Monday, August 10, 1998
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B U S I N E S S | Monday, August 10, 1998 |
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Banks cannot lend without
RBI’s refinance CM
urged to roll back power tariff hike |
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Speculative markets drive
away small
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DSE to be on Demat map from
August 17
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Banks cannot lend without RBI’s refinance MUMBAI, Aug 9 (PTI) — The banking sector has expressed its disillusionment at the last week’s announcement slashing by 2 per cent to 9 per cent interest rate on export credit. Banks cannot afford to lend at 9 per cent without Reserve Bank of India’s (RBI) refinance at 7 per cent and the central bank is providing refinance at 7 per cent to banks at a “great sacrifice”, RBI Executive Director V. Subramanyam said at a seminar on “Role of banks in promoting exports” here last evening. Bank of Baroda (BoB) Chairman K. Kannan said that banks cannot give exporters Indian rupees at international rate.“We (banks) can give you (exporters) foreign currency at international rate,” Kannan told exporters gathered at the seminar hosted by Federation of Indian Export Organisations (FIEO). State Bank of India (SBI) Chairman M.S. Verma echoed Kannan’s views and said “we are in favour of international money at international rate and not Indian rupee at foreign currency rate.”Exporters have to pay interest on credit and cannot expect a scheme of minimal interest, Subramanyam asserted. Dena Bank Chairman Dinesh Mishra said a look at his bank’s export credit portfolio establishes that refinance has been availed only to the extent of 25 to 30 per cent.Pre-shipment and post-shipment export credit has been made mandatory at 9 per cent against the Dena Bank’s cost of funds of 8.5 per cent, he pointed out. “Where is (the recovery of) operational cost and where is the profit,” Mishra asked exporters obviously responding to demands by some for reducing the rate to 6.5 per cent.“This kind of subsidies may not be an encouragement to banks for long,” he cautioned and urged exporters to “look at everybody’s interest”. On demands for cuts in
handling costs by banks, Verma said pricing of export
credit did not make exporters’ operation
unprofitable.The cost of transaction to move goods from
the place of origin to the buyer’s place abroad
amounts to nearly 5 per cent of the total cost, the SBI
Chairman stated and felt it needed to be reduced. |
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Speculative markets drive away NEW DELHI, Aug 9 (PTI) — The high fluctuations in share prices is a predominant factor for small investors deserting the stock markets, a study conducted by derivatives Chairman L.C. Gupta said. “Volatile market attracts speculators and drives away genuine investors, making it even volatile and more dominated by speculative interest” Gupta says in his book “Indian Stock Market P/E Ratio”, co-authored by P.K. Jain and C.P. Gupta, both academicians. The study based on price-earning (P/E) ratio since 1980 says highly liquid stock have also led to speculative trading along with providing more volatility on the bourses. “Liquid shares attract most of speculative activity which accentuates, rather than stabilise price fluctuations in the markets”, it said.Mr Gupta, former Sebi member, and Director of Society for Capital Markets Research and Development, says violent fluctuations of market P/E ratio and share prices in India should be a matter of concern. “Unjustifiable rise in the market P/E ratio and the occurrence of market bubbles exposes small investors to high risk”, Gupta says in his study.P/E ratio signifies price being paid by the buyer of equities for each rupee of annual earnings, and is a crucial ratio for judging whether the prevailing market price of a share is reasonable or not. Tracing the cause for high volatility in stock prices, Gupta says manipulative practices along with poor quality of information flow have provided room for speculative market. The analysis also shows that fluctuation has considerably widened since beginning of 1990s as measured by the range between each year’s high and low prices, ratio of which ranges between 2.5:1 or more. Highlighting the volatility on bourses, the study says, median P/E ratio of BSE 100 scrips national index increased from 18 in July 1991 to 37.5 during the securities scam in April 1992 and again slipped to 21.3 by April 1993. With the entry of foreign institutional investor’s (FIIs) P/E ratio of the index more than doubled to 43.3 by April 1994 and by December 1996 it had touched a record low of 10.5. “Genuine long-term investors seem to have been badly bruised by the market’s ups and downs, Rampant malpractices both in the primary and secondary markets along with glaring misgovernance of companies”, Gupta said. Expressing concern over the situation Gupta said in the last 2-3 years, market has lost its importance as a mechanism for raising capital from investors for industry, even though its trading volumes are much higher than before. He said there
has been failure to effectively implement market reforms
which would reasonably protect genuine investors from
fraudulent promoters and market manipulators, like
practice of weekly settlement system instead of rolling
settlement. |
ONGC plans tie-up NEW DELHI, Aug 9 (PTI) — State owned Oil and Natural Gas Corporation (ONGC) is planning a tie-up with a foreign partner to jointly bid for commercial exploitation of coal bed methane gas (CBM) in Bihar. ONGC Chairman-cum-Managing Director Bikash C. Bora said the corporation was having talks with some leading players in this field and was now in the process of shortlisting a partner. He, however, declined to give the names. The government was expected to shortly invite bids for CBM exploration in different coal fields of the country and ONGC would actively bid for the same, he said. The country possesses
large unexplored deposits of high quality CBM associated
with the coal belts for which ONGC is now preparing a
feasibility report for commercial extraction. |
New economic guru to salvage economy The leader of Pakistan’s new economic team has announced a three-pronged strategy to salvage the country’s faltering economy tethering on the verge of default.Implementing recently announced economic incentives, seeking nontraditional sources of financing and engaging disappointed international leaders is how Hafiz Pasha hopes to dilute the impact of crippling international economic sanctions of Pakistan. Pasha was appointed economic adviser to Prime Minister Nawaz Sharif on Thursday in effect taking the place of finance minister Sartaj Aziz who has been made the foreign minister. Elaborating his strategy to counter the economic sanctions, he said that the first step has already been taken in the shape of recently announced contingency plan.The main objective of this package was to accelerate exports, check imports and revive inward remittances through a new floating inter bank offered rate system. This system was basically a move towards current account convertibility. By offering composite rates on remittances and a mixed rate for exports, imports, travel and education, almost 50 per cent current account convertibility has already been achieved. Pasha said that his second task would be exploring the nontraditional sources of financing. “We have already been assured support in cash and kind by friendly countries, “he said, adding: “My visit to Jeddah will be directed towards expanding these sources.”The third point of the strategy, he said would be to continue dialogue with multilateral agencies, namely the International Monetary Fund (IMF) and the World Bank.Reserves soar. Pakistan’s foreign exchange reserves have soared to $ 790 million after a soft-term loan of $ 250 million was credited to the State Bank of Pakistan (SBP) by Kuwait.The reserves, which was at a level of $ 531 million on July 24, have improved by $ 259 million in the past ten days, the SBP announced. The reserves were at a level of $ 1.2 billion on May 28, the day Pakistan conducted nuclear tests but had depleted to $ 825 million on June 27 when the last statement of affairs was released by the Central Bank. Sick units revived “While we have managed to get about 700 revived, it will take strenuous efforts get the rest up and about,” he added. Wheat imports The province would import 1.2 million tonnes, while the federal government another one million tonnes of wheat, the official said.Arrangements have already been made for the import of 8.5 million tonnes due to a favourable deal with an American wheat exporting firm the official added.Diversion of funds At a time when Pakistan looks to be ever so close to defaulting it global debt repayments media reports here alleged that successive governments have diverted funds meant for debt-servicing to other heads.A report published in the daily “Nation” says that over last eight years, governments have diverted proceeds from the disinvestment 90 state-owned companies into funds meant for Parliamentarians. Moody’s
rating |
DSE to be on Demat map from August 17 NEW DELHI, Aug 9 (PTI) — The Delhi Stock Exchange (DSE) would start trading in dematerialised shares from August 17, eliminating all the risks related to the settlement in the physical form. DSE Executive Director S.S. Sodhi told PTI that dematerialised trading would be started on August 17, when the new settlement begins at the bourse on that day. DSE would be the third exchange to have paperless trading facility after NSE and BSE, he said. He said dematerialised trading would eliminate all the risk related to settlement in physical form and risk of bad deliveries besides bringing transparency and speed in settling the trades. All the necessary ground work for starting the Demat trading like introduction of trade guarantee fund (TGF) and joining National Securities Depository Ltd (NSDL) was completed, he added.“Most of the member brokers have joined TGF which was operationalised on July 27, and remaining few will join this week before starting the paperless trading,” Sodhi said. The trade would be on T-5 basis (trading plus five days) and settled within a week from the date of execution, he said adding the securities or payments would be available to the investors much earlier than the current system.In the system, a clearing member could open an account with a depository participant only after he (clearing member) registered with the depository and was allotted an identification number by the depository. Mr Sodhi said, “the
exchange is fully geared up to extend its operations all
over the country, starting with northern states, through
satellite based terminals and the first few terminals
will be installed by the third week of August.”The
member brokers had been asked to submit the details of at
least two to three locations to put up terminals which
would enable the exchange to widen and contribute to
higher liquidity, he said. |
CM urged to roll back power
tariff hike GURGAON, Aug 9 — The Gurgaon Industrial Association (GIA) has appealed to the Haryana Chief Minister for rolling back the increase in the power tariff.President of the GIA, Mr S.B. Aggarwal, said that the revised power tariff of Rs 4.03 for the general industries and Rs 4.18 for the furnace industries from the existing rate of Rs 3.41 was not justifiable. Comparing the industrial tariff of the neighbouring states, Mr Aggarwal informed that Punjab was providing power at Rs 2.25 for 70 KW industries and Rs 2.96 for above 70 KW furnace industries. The tariff in Delhi for three two categories was Rs 3. The GIA President said that in Uttar Pradesh power was being provided at a tariff of Rs 2.37 for industries upto 70 KW and Rs 3.08 for above 70 KW furnace industries tries while in Himachal Pradesh the rates were as low as Rs 1.70 and Rs 1.95 in the two categories. Mr Aggarwal added that the HSEB though keeps on revising the tariff yet it has failed to improve the quality and quantity of electricity for the industries.Since Haryana has no home market, the products manufactured here has to be marketed to the adjoining states where the electricity rates are much lower and therefore it is not possible for our industries to compete with them, the GIA president said. He added that the natural
justice demands that the tariff should be at par with the
neighbouring states and any tax revision should be done
keeping in mind the comparative structure in the neigh
bouring states which will help the industries to grow. |
SOME star blue-chip companies announced excellent results during the last fortnight but the stock market continued its downward drift. Hindustan Lever improved its net profit by 28 per cent in its first-half year results and announced an interim dividend of Rs 9.60 per share. Nestle’s first half net profit was higher by 57 per cent. ITC’s first quarter net profit was higher by 18 per cent. Novartis India’s first quarter net profit stood at Rs 13.5 crore, Ranbaxy’s first quarter net profit was higher by 18 per cent. Indian Shaving Products earned 121 per cent higher net profit for its first quarter. Even these results did not raise the market prices of the scrips of many of these companies.Even the report that the government would soon be permitting the companies to buyback their shares from the market by issuing an ordinance had no effect on the market. The recent policy decisions on exports with substantial concessions did not impress the market. I have no doubt that the concessions announced by the government for the software and infotech companies on August 7 would not move up the market.I do not think that the market can make any recovery during this calendar year. The government is, no doubt, doing its best to revive the economy and the market but even these efforts cannot revive the market for the present economic recession is rooted in the marshland of global recession with particular reference to South East Asia, US sanctions, demand recession in India, faltering exports and rising input costs. It would take quite a long time for the economy to revive.It is interesting to note that the present economic and stock market recession has a sectorial base; it has affected only some sectors and not all the sectors of industry. Recent analysis made by the financial papers and analysts confirm what had been stated here in this column in its previous issues. Information technology, banks, consumer goods and refineries have continued to do well. Automobile industry, cement, steel and cotton textiles as well as non-banking financial companies have been faring badly. While the pharma companies have been doing well, the paper industry is in a real mess.Almost half of the companies have yet to declare their first quarter results. Almost ninety per cent of these companies are likely to announce poor results. Almost all the star companies have already declared their results and the remainder are companies with poor fundamentals and prospects. These results are unlikely to be reported widely.In October-November, the first six month results of the companies which close their accounts on March 31 would be available. These results are unlikely to be any different from or better than the first quarter results. The long-term investors should be, therefore, very cautious in picking up shares from the market in the belief that the worst is over and the present market rate of some good equity shares are attractive from investment viewpoint. Patience is the need of the hour. Keep your purse tight and prepare a watch-list of shares to be picked up when the market moves down still longer. In our own region, the Nahar group of companies as well as the Vardhman group of companies have announced poor first quarter results. I would favour investment in the Vardhman group of companies (Vardhman Spinning, Mahavir Spinning and Vardhman Polytex) even around the present market rates but a little wait would be better. Nahar Spinning might improve its annual results compared to the last year but the results are not likely to be much better. At the present rate, it is fully priced. When it drifts lower, it may offer a better investment opportunity.In the automobile sector, GKN Invel Transmission has moved down to a low of Rs 24 per share (of Rs 10 face value). Its first half yearly results are not good but it is a good ‘pick-up’ around the present market rate or lower if one can keep it for the next two years or longer in the portfolio.Long-term investors find themselves in a great fix. Mutual fund schemes with fixed income provide both security and good return in terms of interest but inflation rate at 8 per cent (and more) eats away the purchasing capacity of the funds invested in fixed interest investments of UTI and of other mutual funds and banks. Investments in the stock
market is at present unrewarding. Such investments
depreciate even in weeks after the investment has been
made. Investment in property requires large funds with
uncertain market returns. The best option is that put
your eggs in different baskets, but with proper
consideration and a good deal of caution. |
SEVERAL airlines, known and not so renowned, have augmented their operations ex-India as they find India a lucrative air-field to market their product. May carriers — eastern, European and American — have been meticulously widening their umbrella on the Indian air-space. The more the air-ground space foreign carrier occupy, the less will be available to Air India which, as compared to many foreign carriers, has a very limited fleet.Air India, for example, has a fleet of 26 aircraft (6 Boeing 747-400, 2 Boeing 747-300, 7 Boeing 747-200, 8 Airbus 310-300 and three Airbus 300. In comparison, Lufthansa has the fleet of more than 300 and United Airlines about 570. Singapore Airlines and Cathay Pacific have also a much bigger fleet than Air India’s.Apart from depleted fleet, Air India’s physical and financial performance have been far from satisfactory. The 1997 summer schedule showed Air India had 45 on-line stations. But in the winter schedule there were only 39 stations. There are quite a few stations which, on paper, are projected under the national carrier but effectively they on paper, are projected under the national carrier but effectively they are Air India’s foreign alliance carriers.The specific study projects Air India in a very poor state of health. Apart from ageing aircraft, which need to be done away with, the national carrier is currently besieged with shrinking routes, irregular frequency, decreased capacity and mounting losses. This is a dismal scenario — is not it for the national carrier?What is the remedy to help national carrier begin its turn-around. Maybe, the Government should help ‘Maharajah’ raise its head by providing the required ‘subsidy’. Maybe, the government rises above procrastination and provides national carrier permission to augment its fleet to expand its operations. The wider the area of wings, the better will be the market share.The study by experts shows that Air India has far too much staff for the fleet of 26 aircraft. Maybe, Air India should get rid of the ‘dead wood’ from within its ranks. British Airways did the same many years ago and turned from rags-to-riches in no time. Air India has a competent set of officials at different levels. What is essential is that it has to initiate a plan and a programme which is more beneficial to the national carrier then individuals. The scheme of general sales agent or consolidators, for example, has been a ‘misnomer’. It may have helped and enriched individuals but it has hurt the national carrier. It is a truism. Every one in the industry, within Air India and outside national carrier, knows about it. There have been spate of court cases. The scheme of GSAs and consolidators at least in the USA and Europe has played havoc.It will be in the fitness of things if unrewarding schemes are shelved instead of starting gimmicks, like, voluntary cut in salaries and so on. These kinds of gimmicks may help please politicians but they serve no purpose to help improve health of the national carrier.There is no denying that the Managing Director Michael Mascrenhans has been an established dynamic commercial incumbent. But it is not enough until he is able to help Air India start improving its financial health. Grand airport When the second runway is ready by the end of this year, the airport will be able to handle much more passengers than has been the case at present.“We have moved to our new home and it will be the envy of every other airline”, said Cathay Pacific Airline officials. The highlights of the new airport are:1. The world’s largest departure lounge;2. Extensive in-town check facilities;3. Dedicated check-in desks at the airport terminal;4. Dedicated gates for easy access. A successful
seminar Many areas, including
state of the industry, air transport towards the 21st
century, ensuing safety standards in liberalised
environment and many other topics were dealt with at the
seminar.The words spoken were impressive. But will
authorities take measures to implement proposals and
suggestions made in the seminar to that seminar becomes a
rewarding exercise? |
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Inflation Economiser Bajaj Auto |
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