000 mark with a sharp fall in many blue chip scrips over the past few trading sessions.
The currency is also under pressure due to expectation that portfolio inflows in the Indian stock market and foreign investment from the US will be on hold for sometime. This, coupled with exports registering a negative growth and the prospect of the oil import bill rising in the coming months has put pressure on the currency.
India has $44 billion of reserves, but when sentiment turns decisively adverse any amount of forex reserves might seem inadequate as witnessed in East Asia or Latin America between 1995 and 1998.
There is some hope that the OPEC will enhance production to check increase in oil prices. Some of the OPEC countries have promised that. But if the US launches a wide scale attack on any country seen as abetting terrorism, then there is no knowing what happens to oil prices. The global markets are showing nervousness on this count too.
The Indian economy itself has been in a prolonged deflationary phase. So, the American crises could not have come at a worse time for India. India was evolving new strategies to revive the economy when the current crisis hit the world markets.
RBI Governor Bimal Jalan`s soft interest rate policy therefore may be reversed in the short run and we could see short term interest rates rising, if only to prevent speculative attacks on the rupee.
Already the rupee`s exchange rate vis-à-vis the dollar has breached the Rs 48 mark. The forex market is quite thin and any attempt by FIIs to withdraw more funds from India could provide an opportunity to speculators.
The net FII investment on the stock markets has turned negative for the first time in September.
Overall the RBI is keeping a tight vigil on the market. It may come out with more liquidity sucking measures, if there is undue speculation against the rupee. JPC`s poser to Bimal Jalan
A senior member of the Joint Parliamentary Committee looking into the stock market crash early this year stunned the RBI Governor Bimal Jalan in one of the hearings recently. The JPC member gave elaborate details of how there was massive irregularity in the merger of Bank of Madura with the ICICI Bank, with obvious insider trading having taken place.
The senior member said a leading non banking finance company Kotak Mahindra had an equity stake in the Bank of Madura and it was also advising ICICI Bank on the merger. There was clear conflict of interest and possibility of insider trading. The RBI Governor did not know how to respond and asked the JPC member to give details of the information he had and assured that the RBI would formally reply to the JPC on the whole affair. Prime Minister`s tough measures
There is a lot of speculation as to what Prime Minister Atal Behari Vajpayee had meant specifically when he said in his broadcast to the nation that tough economic measures would be required in these difficult times. The terrorist attack in the United States has provided the government the opportunity take tough decisions which otherwise would attract widespread criticism.
One such measure the finance ministry is actively discussing is to raise tax rates. It could be in the form of a surcharge on direct and indirect taxes.
The revenues of the government have collapsed and there is a quarterly shortfall of over Rs.5000 crore.
On current reckoning an annual shortfall of Rs.20,000 crore is not ruled out. This will send the fiscal into a tailspin.
So Indian corporates and the citizenry better be prepared for a fresh dose of taxes.
Of course, the stock market will not like such a move which will be seen as anti industry. Market blues
The volatility in the global markets will result in some major equity issues by Indian companies being put on hold. Reliance Industries Ltd had got permission from the government to sell its stake in Reliance Petroleum (RPL) in the GDR/ADR market abroad.
RIL was hoping to raise at least $500 million from the issue. This may have to wait as global markets will take some time to recover. Besides, the RPL share price in the domestic stock exchange has crashed to its 52-week low of Rs 27. The Ambanis may also want to wait until the price of RPL recovers somewhat. The Ambanis were planning to use the funds partly to invest in their telecom projects.
In the domestic primary market the only big issue awaited this year was Bharti Telecom`s offer of about Rs.1200 crore. This again will be put on hold.
The domestic primary market has so far seen equity issues worth no more than Rs.4 crore, a record low.
The Indian primary market had never fallen on such bad days.
Author`s e-mail ID is venumk@zeenetwork.com
Illustrations by Sharad Sharma