Friday, July 6, 2012
Thursday, July 5, 2012
IT SECTOR HIRING SLOWS DOWN: MORE EVIDENCE
NOW IGATE DELAYS NEW JOINEE DATES
After Infosys it is now the turn of iGate which has delayed joining dates for new hires as per newspaper reports. California-headquarted iGate, which has a majority of its staff in India and employs around 30,000 people, said out of the 3,000 campus offers it made across India, joining dates of around 1,000 engineers will be delayed by one, or possibly, two quarters. "The overall demand environment remains weak. Close to 1,000 freshers, who were expected to join in July-August, will now join by the end of September or October," said Srinivas Kandula, HR head at iGate. "If the economic situation worsens, we will have to delay it by another quarter," he said.
Last month, country's second-largest IT firm Infosys had said it would delay the joining dates of over 25,000 engineers it hired from campuses to as late as mid 2013, a sign of how IT companies are coping with project delays and weak economic sentiments in the US and Europe.
HEADED FOR A SLOWDOWN ?
Prominent research organisations who track the sector closely have signalled about the possibility of slowing growth in the industry
CLSA
Continued delays in decision-making and flux in discretionary spending implies near-term demand outlook could surprise on the downside. While FY13 EPS seems safe with the currency tailwind, the spectre of 2 consecutive years (FY13/14) of low $-revenue growth looms large
STANDARD CHARTERED
We see rising risk of subdued volume trajectory in the BFS vertical extending beyond FY13, even outside of event/regulatory risks. This could be in contrast to the quick M&A-led bounce-back in IT spending after the global financial crisis.
DEUTSCHE BANK RESEARCH
Channel checks suggest that clients are not cancelling existing projects or delaying new deal ramp-ups.
However, we believe pricing in the BFSI (banking and financial services and insurance) vertical could be under pressure in 2HCY12. We note that Management of most investments banks would be stringently reviewing the CY12 IT budgets in the first week of July and there is a strong possibility that 2HCY12 spending will come under pressure.
After Infosys it is now the turn of iGate which has delayed joining dates for new hires as per newspaper reports. California-headquarted iGate, which has a majority of its staff in India and employs around 30,000 people, said out of the 3,000 campus offers it made across India, joining dates of around 1,000 engineers will be delayed by one, or possibly, two quarters. "The overall demand environment remains weak. Close to 1,000 freshers, who were expected to join in July-August, will now join by the end of September or October," said Srinivas Kandula, HR head at iGate. "If the economic situation worsens, we will have to delay it by another quarter," he said.
Last month, country's second-largest IT firm Infosys had said it would delay the joining dates of over 25,000 engineers it hired from campuses to as late as mid 2013, a sign of how IT companies are coping with project delays and weak economic sentiments in the US and Europe.
HEADED FOR A SLOWDOWN ?
Prominent research organisations who track the sector closely have signalled about the possibility of slowing growth in the industry
CLSA
Continued delays in decision-making and flux in discretionary spending implies near-term demand outlook could surprise on the downside. While FY13 EPS seems safe with the currency tailwind, the spectre of 2 consecutive years (FY13/14) of low $-revenue growth looms large
STANDARD CHARTERED
We see rising risk of subdued volume trajectory in the BFS vertical extending beyond FY13, even outside of event/regulatory risks. This could be in contrast to the quick M&A-led bounce-back in IT spending after the global financial crisis.
DEUTSCHE BANK RESEARCH
Channel checks suggest that clients are not cancelling existing projects or delaying new deal ramp-ups.
However, we believe pricing in the BFSI (banking and financial services and insurance) vertical could be under pressure in 2HCY12. We note that Management of most investments banks would be stringently reviewing the CY12 IT budgets in the first week of July and there is a strong possibility that 2HCY12 spending will come under pressure.
FORTUNES OF RICE PRODUCERS TO TURN ?
INDIA GETTING COMPETITIVE
The government of India today announced a complete removal of the minimum export price requirement for export of basmati rice from the country. For reference MEP is the minimum price at which a country can export its goods. The real world for commodities is price competition and India because of the norm was losing to competitors such as Pakistan, Philppines. With the MEP being done away with Indian rice exporters such as KRBL and LT Foods can compete on the global stage with rice exporters from low cost countries.
The government of India today announced a complete removal of the minimum export price requirement for export of basmati rice from the country. For reference MEP is the minimum price at which a country can export its goods. The real world for commodities is price competition and India because of the norm was losing to competitors such as Pakistan, Philppines. With the MEP being done away with Indian rice exporters such as KRBL and LT Foods can compete on the global stage with rice exporters from low cost countries.
Tuesday, July 3, 2012
IS THE OPTIMISM OVERDONE
DID THE POWER SHIFT DO THE TRICK ?
Sensex has rallied nearly 10% in last 1 month and picked up momentum in the last week on hopes that the wrong doings under Pranab Mukherjee would be undone by the seasoned economist in Manmohan Singh who currently heads the finance portfolio. Within days of taking over there is a sense of urgency in North block, whether its clarifying GAAR or deferrment of service tax on rail fares. It seems Manmohan Singh has finally been given the freedom the kind of which brought out the best in him during the 1991 crisis period. "The Finance Ministry under Prime Minister Manmohan Singh will very quickly resolve uncertainty among investors caused by anti-tax avoidance rules which were unveiled in the Budget", Planning Commission Deputy Chairman Montek Singh Ahluwalia said a few days later to a leading daily. In a sign of improved sentiment FIIs have pumped in close to `700 crore into cash segment just in the last 1 week, Nifty has rallied all the way to 5300 and Sensex is just a few hunderd points shy of 18000. Market strategists at leading research houses changing their outlook towards India as one of hope and optimism.
TURNING BULLISH ?
Jonathan F Garner , Morgan Stanley "India is trading well below long-run average valuations and close to trough valuations from the 2002 & 2008 perspective"
Adrian Mowat , JP Morgan "Turning positive on India on back of lower oil prices which in turn will help current account deficit"
Abhay Laijawala, Deutsche Bank "Tactical rally likely to continue in near term, pil off the boil make India look attractive valuations wise sharp deprecation in INR continue to be a tailwinds
REALITY BITES
Expectations and hopes can only take the markets to a limited extent but then sooner or later reality always steps in and we start to question the validity of any rally in the absence of any visible change in the fundamental picture. So before we pop up the bubbly and start celebrating lets take a moment to reflect on where we stand. Whether its rising twin deficts, dwindling industrial output and inflation there seems to be no light at the end of the tunnel.
KEY MACRO VARIABLE APRIL'2012
Industrial production 0.1%
Capital goods -16.3%
Auto sales 8.6%
Manufacturing PMI 54.9
WPI inflation 7.2%
Food inflation 10.5%
CPI inflation 10.2%
Trade Balance ($BN) -13.5
GDP STATS Q1-2012
Real GDP 5.3%
Industry 0.7%
Sensex has rallied nearly 10% in last 1 month and picked up momentum in the last week on hopes that the wrong doings under Pranab Mukherjee would be undone by the seasoned economist in Manmohan Singh who currently heads the finance portfolio. Within days of taking over there is a sense of urgency in North block, whether its clarifying GAAR or deferrment of service tax on rail fares. It seems Manmohan Singh has finally been given the freedom the kind of which brought out the best in him during the 1991 crisis period. "The Finance Ministry under Prime Minister Manmohan Singh will very quickly resolve uncertainty among investors caused by anti-tax avoidance rules which were unveiled in the Budget", Planning Commission Deputy Chairman Montek Singh Ahluwalia said a few days later to a leading daily. In a sign of improved sentiment FIIs have pumped in close to `700 crore into cash segment just in the last 1 week, Nifty has rallied all the way to 5300 and Sensex is just a few hunderd points shy of 18000. Market strategists at leading research houses changing their outlook towards India as one of hope and optimism.
TURNING BULLISH ?
Jonathan F Garner , Morgan Stanley "India is trading well below long-run average valuations and close to trough valuations from the 2002 & 2008 perspective"
Adrian Mowat , JP Morgan "Turning positive on India on back of lower oil prices which in turn will help current account deficit"
Abhay Laijawala, Deutsche Bank "Tactical rally likely to continue in near term, pil off the boil make India look attractive valuations wise sharp deprecation in INR continue to be a tailwinds
REALITY BITES
Expectations and hopes can only take the markets to a limited extent but then sooner or later reality always steps in and we start to question the validity of any rally in the absence of any visible change in the fundamental picture. So before we pop up the bubbly and start celebrating lets take a moment to reflect on where we stand. Whether its rising twin deficts, dwindling industrial output and inflation there seems to be no light at the end of the tunnel.
KEY MACRO VARIABLE APRIL'2012
Industrial production 0.1%
Capital goods -16.3%
Auto sales 8.6%
Manufacturing PMI 54.9
WPI inflation 7.2%
Food inflation 10.5%
CPI inflation 10.2%
Trade Balance ($BN) -13.5
GDP STATS Q1-2012
Real GDP 5.3%
Industry 0.7%
Monday, July 2, 2012
DO BANKERS EVER LEARN
ARE BANKERS RESPONSIBLE FOR THIS ONE TOO ?
British banking giant Barclays' chairman Marcus Agius quit on Monday, saying an interest rate rigging scandal had dealt "a devastating blow" to the bank’s reputation and "the buck stops with me". Pressure has built on him and CEO Bob Diamond to quit following a $453m fine for Barclays by British and US regulators last week for making inaccurate submissions on the Libor interest rate. Both Mr Diamond and Mr Agius have been called to appear this week before British legislators on the Treasury select committee in the wake of the fine. The news that Barclays traders tried to fix Libor rates rocked the financial world last week. It also wiped billions off Barclays’ market value in a week when British banks were separately sanctioned for mis-selling interest rate insurance. The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating
FAR REACHING IMPACT
The inquiry will focus on possible criminal sanctions against people who breach future regulations on the rate. Banks may face billions of dollars in costs from litigation. More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans as per Wall Street Journal. Derivatives market is approximately $1,200 trillion dollars. Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.
IS THE METHODOLOGY FLAWED ?
Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.
British banking giant Barclays' chairman Marcus Agius quit on Monday, saying an interest rate rigging scandal had dealt "a devastating blow" to the bank’s reputation and "the buck stops with me". Pressure has built on him and CEO Bob Diamond to quit following a $453m fine for Barclays by British and US regulators last week for making inaccurate submissions on the Libor interest rate. Both Mr Diamond and Mr Agius have been called to appear this week before British legislators on the Treasury select committee in the wake of the fine. The news that Barclays traders tried to fix Libor rates rocked the financial world last week. It also wiped billions off Barclays’ market value in a week when British banks were separately sanctioned for mis-selling interest rate insurance. The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating
FAR REACHING IMPACT
The inquiry will focus on possible criminal sanctions against people who breach future regulations on the rate. Banks may face billions of dollars in costs from litigation. More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans as per Wall Street Journal. Derivatives market is approximately $1,200 trillion dollars. Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.
IS THE METHODOLOGY FLAWED ?
Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.
IS INDIA TURNING NET DEBTOR TO THE WORLD ?
Current account deficit occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.
INDIA'S CURRENT ACCOUNT DEFICIT WORSENS
India's current account deficit (CAD) widened to USD21.8bn (4.5% of GDP) in January-March of 2012, from (an upward revised) USD20.2bn deficit in Oct-Dec'11. As in the previous quarters, the worsening of the CAD was led by a deterioration in the trade deficit position (USD51.5bn in Jan-Mar'12 or 10.6% of GDP, up from USD48.7bn in Oct-Dec'11), offsetting the improvement in net invisibles (USD29.8bn vs. USD28.8bn). The trade deficit widened in Jan-Mar as exports growth decelerated sharply to 3.4%yoy, while imports growth remained sufficiently firm (22.6%yoy) during the same period. Meanwhile, as usual, software services (USD16.9bn vs. USD15.8bn) and private transfers (USD16.9bn vs. USD16.2bn) were the main contributors to the strength in net invisibles.
CAPITAL ACCOUNT IMPROVES MARGINALLY
Capital account surplus improved to USD16.6bn in Jan-Mar'12, up from USD7.7bn in Oct-Dec'11, but was still insufficient to fund the relatively large current account deficit, leading to a an overall BOP deficit of USD5.7bn (as compared to USD-12.8bn in Oct-Dec'11). Foreign investment improved sharply in Jan-Mar'12 as compared to Oct-Dec'11, led by robust portfolio investment flows (USD13.9bn vs. USD1.9bn), while net FDI flows (USD1.4bn vs. USD5bn) reduced appreciably from the previous quarter. Loans (USD2.7bn vs. USD1.6bn) and banking capital (USD2bn vs. USD-5.5bn) flows also improved in Jan-Mar'12 - the latter mainly helped by robust non-resident deposit flows (USD4.7bn vs. USD3.3bn), while other capital subtracted USD3.4bn from the capital account (in Oct-Dec'11, other capital added USD4.7bn to net capital flows).
BALANCE OF PAYMENTS NOT 'BALANCED'
With the releases of the Jan-Mar'12 BOP data, we now have the FY11/12 full year estimate of the BOP position. The CAD widened to USD78.1bn (4.2% of GDP) in FY11/12, a record high in absolute terms and also as a % of GDP, from USD45.9bn in FY10/11 (2.7% of GDP), on the back of a sharp deterioration in trade deficit (USD189.8bn vs. USD130.6bn), offsetting the notable improvement in net invisibles (USD111.6bn vs. USD84.6bn). Due to the sharp deterioration in CAD, the BOP recorded a net deficit of USD12.8bn in FY11/12 (vs. a net surplus of USD13bn in FY10/11), even though the capital account surplus was higher in FY11/12 compared to FY10/11 (USD67.8bn vs. USD62bn).
INDIA'S CURRENT ACCOUNT DEFICIT WORSENS
India's current account deficit (CAD) widened to USD21.8bn (4.5% of GDP) in January-March of 2012, from (an upward revised) USD20.2bn deficit in Oct-Dec'11. As in the previous quarters, the worsening of the CAD was led by a deterioration in the trade deficit position (USD51.5bn in Jan-Mar'12 or 10.6% of GDP, up from USD48.7bn in Oct-Dec'11), offsetting the improvement in net invisibles (USD29.8bn vs. USD28.8bn). The trade deficit widened in Jan-Mar as exports growth decelerated sharply to 3.4%yoy, while imports growth remained sufficiently firm (22.6%yoy) during the same period. Meanwhile, as usual, software services (USD16.9bn vs. USD15.8bn) and private transfers (USD16.9bn vs. USD16.2bn) were the main contributors to the strength in net invisibles.
CAPITAL ACCOUNT IMPROVES MARGINALLY
Capital account surplus improved to USD16.6bn in Jan-Mar'12, up from USD7.7bn in Oct-Dec'11, but was still insufficient to fund the relatively large current account deficit, leading to a an overall BOP deficit of USD5.7bn (as compared to USD-12.8bn in Oct-Dec'11). Foreign investment improved sharply in Jan-Mar'12 as compared to Oct-Dec'11, led by robust portfolio investment flows (USD13.9bn vs. USD1.9bn), while net FDI flows (USD1.4bn vs. USD5bn) reduced appreciably from the previous quarter. Loans (USD2.7bn vs. USD1.6bn) and banking capital (USD2bn vs. USD-5.5bn) flows also improved in Jan-Mar'12 - the latter mainly helped by robust non-resident deposit flows (USD4.7bn vs. USD3.3bn), while other capital subtracted USD3.4bn from the capital account (in Oct-Dec'11, other capital added USD4.7bn to net capital flows).
BALANCE OF PAYMENTS NOT 'BALANCED'
With the releases of the Jan-Mar'12 BOP data, we now have the FY11/12 full year estimate of the BOP position. The CAD widened to USD78.1bn (4.2% of GDP) in FY11/12, a record high in absolute terms and also as a % of GDP, from USD45.9bn in FY10/11 (2.7% of GDP), on the back of a sharp deterioration in trade deficit (USD189.8bn vs. USD130.6bn), offsetting the notable improvement in net invisibles (USD111.6bn vs. USD84.6bn). Due to the sharp deterioration in CAD, the BOP recorded a net deficit of USD12.8bn in FY11/12 (vs. a net surplus of USD13bn in FY10/11), even though the capital account surplus was higher in FY11/12 compared to FY10/11 (USD67.8bn vs. USD62bn).
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