TCS - Share-O-Pedia & Global Economic Update - 17 th July 2009

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TOP 10 BREAKING NEWS :

1> USA [08/07/09]: Leaders of the Group of Eight richest nations and the major developing powers are gathering for a three-day summit in Italy.

2> INDIA [08/07/09] : The Indian benchmark indices Nifty & Sensex witnessed a high tide of volatility. Power and realty stocks along with SAIL were seeing buying interest. However, shares of banking, oil gas exploration, metal, FMCG and select telecom stocks were under pressure.

3> USA [08/07/09] :Government bail-outs of the world's big banks pose a threat to free trade, Pascal Lamy, head of the World Trade Organisation (WTO) told the Financial Times newspaper in an interview on Monday.

4> Europe [08/07/09] :Service industries in the US probably shrank in June at a slower pace, signaling the worst recession in a half century is easing.

5> USA [08/07/09] : US dollar is still the most important and major reserve currency of the day, Chinese Vice Foreign Minister said.

6> USA [07/07/09] : Chrysler Group LLC, which emerged from bankruptcy last month by selling most of its assets to a company led by Italy's Fiat Spa, completed its board of directors with the appointment of five new members on Sunday.

7> USA [07/07/09] :The mountain of debt easily could become the next full-fledged economic crisis without firm action from US, economists of all stripes warn.

8> WORLD [07/07/09] : US President Barack Obama urged Americans, who celebrate Independence Day today, to implement broad economic and social reforms, expressing confidence the country will be able to overcome the challenges it is facing.

9> WORLD NEWS [06/07/09] : China's economy will not experience a rapid recovery because it will take time to find a new growth engine to replace sagging exports, an influential economist said in remarks published on Monday.

10> WORLD [06/07/09] : World Bank chief warns against protectionism. The head of the World Bank says the world economic crisis is spawning restrictive trade measures that threaten to slow a recovery.

INDIAN MARKET EOD : As on 17/07/2009 3:45 pm IST

Sensex: 14,673 [422]
NIFTY: 4,374 [143]
Crude Oil/barrel: $61.70
U.S Dollar to INR: 48.66 rs
GOLD/gram in INR: 1,463

The smartness witnessed at the Indian stock market indices, has taken most of the investors by surprise. The market spread is very clear, thus has managed to revive the buying interest amongst the investors at every rise & fall. The markets recovered most of the losses seen in the last week due to the budget disappointment and clawed back. The optimisim on the street this week was on the ground of disinvestment process of the government, which the markets had expected from the first Union Budget 2009-10 of UPA (United Progressive Alliance) government. Most of the frontline stocks surged sharply today as investors turned bullish taking cues from positive global markets. Decent earnings back home coupled with government’s willingness to disinvest stake in PSU companies front also boosted sentiments. Smart gains in Reliance Infrastructure (9.01%), Mahindra & Mahindra (8.67%), Jaiprakash Associates (8.03%), ICICI Bank (7.47%) and Tata Motors (7.19%) propelled the Sensex higher. There has been some high buying interest seen in the energy stocks off late. A mixed opinion was seen factoring in today's trade as a result of which Reliance Industries and ONGC are trading higher, GAIL and BPCL are trading lower. As per a leading business daily, Reliance Industries (RIL), which is currently fighting a legal battle against RNRL in the Supreme Court, has said that it is impossible to enter into a gas supply commitment with the latter for 17 years. RIL’s development plan for its KG-D6 field as approved by the Director General of hydro carbons is for 12 years ending 2020. Hence, it is not possible for the company to make any supply commitments to any party for a period exceeding 12 years. On the other hand, RNRL argues that RIL could supply the gas from additional wells in the KG basin which are likely to become operational in some time. Interestingly, RIL is battling a similar case with NTPC, which also has 17 year contract. More news is expected to flow in from news quarters, early next week. wheather it's "Rain" or "No Rain" the trouble seems to be streching on both the ends. the Centre for Monitoring Indian Economy (CMIE) has now downgraded India's growth forecast to 5.8% in the current fiscal from its earlier estimate of 6.6%. The reason behind the same is lower agricultural output, in addition to the slower industrial recovery due to the poor progress of monsoon. As per a statement made by CMIE, "The poor progress of the south-west monsoon till the first week of July 2009 is expected to adversely affect the prospects of growth in agriculture, in industry and in the gross domestic product of the country as a whole." It may be noted that in the Union Budget, the government also stated that the country will be in a position to grow at a rate of about 7% only if the monsoons remain normal. We might not find out who is correct this year though, given that the rainfall in the last two weeks has led to India monsoon deficit to reduce considerably. During the week ended 15 July, India’s monsoon deficit reduced to 27% from 54%. Above normal rainfall in central India, west coastal regions and Orissa has led to this reduction in monsoon deficit figures. We hope that the monsoon continues to progress well and this debate remains unresolved this year. We also take this time out, to wish you all a happy rainy weekend ahead! Key Highlights Of Union Budget 09: The Finance Minister (FM) tabled the Union Budget for 2009-10 today whose theme revolved around ‘inclusive growth’. The Budget outlined measures to speed up infrastructure development and disclosed increased spending for farmers and poor in the country. The government is targeting to increase investments in the infrastructure sector to over 9% of GDP by 2014. The FM also emphasized the need to restore a growth rate of 9% at the earliest. However, fiscal deficit which remains a concern is expected to increase from 6.2% to 6.8% in 2010. On the tax front, Fringe benefit tax (FBT) has been abolished while no changes have been made to the corporate tax rates which the industry was anticipating. Minimum alternate tax (MAT) has been increased from 10% to 15% but with a provision of carrying forward the tax credit on MAT to ten years. With a view to providing interim relief to small and marginal taxpayers and senior citizens, the budget 2009-10 has increased the personal income tax exemption limit by Rs 15,000 from Rs 2.25 lakh to Rs 2.40 lakh for senior citizens. Similarly it has aslo raised the exemption limit by Rs 10,000 from Rs 1.80 lakh to Rs 1.90 lakh for women tax payers and by Rs 10,000 from Rs 1.50 lakh to Rs 1.60 lakh for all other categories of individual taxpayers. Further, it has also increased the deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability to Rs 1 lakh from the present limit of Rs 75,000. Not so content with the budget measures announced today, market participants reacted hard by engaging in a mass sell-off. Just an hour before noon, the indices’ downward journey began and subsequently continued till the close. The Sensex ended the day lower by about 870 points (5.8%), while the NSE-Nifty closed lower by around 260 points (5.8%). Barring stocks from the FMCG sector, selling activity was witnessed across the board, led by stocks from the banking, realty and capital good spaces, whose respective indices were down in the range of 7% to 8%. All in all, the markets today are giving us a perspective that, one can judge the markets in a better way... by looking at the markets more based on probabilities & possibilities of generating irrationale & rationale thoughts amongst people, which can be purely speculative at all times. Key Highlights of Railway Budget 09/10: There were few interesting moves in the laid agenda by the railway ministry. Presenting the railway budget the government has proposed an outlay of Rs 40,745 cr. for 2009-10. Out of this, Rs 2,921 cr. will be spent on new lines, Rs 1,750 cr on gauge conversion and Rs 1,102 cr. on passenger amenities, which is 119% more than the allocation in the interim budget Rs 424 cr will also be spent on railway staff amenities. She proposed freight loading target of 882 MT and estimated gross freight receipt at Rs.88,419 cr. Giving an overview of financial performance of the Railways in 2008-09, the Minister informed that freight loading during the period grew by 5 percent while traffic receipt increased by 11.4 per cent to reach Rs 79,862 cr. Proposing revision in Tatkal Scheme to make it more passenger friendly, the Railway Minister said that both the advance booking time and minimum charge will be reduced. She said perceptible improvement will be ensured in passenger amenities and safety and security will be given utmost importance. Cleanliness and quality of railway catering will be improved with focus on strict monitoring. She proposed that ticketing facilities will be taken to the grassroot level. Under the ‘Maa Mati Manush’ initiative, computerized tickets will also be made available through Post Offices. Mobile ticketing vans, ‘Mushkil Aasaan’, will also be introduced to provide services in remote areas. At a time when the global economy has been hit by one of the worst recessions ever, the Indian economy managed to log in a respectable GDP growth of 6.7% during FY09. While this was lower than the average growth rate of 8.8% achieved during its high growth phase (FY04-FY08), the performance was still much better than the 5.5% growth achieved during the period from FY99 to FY03. In its Economic Survey for 2008-09, the government has stated that it expects the economy to grow by 6.25% to 7.75% during the current fiscal (FY10). However, it also believes that a lot will depend on the recovery and health of the global economy (especially the US) in the coming few months. "If the U.S. economy bottoms out by September, there could be a good possibility for the Indian economy repeating last financial year's performance," the survey says. It may be noted that expectations of the growth rate have been made on the basis that the country will have a normal monsoon, a clear picture of which will emerge only by the end of July. Leave us a post with your queries to – analyst@theclubsharewala.com . We would love to hear your views about Indian Economy.

Does this positive signs of development in the Indian economy, also mean more jobs coming into India, erasing the job loss fears seen earlier? Especially with the software sector Industry... The recession has changed the way companies are thinking in terms of opening captive centers in India. Many global companies, especially those in the West, that had opened centers in India to perform back end tasks at a cheaper rate are now selling off these centers or shutting them down as the need to scale down costs has assumed paramount importance. And this opportunity is certainly a blessing for most home grown companies who thrive on third party contracts from these MNC's , as this certainly contributes in increasing their share of revenue in these sectors. In the past, companies calculated that building their own offshore offices could save them from paying the 15% to 20% margin that outsourcers typically charge. But that view seems to have changed and many of these companies no longer feel that the benefits of managing their own centers are that considerable. Given that employee churn at offshore offices is typically high and workers in India often receive annual raises, the cost structure of such centers can escalate rapidly. Also, as reported in the Wall Street Journal, it costs about 25% more to operate a captive center than to have an outside company provide the same services. Of course, despite Obama's recent remarks on outsourcing which do not bode well for India, the advantage that the country offers is too good to ignore and if global companies decide not to open their own centers in the country but instead go in for third party service providers, then this could be beneficial to Indian IT firms who would see more business coming their way. Yes, may be things wont turn faces too quickly like software boom that was seen earlier, but given little time India certainly has a long term story in the making. 3 cheers to the development! How is US battling the recovery process ? A research that has led to REALITY CHECK ON US revealing the current state of economy at the grass root level. Challenge # 1: Unemployment Continues to rise. - According to the latest reports provided by the US Official Bureau of Labor Statistics the unemployment rate stands at 9.4%. But even though unemployment rates are easing slightly, the overall number of unemployed is still rising. And it gets even worse when you throw in the 2.2 million additional people that are so discouraged they've quit looking for work, and today's number jumps to 10.8%. These individuals haven't even shown up on the rolls yet. Hey the jitters doesnt stop just here... With few companies announcing even minimal hiring plans, it's highly likely that the ranks of the unemployed will continue to swell to 11% to 12% sometime in 2010. What does this have to do with commercial real estate and malls? Plenty. As I've said before, it all starts with the consumer. In America, the consumer's long-term contribution to Gross Domestic Product (GDP) is around 65%. But for the last five years or so, it's been over 70%. That is, until the fourth quarter of 2008, when it dropped off a cliff. The core of the problem lies here: Less employed workers means less discretionary spending, less homes being built, bought and sold, less trips (or none) to the local mall, less warehouses needed, less manufacturing, less transportation... all resulting in a big pullback in GDP. Challenge # 2: Consumer Spending falling by the day. Getting the Consumer Spending back to US is the biggest challenge being faced by the policy makers in the US administration. The big boss'es aren't ready to spend, as the reality is biting them everytime somebody drops their hands inside their pockets. When they do spend, it's on staples: food, gas and clothing & just that. The normally big-spending teenage segment is currently experiencing a 22.7% unemployment rate. So instead of going to their former favorite hangouts - the malls - they're hanging out at each other's houses. So a question of getting a quick answer to this equation, is not just tougher but seems more of an irrational thought. Challenge # 3: The Retail Losses are continuing to accelerate. Many so-called "experts" in the commercial real estate field have said the fear of commercial real estate failures are overblown... that it won't be as nearly as bad as people like myself are predicting. They're dead wrong. They're ignoring the fact that there's always a lag between when the economy heads south and when commercial real estate does. Let's face it. Some stores can coast for a few months - or even a year - while they wait for a pickup in business. But that pickup isn't coming anytime soon.The reality is that many mall-based stores haven't renewed their leases - their lack of income is forcing their hand. Many others are underwater financially, and only months away from closing. Just an example of the fate of a latest business venture: Ritz Camera, is one of the largest whosale/retail dealer in the US. When national chain Ritz Camera filed for Chapter 11 bankruptcy protection, 300 stores in malls all across the country which were sub-franchisers immediately closed. The result isn't hard to picture. WATCH OUT: You may soon be able to place you equity orders even when you are on the move through your mobile phone. As per reports, the Securities and Exchange Board of India (SEBI) has proposed a framework for trading in securities through wireless technology which would include data cards and cell phones. The proposal by SEBI will ensure that the process is safe and secure for investors and once that is done investors may finally be able to use this convenient service to their benefit.

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INTRADAY CALL SCHEDULE:


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2> Global market dipstick with Intraday call, at 12:45 & 1:45 pm IST.
3> Noon call about market closing strategy, between 2:30 – 2:45 pm IST.

ASIAN MARKETS: [Markets EOD] The Japanese Stock market average Nikkei average rose 0.6 % today after strong results at JPMorgan boosted optimism about corporate earnings, but gains were capped by political uncertainty ahead of an election next month. Also weighing on the market was an 8.9 % tumble for electronics conglomerate NEC Corp after a source familiar with the matter said it is considering raising about $2.1 billion in capital. It must also be noted that political woes have hampered the Nikkei since embattled Prime Minister Taro Aso announced on Monday plans for an Aug. 30 election despite grim prospects for the ruling Liberal Democratic Party. Stocks at the Hong Kong stock markets jumped 2.4 % in a fourth straight winning session today as investors, cheered by strong earnings reports from U.S. companies and reassuring data from China, flocked to banking and property stocks. Shanghai stocks lagged, inching up to a 13-month closing high, bolstered by this week's solid economic data and a surge in aluminium shares on hopes producers will soon reach an agreement that will slash their energy costs. Ging by the present scheme of things, it looks like time is waiting, to tell more interesting tales about investing to all. China has taken yet another step to transform the yuan into the dominant global currency, a long-term initiative that could ultimately dethrone the dollar as the world's top unit of exchange. In the last four months alone, China has signed currency swap agreements worth more than $95 billion (650 yuan) with an array of nations - including: Argentina, Brazil, South Korea, Indonesia, Malaysia, Belarus and Hong Kong - that are only too glad to move away from the increasingly shaky U.S. dollar. I would repeat this again, if you wish to get a keener insight into the currency swapping history between US & CHINA, you must read ‘RICH MAN’s STORY’ & also this will certainly help you to understand global economic equation in a better way.

EUROPEAN MARKETS: [Markets as @ 4:15 pm IST, 17/07/09] Most of the stocks at the European Stock markets are showing up on the rising trends for the fifth straight day today led by banks and commodity stocks ahead of earnings from Citi, Bank of America and General Electric. The index was up 7.1 % this week, on track to post its best weekly gains since late November last year. Banks were among the top gainers, with Deutsche Bank , Banco Santander, Societe Generale, HSBC and Royal Bank of Scotland up close to a percent. Markets are currently, in progress & are showing up signs of hitting more highs in the next few hours while the US markets will open up for trade.

U.S MARKETS: [Pre-Market Review, 17/07/09] Going by the current trend at the US stock futures indices, most of the stocks on the S&P 500 indices briefly turned negative today following second-quarter results of General Electric, a diversified manufacturer. S&P 500 futures were 0.70 points higher but were slightly below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. More news on the go, in a short while from now...

Global Economic Calendar Today : 13/07/2009:

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Analyst@ THE CLUB SHAREWALA



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