December 29, 2008
The world may be witnessing an economic crisis and the stock markets worldwide may have been expected to tank, but the reality is not that gloomy. In most Asian markets, stocks have opened on a weaker note this Monday. However, according to analysts, equities are likely to remain in a trading range during this ongoing holiday season.
As a result, the traders may have a reason to smile in the run-up to the New Year. This is indeed a great news particularly when Japan’s Nikkei 225 Stock Average lost 0.8%, while benchmark indexes in South Korea and China lost more than 2% .
The ray of hope has come from some good news coming from the US markets. While energy stocks climbed alongside oil prices, the General Motors managed to qualify itself for the government funds, thus warding off potential bankruptcy. The consequence of such positive news has reflected quite well in the market. The Dow Jones Industrial Average, the Standard and Poor’s 500 Index , and the Nasdaq Composite Index rose by 47.07 points, 4.65 points and 5.34 points respectively.
However, it is the Asian Markets that are likely to remain lacklustre. The gloomy picture of the most Asian markets coupled with closure of the markets in Indonesia, Malaysia, and the Philippines for holidays may dampen the possibility of the markets gaining back their confidence.
Back home, the Dalal Street is likely to remain low owing to the ongoing holiday season and festivities across the world, affecting the trading volumes. The negative buying sentiment amongst the Indian investors is still going strong. This is evident from the fact that the Sensex has fallen below its 50-day and 20-day moving averages. The 9100 mark needs to be maintained in order to avoid the closing lows of 8451. The Friday was marked by selling of equities for the fourth consecutive day. As a result, while the BSE Sensex fell by 239.80 points, the NSE’s Nifty closed at 2857.25, down by 59.60 points.
The uncertainty in the equity market amidst global recession is still the major force that will decide the future of the investors. It would be quite interesting to see what strategy the investors would resort to in the New Year.
December 22, 2008
The ongoing global recession has tightened the financial position of the banks and big corporates worldwide. However, the RBI and the Indian government always hinted at a positive picture with our economy being able to go strong even amidst global recession and financial crunch. The special arrangements made by the RBI over the past few months have enabled banks to access cheaper funds. As a result, all major banks have decided to offer loans to corporates at cheaper rates. The lending rates to corporates are currently at the level of 12-14%. With all banks indicating a reduction in lending rates, corporates may be able to procure funds at a rate as low as 11-13%. This one percentage point reduction is likely to be witnessed in a matter of few weeks.
For banks, the cost of funds has come down by 25-50 basis points in the last 2-3 months. As cheaper funds help banks to offer cheaper credit, it is the time for all corporates to smile. It is not only the reduction in the cost of funds that has made banks to take this action. There is one more reason. In current times, banks are finding it easier to raise funds, compared to three months ago. This is largely because people who were putting money in the share market are now coming to banks, compelled by the poor performance of share market and instability owing to global recession. This in turn has made our banks rich with more funds.
Most of the leading banks are in favour of offering even a two percentage point cut for companies if the latter proposes a viable project. This is a known fact that banks fix interest rates only after assessing the risk in the company’s proposed project. If the project offers good potential and the companies are able to convince that their projects need reduced interest rates for their viability, banks may consider a two percentage point cut in corporate lending rates.
Amidst this positive picture, if anybody needs a reason to worry, that would be the common man. This is because banks are planning to cut the interest payable on fixed deposits by at least one percentage point from next month. This step will be taken to lower the cost of funds even further. A cut in deposit rates always hurts a common man like you and me. In such a case, all that can be said is while corporates have a reason to rejoice in the new year, common man is on the verge of witnessing a cut in one of his major sources of income.
December 15, 2008
The growth in the tea exports of India in 2008 compared to the previous years may not sustain for long owing to the global recession. Indian tea exporters have always contributed to the foreign exchange earnings of the country. This year also, our tea export industry has witnessed a buoyancy in its export levels. However, since September 2008, the inflow of funds from overseas has come down significantly, lowering the hopes of our exporters regarding maintaining the growth in this sector.
The major importers of tea from India have always been Russia and Pakistan. With Pakistan already into the clutches of global recession, and Russia too following the trend soon, Indian tea exporters are truly concerned about the losses which they might face in the near future, in spite of recording a growth in exports in 2008.
The loss likely to be suffered by the tea exporters in India due to global recession is unavoidable as other industries have also been equally affected. The difference is only this while other industries have already started facing a decline in their revenues, tea exporters in India are on the verge of facing the same.
Global recession is only one aspect of the whole story. This is because our domestic tea producers are soon going to face another threat in the form of reduction in import tariffs on cheap quality tea from Vietnam and other countries. Given the present state of WTO (World Trade Organization) and the Indo-Asean Free Trade Agreement already inked down, there is going to be a reduction in import tariffs from current 100% to 45% in a phased manner, with 5% decline every year, starting from 2009. Such a step is definitely going to affect the revenues of Indian tea producers. More than this, some producers may not be able to face the stiff competition from low priced imported tea.
The Indian Tea Association (ITA) has already projected a production of 962 mn Kg of tea (for 2008), of which 200 mn kg will be exported by the end of 2008. In this scenario, the difference of 762 mn kg of tea is going to meet the domestic demand. If cheap tea enters the market in larger quantities than before due to the reduction in the import barriers, the loss to the domestic tea business in India is quite unavoidable. As a result, it is the high time for our tea producers to not only fight against recession, but also devise strategies to increase their domestic market share, well in advance.
December 8, 2008
The global recession may have hit the economies badly, but it has also brought along a reason to smile for all of us. The cut in the petrol and diesel prices by Rs 5 and Rs 2 respectively, declared by the Government is a positive impact of this recession on us, of course, not for the Organization of the Petroleum Exporting Countries (OPEC).
The US has been one of the most worst hit economies due to recession. Record losses and poor equity market performance have led to a drastic fall in the industrial demand for crude oil. The result is a fall in crude oil prices to $42 per barrel last week. This near record fall was enough to produce a worldwide decline in oil prices. In addition, record job losses have turned out to be a curse for the automobile sector. Moreover, many big global companies like AT&T and Dupont have declared lay offs on a large scale. All this has resulted into a very dim chance of the global economy to take onto the path of recovery. According to trade analysts, the demand for crude oil is likely to fall further if this recession reaches China. In fact, there has been a fall in the forecast of average annual growth of oil demand in 2013 from 1.6% to 1.2%.
You may wonder what the OPEC members may do to prevent any further fall in crude oil prices. That is something to watch out for. The record fall to nearly four-year lows have already prompted OPEC members to call for a drastic cut in oil output. The final call will be taken on the OPEC meet on Dec 17 in Algeria. Whatever be the case, you have no reason to worry. You may continue to enjoy reduced fuel prices until demand for crude oil in the international market rises to a level close to the one that used to prevail prior to the beginning of the recession. As long as, demand for crude oil fails to rise, a major cut in oil production required for preventing fall in oil prices may not be able to bring about the desirable effects for the OPEC members.
Following a cut in petrol and diesel prices, there has been a major political clash between the UPA government and CPI. Addressing the issue as “too little and too late”, the CPI National Secretary has demanded a further fall in fuel prices, including the price of domestic gas. According to him, the oil prices in the international market has declined many weeks back. As a result, government should decide for a reduction in fuel prices by a significant amount. Restructuring of import duties on oil products is also a much needed step in the current scenario. Whatever be the end result of it, a common man like you and me should feel relieved by this cut in oil prices. It will also not be wrong on your side to expect a further fall in the prices in the near future.
December 1, 2008
Nov 26 will be imprinted in the minds of every Indian. It was the day when terror attacks started in Mumbai causing grave loss to human life and property. Today, NSG commandos and the Mumbai police might have been successful in putting an end to it, but the loss that we suffered will remain fresh in our minds for ever. Loss of innocent human life is not the only point of concern for the moment. This ruthless and barbaric incident has also resulted into a heavy financial loss for Mumbai.
According to industry experts, the 60-hour terror ordeal cost Mumbai nearly Rs 4000 crore of the financial capital. As the whole of Mumbai was shadowed by continuous terror strikes for almost 4 days at a stretch, most of the businesses were closed, resulting into heavy financial losses. When one of the world’s busiest cities like Mumbai is shut down, it loses more than Rs 1000 crore everyday. Hotels, shops, and all other businesses are equally hit. Mumbai, being the hub of the entertainment industry has also witnessed a loss of more than Rs 10 crore in the film and television industry during the 4 days of terror strikes. To be more specific, the loss suffered due to shut down of the movie theatres and multiplexes is approximately Rs. 8 crores. Besides, the close down of the Bombay Stock Exchange, the National Stock Exchange, and various commodity exchanges has caused a mammoth loss to the business entities.
Like every Mumbaikar, I too feel when will such terror attacks stop. When will our politicians understand that we need to equip ourselves in every possible way to fight such disasters? Today, when the whole world is under a continuous threat of terrorism, we cannot simply sit down and wait for such attacks, and then decide our strategies and that too, after long discussions.
This is not for the first time that we are hit so badly by a terrorist attack. In the past also, we had to bear such ordeals. However, none of these incidents have been able to make our government and the entire system proactive to deal with such disasters. Politicians continue to play their own game even amidst a grave tragedy like this, without anyone actually coming up with concrete steps to deal with such a situation. Today, it was the turn of Mumbai, tomorrow it may be some other city. For god sake, let us come together and find out a way to ensure such an incident never happens again.
