Wednesday, April 30, 2008

Inflation in India – Where will it stop?

Indian economy is growing at robust pace. Just to compete with it are the prices of food items and industrial goods like steel and cement, which form the backbone of construction activity. The Indian Finance Minister was quick to intervene the galloping price rise by announcing a slew of fiscal measures. These anti inflationary steps cost the government Rs.1,500 crores. The earlier two interventions on the inflation had an impact of Rs.4,840 crores.
The main focus of the government is increasing the availability of steel products as well as softening their prices. The real estate business is already in slump and the increased steel prices are a nightmare to the construction business. Steel as a whole contributed 21.3% to the current inflation and its role in the economy can never be underestimated. The basic customs duty was cut on pig iron, granules, powders, ingots, billets, hot rolled coils etc.

As for as food products are concerned, in order to ensure adequate availability of milk in lean summer months, the basic customs duty on skim milk powder has been reduced to 5% from 15% and similarly for butteroil, it is down from 40 to 30%. An export duty of Rs.8,000 a ton has been slapped on Basmati rice.

Mr.Y.V.Reddy, the Governor of Reserve Bank of India (RBI) is optimistic about the GDP growth touching 8.5% and hope that the inflation will be contained at 5.5% level. Notwithstanding this, the RBI has hiked the cash reserve ratio by 25 base points to suck out Rs.9,000 crores from the system so that too much money won’t chase too few goods. The CRR is now at 8.25%.
With all these fiscal measures, one can only hope that the inflation would fall to such a level so that the price of the essential commodities is within the reach of common man.

Sunday, April 20, 2008

More pink slips in the offing?

The deepening financial crisis and a possible recession in the US have cast their shadow on the job front of many of the financial companies. This week saw the issue of the largest number of pink slips since the beginning of the financial crisis and the latest reports quote that some 12,400 jobs have been cut mainly in Citigroup, Merrill Lynch and Walchovia corporation and it is expected that more cuts are in the offing since the losses continue to mount.

This week job cut when added to the total lay offs amount to a mammoth 36,000 jobs lost since the beginning of the crisis in US alone. Notwithstanding the present lay offs, the Citi is planning to shed another 9,000 people owing to the fiscal tightening. The Citigroup posted a $5.11 billion quarterly loss on Friday taking billions of dollars write downs related to mortgages and crisis in the credit markets.

The world’s largest brokerage, Merrill on Thursday announced a $9.7 billion in write downs. Mr. George Soros, the well known billionaire-investor described the sub-prime mortgage crisis as the worst financial crisis of our life time and he was of opinion that the global losses could be as high as a whopping $1 trillion.

London fiasco

The fall out from the US sub-prime mortgage crisis has taken its toll in the form of job losses in London financial district, the city and the estimates suggest that 40, 000 people are likely to be sacked from their jobs. This is just double of the previous estimate by the analysts, JP Morgan.

Google profits up

Google on Thursday announced that its profit has gone up more than 30% to $1.31 billion in the first quarter of the present financial year, giving the much needed breather to the online advertisement companies and publishers alike. Google’s stock reacted favorably by leaping more than 17% to end at $526 a share. The main cash resource for Google, clicks on online ads, increased by 20% in the quarter under report. Hope the Google adwords people and publishers can be seen laughing all the way to the banks…

Saturday, April 19, 2008


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Monday, April 14, 2008

Stock melt down is more in the rest of the world than in US

Stock investors have been scouting for the third world or the Asian Markets whenever the US stocks get the beating. This is what is called as “decoupling” in the stock market parlance. But the recent stories tell the facts contrary to the established one. As the US is gripped by recession, its effect is more felt in the third world, so to say, some sort of chain reaction where the starter suffers the least whereas the tail end suffers the worst.

China and India, considered as the outstanding performers in terms of GDP growth, have suffered the most in stocks, in terms of the decoupling theory.

Mr. Jamie Doyle, manager of the International Portfolios for Causeway Capital Management considers the recent drop as buying opportunity, going by the adage “Invest at every dip”. However, he cautions the investors with minimal exposure to the American economy.

GE results, well below what the market had expected?

The results of the General Electric company is officially out and has sent chills through the nerves of the investors who are more worried about the performance of the market especially during the start of the first quarter of the financial year. The company reported the first quarter earnings per share of 44 cents, which was considered well below that of what Wall Street considered as the ideal one at 51 cents and a cut in its growth forecast.

GE recorded the steepest weekly fall since the September 2001 terror attacks after the release of the result. Estimates showed that the plunge had erased 55 billion dollar from the stock market value. The majority of the economists are of the opinion that US will be into recession sooner. The confidence among the US consumers has gone down to a 26 year low and high gasoline prices and the worsening labor market are cited as the possible reasons.

Non financial news
A cluster of spruces in the mountains of western Sweden is considered as the oldest living tree, at an age of 8,000 years!

Thursday, April 10, 2008

The stock movement and the sub-prime crisis...

The sub-prime crisis is not over?

Well… there was a talk in the financial parlance that the crisis is about to end but the OECD head Mr. Angel Gurra was of different opinion and he was describing it as “collective bankruptcy and damning failures throughout the chain of financial risk and regulations.” He was obviously referring to the financial measures that the government took was not sufficient to meet the ends.

He said the entire institutional chain though well oiled with all this sophistication, yesterday the pride of the authorities has been put into question by the collective bankruptcy.

US stocks fall

US stocks turned lower after opening slightly higher on Wednesday (9th April) mainly due to cut in the earnings guidance from the package delivery giant UPS. The continuous weakness for US consumers will all likelihood hurt the corporate gains. UPS was recently trading down 3.2% at $70.90, Boeing gained 3.8% to $77.91 and was one of the strongest mover in the Dow with the US aerospace giant saying it has delayed delivery of its 787 dreamliner airplane program. However industry watchers have a different story to tell and they expected a higher growth in the year 2009 albeit the delay in the delivery of the macho machine.

Europe shares down

Further credit market loss made the investors nervous and jittery and this resulted in the bank shares going down; miners too went down as the fleeting acquisition talk was off. Banks suffered the most after rallying up during the past week on belief that the sector had turned the corners when the Swiss lender UBS announced a large write down, widely regarded as a clearing deck for a recovery.

Across Europe, Britain FTSE 100 was down 0.1%, Germany’s DAX 0.3% down, France CAC 0.4% down (April 9) and the Indian sensitive index sensex was 95.5 points down and the Nifty 14.0 points down at the close of market on April 10.

Sunday, April 6, 2008

The US recession and the Google

The US economy bounced back well after the devastating housing sector and a deep financial crisis. This defied some of the pessimist’s view that the economy is going to take a deep fall. Mr. Bernanke, the Fed Chief said that the chances of the GDP growing at brisk pace were less, especially during the first half of this year. This has a strange coincidence in that most US recession periods generally showed two quarters of falling GDP.

The battered and bruised housing sectors showed some signs of recovery and sufficient measures have been taken to expand the amount of hosing credit available through Fannie and Freddie and the rate for the 30 year mortgages are lower than 6 percent. This has indeed made the housing affordable for majority of the people.

The effect of the recession may not be comparable to that of the one experienced during the year 1929 or the Japan’s downturn during the 1990s. Nevertheless, it will increase the unemployment rate and a decrease in the consumer spending.

Now let us see how the recession will have its effect on the Google.

As long as the US economy was growing, Google continued to enjoy its market share. This is reflected from the share value of Google rising from $85 in the beginning to $747.24 during the first week of November 2007. Later, because of the corrections in the market saw the share value tumble to about $450.

Possible effects on the Google

  • Whenever the US consumers rein their spending, it will have an indirect effect on the company.
  • The possible merger of yahoo with the Microsoft Corp will provide a tough competition.
  • With financial crisis gripping all the industries, fewer number of people going in for advertisement in the electronic medium resulting in less returns to the publishers.

However, we can hope that Google with its unparalleled technology will wither away the troubles posed by the recent recession and would continue to grow in the years to come.

Let us wait and watch…

Friday, April 4, 2008

The Indian Economic Scenario

India continued its run as a fast growing economy, even as the inflation touched the 3 years high level at 7% for the week ended March 22, because of the rise in prices of essential commodities like food, vegetables, manufactured goods and minerals.

The Asian Development Bank predicted that the growth rate may slide from the one projected for the year 2007 - 08 (8.7%). But it is optimistic that the growth could bounce back to a higher level at 8.5% due to higher consumer spending and an accommodative government monetary policy.

It is expected that the overall GDP growth rate for the financial year 2009 is estimated to be about 8.5%. The ADB is of the view that despite faltering growth, the Indian economy has built up considerable momentum during the recent past and this dynamism should catalyze the growth again.

The silver lining is that despite the inflationary pressures which is due to global rise in food and commodity prices, the ADB projected a positive outlook for the entire Asia.

Post script :

Stock market in India reacted negatively to the surge in inflation. The Sensex shed 489 points or 3.1 per cent and the Nifty down by 2.6 per cent or 124 points. Thus the week ended in red for the Indian stock market. We will wait and see how it progresses for the next week?