In this issue:
» Wall Street's loss is SEC's gain
» The brighter side of FCCBs
» SIAM projects a smooth ride for auto sector
» Indian pharma ailing with debt, forex losses
» ...and more!
CNBC, the US version at least, continues to receive flak from experts and investors for letting emotions get the better of it. The beleaguered financial news channel is now a target of 'Fix the CNBC' campaign in the US, which as per The Economic Times, has been launched with a view "to get people to sign a letter calling on CNBC, not just to apologise, which achieves nothing, but to try and really report on Wall Street in a fair and tough way, asking questions that should be asked, exposing scams, and in general sticking up for the investors who depend on it."
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Well, as we had reported in a recent issue of The 5 Minute Wrapup, the Time magazine called the channel as alternating between 'desperate cheerleading' and 'reckless ranting'. It wrote, "CNBC's reaction is colored by its stressed-out day trader's focus on the short term...When CNBC considers the economy, it means Wall Street's numbers that day, that hour, that minute. CNBC may pay lip service to the long term, but it has the time horizon of a fruit fly."
It seems that the Wall Street's loss is the US FDIC's and SEC's gain! The economic meltdown in the US that as per Bloomberg's estimates led to loss of nearly 35,000 jobs in financial services positions alone, has opened up new opportunities for US government bodies. Like in India, even in the US, jobs in government enterprises that were so far disliked due to the relatively lower pay scales are being sought after by the jobless ex-Wall Street professionals.
As per Bloomberg, about 400 finance professionals signed up for a New York job fair this month featuring nine federal agencies ranging from the Federal Deposit Insurance Corp. (FDIC) to the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC). That was double the tally at similar events last year. The interest in federal jobs will be benign for the US institutions as well who have so far not been able to compete with the likes of Lehman Brothers in recruiting finance professionals. The SEC, for instance, was criticised during the unraveling of Bernard Madoff’s Ponzi scheme for having too many lawyers and not enough analysts as it failed to unearth the scam.
Media companies which are reeling under the pressure of low ad revenues and higher operating costs may not have much to cheer for even during the coming fiscal. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has indicated that ,Indian companies are likely to reduce their ad and brand promotion spends by 32 to 35% during FY10 led by economic slowdown. Media companies earn more than half of their revenues from advertising. To attract advertisers, the electronic and print media have curtailed the advertisement prices by nearly 25% to 30%. However, on account of lower sales and earnings, the corporate community seems to be still wary of the spiraling ad budgets.
Foreign currency convertible bonds or FCCBs have emerged as perfect case of market anomaly - turning out to be a boon for some Indian companies while at the same time being a bane for others. FCCBs have displayed how things can completely reverse in a span of few months. FCCBs were first issued by Indian companies in 2003 as a way to garner cheap capital to expand businesses. As such, issuing FCCBs was considered a win-win situation for both the borrower and the lender. However, with the stock markets crashing, stock prices went far below the conversion prices for the FCCBs (at which they were to be converted into equity shares) making it difficult to convert the bonds.
However, as per a business daily, there is a brighter side to this story. Some Indian companies are set to lock in huge capital gains by buying back the FCCBs. These companies that have mobilised funds through the FCCBs for expansions and overseas acquisitions are sitting pretty on huge cash piles. As per reports, a total of 158 Indian companies which have outstanding FCCBs, had mobilised US$ 16.5 bn between 2004 and 2008. They are currently facing redemptions worth US$ 13.5 bn and have liquid cash worth US$ 16.2 bn, making it very viable for them to buy back the same.
Despite the RBI's several attempts to pump liquidity into the banking system and encourage banks to lend more, the central bank's monetary measures seem to have not delivered the requisite results. The RBI has cut both the repurchase (repo) rate and the cash reserve ratio (CRR) by 2.5% and 4% respectively since October 2008. However, heavy government borrowing and fears of slippages in asset quality have left the policy measures redundant as banks have chosen to incrementally park the surplus funds with the RBI. As per the RBI's latest fortnightly report, growth in credit disbursal by the banking sector (17.3% in FY09) has fallen to the lowest level since FY04. This is expected to have a diluting impact on the government's attempts to stimulate economic growth.
A month after Berkshire Hathaway reported a 62% drop in profit, the worst year since Warren Buffett took over some 44 years ago, credit rating agency Moody's has cut its rating on the company to the third-highest investment grade. Moody's reasons for the same were that the recession and investment losses at insurance operations of Buffett's holding company have reduced its ability to support funding needs. About half of Berkshire's results come from its insurance businesses which have been affected by the fall stock prices reducing the value of their investment portfolios.
The Indian economy's ride may well be bumpy currently but this has not stopped SIAM from projecting a rather rosy FY10 for the domestic auto industry. SIAM (Society of India Automobile Manufacturers) believes that virtually all the segments will log in positive growth rates although the magnitude might differ. The best growth has however been reserved for the commercial vehicle segment, which the industry body believes will grow anywhere between 7%-10% in FY10. For the overall industry, growth drivers will include the usual suspects like the low interest rates and new launches. Also, the upcoming repossession guidelines from the RBI, which is likely to make recovery easier in case of a default, could also come handy in driving the growth.
SIAM's growth projections
*Actual **Projected; Source: Business Standard
Application forms for the Nano will start being accepted by Tata Motors from today onwards. And just as the car has created a history, the application form has also created one. That of being the costliest for any automobile in India yet. Priced at Rs 300 each, it is being estimated that already 50,000 have been sold, thus netting the company a cool Rs 15 m. Good enough to finance a low-profile ad campaign for the car. Now, whether the car will be able to finance the parent out of its debt woes? Well, only time will tell.
The going has not been easy for Indian pharma companies in the past one year. Most of them are finding their balance sheets under heavy duress to high debt levels, which in many cases is exceeding market capitalization, forex losses, changing market conditions and acquisitions made in the past which are not yielding the desired results. Besides the double whammy of high interest costs and forex losses, changing market conditions are also impacting overall performance. Wockhardt, Ranbaxy and Dr.Reddy's are cases in point.
Despite strong gains in select stocks from banking, commodity and construction sectors, the Indian benchmark BSE Sensex lagged the pack of gainers in Asia and close the day with gains of just around 0.6%. The European markets, meanwhile, have opened on a positive note. The Indian markets will remain closed tomorrow on account of Good Friday.
Today's investing mantra
"Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies." - Benjamin Graham
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