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‘Govt not looking at inflow caps now’

Alistair Scrutton and Himangshu Watts / Reuters — Tue, 24 Nov 2009 10:44:00 GMT

New Delhi: India can absorb nearly $100 billion of dollars in capital inflows, nearly double what is expected this year, before it needs to take strong restrictive measures, one of the prime minister’s top advisers said on Tuesday.

Economic growth was picking up, and should hit 7 to 8% in the fiscal year starting March 2010, said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, adding the biggest worry over the next few months was rising inflation.

“At the moment I don’t see any strong measures to control capital inflows,” Rangarajan said in an interview for the Reuters India Investment Summit. “But if the flows become very strong, then we could take some action to restrict some of the inflows.”

“If it touches close to $100 billion, then that is the time when we really need to act. But at the moment I think that all the indications are that the total capital flows during the current year would be $57-$60 billion, and that is manageable.”

He said inflows were $108 billion in 2007-08, when India had previously taken steps to limit capital inflows.

Any initial curbs would be on speculative funds in sectors such as real estate and borrowing abroad to spend at home.

“I would really say that the restrictions may be imposed only on those capital flows which are considered to be speculative, added Rangarajan, one of Prime Minister Manmohan Singh’s closest advisers.

Brazil and Taiwan have taken steps to curb hot money inflows, and other governments are keeping a watchful eye on inflows, wary that they could fuel asset price bubbles.

Economists have said India may need to impose restrictions on capital flows at some point to head off volatility in the stock and commodity markets.

“I think the restrictions could be in terms of some informal limit of external commercial borrowing,” Rangarajan said. “If there is a capital inflow into the country in some of the sectors like real estate or something like that, then some controls can be imposed on that.”

The IMF’s chief economist on Monday warned of bubbles in emerging markets on uncontrolable capital movements, which was echoed by the Asian Development Bank on Tuesday.

The Indian rupee has risen 12% from a record low in early March, driven by capital inflows and leading to worries it could choke off export growth needed to help bring India out of an economic slowdown.

“The rupee has appreciated to some extent because it has also depreciated very much earlier,” Rangarajan said, adding the dollar’s weakness was also a factor.

“So far the appreciation has been of the order that it is not a cause for concern.”

High food prices the major worry

Rangarajan said the major economic worry was inflation, which he expected to be around 6.5% at the end of the fiscal year. He said the India needed to aim for 4.0% inflation or less to be compatible with other economies.

Policymakers face a tightrope between controlling inflation and ensuring that any fiscal or monetary tightening does not choke off economic recovery.

“In the immediate next few months, the biggest worry is inflation, and more particularly the increase in food prices,” he said, adding it remained to be seen if there would be the usual season decline in food prices in November and December.

“But if the food prices continue to rise, and show signs of a strong rise, then monetary action may be expected earlier.”

The first step was likely to be an increase in the cash reserve ratio for banks, rather than an increase in interest rates, he said. And while monetary policy could be changed, fiscal stimulus would remain in place this fiscal year.

“As far as fiscal policy is concerned, there is no question of withdrawing any of the measures before the end of March 2010.”

The adviser said the economy would grow at about 6.5% in the fiscal year that ends in March, roughly in line with last year’s 6.7% but short of the 9% or more recorded in the previous three years.

Rangarajan said he expected growth of 7-8% in 2009-10, helped by the stimulus. But the government would have to rein in a widening fiscal deficit and withdraw some spending measures.

“That degree of expansion may not be needed once the economy becomes strong and the private investment and private demand picks up,” he said.

“I do believe that the process of fiscal consolidation must begin next year ... I think we need to bring down the fiscal deficit ... probably a reduction by 1-1.5% on the fiscal deficit is warranted and it could be done.

Obama aims to reassure PM on US-India ties

Matt Spetalnick / Reuters — Tue, 24 Nov 2009 06:16:00 GMT

Washington: President Barack Obama hosts Indian Prime Minister Manmohan Singh on Tuesday for talks considered critical to showing Washington’s commitment to New Delhi in a region where its rivals, China and Pakistan, are US priorities.

Obama’s challenge will be to ease the emerging Asian power’s concerns that it is slipping down his foreign policy agenda, dominated recently by efforts to craft a new war plan in Afghanistan and curb Iran’s nuclear ambitions.

India hopes for a clear message from Obama that he intends to sustain momentum in improving diplomatic and economic ties that deepened under his predecessor, George W. Bush.

Prime Minister Manmohan Singh shakes hands with Nancy Pelosi, Speaker of the US House of Representatives, at Capitol Hill in Washington on Monday. PTI photo

Seeking to reassure Singh of the importance Obama places on India, the prime minister will be honoured with the first state visit of the 10-month-old US administration, complete with the pomp and ceremony of a formal White House dinner.

“This is a show of respect for the value that we’ve put on that relationship,” Obama’s press secretary, Robert Gibbs, said.

The US-India summit will focus heavily on efforts to enhance economic links that have blossomed since India’s market reforms in the early 1990s. Two-way trade grew to nearly $50 billion last year from just $5 billion in 1990, turning the United States into India’s largest trading partner.

The two leaders are also expected to try to narrow their differences over climate change and seek to speed up completion of a 2005 civilian nuclear deal that has yet to be implemented.

While Washington and New Delhi have moved beyond the chilly relations of the Cold War era, sore points remain between the two giant democracies.

Indian suspicions centre on US ally Pakistan -- which many in India blame in part for Islamist violence such as the 2008 attack on Mumbai -- and Obama’s increased focus on the relationship with China, another old India rival.

But a senior US official insisted “any notion in India of us tilting in one direction or another is a misperception.”

Tensions

As Obama decides on the deployment of thousands of additional troops to an increasingly unpopular war in Afghanistan, Washington wants to keep tensions low between nuclear-armed India and Pakistan, which have fought three wars since Independence in 1947.

The US hope is that the Pakistani army can devote more resources to fighting Islamic militants who threaten the stability of Pakistan as well as of neighbouring Afghanistan.

“The more India and Pakistan lessen tensions, the easier it is for each to do what has to be done,” the administration official said as Obama prepared to announce a new Afghanistan strategy as early as next week.

While the official said Obama and Singh would agree to boost cooperation on counterterrorism, India is likely to press the United States for a tougher line on Pakistan, which it accuses of sheltering militants like the ones that hit Mumbai.

Reflecting continuing mistrust, Singh said in a CNN interview coinciding with his visit that Pakistan’s goals in Afghanistan were not necessarily those of the United States.

Singh is also likely to bring up China, a rising Asian giant that has a long-running border dispute with India.

Obama’s visit to China last week drew heavy criticism at home that he has been too conciliatory toward Beijing, the largest holder of US government debt.

Washington, however, regards a strong India as a useful counterweight to an increasingly assertive China in the balance of power in Asia.

While it remained unclear what if anything might be announced on Tuesday regarding a still-unfinished US-India nuclear accord, several modest energy deals will be signed.

Those will include what will be billed as “Green Partnership,” a set of agreements on clean energy and climate change technology plus a $300 million investment fund. Expectations were low, however, for bridging the US-India divide before next month’s climate summit in Copenhagen.

Liberhan report tabled in LS along with ATR

PTI — Tue, 24 Nov 2009 07:05:00 GMT

New Delhi: The Liberhan Commission Report on Babri Masjid demolition and Action Taken Report on it was on Tuesday tabled in Lok Sabha.

The English version of the report was tabled by home minister P Chidambaram during Zero Hour a day after the leakage of the findings set off a political storm.

The decision to table the report of the Commission was taken at a meeting of the Union Cabinet chaired by finance minister Pranab Mukherjee in the absence of Prime Minister Manmohan Singh, who is away in the United States.

The Commission, headed by Justice M.S. Liberhan, probed the Babri Masjid demolition in 1992 and submitted its findings to the government on June 30 this year after an inquiry spanning nearly 17 years.

Publication of excerpts of the report had sparked a furore with the main opposition BJP accusing the government of “selectively leaking” the report which is believed to have indicted top BJP leaders L.K. Advani, Murli Manohar Joshi and other functionaries for the demolition of the structure.

Congress had hit back saying the whole nation knows that the BJP had shed “crocodile tears” after its senior functionaries had watched people causing destruction and mayhem.

BSE looks to list, innovate to win market

Reuters — Tue, 24 Nov 2009 10:41:00 GMT

Mumbai: The Bombay Stock Exchange (BSE), under the aegis of its youngest-ever chief executive and a new top team, is looking to list and innovate to win back market share lost to upstart rivals.

“We want to transform this institution from what was essentially a single-product exchange to one which offers tradable products across all asset classes,” 36-year-old CEO Madhu Kannan, who took up the job earlier this year, said at the Reuters India Investment Summit in Mumbai on Tuesday.

The BSE, founded in 1875, has in recent years lost market share to its younger rival, the National Stock Exchange (NSE), which was founded in the early 1990s, and faces challenges from upstart exchanges.

The BSE has about 5,000 listed companies, more than any other bourse in the world, while the NSE has about 1,400. But the daily average turnover for the NSE in 2009 has been triple that of the BSE.

Not only did the BSE lose market share to the NSE, it also began offering currency futures after the NSE did and followed the NSE in forming overseas alliances.

Frankfurt-based Deutsche Boerse and Singapore Exchange each hold 5% stakes in the BSE.

“Any new products that are being launched, where the score is still 0-0, we want to be seen as very, very aggressive,” the avid cricket fan said, adding that technology, innovation and understanding the customer was his strategy for the future.

To jumpstart its technological innovation, the BSE bought Marketplace Technologies and will next week launch a data feed that is several times faster than its existing offering.

Currently, the bourse earns almost all its revenues on the trading side from the cash equity market, and Kannan is looking to reduce this reliance in coming years.

Kannan filled a post that had been vacant for nine months, and is now the youngest-ever CEO at Asia’s oldest stock exchange.

“(At the BSE) we were an ivory tower. The CEO was on the 26th floor and now we have moved to a nice, small, functional office ... which is closer to the team. Culturally that has made an impact,” said Kannan, who prefers staff to call him by his first name.

The old CEO’s office, with sweeping views of Mumbai, is now a conference room.

Of the BSE’s seven-member top executive team, only two are veterans of the pre-Kannan era at the exchange. Kannan’s recruits include James E. Shapiro from the New York Stock Exchange (NYSE) and Sayee Srinivasan from the Chicago Mercantile Exchange.

Kannan himself joined the BSE after stints at the NYSE and Merrill Lynch, where he worked closely with John Thain, who headed both.

The BSE has been mulling a listing for the past several years.

“We are in a preparatory stage for a listing,” Kannan said. “We are getting internally ready but the timeframe is something difficult to predict.”

As part of that planning, Kannan has begun releasing the BSE’s quarterly results, and had insisted that his employment contract and compensation structure be circulated to stakeholders after he joined.

“The exchange world has changed so dramatically and sometimes, you know, an institution like us, we are like a 134-year-old start-up. We’ve been there for a long time, the world has changed significantly.”

Gold loses lustre to copper on India’s MCX

Reuters — Tue, 24 Nov 2009 11:30:00 GMT

Mumbai: Once the cash cow in the portfolio of India’s top commodity bourse by turnover, gold futures have lost sheen to copper as higher margin money on surging prices drags volumes.

Volumes have declined by 20% to a daily average of 32,371.97 kgs on a year-to-date basis on the Multi Commodity Exchange (MCX), while copper registered a 125 percent increase to 92,166.94 kgs.

“Retail participation has come down due to higher prices and incremental effect on margins,” said Harish Galipelli, vice-president research, JRG Wealth Management in Kochi.

As budget of traders are fixed, they are opting for lower-priced contracts like copper, he said.

“While traders are getting tired of the volatile rupee movement, any spike up or spike down (in gold prices) is countered by a weaker or stronger rupee,” said Gnanashekar Thiagarajan, director with Mumbai-based Commtrendz Research.

The Indian rupee is up about 4.7% on year and has risen 12.3% from a record low of 52.2 hit in early March.

“Gold and silver is more of a proxy to the currency than copper, which does not have such significant impact,” said Thiagarajan.

“Physical players who used to hedge on MCX are hedging less gold because of poor demand due to high prices,” said Thiagarajan.

Domestic gold prices have surged 28% to about 17,500 rupees per 10 grams since January 2009 on a weaker dollar.

While, copper has more than doubled since the start of the year to about 318 rupees per kg, it is still cheaper and hence margin money is lesser.

To take a position on MCX for a lot of gold of one kg requires about 70,000 rupees as margin money. For copper of a lot of 1 tonne, margin money is just about 16,000 rupees.

Analysts said increased participation of hedgers also improved the volumes in the red metal.

“Interest level in copper at 300 (rupees) is much higher due to heightened volatility,” said Ashok Mittal, country head of Hyderabad-based Karvy Comtrade.

“Volatile copper prices have resulted in large as well as small corporate participation to hedge themselves on price risk,” said JRG’s Galipelli.

OUTLOOK Volumes in gold trade could pick-up in case prices fall and as traders seek ways to distribute their leverage in other cheaper commodities.

“If there is a reversal in price trend we would see gold volumes picking up again,” said Commtrendz’s Gnanashekar.

MCX copper based on number of contracts traded grew 128% during the first-half of 2009 calender year, compared with 11% growth for gold, according to the data published by the Futures Industry Association (FIA) in November.

FIA is a global association of players involved in the exchange-traded derivatives business.

MCX corners about 99% of the non-agricultural commodity futures trade in India.

Markets end flat on profit-booking; Reliance drops

Reuters — Tue, 24 Nov 2009 11:14:00 GMT

Mumbai: Indian shares shed 0.3% on Tuesday as lower global markets triggered profit taking in stocks such as Reliance Industries and ITC.

Traders said the market, which has gained nearly 8% this month, was facing resistance with the pace of a world economic recovery yet to show momentum.

The 30-share BSE index closed down 0.29%, or 49.10 points, at 17,131.08, with 17 of its components falling. The 50-share NSE index dropped 0.25% to 5,090.55.

“There is fatigue above 17,000. The market clearly lacks triggers,” said Nilesh Doshi, president of equities at Techno Shares.

Kunal Sukhani, manager of institutional equities at Asian Markets Securities, said weak world markets encouraged investors to lock in profits.

The benchmark index has rallied nearly 78% in 2009, powered by foreign portfolio inflows of more than $15 billion.

Energy giant Reliance dropped 0.9% to Rs2,176.10, after its offer to buy a controlling interest in US-based bankrupt petrochemicals company LyondellBasell had sent the shares up 3.3% on Monday.

Cigarette-to-hotel group ITC fell 2% to Rs263.65, after rising nearly 5% over two days. Private-sector lender ICICI Bank, which had added 3.5% over two days, eased 1.3% to Rs905.30.

Leading utility vehicle maker Mahindra & Mahindra firmed 2.4% to Rs1,067.45, after the head of its defence systems unit said it would bid for domestic defence projects worth $3.5 billion over the next seven years.

Hindalco Industries, which sources said raised $600 million through sale of shares, erased early losses of 1.5% and ended up 1.1% at Rs135.25.

“The share sale would deleverage its balance sheet and allow it to invest in new capacity,” said Pawan Burde, an analyst with PINC Research.

In the broader market, losers almost matched gainers on relatively low volume of 356 million shares.

BSE to roll out websites in regional languages soon

PTI — Tue, 24 Nov 2009 06:37:00 GMT

Mumbai: Leading bourse Bombay Stock Exchange will soon roll out websites in many regional languages including Marathi, Tamil and Punjabi, a senior official said on Tuesday.

“BSE will soon roll out language websites...At present we have websites in Hindi, English and Gujarati... We will create more in Marathi, Tamil, Telegu and Punjabi,” the official said without wanting to be named.

Maharashtra Navnirman Sena (MNS) last week submitted a memorandum to the exchange deputy chief executive officer Ashish Chauhan asking him for inclusion of Marathi in the BSE website.

Meanwhile, market regulator SEBI said in a statement the reports suggesting that MNS has asked it to provide Marathi as an option on its website were erroneous.

“SEBI does not have any officer with designation deputy chief executive officer or by the name of Ashish Kumar Chauhan. Sebi has neither relaunched its website recently nor does it have a Gujarati website.”

Rupee drops on weak Asian cues

Reuters — Tue, 24 Nov 2009 04:12:00 GMT

Mumbai: The partially convertible Indian rupee weakened on Tuesday as lower Asian shares and a stronger dollar overseas soured sentiment.

At 9:25am, the rupee was at Rs46.63/64 per dollar, 0.4% below its Monday’s close of Rs46.465/475.

Dealers said they would wait for the local sharemarket open for further direction. Some month-end dollar demand was also seen in the market, they said.

Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market. Dollar demand from refiners and importers tends to peak at the end of each month, when they make payments.

“We continue to watch the rupee within 46-47 in the short term. This range will hold good till EUR/USD trades within 1.4750-1.5050 while the stock market trades in consolidation mode within 16,500-17,500,” J. Moses Harding, head of global markets at IndusInd Bank, wrote in a daily note.

“The strategy for importers would be to buy 12-month dollars on overshoot to 47.00-47.25 while exporters to sell 12-month receivables at 48.25-48.40,” he said.

The dollar trimmed losses on Tuesday as Tokyo stocks failed to follow up a stronger day on Wall Street, prompting some to buy the dollar back, and as some investors closed dollar short-positions before the Thanksgiving holiday.

The index of the dollar against six majors was up 0.2%. Most Asian units were weaker compared to the dollar.

At 8:25am, the MSCI index of Asian stocks ex-Japan was down 0.5% while the Nifty India stock futures traded in Singapore were marginally lower.

Indian shares are expected to open flat to lower tracking weak Asian markets, but the losses are likely to be limited as cash-rich foreign funds look for investment.

Foreign buying of more than $15 billion worth of local shares has helped lift the rupee off a record low of 52.2 hit in early March and continues to be a key factor driving the rupee.

One-month offshore non-deliverable forward contracts were quoted at 46.64, little changed from the onshore spot rate.

Asia shares slip as risk shunned

Reuters — Tue, 24 Nov 2009 08:23:00 GMT

Hong Kong: The dollar recouped some of its overnight losses on Tuesday, while Asian shares slipped as investors shrugged off upbeat US home sale data and took light profits on recent rallies.

Financial bookmakers expected shares in Europe to open lower while US equity futures were down 0.2%.

The dollar recovered ground as investors in Asia grew more cautious ahead of a string of US economic data this week and the start of the Christmas shopping season on Friday after the US Thanksgiving holiday, which will be a key test of consumer confidence.

The dollar gained 0.3% against a basket of major currencies after falling in New York where the market took comments by a senior US Federal Reserve official on Sunday as further evidence the central bank would maintain its very low interest rate policy for some time.

Trading at 75.272, the dollar index was above a 15-month low at 74.679 reached last week.

Dealers in Tokyo said some investors were closing dollar short-positions ahead of the Thanksgiving holiday.

Asian shares slid, despite a solid performance on Wall Street after data showed existing home sales reached their highest level in two-and-a-half years, as profit taking set in.

The Shanghai market was worst hit with the dollar-denominated B-share index plunging more than 8% by mid-afternoon as investors gave up on hopes for government measures to support the market.

Such speculation, including one that China might merge B shares with an international board being set up for foreign firms to list in Shanghai, had sparked a near 20% market rally earlier this month.

The MSCI index of Asia Pacific stocks traded outside Japan fell 0.6% but it has already rallied 66% this year, leading some investors to question whether data is strong enough to justify further gains at this stage.

“I think everyone has been waiting for a downturn for so long and it hasn’t come. There’s a bit of nervousness out there, you’ve got gold at record levels,” said Martin Angel, a dealer at Patersons Securities in Australia, where shares slid 0.7%.

Revised third-quarter US GDP data and a US consumer confidence report later on Tuesday will give more clues on the strength of the world’s largest economy.

Sales at US retailers on Friday after the holiday could yield vital clues to the recovery power of American consumers, whose spending accounts for more than two-thirds of the economy. They could also signal whether Asian exporters can expect a rush of late orders before Christmas.

Shares in Japan fell 1% as a firm yen hit exporters shares and investors worried about the economy.

Japanese stocks show a striking divergence with their Asian peers. While the MSCI Asia Pacific ex-Japan is only just below a 14-month high and sitting on gains of nearly 70% this year, the MSCI Japan languishes at a seven-month low and is negative for the year.

Policy uncertainty is helping depress sentiment. Japanese finance minister Hirohisa Fujii said on Tuesday that demand was weak and fiscal policy alone could not revive it, putting pressure on the Bank of Japan to respond to deflation and fanning a policy dispute between the government and the central bank.

“The Bank of Japan is asleep at the wheel as usual,” banking minister Shizuka Kamei told reporters.

Japan Airlines was one of the biggest losers, tumbling 8.4%, hitting a record low at one point, on fears the struggling carrier could face bankruptcy.

As the dollar steadied, gold retreated to $1,166 an ounce as investors booked profits after the precious metal scaled a record high at $1,173.50 on Monday.

Traders, however, said sentiment remained bullish, underpinned by expected prolonged weakness in the dollar which makes bullion cheaper for holders of other currencies and boosts its appeal as an alternative asset.

Investors were also taking profits on the Australian dollar, which succumbed to a wave of profit taking from stellar gains before the year ends. A trader with a US bank said hedge funds had been among the biggest sellers of the Aussie in recent days.

Oil prices were little changed at around $77.60 a barrel ahead of a weekly inventory report due later from the American Petroleum Institute.

Oil slips towards $77 ahead of US stocks data

Reuters — Tue, 24 Nov 2009 11:06:00 GMT

London: Oil slipped towards $77 a barrel on Tuesday, held down by a firmer dollar, but trade was thin ahead of the US Thanksgiving holiday and data that was expected to show crude stocks rising in the United States.

The dollar rose as some investors bought the currency or closed dollar-short positions before Thanksgiving.

A weekly report from the American Petroleum Institute (API) due at 4:30pm EST (2130 GMT) is likely to paint a bearish picture of US energy demand, analysts said.

“Crude has come off a fraction this morning due to a stronger dollar, but it’s nothing dramatic, and not a lot is going to happen ahead of the Thanksgiving holiday,” said Peter McGuire, managing director of Commodity Warrants Australia.

US crude for January delivery eased 5 cents to $77.51 a barrel by 4:25pm, after settling up 9 cents at $77.56 on Monday. London Brent crude was up 24 cents to $77.70.

With economic data due this week, including November consumer confidence and revised US third-quarter gross domestic product figures later on Tuesday, as well as the minutes of the Fed’s last policy meeting, traders will be scouring the numbers for signs of improvement in the world’s largest economy.

While oil is up about 74% this year, it is still down 47% from its July 2008 high above $147 a barrel.

US crude and Brent futures have been oscillating within a tight range between $75 and $81 per barrel over the last month.

“The floor has been set by the weaker dollar/higher expected inflation theme, while the ceiling has been set by weak refining margins, lacklustre demand (except for China), and a global economic recovery that is expected to be sluggish and has long since been priced in,” said Mike Wittner, global head of oil research at Societe Generale.

A Reuters survey of analysts forecast US inventory data would show a 1.6 million barrel build in crude stocks for the week to 20 November, as production rebounded from Gulf of Mexico disruptions caused by Tropical Storm Ida.

At 7:00pm, Commerce Dept will unveil its revised estimate of third-quarter GDP growth. Economists forecast a 2.9% annualised pace of growth, compared with a 3.5% rate in the first Q3 estimate.

A US consumer confidence reading for November will also be released by the Conference Board at 8:30pm. Economists expect a reading of 47.7, steady versus October’s level.

Investors have been buying into commodities in a bid to hedge against the dollar’s weakness and to guard against concerns an ultra-easy monetary policy could lead to a jump in inflation as the world economy rebounds.

Prices were also supported by forecasts of a colder-than-expected US winter early next year and tension surrounding Iran’s air defence war games on Sunday.

Private weather forecaster WSI Corp said on Monday the US Northeast, the world’s top consumer of heating oil, would have a warmer December than normal, followed by colder than usual temperatures in January and February.

World oil demand growth to outpace supply in 2010

David Sheppard and Joshua Schneyer / Reuters — Tue, 24 Nov 2009 11:29:00 GMT

London / New York: Growing world oil use will likely outpace the rate of new supplies in 2010, eroding the huge stockpiles of crude which have mounted around the world since the start of the global economic crisis.

According to a Reuters poll of 10 top oil-tracking analysts and organisations, oil demand is predicted to rise by 1.3 million barrels per day (bpd) next year to 85.9 million bpd.

At the same time, the rise in production from outside the Organization of the Petroleum Exporting Countries and output of natural gas liquids (NGLs) from Opec members is seen growing by just 800,000 bpd in total.

“The key question for prices is supply,” Barclays Capital analyst Costanzo Jacazio said.

“2010 is really a bridging year -- if the economies continue to perform as well as they have been doing during the early stages of the recovery, then I think by 2011 we’ll be seeing the demand numbers at or above where they were in 2008.”

Non-Opec output is seen averaging 51 million bpd in 2010, up from 50.8 million bpd, while Opec output of NGLs -- which are not subject to the producer group’s production quotas -- are expected to rise to 5.6 million bpd, up by more than 20% since 2008.

If Opec members can maintain current adherence levels to present output quotas, with group output including Iraq assessed around 28.9 million bpd, crude oil inventories could fall by almost 150 million barrels next year.

Demand for OPEC’s crude is seen at 29.3 million bpd.

At the end of September, the International Energy Agency assessed oil stocks in the Organisation for Economic Co-operation and Development (OECD) at 60 days of forward cover, 120 million barrels above the five-year average.

Divergence

Doubts surrounding the eventual strength of the economic recovery and how oil demand will respond following the impact of record prices, a global recession and increased environmental initiatives has seen many analysts’ views diverge.

Investment banks Goldman Sachs and BofA-Merrill Lynch have the most bullish outlook for demand, projecting 86.4 million bpd and 86.7 million bpd respectively.

Barclays Capital sees demand at 1 million barrels below Goldman’s estimate because of increased conservation efforts, but conversely sees non-OPEC supplies 1.1 million barrels lower than its U.S. rival due to falling investment during the crisis.

Deutsche Bank sees demand as relatively weak in 2010, at just 86 million bpd, despite forecasting the world economy will grow at 3.7 percent in 2010 - well above the International Monetary Fund’s forecast of 3.1% global growth.

“The question is where’s the demand growth? Year-on-year figures in the U.S. show demand still struggling,” said Adam Sieminski, Deutsche Bank’s head of energy research.

“It appears the economic recovery is not coming in energy-intensive or oil-intensive sectors. We may still be seeing people being careful about consumption -- if they have two cars they’ll be driving the smaller one.”

Demand growth returns

The expected demand increase in 2010 will be the first year to show average growth since 2007, before record prices and the economic crisis slashed consumption.

Global oil demand has fallen by almost 2% since 2007, when average annual consumption hit an all-time high around 86.2 million barrels daily.

The steep drop in demand saw oil prices crash from record highs of almost $150 a barrel in July 2008 to below $33 a barrel in December last year.

Since then prices have more than doubled to just below $80 a barrel as Opec -- whose member countries pump more than one in every three barrels of oil -- tried to cut output quotas by 4.2 million barrels, or 5% of world demand.

Demand growth is expected to be strongest in countries outside the OECD, with China leading the way.

“We see a healthy demand recovery of 1.5 million barrels next year, there’s only so much you can contract,” said Sarah Emerson, director of Energy Security Analysis Inc. in Boston.

“(Demand) growth in China next year should be significant and the US will go from two years of contraction to growth.”

The Chinese economy is expected to grow by around 8% in 2009 and may post even stronger growth next year. Implied Chinese oil demand in October was up more than 10% year-on-year, customs data showed on Monday.

Inside the OECD, the US is seen posting a small recovery in demand. But many analysts remain doubtful about the strength of growth with some arguing oil use may never revisit highs of earlier this decade in North America and Europe.

“We’re not going to be in an environment when prices will shoot back to anything like $120 a barrel in 2010,” Jacazio at Barclays Capital said.

“(But) we still see oil demand growth next year outpacing non-Opec supplies and NGLs combined.”

Electric Tata Indica likely by 2011

PTI — Tue, 24 Nov 2009 10:45:00 GMT

New Delhi: Tata Motors on Tuesday said it could launch an electric version of its flagship passenger car Indica in the domestic market simultaneously with its European launch, in early 2011.

The company will start a feasibility study by next year for introducing the product in the domestic market.

“It (the electric Indica) will be available for launching in the country simultaneously with the global launch,” Tata Motors managing director (India operation) Prakash M. Telang told reporters.

When asked if the company has initiated the market study, he said, “Not at the moment. We will start (the feasibility study) closer to when we have the product ready. We will do it from next year.”

The country’s largest auto company has been developing the electric Indica with a Norwegian firm for launching in the British, Norwegian and Danish markets by 2011, which will mark the global launch of the car.

Its domestic introduction would depend on the cost factor as it is a price-sensitive market, Telang added.

“We have to look into the cost equation here. We have to see the market demand as it will be an expensive vehicle. Electricity is also not easily available in the country,” Telang said, adding electric vehicles are generally 70-150% more expensive on current status depending on the choice of batteries.

He, however, added, “The car will certainly be suitable for Indian roads.”

Asked about Tata Motors’ sales prospects for the fiscal, Telang said, “We expect good sales in the fourth quarter specially on the back of pre-buying of commercial vehicles due to the soon-to-be-launched BS-III and IV emission norms.”

On the Nano he said, the company is currently producing 3,000-4,000 units a month and will be starting trial production at the Sanand plant by the fourth quarter of this fiscal. “After that we will ramp up to full-scale production by the end of 2010,” Telang added.

Nokia to cut 220 R&D jobs in Japan

AFP — Tue, 24 Nov 2009 10:00:00 GMT

Helsinki: Nokia, the world’s biggest mobile phone maker, said on Tuesday it would cut around 220 jobs in Japan as part of its plans to streamline its vast research and development operations.

“As part of its global efforts to align its research and development (R&D) operations to be in line with its focused portfolio of future products, Nokia will be reducing its R&D activities in Japan,” the Finnish company said in a statement.

Last week Nokia announced that about 330 employees at its research and development units in Denmark and Finland would be made redundant.

The company employs about 17,000 people in research and development worldwide.

It said that despite the planned reductions, it would continue to have “significant sourcing activities in Japan”.

“Vertu, Nokia’s exclusive line of handcrafted mobile phones for the luxury market, will also continue operations in Japan unaffected by today’s announcement,” it noted.

The mobile phone giant launched a cost-cutting programme last January, after its earnings fell as consumers cut back on buying handsets amid the global financial crisis.

The programme aims to generate more than €700 million ($1 billion) in annual savings.

Before Tuesday, Nokia had announced about 4,000 job reductions since January, including around 1,300 voluntary redundancy packages.

Last month Nokia posted a surprise entry into red, reporting a third-quarter net loss of €559 million amid rising competition in the smartphone market and problems with its Nokia Siemens Networks joint venture.

Pantaloon restructuring may make it attractive to investors

Rasul Bailay — Mon, 23 Nov 2009 17:56:00 GMT

New Delhi: Analysts have welcomed an announcement last week by the Future Group, which controls Pantaloon Retail (India) Ltd, the country’s largest publicly traded retailer, that it will restructure its businesses into three categories—retail, financial services and allied services.

Merger possibilities: A file photo of a Big Bazaar store in Noida. Separating Big Bazaar will appeal to foreign retailers such as Carrefour SA for a possible tie-up. Mint

Although the group has not yet detailed the specifics of the restructuring, it is clear that it will hive off its flagship Big Bazaar stores, which accounted for 65% of Pantaloon’s revenue of Rs6,347 crore in the year ended 30 June, into a separate subsidiary. The company counts its fiscal year from July.

It is also expected to bring together the businesses of financial services firm Future Capital Holdings Ltd, Future Generali India Life Insurance Co. Ltd and Future Generali India Insurance Co. Ltd. How it plans to do this is still unclear. The insurance businesses are joint ventures with Channel Islands-based Generali International Ltd.

Meanwhile, units including Future Brands Ltd, that creates private labels in consumer products, Future Knowledge Services, a retail technology service provider, and retail training unit Future Learning and Development Ltd will be clubbed together.

Currently, the different business segments are part of Pantaloon’s balance sheet. But soon they will move as separate units with separate balance sheets, according to the group’s spokesman Atul Takle, who added that the restructuring is aimed at unlocking values of the various segments.

“It’s a smart move in the sense that its gives clarity to where it got the recognition from—that is the core retail business,” said Sonam Udasi, group head for consumers at Brics Securities Ltd. It will become “easier to ascertain value”, of those businesses, he added.

“The restructuring will provide more clarity to investors who can choose which part of the business they wish to invest in,” said Pranshu Mittal, assistant vice-president for research at Centrum Broking Ltd. “Currently, one doesn’t know where the money is going—if it’s being used by Big Bazaar or any other business.”

“The company took a hit as it went into consumer finance and insurance. The insurance business leaked about Rs120 crore last year,” Udasi said. “These are all issues that investors will start wondering as capital is difficult to come globally.”

Of the four brokerages Mint spoke to, three recommend buying the Pantaloon scrip while a fourth has revised its rating from sell to hold.

The experts said Pantaloon’s latest move is driven by the fact that the company is looking to raise capital; it needs between Rs1,800 crore and Rs2,000 crore to expand in the next two years.

In a bid to raise money, Pantaloon’s flagship Big Bazaar chain is being spun off as a separate entity so that the new model is attractive to investors, they said.

Pantaloon now operates 119 Big Bazaar stores and plans to raise the number to 275 by 2014.

Meanwhile, Pantaloon raised about Rs500 crore on Friday by selling stake to institutional investors, according to a person directly involved in the process, who spoke on condition of anonymity.

The money raised will be used for expansion and also reduce pressure on the firm that has a debt to equity ratio of 1.3:1, according to analysts tracking Pantaloon.

“The Rs500 crore that’s been raised will not only bring the debt to equity ratio to 1:1,” said Anubhav Gupta at Kim Eng Securities, “it will also be enough to fuel growth for the next 7-8 months.”

“Pantaloon adds 2.5 million sq. ft of retail space every year. For that it needs close to Rs700 crore each year. They need about Rs1,000 crore to be in a steady state,” Udasi said.

Separating Big Bazaar will address two critical issues. One, it will be relatively easier to raise money as the retail chain is a successful model with significant business potential. Two, it would appeal to foreign retailers such as Carrefour SA for a possible tie-up.

Pantaloon is in talks with the French retailer for a partnership in the wholesale space, the only model where the Indian government allows 100% foreign direct investment.

A stand-alone Big Bazaar could be a better fit as a partner for Carrefour that is planning a wholesale cash-and-carry venture in India.

“We’re not sure if the move is in line with what Pantaloon wants to do with Carrefour. A cash-and-carry model will be more (inclined) towards Big Bazaar side of business,” said Kunal Lakhan, the analyst who tracks Pantaloon at KR Choksey Shares and Securities Pvt. Ltd. “Maybe the whole restructuring exercise is (aimed at Carrefour), so that it has a structure in place,” if and when a deal comes through.

HCL wins $200 million deal from UK insurance firm

Lison Joseph — Mon, 23 Nov 2009 17:31:00 GMT

Mumbai: India’s fourth largest software services firm, HCL Technologies Ltd, has won a $200 million (Rs930 crore) deal that will span 30 years from Equitable Life Assurance Society, a UK-based insurance provider, the company announced on Monday.

Also See Diversified Package (Graphics)

While the main part of the contract will kick in around March 2011, HCL expects to earn around £8 million (Rs62 crore) till then through preparatory work required to set up systems and processes required, said Stuart Drew, a senior vice-president at HCL. He added that HCL was chosen from among 11 firms in a selection process that lasted a year.

While estimated revenue of $200 million is spread over 30 years, a majority of it is expected in the first five-six years, the company said without giving more details.

Equitable Life, which stopped taking on new business in 2000, is engaged in servicing the policies of its existing client base of about 500,000. The insurance company has an asset pool of nearly £8 billion.

HCL will take over the contract from Lloyd’s Banking Group Plc, which currently has about 340 staff working for Equitable Life. About three-fourth of these employees will be taken into HCL to comply with European regulations.

Nearly 240 of them, however, are likely to be redundant once the integration is complete, Equitable Life chief executive Chris Wsicarson said in a call with reporters from London. Besides the staff in HCL’s UK offices, between 50-70 staff stationed out of India will be working for the client.

Shares of HCL rose 5.41% on the Bombay Stock Exchange (BSE) on Monday to close at Rs343.65, while the exchange’s benchmark index Sensex, rose 0.93%, or 158.33 points, to close at 17,180.18. BSE’s IT sectoral index fell 0.30%.

“This deal is the first major win for the Liberata insurance platform that HCL acquired in 2008. There is more business to be won in this particular space as several other European insurance providers are also looking,” to do similar deals, said Ankur Rudra, an IT analyst with UK-based investment advisory Noble Group Ltd.

HCL acquired UK-based business process outsourcing firm Liberata Financial Services (LFS) in July 2008. While it paid $2 million for the fixed assets for LFS, the actual value of the acquisition was not made public. The Liberata software platform offers full lifecycle support for insurance and pension policies.

Technology researcher Gartner Inc. had in a July 2008 report estimated LFS’s annual revenue at about $60 million, with a client base of six customers. “However, the company (LFS) has found it difficult to acquire new customers in recent years and has been unable to add new clients. This is likely due to the limited IT capabilities within LFS,” the report said, commenting on HCL’s acquisition.

“To continue to grow this business, HCL must significantly overhaul the systems used within the BPO (LFS) unit. Investment in new policy, claims and other core systems will be critical to enable the BPO unit to compete with other local players, such as the UK’s Capita Group and India’s Tata Consultancy Services,” Gartner had said.

In the insurance space, HCL faces competition primarily from Tata Consultancy Services Ltd’s Diligenta platform and from Capita Group, US-based Unisys Corp. and EDS, said Rudra. TCS’ UK-headquartered subsidiary, also named Diligenta, has been operating since 2006.

HCL, which employs about 55,000 people, had a revenue of $2 billion for the year ended March 2009. For the three months to September, HCL reported a 10% decline in its net profit to Rs356 crore. Its profits were severely dented by foreign exchange losses, which stood at Rs151 crore in the September quarter.

Graphics by Yogesh Kumar / Mint