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THE CLOSURE

MARKET UPDATE

United Stock Exchange, DSE in talks for merger

The United Stock Exchange (USE) is in talks with the management of the Delhi Stock Ex-change (DSE) for a possible merger, amid opposition by the latter's broker shareholders; concerned the deal will erode value.

The proponents tout it a win-win for the USE, which has operations in the currency segment but no presence in the equity space, and the DSE, which has hundreds of companies listed on it but has been struggling to revive trading amid technological and marketing challenges.

The move comes months ahead of a May deadline by the Securities and Exchange Board of India (Sebi) for winding down unviable exchanges. The USE-DSE deal could help the DSE meet the Rs.1,000-crore turnover criterion.

Board meeting date may be ex-date

To curb speculators from manipulating the share prices of delisting-bound companies, the Securities and Exchange Board of India (Sebi) plans to make the board meeting an-nouncement date the ex-date to identify shareholders eligible to participate in the reverse book building (RBB) process, or the price-discovery mechanism used during vol-untary delisting of shares.

An ex-date, in the case of delisting, is the date on or before which an investor has to own shares of the company.

The move will ensure only genuine and ex-isting investors have a say in the delisting process and set the exit price, usually a bone of contention. Currently, investors can buy shares and participate in the delisting bid of a company even after the announce-ment of delisting.

One demat a/c likely soon for all investments

Market regulator Securities and Exchange Board of India (Sebi) on 6th February, 2014 said investors will soon be able to have a single dematerialized account for all clas-ses of their financial investments.

Sebi Joint Director Prabhakar R Patil stated this while delivering his address on 'Indian Securities Market - the Journey and the Way Ahead', at an annual national confer-ence held at Guru Jambheshwar University of Science and Technology (GJUST) here. He further said foreign institutional investors (FIIs) have invested Rs.3,277 crore ($532 million) in Indian equity market till January 27, 2014.

Telecom shares slump on high spectrum prices

Shares of telecom companies dropped on 10th February 2014 on concern rising prices in the

ongoing 2G spectrum auctions would hurt profitability.

While Bharti Airtel fell 2.6 per cent to Rs.307.40, Idea Cellular fell 8.4 per cent to Rs.126.50 and Reliance Communications declined four per cent to Rs.120.35. The benchmark Sensex fell 0.2 per cent, snapping a four-session winning streak. The Nifty dropped 0.16 per cent Blue-chip stocks were also hit after foreign investors sold a net $39.88 million worth of shares in the secondary market on Friday, extending their selling streak to a seventh day and in-creasing total outflows to $582.02 million.

BANKING AND FINANCIAL SERVICES

Reverse repo borrowing falls to Rs 7.70 billion: RBI The Reserve Bank of India on Tuesday ac-cepted all 2 bids for Rs 7.70 billion at its 1-day reverse repo auction on Monday, through which it absorbs liquidity from the banking system. On Monday, it accepted all 56 bids for Rs 350.37 billion at its one-day repo auction, through which it injects liquidity into the banking system. http://economictimes.indiatimes.com/articleshow/30201367.cms

Banking services paralyzed on Monday as employees begin 2-day strike Banking services were crippled on Monday as bank employees across regions begun a two day strike rejecting Indian Banks' Associations 10% hike offer. Wage revision in public sector banks is due since November 2012. At the last tripartite wage settlement in 2007 which expired in October 2012, bank employees received a 17.5% hike. United Forum of Bank Unions said over 10 lakh employees have joined the strike in 27 pub-lic sector banks and 48 regional rural banks. However, Finance Minister P Chidambaram said the profit of banks cannot be used only to enhance salaries because there are other obligations. IBA which represents bank managements in wage settlement talks with unions is reported to have said that banks cannot afford more than 10% salary hike due to steep growth in non-performing assets putting pressure on profitability. A 10% hike would cost banks an addition-al Rs 3,150 crore a year cumulatively. Union members in turn said offer was not in line with rising inflation. Their demands include regulated working hours for officers, five days a week and re-introduction of compassionate ground appointment. http://economictimes.indiatimes.com/articleshow/30169643.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

PIO executive Ashok Varadhan ap-pointed co-head of Goldman Sachs' securities Indian-origin Ashok Varadhan has been appointed co-head of the Goldman Sachs' securities division, the largest and most profitable of the global invest-ment bank's four units. Varadhan, 41, is currently the head of macro trad-ing in Goldman's Securities Division and will join Isabelle Ealet and Pablo Salame as co-head of the Securities Division. As co-head of the securities division, which gener-ates the most revenue and profit for Goldman, Varadhan would build on Goldman's client fran-chise across its fixed income, currency and com-modities and equities businesses. A Duke University graduate, Varadhan joined Gold-man Sachs in 1998 in Swaps Trading and after heading the dollar derivative trading, he ran North American interest rate products and became global head of foreign exchange in 2007. http://economictimes.indiatimes.com/articleshow/30207275.cms utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Trade deficit narrows on 77 per cent drop in gold imports Trade deficit narrowed in January, helped by a 77 per cent drop in imports of gold and silver while exports ticked up, improving the outlook for the country's fragile current account balance. The trade ministry said it had rec-ommended easing curbs on gold imports, prompted by the brighter trade picture. Govt expects to keep the current account deficit down under $50 billion in the fiscal year to March 2014. The shortfall was a record $87.8 billion in the previous 12-month period which had precipitat-ed a record fall in the value of the rupee against the dollar last sum-mer. http://economictimes.indiatimes.com/articleshow/30213373.cms?utm_source=contentofinterest&ut

Elections 2014: What stocks, sectors will be hit most on a fractured mandate If a coalition of smaller, regional parties without a common economic reform agenda were to take the helm post 2014 general elections, it would likely provoke further capital flight and will hit banks, metal and oil & gas stocks the most, Moody's investors Service said in a note on Tuesday. At a time when foreign institutional investors are eyeing a stable government at the Centre, any abrupt surprises might not bode well for India's equity markets. FIIs have pulled out nearly Rs 1,700 crore from Indian equities in the first week of February. After buying $20 billion worth of stocks in 2013, they have sold equities totaling Rs 953 crore since January, turning net sellers of equities this year. The recent selloff the markets saw was primarily be-cause of global factors like a cut in the bond-buying programme by the US Federal Reserve and rising concerns about growth in China. However, most experts are of the view that the market might not witness strong inflows till general elections, and further pumping in of money by FIIs would depend on the formation of the new government. A coalition government would likely provoke further capital flight, thereby increasing borrowing costs and weakening of the Indian rupee and a delayed economic recovery. Banks will feel the pinch of a weak corporate environment via deteriorating asset quality. Corporates and financial institutions are more ex-posed than the sovereign to further economic weakness. Indian corporates will remain much more vulnerable to prolonged macroeconomic weakness due to the aggressive run-up in cor-porate leverage and greater exposure to external debt that has built up in recent years, said the Moody's note. According to the global rating agency, public sector banks are more vulner-able than their private peers to the risk of a fragmented government leading to prolonged macroeconomic malaise. Public sector banks have greater exposure to high-risk sectors. Moreover, their weaker capitalization levels provide less room for maneuverability should do-mestic demand remain subdued.

2014 will be challenging for Banks Global rating agency Standard & Poor's today said 2014 will continue to be a challenging year for the asset quality and profitability of the country's banks as the economy is expected to make a tepid recovery. The ongoing weakness in asset quality of banks will persist for 12 months as the economic recovery is "likely to be tepid," according to S&P. "The growth, profitability and asset quality of Indian banks are likely to remain subdued in the next 12 months despite a likely uptick in economic growth. It will take time before the domestic industry improves and the balance sheets get de-leveraged, which are two of the most im-portant factors determining the asset quality for banks," the agency said in a note. In its financial stability report released on December 30, the Reserve Bank of India estimated that gross non-performing assets in the system will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013, before ending at 4.4 per cent in March 2015.Among all banks, the RBI expects state-run banks to be the bad performers. On the capital scenario for lenders, the rating agency said banks will need "sizable" capital to support credit growth and comply with the stringent Basel-III norms. It said private sector lenders rated by it are better placed to meet the requirements than state-run ones. The government has allocated Rs. 14,000 crore for capital infusion in banks for this financial year.

Banks’ recoveries improve on tougher steps

Amid a tough macroeconomic environment, which has kept asset quality under pressure, banks are stepping up efforts to recover as much money as they can. A look at the results for the three months to December 2013 shows that most public sector banks have managed to recover money primarily through the sale of bad loans to asset reconstruction companies (ARCs). The Delhi-headquartered Punjab National Bank (PNB) had the highest cash recoveries in Q3FY14 of Rs 2,107 crore, an increase of over 40% both sequentially and year-on-year. Similarly, Bank of Baroda’s recoveries increased 93.14% y-o-y to Rs 197 crore. Apart from selling of bad as-sets to ARCs, Bank of India and Central Bank of India have set up committees to oversee and follow up on wilful defaulters on a weekly basis as part of their recovery efforts. Bank of India CMD VR Iyer told FE that the bank is strengthening monitoring and recovery efforts. "We are taking very strong action against wilful defaulters and also resorting to the sale of assets to ARCs,” Iyer said. Recoveries at BoI increased 174.25% y-o-y and 134.98% sequentially to Rs 1,001 crore in Q3FY14.Iyer added that the bank is using a call center and correspondents to follow up on borrowers, which has boosted recovery efforts. “In fact, our call center makes about 700 calls per day to our borrowers across the country. This has doubled our recovery. Going forward, I think this will be a very important tool,” she said.

ECONOMY AND POLICY

Nine foreign investment pro-posals worth Rs 798.73 crore ap-proved

The Finance Ministry has cleared nine foreign investment proposals worth Rs 798.73 crore and recommended the Rs 6,400 crore Glax-oSmithKline's proposal for consideration of Cabinet Committee on Economic Affairs (CCEA) . Of the nine that have been ap-proved, Hospira Pte Ltd, Singapore proposal entails foreign investment worth Rs 650 crore. The proposal related to post facto ap-proval for already subscribed equity share of Hospira India Pvt Ltd, Tamil Nadu. It also proposes fresh equity infusion in Hos-pira Healthcare India Pvt Ltd, Tamil Nadu. Westbridge Crossover Fund LLC, Mauritius has got permission for issuance of the war-rants convertible into equity shares. Other in-vestment proposals that have been cleared (based on the recommendations of the Janu-ary 13 FIPB meeting), include that of Indo-German Steel Hub LLP, Golden Invest Pte Ltd, Singapore and B Braun Singapore Pte Ltd, Singapore. Read more at: http://economictimes.indiatimes.com/articleshow/30098049.cms?

FinMin gives Rs.10,000 cr as subsidy to fuel retailers for Q3

The Finance Ministry on Tuesday sanc-tioned Rs.10,000 crore as cash subsidy to fuel retail-ers like Indian Oil Corp (IOC) to make up for part of the losses they incurred on selling diesel and cooking fuel below cost in December quarter. The sanction is against Oil Ministry’s demand of Rs.26,000 crore. IOC will get Rs.5,172.87 crore while Bharat Petroleum Corp Ltd (BPCL) will get Rs.2,499.39 crore. Hindustan Petroleum Corp Ltd (HPCL) will get Rs.2,327.47 crore. Fuel retailers lost Rs.39,725 crore on selling diesel, kerosene and domestic cooking gas (LPG) at government controlled rates in October-December 2013. Upstream companies Oil & Natural Gas Corp and Oil India Ltd will make good Rs.15,937.59 crore, or about 40%, of this amount. Without the govern-ment subsidy, state-owned fuel retailers Indian Oil Corp (IOC), HPCL and BPCL will report losses in the third quarter

http://www.livemint.com/Politics/fkHIGK1CbDfr8JJOoxiMUM/FinMin-gives-10000-cr-as-subsidy-to-fuel-retailers-for-Q3.html

India’s economic growth likely to be ‘below trend’, says OECD

Indian economy’s growth is expected to be “below trend” even as neighbouring China and most of the developed nations are expected to see better prospects, according to Paris-based think tank Organization for Economic Co-operation and Development (OECD).

The conclusions are based on composite leading indicator (CLI), which are designed to antici-pate turning points in economic activity. India’s CLI slipped to 97 in December last year from 97.2 registered in November. The country’s CLI has been falling since August 2013 when it stood at 97.7. It dropped to 97.5 in September and then to 97.4 in October.

The OECD assessment comes at a time when the Indian economy is expected to clock a growth of 4.9% in the current financial year ending March 2014, higher than 4.5% gross do-mestic product (GDP) expansion recorded in the year-ago period, as per advanced estimates released from the Central Statistics Office.

http://www.livemint.com/Politics/rs4EO9BYlYOTf2Rzv4i2BL/Indias-economic-growth-likely-to-be-below-trend-says-OEC.html

CAD likely to decline to $45 bn in FY14: FinMin

The Current Account Deficit is expected to fall by almost 50% to $45 billion in the current financial year following re-strictions on gold imports and the narrow-ing of trade deficit. The Reserve Bank had last month projected CAD to be at less than $50 billion or 2.5%, down from $88.2 billion or 4.8% of GDP in 2012-13. India's foreign exchange re-serve as on January 31 stood at $291 billion. Besides, Foreign Institutional In-vestors have invested Rs 56,560 crore in equities so far in the current fiscal, end-ing March 31. CAD had touched a record high of $88.2 billion in 2012-13. However, following a series of measures by both the RBI and the government, it is likely to drop drasti-cally. In the first half (April-September) of 2013-14, CAD narrowed to $26.9 billion (3.1%), from $37.9 billion (4.5%) in the first half of 2012-13.

http://www.business-standard.com/article/economy-policy/cad-likely-to-decline-to-45-bn-in-fy14-finmin-114020900181_1.html

5.6% growth likely next year, stable govt is vital: Citi

Indian economy is likely to grow by 5.6% in the next financial year but a stable govern-ment after elections, a pick-up in invest-ment and good monsoon are vital fac-tors, Citigroup said in a report. An occurrence of El Nino could lead to de-ficient rainfall in India and consequently pose a downward risk to agricultural out-put, the report said. El Nino is a series of climatic changes across Pacific Ocean due to warm ocean water temperatures. An improvement in investment would spur economic growth. Companies would, how-ever, wait for elections before commencing operations, it said. "A stable government post elections remains key to a capex re-vival," the report said, adding that the key to moving to a higher growth trajectory would be reviving investments to pre-crisis levels, especially the private sector through continued efforts to 'unlock' stalled invest-ments.

http://www.business-standard.com/article/economy-policy/5-6-growth-likely-next-year-stable-govt-is-vital-citi-114020900150_1.html

INTERNATIONAL OUTLOOK

Do you know about the five upcoming investment-banking firms?

They don't pop out of league tables, but these investment-banking firms are thriving in their own niches. These investment-banking firms are thriving in their own niches. They are small, but growing. They don’t do everything, but they do it well.

1) Veda Corporate

Partners: C Venkat Subramanyam, M Vinod Kumar, Srikanth Narasimhan Founded: 2003 Deals: 69 Employees: 20 Services: PE, M&A, structured finance Big deal: Arranging about Rs 1,000 cr, for Ashirvad Pipes, from Belgium's Aliaxis Group

I-banking insight: Succession planning and preparation is very critical for boutique firms as often they are identi-fied with the founding team and their personalities —C Venkat Subramanyam

Murugavel Janakiraman, founder of online-services firm Consim Info, which runs the match-making service Bharat Matrimony, can never forget New Year's Day 2006. His investment banker, Srikanth Narasimhan, director at Veda Corporate Advisors, called to wish but also had some bad news: the pain-staking preparatory work for Consim's fundraising, which took up a good deal of 2005, had to be done again.

2) Mape

Partners: Jacob Mathew, M Ramprasad Founded: 2001 Employees: 24 Services: M&As, private equity Big deal: Advised Jyothi Labs to buy Henkel; sale of Shriram Cement to Mycem

I-banking insight: Being small allows us to sharply focus on M&A and PE and provide better service to clients —Jacob Mathew

3) Avendus Capital

Partners: Ranu Vohra, Kaushal Agarwal, Gaurav Deepak Founded: 1999 Services: M&A, wealth management, private equity, to start NBFC Big deal: Rs 800 crore sale of RedBus to South Africa's Naspers Group I-banking insight: We might not be relevant to the top 10 business families in India, but there is a huge gap between the 10th to the 500th family and we are trying to fill it with our quality advice —Kaushal Agarwal Avendus Capital was set up by three bankers in their mid-30s in a rented flat above an auto garage in Mumbai in 1999. In its 15 years, it has undergone two transformations and a third one is underway. Version 1.0, at the turn of the century, was about helping Internet start-ups raise capital.

4) O3 Capital

Partners: Shyan Shenthar, TR Srinivas, Deepesh Garg, Shiraz Bugwadia

Founded: 2007 Employees: 26 Services: Cross-border advisory, M&A and PE Big deal: Advising auto-part maker Motherson Sumi to buy Peguform for 600 mn euros in 2011 I-banking insight: Trying to create a full service bank at a difficult time was a lesson learnt in the past seven years In the last week of December 2006, three investment bankers, after six years of working with I-bank start-up Avendus, and a banker friend from a rival firm met over drinks and dinner at a suburban hotel in Mumbai to discuss a plan to float a new boutique bank. An agreement to start one was sealed by midnight, but they did not have a name. They chanced upon a mouth fresher called Ozone lying in a bowl. Talk changed to the chemical formula for ozone, and O3 Capital was born.

5) Spark Capital

Partners: Y Rama Rao, Thyagesh Baba, Kapil Ramamurthy, V Suresh Babu, K Rama-krishnan Founded: 2001 Employees: 60 Services: Advisory, institutional broking, wealth management Big deal: Singapore's wealth fund $100 mn investment in Vasan Healthcare I-banking insight: "We now want to shed it (the boutique tag) because it constrains us as a bank. Boutique, by nature, you do small and medium stuff" —Y Rama Rao In the last two instances when he wrapped up fund-raising for his company Equitas Micro Finance India, PN Vasudevan, promoter and MD, didn't even have a written agreement with his investment bankers in place. That's how much trust, Vasudevan says, he has in Spark Capital, which has helped him raise about Rs 575 crore till now.

Read in detail at: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/five-upcoming-investment-banking-firms-that-are-going-places/articleshow/30183390.cms?curpg=2

Google passes Exxon to be second most valuable US Company

Google has passed Exxon to become the second most valuable US Company by market capi-talization.

What is Market Capitalization? - Market capitalization is the number of outstanding shares multiplied by their value.

According to FactSet data, the Internet Company’s market capitalization surpassed that of oil company Exxon Mobil Corp. last week. As of Friday's market close, it sat at $395.42 billion compared with the oil company's $392.66 billion.

Shares of Google Inc. have been on a steady climb since the beginning of 2013, gaining 66 per cent. Meanwhile, Exxon's have risen just 5 per cent. Since the beginning of this year, they've lost about 10 per cent of their value. Both companies trail Apple Inc.'s market capitalization of $463.55 billion.

Euro zone output drops in Dec because of energy, capital goods

Falling production of energy and capital goods curbed euro zone industrial produc-tion more than expected in December, da-ta from the European Union's Statistics Office showed on Wednesday, underlining the fragility of the bloc's economic recov-ery. Industrial output in 17 countries sharing the euro in December 2013 fell 0.7 per cent on the month, after a downwardly re-vised 1.6 per cent rise in November, Euro-stat said. Analysts polled by Reuters ex-pected only a 0.3 per cent fall in December

2013 fell 0.7 per cent on the month, after a downwardly revised 1.6 per cent rise in November, Eurostat said. Analysts polled by Reuters expected only a 0.3 per cent fall in December. Read more at: http://economictimes.indiatimes.com/articleshow/30281788.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

The United States of Plutocracy: An Economy in crisis…

Through wise trade policy, the United States grew to be the wealthiest nation that had ever ex-isted. Yet in recent years, we have not produced much; we have had to live off the accumulated capital of previous generations. As much good as all that productivity has done us, however, when managed in the wrong way, it can actually cause as much, or even more, harm than good.

When America was a manufacturing powerhouse, a lot of private fortunes were created. This is all well and good; it’s to be expected when that much wealth is being generated. The problem is that we lost sight of what that wealth is for. It should be for saving and investment to make to-morrow even better than today. It’s for a million and one things other than what it is so often used for today: politics.

Read more at: http://economyincrisis.org/content/the-united-states-of-plutocracy

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This is our last issue for the year 2013-2014.

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