Business & Finance

Sensex tumbles 302 points on earnings concern, weak global cues

The Bombay Stock Exchange benchmark Sensex on Monday tumbled 302 points on heavy selling in blue-chips led by Reliance Industries and banking stocks on investor anxiety over corporate earnings amid depreciating rupee and weak global markets.

The Sensex, which lost 244 points in the previous session, fell further by 302.31 points to 16,151.45 on continued outflow of foreign funds.

A weak trend in the Asian region and lower openings in Europe also dampened the market sentiment, as Greece said it would not meet the target for reducing its massive deficit, adding to the pressure on the eurozone crisis.

The National Stock Exchange index Nifty dropped 93.75 points to 4,849.50, after touching the day’s low of 4,823.90.

Brokers said high inflation and rising commodity prices have added to fears of interest rate hikes. They said the country imports more than 75 per cent of its fuel demand, and buys commodities including pulses, edible oils, natural rubber and some grades of steel from overseas.

Thus, the weak rupee spurs the country’s import bill.

The rupee weakened one per cent to 49.49 per dollar after losing 8.7 per cent last quarter.

The two heaviest stocks, with 20 per cent weight on the index — Reliance Industries and Infosys — suffered heavy losses. RIL lost 2.49 per cent and Infosys 2.27 per cent. ICICI Bank fell 4.12 per cent, SBI 2.53 per cent and HDFC Bank by 1.88 per cent.

The realty sector index suffered the most, falling 4.59 per cent to 1,682.06, followed by metals index — 4 per cent to 10,555.54. The banking index lost 2.82 per cent to 10,544.72.

Delay in approvals hurting drug development: Kiran Mazumdar

Undue delay in approvals for clinical trials is hurting the pharmaceutical and bio-technology sector and affecting the general process of drug discovery and development, Biocon Chairman and Managing Director Kiran Mazumdar-Shaw said here on Thursday.

There was need for the industry to engage constructively with the society and adequately inform the stakeholders.

It was important for the media to be properly informed of the processes associated with drug discovery and development, with particular reference to clinical trials, Ms. Mazumdar said on the sidelines of a two-day BIO India International Partnering conference that began on Wednesday.

Ms. Mazumdar said it was accepted that the next big economic growth in India after IT would be in the pharma, bio-pharma and bio-technology sectors and to ensure this, it was imperative that policy enablers were in place. Good regulatory support was a vital ingredient in the process, she added.

Earlier, Glenmark Pharmaceutical Chairman and Managing Director Glenn Saldanha said that with increasing costs of drug discovery, research partnerships with multinational companies were the way forward for Indian pharmaceutical companies.

The costs of approved drug development between 2005 and 2010 were about $2 billion, 50 per cent higher than they were between 1999 and 2004. “Big pharma companies here are looking beyond innovation to branded generics because of prohibitive costs,” he said, adding that alliances with Indian companies were going to be crucial for global companies.

Eli Lilly Executive Director Aaron Schact said contract research and manufacturing services and respect to global regulatory regime were strengths of Indian pharma companies.

BIO Executive Vice-President Alan Eisenberg said the bio-pharma industry in India had grown 25 per cent to $ 4 billion in 2010 and there was a huge potential.

Association of Biotechnology Led Enterprises President Vijay Chandru said that 60 per cent of the $4-billion industry’s output came from bio-pharma companies.

Govt lifts ban on onion export

Faced with strong protests from the farmers and a demand from the Maharashtra Government, the Government on Tuesday announced lifting of ban on export of onions with immediate effect.

The decision to permit exports of onions was taken by the Empowered Group of Ministers (EGoM) on Food headed by Finance Minister, Pranab Mukherjee here. “Ban on onion export has been lifted,’’ Union Minister for Science and Technology, Vilasrao Deshmukh told reporters after the GoM meeting.

Those who attended the crucial meeting included Agriculture Minister, Sharad Pawar and Food and Consumer Affairs Minister, K.V. Thomas. The government had imposed a ban on onion exports on September 9 to check its spiralling prices which touched Rs 25 a kg in retail in Delhi. The Minimum Export Price (MEP) on onions has been fixed at $475 per tonne, the same level when the government decided to prohibit the shipment of onion, Mr. Deshmukh said.

He said the situation will be reviewed after a fortnight. While the ban on exports had an instant impact in bringing down the wholesale prices of the onions by Rs. 2-5 per kg in Delhi, the decision had triggered protests from farmers in the key producing regions of Maharashtra and Karnataka.

Farmers in Nashik district and Bangalore had refused to bring their produce to markets protesting the drop in their profit level due to ban on onion export. The farmers’ agitation forced the government to take a fresh look on the onion export ban.

Commerce Secretary, Rahul Khullar said the MEP will be reviewed every fortnight and a close watch would be kept on domestic arrivals, total exports, overall domestic availability and domestic prices.

Govt clears Vodafone’s stake buy in JV with Essar

The plea of UK-based telecom operator Vodafone to buy 5.48 per cent stake in the joint venture — Vodafone-Essar — from two Mauritius based entities has been approved, the government said on Monday.

“Since the transaction is between non-resident (firms) to non-resident, there is no foreign equity inflow,” the finance ministry said in a statement.

The transaction is for transfer of shares of Vodafone Essar from Mauritius based Essar Communications and Essar Com Ltd to Euro Pacific Securities — an indirect Mauritius based subsidiary of Vodafone International Holdings BV. The transaction is worth about Rs 2,700 crore.

The FIPB cleared the transaction based on information provided by the company and inputs from a committee headed by a senior government official, the statement said.

However, the Foreign Investment Promotion Board (FIPB) has deferred decision on another request of Vodafone-Essar to “transfer of shares from resident (firm) to non-resident (entity) to carry out the activities relating to telecommunication”, it added.

Vodafone-Essar is joint venture between UK-based Vodafone Group Plc and India’s Essar Group.

One of the Mauritius based indirect subsidiaries of Vodafone had approached the FIPB for permission to buy the stake in Vodafone-Essar.

As per the FDI norms, proposals involving foreign investment of more than Rs 1,200 crore require the approval of the CCEA.

Recently, Vodafone entered into an agreement with its JV partner Essar to acquire 33 per cent stake from it for USD 5.46 billion.

Before that, in 2007, Vodafone had bought majority stake of Hong Kong-based Hutchison Telecommunications — former partner of Essar in the JV — for about USD 11 billion.

RBI mid-quarter review: the preoccupation with inflation

A plethora of conflicting trends and signals made the Reserve Bank’s mid-quarter review a complex affair. Two important macro economic data — industrial production numbers for July and the Wholesale Price Index-based inflation for August — were scheduled last week, just days ahead of the policy meet.

Both have a substantial influence on the monetary policy formulation. The Index of Industrial Production data for July confirmed the slowdown in economic growth. At 3.3 per cent, it is the slowest rate of growth in almost two years. It was 8.8 per cent in June and a robust 9.9 per cent in July, 2010. Contraction in production of both capital and intermediate goods accounted for a substantial portion of the decline. Growth in manufacturing, which constitutes 75.5 per cent of the IIP, hit a 21-month low at 2.3 per cent in July, down from 10.8 per cent during the same month last year. Growth during April-July this year has averaged just 5.8 per cent.

The weak data prompted calls for a pause in monetary tightening. Industrial growth, especially manufacturing, is highly interest rate sensitive.

At another level, it is also suggested that the GDP growth projections for the current year need to be reworked. For instance, the Economic Advisory Council to the Prime Minister had pegged the industrial growth at 7.1 per cent for this fiscal, which would deliver economic growth of 8.2 per cent. The assumption was that agriculture would grow by 3 per cent and services by 10 per cent.

Of course, the biggest worry is inflation. Headline inflation as measured by the WPI rose to 9.78 per cent for August from 9.22 per cent a month ago. Core inflation (non-food manufactured inflation), which the RBI tracks carefully, rose to 7.8 per cent from 7.5 per cent. The RBI’s target range for inflation at the end of this fiscal is 7 per cent.

Stark choice

So on the eve of its policy meet, the choice before the RBI was as stark as it could ever be. Should it raise the policy rates to douse inflation a course of action that seems to suggest itself automatically given the persistence of inflation? Or should it pay heed to several appeals, including from the highest levels of the government and ‘pause’?

The RBI had hiked the rates 11 times between March, 2010, and July, 2011. The repo rate on the eve of the policy meet was 8 per cent.

Complicating the decision making is the worsening sovereign debt crisis in Europe and the high unemployment amidst low growth in the U.S. While the Indian financial sector is insulated from the European crisis, exports might see a demand contraction in these developed markets. But by far the biggest impact of the sovereign debt crisis is on global commodity prices, whose phenomenal upsurge in the recent past drove up inflation. Theoretically, the crisis in Europe should soften commodity prices. However, the fall in commodity prices, including those of petroleum, has been arrested. The unconventional methods adopted in the U.S. to stimulate the economy — through ultra soft monetary policies — are bound to push up global commodity prices, by increasing liquidity.

Growth to be sacrificed

Finally, the argument that the RBI should take into account the deceleration in the economy is valid only up to a point.

In the first quarter of the current year, the economy grew by 7.7 per cent only marginally lower than the 7.8 per cent growth of the previous quarter. That there is a deceleration is not in doubt but there is no danger of a collapse. The RBI itself has on more than one occasion made it clear that a portion of the growth momentum will have to be sacrificed as it pursues an anti-inflationary policy.

On Friday, the RBI hiked the policy repo rate by 0.25 percentage point for the 12th time to 8.25 per cent. The reverse repo rate has consequently been fixed at 7.25 per cent and the marginal standing facility rate at 9.25 per cent.

In a brief crisp policy statement, the RBI has explained the rationale of its action. Global macroeconomic outlook has worsened since the RBI’s quarterly review of July 26.

The sovereign debt crisis in Europe has worsened. The U.S. economy is beset by high unemployment and weak growth. India’s exports, now on a high growth trajectory, are expected to falter in the face of weak demand from the developed countries. Since domestic demand is also weak, partly due to the monetary action, there could be a case for revising downwards the RBI’s growth estimate for the current year. Recently, the rupee has depreciated sharply against the dollar.

The RBI attributes this to increased risk aversion. It remains to be seen as to how far capital inflows will be affected. Food prices have remained persistently high despite a satisfactory monsoon.

No longer can they be treated as a temporary phenomenon. There are structural factors both on the supply and demand side underpinning food inflation.

The RBI expects inflation to moderate towards the end of the year as past monetary actions work their way through the system.

Monetary policy operates with a lag. Hence, a premature withdrawal of monetary tightening will be counter-productive and harden inflation expectations. The mid-quarter policy statement does not give a clue as to when the monetary tightening will begin to be phased out. Evidently the central bank will wait for a reversal in the inflation trajectory. Global developments will, of course, play a part.

Obama to propose ‘Buffett tax’ on millionaires

WASHINGTON: President Barack Obama, in a populist step designed to appeal to voters, will propose a “Buffett Tax” on people making more than $1 million a year as part of his deficit recommendations to Congress on Monday.

Such a proposal, among suggestions to a congressional supercommittee expected to seek up to $3 trillion in deficit savings over 10 years, would appeal to his Democratic base ahead of the 2012 election but may not raise much in revenues.

White House Communications Director Dan Pfeiffer said in a tweet on Saturday the tax would act as “a kind of AMT” (Alternative Minimum Tax) aimed at ensuring millionaires pay a minimum rate of tax that at least matches that of middle-class families.

The “Buffett Tax” refers to billionaire US investor Warren Buffett, who wrote earlier this year that rich people like him often pay less in tax than those who work for them due to loopholes in the tax code, and can afford to pay more.

Obama will lay out his recommendations in White House Rose Garden remarks on Monday and is expected to urge steps to raise tax revenue as well as cuts in government spending.

Those could include reforms of the Medicare and Medicaid government healthcare programs for elderly and poorer Americans. The White House has already said Obama will not recommend any changes to the popular Social Security federal retirement plan.

Obama, who has been hammered in opinion polls over his handling of the faltering economy, wants to use his plan to counter Republican claims he is a ‘tax-and-spend’ liberal as he campaigns for re-election next year.

Congress is at liberty to ignore his suggestions and Republicans, who control the US House of Representatives, have said that they will not agree to tax hikes.

Investor scrutiny

If the President pushes for tax increases that stand little chance of being passed by a divided Congress, it may help him blame lawmakers for thwarting his plans at a time when the public’s opinion of Congress has touched record lows.

But he is also under pressure to show leadership after rating agency Standard and Poor’s cut the US AAA credit rating, and as investors scrutinise Washington for evidence it can curb the country’s towering deficit and mounting debt.

The supercommittee of six Democratic and six Republican lawmakers must find at least $1.2 trillion in deficit savings before the end of the year to avoid painful automatic cuts, and is mandated to seek savings of up to $1.5 trillion.

Those savings are on top of $917 billion in deficit reduction agreed to in an August deal to raise the US debt limit and Obama wants the supercommittee to go further.

Obama has separately urged the supercommittee to consider $467 billion in tax increases on top of that goal to pay for a jobs bill he unveiled earlier this month.

He has repeatedly called on Congress to close tax loopholes for “millionaires and billionaires” as he seeks to draw a sharp distinction between himself and the Republicans before next year’s election.

The Buffett Tax could help energise Obama’s base by highlighting a feature of the US tax code that allows the super rich to pay lower rates of tax than less wealthy Americans because much of their income comes from investments.

Those are taxed at 15 percent, compared with income tax rates of 10 to 35 percent.

“We’re playing with fire if we don’t agree at least on the minimum (in deficit cuts),” said William Galston, a senior fellow at the Brookings Institution in Washington.

“If we can’t get to at least $1.2 trillion … people outside the United States, to whom we are in the last analysis beholden, are going to reach conclusions about us that are going to make our jobs and our lives even more difficult,” he said.

Pass jobs bill without ‘division or delay’: Obama

President Barack Obama, doubling down on his economic agenda, kept up his appeal Saturday for public support of his $447 billion proposal to boost jobs and consumer spending, calling on Americans to press Congress to pass the legislation and insisting, “No more division or delay.”

In his weekly radio and Internet address, the president reiterated a message that has become a central focus of his presidency amid stubbornly high unemployment numbers and dipping approval over his handling of the economy.

The President announced his jobs legislation to a joint session of Congress last week and has since gone outside Washington to build a case for its passage. He has been to Virginia, Ohio and North Carolina.

“The No. 1 issue for the people I meet is how we can get back to a place where we’re creating good, middle-class jobs that pay well and offer some security,” he said.

His address Saturday came in the face of sobering public opinion ratings for the president. A New York Times/CBS News poll released Friday showed nearly half of those surveyed worried the economy was headed for another recession and nearly three out of four said they believe the country is on the wrong track.

The president’s job proposal would reduce payroll taxes on workers, cut them in half for most businesses and offer incentives for employers to hire. It also would spend tens of billions of dollars on new public works projects, extend unemployment benefits for long-term jobless and help states and localities avoid layoffs of teachers and emergency workers.

On Monday, Mr. Obama plans to spell out a long-term debt stabilizing plan that aims to cut the deficit by about $2 trillion over 10 years. Mr. Obama is making his proposal to a special congressional committee that has been charged with lowering deficit by $1.2 trillion to $1.5 trillion.

“But right now, we’ve got to get Congress to pass this jobs bill,” Mr. Obama said.

Mr. Obama’s jobs plan has received a tepid reception from Republicans. But his proposal to pay for the plan with limits on tax deductions and closing corporate tax loopholes is facing stiff Republican resistance.

In the Republican address, Rep. Peter Roskam called on Mr. Obama to reduce regulations on businesses, saying government agency rules were choking off hiring. “Washington has become a red tape factory,” he said.

He acknowledged Mr. Obama’s controversial decision to scrub a clean-air regulation that aimed to reduce health-threatening smog. “He can cancel more,” Roskam said.

He pressed Obama to push the Democratic-controlled Senate to adopt House Republican initiatives, including legislation that would give Congress veto power over certain high-cost regulations.

“Job creators should be able to focus on their work — not on Washington’s busy-work,” he said.

Wall Street completes week-long winning streak

Major U.S. stock indices closed higher Friday for a fifth straight session.

Wall Street stocks closed higher every day this week.

Friday’s trading came as euro zone finance ministers agreed with U.S. Treasury Secretary Timothy Geithner to pursue “a strong and international response” to the financial crises plaguing both sides of the Atlantic.

On Wall Street, the blue-chip Dow Jones Industrial Average rose 75.91 points, or 0.66 per cent, to 11,509.09. The broader Standard & Poor’s 500 Index gained 6.9 points, or 0.57 per cent, to 1,216.01.

The technology-heavy Nasdaq Composite Index added 15.24 points, or 0.58 per cent, to 2,622.31.

The U.S. currency halted its slide this week against the euro, rising to 72.53 euro cents from 72.06 euro cents on Thursday. The dollar edged up against the Japanese currency to 76.81 yen from 76.7 yen.

RBI rate hike to bring down inflation to comfortable level: Pranab

Finance Minister Pranab Mukherjee on Friday said the 25 basis points rate hike by the Reserve Bank will help in moderating inflation to a comfortable level without hurting growth.

“I am hopeful that measures taken (by RBI) would get us back to a more comfortable inflation situation earlier rather than later… while (leaving) scope for growth to pick up in the second half of the year,” Mr. Mukherjee told reporters here.

The Reserve Bank in its mid-quarterly review hiked interest rates by 25 basis points making credit costly. This is the 12th time since March 2010 that the RBI hiked rates in its efforts to tame inflation.

“Today’s step is consistent with RBI’s monetary stance for the first half of 2011-12 and overall concern on growth sustainability in the medium term,” Mr. Mukherjee said.

The RBI had earlier said that inflation would continue to be the guiding factor for deciding the monetary policy action in future. It had projected March-end inflation at 7 per cent.

According to the central bank, the inflation would cool only in the later part of the financial year. The overall inflation was 9.78 per cent in August, up from 9.22 per cent in July, much above the RBI’s comfort level of 5-6 per cent.

In the backdrop of mixed data on the state of economy, Mr. Mukherjee said, headline inflation, which is above 9 per cent for the last 12 months, continues to be a matter of concern.

“There are signs of growth (getting) affected by monetary tightening in the recent days,” the Minister added.

Industrial production fell to a 21-month low of 3.3 per cent in July. The country’s GDP growth also slipped to 18-month low of 7.7 per cent in April-June period.

Asian markets rally after European bank decision

A decision by European central banks to support the region’s financial system helped calm Asian markets, setting off a rally in early Friday trading.

The focus is now shifting to talks in Poland between U.S. Treasury Secretary Timothy Geithner and his European counterparts, which run through Saturday, about coordinating efforts to prevent Europe’s debt crisis from derailing a global recovery.

Japan’s Nikkei 225 index rose 1.7 per cent to 8,819.69 while South Korea’s Kospi advanced 3.5 per cent to 1,835.31. Hong Kong’s Hang Seng gained 2.1 per cent to 19,585.10.

The news also set off a rally in U.S. stocks overnight, with the Dow Jones industrial average rose 1.7 per cent to close at 11,433.18. The Standard & Poor’s 500 index climbed 1.7 per cent to 1,209.11.

Worries about European banks’ borrowing problems, a key element in the region’s debt crisis, have been hanging over global markets in recent weeks, especially about the cash-strapped governments in Greece and Italy.

But the European Central Bank, the U.S. Federal Reserve and three other central banks said Thursday they would provide European banks with unlimited dollar loans.

In currencies, the dollar strengthened to 76.78 yen from 76.64 Japanese late in New York on Thursday. The euro fell to $1.3866 from $1.3889.

Benchmark oil for October delivery was up 1 cent at $89.41 per barrel in electronic trading on the New York Mercantile Exchange. The contract added 49 cents to finish Thursday at $89.40 per barrel.

In London, Brent crude for October delivery was up 40 cents at $112.70 on the ICE Futures exchange.