Mumbai, December 14
India's economic gloom deepened on Wednesday as figures showed a record low rupee is adding to Reserve Bank of India's inflation headache and an adviser to the prime minister said there was little that could be done to check the currency's slump.

An 18 per cent slide in the value of the rupee since July is adding to a growing worry of economic crisis in the country as stubbornly high inflation ties the hands of the central bank from easing policy to try to turn a grim economic outlook.

A worsening fiscal picture means the government's financial firepower is also limited. Parliament is in gridlock, preventing approvals for investment that could help offset a ballooning current account deficit.

Indeed, C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, suggested there was little policymakers could do to counter the slide in the currency.

He said the rupee was subject to the whims of global investors, who are buying the dollar as a safe haven from the eurozone debt crisis. "The behaviour of the rupee is also a reflection of the behaviour of the dollar," he said. "There’s very little that can be done."

The slide in the rupee has caught policymakers flat-footed and by firing up import costs it is undermining the RBI's forecast for inflation to drop to 7% by March. — Reuters

That potentially pushes back when the central bank could ease policy. thanks to a sharp pull back in food price pressures.

However, fuel inflation rose to 15.48% from 14.79% and manufacturing inflation increased to 7.7% from 7.66% as the tumbling rupee pushed up import costs.

The slide in the rupee has caught policymakers flat-footed and by firing up import costs it is undermining the RBI's forecast for inflation to drop to 7% by March. That potentially pushes back when the central bank could ease policy.

Mumbai, December 14
The Indian rupee hit yet another record low on Wednesday as worse-than-expected inflation data and the US Fed's decision to hold back on new stimulus steps heightened fears that capital outflows from emerging economies such as India could accelerate.

The rupee closed at 53.71/72 to the dollar after briefly hitting an all-time low of 54, which represented a drop of 3.7% from its close last Friday.

"We have to prepare ourselves for possibly new lows on the rupee every day," said Naveen Raghuvanshi, associate vice-president of currency trading at the Development Credit Bank.

"You name a negative and it is there for the rupee," he said. "We could see 56 by end of this month."

While some traders said the Reserve Bank of India may step into the market, any intervention would likely have little long term impact given India's relatively limited foreign exchange reserves and the host of negative factors lining up against the currency.

The euro slipped versus the dollar on Wednesday after Italy paid a euro-era record yield of 6.47% to sell five-year debt, adding to concerns that a European Union summit last week had made little progress in tackling the region's debt crisis. — Reuters

New Delhi, December 14
Morgan Stanley is overweight on Infosys because despite weakened global environment and seasonal weakness in December the tech firm has so far not seen any material price cuts or project cancellations in its core business.

"Given the steep cross-currency impact for peers (-1.5 percent to -2 percent), Infosys' second half revenue growth rate quarter-on-quarter is likely to outperform industry peers even if it reports towards the lower end of its guidance range," Morgan Stanley said in a note.

Overall revenue growth is likely to remain healthy relative to the environment and rupee depreciation would further cushion margins and earnings, it added. The investment banker maintained 'overweight' rating on the stock with a price target of Rs 3,630.

At 12.55 p.m shares were at Rs 2,763.80 up 0.42 percent.

Meanwhile, Wipro is the best bet among Tier-I information technology companies, according to Jefferies.

Among tier-1 Indian IT companies, Jefferies prefers Wipro mainly due to valuation discount of 20 percent versus the other tech giant TCS.

“With expectations at moderate levels and valuation discount of 20 per cent versus Tata Consultancy Services, we are buyers in Wipro”, Jefferies said in a note.

The research house said Wipro remained a high quality company and with growth normalizing over the coming quarters, the steep discount is likely to narrow and has a 'buy' rating with a target price of Rs 430. — Agencies

Beijing, December 14
China's plan for a new $300 billion sovereign wealth fund is as much a warning to Washington as it is a body blow to Brussels.

It is the clearest sign yet of Beijing's waning faith in bonds issued by Europe and the United States. Europe's festering debt debacle, record low yields on US Treasuries and a depreciating dollar all add weight to the view in China that the time is ripe to change investment tack.

"China has decided that real assets are better than broken debt fix promises and low interest rates," says Paul Markowski, president of MES Advisers and a long-time external adviser to China's monetary policymakers on global financial markets.

Beijing has watched for two years as Europe's crisis has choked growth and demand in China's biggest export market and stoked default risks on the near $800 billion of euro zone government bonds it is estimated to own.

It has been a painful lesson.

After all, China had actively bought euro assets to guard its $3.2 trillion reserve pile against overexposure to US dollars, which have lost about a third of their value in the last 10 years as US Treasury yields have sunk to record lows.

Reuters reported last week that China plans to create the new vehicle with two funds, one for Europe and one for the US, making China in aggregate the world's biggest sovereign wealth fund investor. The plan originated before Europe's debt crisis, sources said.

That gels with comments from investment sources with links to China's monetary authorities and foreign reserve managers who detect a clear desire in Beijing to acquire real assets in return for supplying fresh funds to bridge US deficits and recapitalise European financial institutions and governments.

The $300 billion figure is consistent with the sum that Markowski and others calculate China has in excess reserves — the amount beyond what Beijing would need to tackle a balance of payments crisis or a domestic funding emergency. "They want underlying assets. Equities, corporate bonds, real estate — anything that governments want to flog," said one source involved in foreign exchange trading for official institutions such as central banks. — Reuters

Chandigarh, December 14
For a change there is some respite for Punjab. Even as the country’s industrial production slumped by 5.1 per cent in October, the state is maintaining a flat growth in key industrial sectors.

According to data though most industrial sectors in Punjab — steel, auto parts, textiles and hand tools — are not expanding because of the recessionary market sentiment, they have so far maintained their growth logged in the previous year. Even the IIP data released by the government on Monday showed the fall in growth was mainly because of a slump in production of capital goods, which are not the key manufacturing sectors in the state.

Talking to The Tribune, S C Ralhan, chairman of the regional Engineering Export Promotion Council (EEPC), said though industrial production had not shown a negative trend so far, the prospects were not bright either. “These are bad times for industry as nobody is willing to expand business. This is very alarming and the government must come out with a policy so that industry is spurred to expand in the state and keep the growth trajectory,” he said.

Data available from the state level bankers committee of Punjab also reveals the flow of credit to the micro, small and medium enterprises (MSMEs) in Punjab has gone down sharply in the past one year. It is not just the rising interest rates on loans that are deterring businessmen from taking loans from banks. Most banks, too, have slowed the flow of collateral free credit (up to Rs 10 lakh) to SMEs.

Till September this year, banks in Punjab have provided collateral free loans to just 60% of the total loans sanctioned by them to SMEs (for up to Rs 10 lakh).

The data provided by the banking panel also shows there is a slowdown in the growth rate for flow of credit to SMEs in Punjab. In Punjab, the share of advances to micro enterprises to total SMEs (as on Sept 2011) is just 40% as against the targeted level of 55% to be achieved till March 2012.

PD Sharma, president of the Apex Chamber of Commerce, said growth in the state had remained static, not just because of rising interest rates on bank loans and poor credit flow from banks.

“The poor power supply to industry and the hike in electricity duty imposed on industry is forcing many industrial houses to halt expansion, especially now when the slowdown is hitting home,” he added.