G-20 Tells Europe to Deal ‘Decisively’ With Debt Crisis at Oct. 23 Summit

Europe’s revamped strategy to beat its two-year sovereign debt crisis won the backing of global finance chiefs, who urged the region’s leaders to deal “decisively” with the turmoil when they meet for emergency talks in a week’s time.

European officials yesterday outlined the initiatives they’re considering at a meeting in Paris of finance ministers and central bankers from the Group of 20 economies. With the continent’s fiscal woes rattling financial markets and threatening the world economy, governments were urged to complete the plan at their Oct. 23 summit in Brussels and to tame the threat of contagion by maximizing the firepower of their 440 billion-euro ($611 billion) bailout fund.

“The plan has the right elements,” U.S. Treasury Secretary Timothy F. Geithner told reporters in Paris. Bank of Canada Governor Mark Carney said that “some of what is being considered, if fully implemented, would be sufficient in our opinion.”

Policy makers held out the possibility of rewarding European action with more aid from the International Monetary Fund, while splitting over whether the Washington-based lender needs a fillip of cash.

‘Substantial Arsenal’

“The IMF has a substantial arsenal of financial resources, and we would support further use of those existing resources to supplement a comprehensive, well-designed European strategy alongside a more substantial commitment of European resources,” Geithner said. He added that the U.S. would back more money for the IMF only if a “compelling case” was made as its current $390 billion war chest is “very, very substantial.”

Europe’s strategy, which has still to be made public, currently includes writing down Greek bonds by as much as 50 percent, establishing a backstop for banks and multiplying the strength of the newly-enhanced European Financial Stability Facility, people familiar with the matter said Oct. 14. Optimism the crisis may soon be tamed spurred stocks higher last week and pushed the euro to its biggest gain against the dollar in more than two years.

European officials “will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution,” U.K. Chancellor of the Exchequer George Osborne told reporters. Next weekend “is the moment people are expecting something quite impressive.”

Agreement ‘Close’

German Finance Minister Wolfgang Schaeuble said his G-20 counterparts welcomed Europe’s “confirmation that we’re aware of our responsibility and we’ll solve the problems in the euro zone.” European Union Economic and Monetary Affairs Commissioner Olli Rehn told Bloomberg Television that euro-area authorities are “close” to an agreement on how to capitalize banks.

The G-20 officials -- who met to prepare for a Nov. 3-4 gathering of leaders in Cannes, France -- said the world economy faces “heightened tensions and significant downside risks” that must be addressed.31

They vowed to keep banks capitalized and financial markets stable, while reiterating an aversion to excess currency volatility. They also considered shortly naming as many as 50 banks as systemically important, two officials said.

Almost two years to the day since Greece set the crisis in motion by announcing it had underestimated its budget deficit, Europe’s latest strategy hinges on putting it on a viable path. Austerity has plunged Greece deeper into recession and provoked civil unrest that threatens political stability.

Italy Targeted

Failure to curb the pain has led to Portugal and Ireland requiring bailouts, and markets are now targeting larger debt- strapped nations such as Italy. Investors are concerned that if the crisis is allowed to fester, the world economy could face a repeat of the chaos that followed the 2008 collapse of Lehman Brothers Holdings Inc. Geithner warned three weeks ago that failure by Europe to act would risk “cascading default, bank runs and catastrophic risk.”

In the works is a five-point plan foreseeing a solution for Greece, bolstering of the EFSF rescue fund, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty amendments to tighten economic management.

The Greek bond losses now envisaged in the plan may be accompanied by a pledge to rule out debt restructurings in other countries that received bailouts, such as Portugal, to persuade investors that Europe has mastered the crisis, said the people on Oct. 14.

Options Discussed

Options include tweaking a July accord struck with investors for a 21 percent net-present-value reduction in Greek debt holdings. One variant would take that reduction up to 50 percent, the people said.

Under a more aggressive proposal, investors would exchange Greek bonds for new debt at a lower face value collateralized by the euro area’s AAA-rated rescue fund, the people said. The ultimate option is a restructuring involving writedowns without collateral, they said.

The bank-aid model under discussion is to set up a European-level backstop capitalized by the rescue fund, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities.

Officials are considering seven ways of multiplying the strength of Europe’s temporary rescue fund. The options break down into two broad categories: enabling it to borrow from the European Central Bank or using it to partly insure new bonds issued by distressed governments. The ECB has all but ruled out the first method, making bond insurance more likely, the people said.

EFSF Guarantees

EFSF guarantees of new bonds might range from 20 percent to 30 percent, a person familiar with those deliberations said. Recourse to bond insurance suggests the central bank will need to maintain its secondary-market purchases for an unspecified “interim” period, people said.

ECB President Jean-Claude Trichet, who attended his last G- 20 meeting before he retires Oct. 31, reiterated the central bank hopes to stop purchasing government bonds once the EFSF is able to take over.

A consensus is emerging to accelerate the setup of a permanent aid fund planned for July 2013, the European Stability Mechanism. This week’s discussions will focus on creating it a year earlier, in July 2012, and easing unanimity rules that permit solitary countries to block bailouts.

Officials divided over whether Europe’s travails meant the IMF should be handed more cash, beyond agreeing it must have “adequate resources to fulfil its systemic responsibilities.” Emerging markets such as China are considering whether the lender needs more money, while officials from the U.S., Germany and Canada were among those to say either that the euro area must fix for its problems first or the IMF already has plentiful and untapped resources.

Source: Bloomberg

Why the Greek Debt Crisis Matters??

With Greece on the brink of default - and hanging over the global economy like a financial sword of Damocles - investors the world over are asking themselves the very same question, day after day: Just what is the Greek debt crisis, and what does it mean to me?

It means a lot.

In fact, the Greek debt crisis could prove to be the first in a series of sovereign-debt defaults that could even infect the U.S. economy, tipping it into a "double-dip" recession and reprising the bear market of 2009.

In short, this crisis is one you need to watch and understand.

Given the stakes, we decided to work with our panel of global-investing experts and put together this Money Morning special report: "What is the Greek Debt Crisis, and What Does it Mean for Investors?"

Our goal was to provide you with answers to some of the key questions about the Greek debt crisis - how it started, what's actually taking place, how it could affect the U.S. economy, and how we expect it to play out.

And with the help of experts Keith Fitz-Gerald, Shah Gilani and Martin Hutchinson, we also answer the most important debt-crisis question of all: "What should you do about it?"

Question: What is the Greek Debt Crisis?

The Greek debt crisis is an expensive lesson in the importance of fiscal discipline - that comes with a multi-billion-dollar price tag.

Due to decades of overspending, Greece is currently receiving a bailout package of $159 billion (110 billion euros) from European governments and the International Monetary Fund (IMF) to meet payment obligations. Greece received its first installment in May 2010, and needs its next $17.3 billion (12 billion euros) loan by mid-July or it won't be able to pay wages or pensions at the end of the month.

Nor does it end there: The European Commission has said Greece will need an extra $166 billion (115 billion euros) through the middle of 2014.

Through the involvement of other countries and financial institutions, this is no longer simply a "Greek" debt crisis - it's becoming a global one. Similar problems plague Portugal, Spain, Italy and Ireland. With the debt contagion spreading, other worldwide players - including the United States - might not escape unscathed.

Q: How Did Greece Get Into This Mess?

Greece certainly didn't create this epic mess all by itself - it had help. Aiding and abetting Greece's own miscues were budgetary machinations by Goldman Sachs Group Inc. (NYSE: GS), a failure by the Eurozone to hold countries accountable for their finances, and credit default swaps that bet against Greece meeting its debt obligations.

But ultimately Greece is to blame.

"Greece lied to get into the European Union [EU]," said Money Morning's Shah Gilani, a former hedge-fund manager who's an expert at "reading" global-capital-movement trends. "After they were in, they used world markets to borrow from investors who bought their bonds, knowing that the EU/IMF would bail them out when it came time to repay. It was a calculated gamble to keep stuffing themselves and raising their GDP/per capita productivity to levels equal to Germany and France. [Greece] doesn't have the productive means to grow to anywhere near the per capita income of the French or Germans. It has olive oil and tourism, what else?"

Under an agreement called the Maastricht Treaty, to adopt the euro as their currency countries had to cap annual budget deficits at 3% of gross domestic product (GDP), and total government debt had to remain at or below 60% of GDP. To appear compliant, Greece failed to book billions of dollars of military expenses, and Goldman Sachs arranged a currency-swap deal in 2001 that effectively cut the country's deficit.

After Eurozone acceptance, Greece violated the terms of the Maastricht Treaty from 2001 to 2006, running excessive budget deficits in each of those years.

Greece's financial mismanagement had been ongoing for decades. Many problems started when the country joined the EU in 1981 - during the administration of then-Prime Minister Andreas Papandreou (father of current Prime Minister George Papandreou).

"Instead of steering the Greek economy to reap the enormous potential benefits of its premature EU membership, the internationally sophisticated Papandreou manipulated the EU system of slush funds so as to keep a gigantic stream of resources flowing to the bloated Greek public sector," said Money Morning Contributing Editor Martin Hutchinson, a former global merchant banker who in the past has helped some European nations restructure their finances. "The result was an economy focused almost entirely on the public sector and tourism (which also benefited from innumerable EU grants), with the populace enjoying living standards far in excess of their ability to pay their way."

The bottom line: Greece spent years borrowing from Europe without offering any real returns to the global economy, creating a country of citizens living well beyond their means.

Q: Will the Bailouts Really Halt a Default?

While European leaders continue to discuss a second round of bailout plans, Gilani said Greece could avoid default - if lenders remain willing to help.

"There won't be any big victims if Greece gets bailed out and their debts rolled out another 30 years," said Gilani. "Were any of the big U.S. banks victims of their own fraud in the subprime smackdown? No. They got bailed out and liquefied. The same could happen to Greece and theoretically there may not be any big victims. As long as there are fingers in the dykes we'll muddle through."

But the country's low economic productivity means Greece will require infusions of external financing every year for years to come. Greece's economy is set to shrink by an additional 3.8% to 4% this year after contracting 4.5% in 2010. Plus, the bailouts have let Greece believe it can lean on the EU to fix its problems.

Many experts, including Money Morning Chief Investment Strategist Keith Fitz-Gerald, believe Greece should be forced to face up to its lack of fiscal discipline - meaning the bailouts should end. But if that happens, the fallout - and the pain - will be widespread.

The bottom line: The risk of default is much greater than the headlines would have you believe. And if there is a default, the U.S. economy won't escape the fallout.

Q: What Does This Mean for the Euro?

One of the lessons we've learned from the Greek debt crisis is that the Eurozone is not as strong or stable as most believed. Eurozone members attempted a monetary union without united fiscal policy. Now it must strengthen membership standards to prevent future crises.

"If the EU wishes to make the euro work, it must demonstrate that the fiscal rules of euro membership have teeth," said Hutchinson.

That's been tried before - to no avail.

The euro's stability was based on a pact among members to keep their finances in order. In 1996, countries voted on imposing fines on countries that didn't adhere to the Eurozone's standards. But that motion was struck down and no "punishment" ever came about.

The bottom line: Greece isn't the only euro "bad boy." Other countries also have failed to meet the Eurozone standards at least once; but certainly none as extreme and frequent as Greece. In fact, the Eurozone as a whole has never met the 60% of GDP government target. And Eurozone policies weren't enforced.

Q: What's Next in the Greek Debt Crisis?

As you're no doubt beginning to see, the question "what is the Greek debt crisis?" may actually be too narrow a query.

Moody's Investors Inc. (NYSE: MCO) just cut Portugal's debt rating to below-investment-grade status ("junk" in the parlance of Wall Street). And that move roiled the bonds of Spain and Italy, two other high-debt nations that have been the focus of major solvency worries. Ireland is also causing lots of sleepless nights for debt-holders.

"The real problem is that Greece is only the first domino," Gilani said. "In order to support the rest of the ailing peripheral Eurozone countries, the European Central Bank, all the European banks, the IMF, the U.S. and China are going to have to come to the rescue. Unless there is some new model for achieving solvency with liquidity that comes from the Chicago School of Impossible Economics, the euro is toast and the whole experiment of European Union will be tested from the corners and its center."

Hutchinson said Portugal and Ireland are productive enough to solve their problems through austerity, although there's no guarantee. Italy will be a tight squeeze. In an ideal world, Spain would get a badly needed new government - one that would put in place the measures needed to avoid default. And Greece would be booted out of the Eurozone, he said.

The bottom line: The Greek debt crisis is more of a Eurozone debt crisis.

Q: Could the Greek Debt Crisis ‘Infect' the U.S. Economy?

Let's just cut to the chase here: The answer is a resounding "yes."

Greek's debt problems have an excellent chance of going global, not just because of an economic ripple effect, but because other countries like the United States are also getting carried away with high debt loads.

"What's happening in Europe is already happening here," said Gilani. "So, it's not so much a problem of infestation, it's more a matter of manifest destiny."

All of this is widely known. But the largely untold "rest of the story" is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating.

Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece.

The amount of exposure to the rest of Europe is not easily quantifiable. And this U.S. financial system link doesn't end there: U.S. money-market funds have a hefty European exposure, too.

The bottom line: The U.S. Federal Reserve and other regulators are right now reviewing "contingency plans" in case the widening European debt crisis fires off another run on the $2.7 trillion money-fund sector - a situation we saw back in 2008. But insiders admit that it may be a lot tougher to craft an effective response this time around.

Q: As an Investor, What Should I Do?

Although it's not clear how the Greek debt crisis will play out, you should run through a "Greece safety" checklist to avoid exposure to the heart of the crisis and increase holdings in safer and more protective investments.

Our experts suggest taking the following steps:

Stay away from European banks - they're on the hook for $100 billion.
Avoid southern European debt, as well as U.S. Treasuries and Japanese government bonds - they're no safe haven.
Don't ignore Europe entirely - there are some worthy German and Swedish non-bank stocks.
Look to energy-related investments, commodities and precious metals, all of which have bullish long-term outlooks.
Use protective stops.

Source: http://moneymorning.com/2011/07/07/special-report-what-is-the-greek-debt-crisis-and-what-does-it-mean-for-investors/

Weak rupee benefits Infosys despite uncertainty

A 10 per cent rupee depreciation against US dollar during the second quarter (July-Sep) has benefitted Indian IT bellwether Infosys, helping it in revising its revenue guidance for the entire fiscal (2011-12) once again.

"Guidance for this fiscal (FY 2012) has been revised upwards to Rs 33,795 crore from earlier estimates of Rs 31,999 crore due to rupee depreciating 10 per cent to Rs 48.98 during the second quarter from Rs 44.55 in the first quarter (April-June)," Infosys chief financial officer V Balakrishnan told IANS Wednesday.

Though mark-to-market, the global software major lost Rs 246 crore due to hedging the dollar at Rs 44.55, a weakening rupee helped it to reduce the loss to Rs 108 crore on currency conversion from dollar to rupee.

"If rupee appreciates again during this (third) or next (fourth) quarter, we will revise the outlook accordingly," Balakrishnan said on the margins of the company's briefing on its financial performance for the quarter ( Q2) under review.

Admitting that uncertainty remained at the macro-economic level due to sovereign debt crisis in Europe and slow recovery in the US, the financial executive said the company had still headroom to grow business in key verticals such as BFSI (banking, financial services and insurance), retail, energy, utilities and manufacturing in the developed markets, which account for over 80 per cent of its exports.

"If the US economy goes into double dip, it will be a challenge for pricing though it has been stable during the first two quarters of this fiscal. If the recovery is slow, we have to wait and watch to see how IT budgets and spending in 2012 will fare," Balakrishnan, who has also become a board member, pointed out.

Noting that uncertainty in the macro-economic environment could impact the Indian IT industry though not to the extent the global recession had in 2008-10, Infosys chief executive S.D. Shibulal said high unemployment rate and slow recovery in the US were a cause for concern, while the situation in Europe was getting worse due to sovereign debt crisis and turbulence in its financial markets.

"We remain cautious due to worries arising out of the prevailing situation in Europe and the US. Our clients are very cautious, taking only short-term decisions while holding up or hesitant in taking decisions for the long term," Shibulal told.

Referring to the double-digit topline growth in the first two quarters (April-Sep) of this fiscal, the chief executive said the company was focusing on implementing its 'Infosys 3.0' strategy to sustain and drive business by taking up transformational process and innovation.

"We are bracing up for any eventuality, be it downturn, upturn or going sideways by strengthening strategic relations with our global clients, who demand greater efficiency, higher productivity and creating differentiation to remain competitive" Shibulal asserted.

Denying media reports on acquiring the Thomson Reuters' healthcare unit in the US, Shibulal said there was no acquisition for the time being though the company was always on the lookout for strategic buy-out.

"We are only dating and not engaged yet. As of now, no acquisitions on the table though we continue to explore for strategic take-overs," he quipped.

The company is on course to hire 45,000 people during this fiscal and made 23,000 campus offers for next fiscal (2012-13).

Why is the US dollar strengthening?

Despite the weakness of the US economy, high level of debt and downgrade of its long-term debt, the US dollar and the US Treasury securities continue to be in demand. How can a weak currency support a strong currency. Here's why:

Greek Crisis
The debt crisis in the euro zone, fears of default by Greece and breakup of the euro zone has been weighing down the euro.

Volatile Market
In uncertain times, investors prefer to cash over risky financial assets such as stocks. Global sell-off in stocks has increased demand for dollar and led to its appreciation.

Operation Twist
Fed's recent action of injecting liquidity by replacing long term bonds with short-term bonds instead of printing more money has prevented an increase in supply of dollar.

Safe Haven
The US dollar is still considered a safe haven despite all the troubles with the US and the central banks across the world continue to buy US Treasury securities.

Outlook
Indian Rupee to improve to Rs 46.3 to a dollar by March 2012, according to DBS. Consensus poll of Bloomberg estimates US/Rupee at Rs 44.1 by March. The euro too may recover some of its recent losses.

World markets moving in Trading Range-Technicals Analysis

Levels to watch for Dow Jones

Today US market also open in green and Dow Jones is trading at 11379 up 276 points. So it is important to see which levels are important for the Dow Jones. As we can see that Dow Jones is trading in range since August 2011. Dow Jones has to move above 11717 to see more strength in it. This is a upper trading band level and may act resistance for the index. Support is at 10550 level which is lower band of trading range. If Dow Jones moves above its resistance level then it may go up to 12500 level.

Europen Markets Showing Strengths

Above is a daily chart of FTSE index. FTSE has been trading in a range since August 2011. As we can see that its upper band is at 5450 & lower band is 4869.Today FTSE closed at around 5399. Major resistance for the index is at 5450. If it goes above it then next leves for FTSE is 5750 & 6000. Down side is cappend at 4869.

Indian markets (Nifty) moving in line with world major markets i.e. in trading range

Nifty is trading at 4979 up 91 points. So it is important to see which levels are important for the Nifty. As we can see that Nifty has also been trading in range since August 2011 after US downgrade by S&P and it broked down below 5200 which was acting as support and turned into resistance. The upper trading band level is 5200 and may act resistance for the index. Support is at 4700 level which is lower band of trading range as from last 3 months it is acting as major support also. Depending upon the global cues if Nifty moves above its resistance level then it may go up to 5500 level else on downside it may touch 4300 (Fibonacci Retracement level.

Hence the developments in developed markets will decide trends and any breakout either up or down will become the secondary trend for the markets. Primary trend is downtrend and intermediate is sideways movement i.e. in trading range.

So don't enter market right now let the trend to get confirm if you are investor or else if you are trader then it is a good opportunity to buy at 4750 levels and sell at 5150 levels.

Note: To view larger size of image please click on image.

Getting fired from Apple led me to the most creative periods of my life: Steve Jobs

John Sculley's role in ousting Steve Jobs from Apple is well documented. What's not known is how Jobs's counterculture traits rubbed conservative suits the wrong way and eventually forced his exit.

How are such strange names as AC Markkula Jr, Peter O Crisp, Philip S Schlein, Arthur Rock, Henry E Singleton and John Sculley woven into the saga of Steve Jobs's genius? They are the men who fired Jobs from his own company, Apple, in 1985. How? And Why?

The answer to the first question is simple, and it comes from Steve himself. "As Apple grew, we hired someone [John Sculley] who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of future began to diverge and eventually, we fell out. When we did, our board of directors sided with him," Steve said in his famous 2005 Stanford speech.

But the story is far more intriguing than it appears from that admission. In 1981, Apple Computer went public. Just two years later, Apple made the Fortune 500 list and Jobs recruited John Sculley, the head of Pepsi, to be its new chief executive.

"Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?" Jobs popped the question. Sculley's entry into Apple changed Jobs's world. Steve had always wanted Sculley as CEO and when he hired him he saw himself as the chief visionary.

But that arrangement didn't last long. Steve, who didn't much understand Sculley's working style, got disenchanted and wanted the control of Apple again. Steve plotted Sculley's exit from the organization by sending him to China on a business tour and wresting control of Apple in his absence.

While in China, Sculley got wind of Steve's schemes. On his return, he made a case before the board and asked it to vote against Steve. The board agreed and Steve was shown the door. But the nasty spat with Sculley was not the only reason for Jobs's exit.

WORST MERGERS OF THE WORLD

Quaker and Snapple

The success with Gatorade drove grocery store legend Quaker Oats to make another ambition. Quaker acquired Snapple to make Snapple drinks just as popular. This 1994’s acquisition was worth $1.7 billion, which was criticized too much for the fruity drinks. However, after more than two years from the merger, Quaker Oats sold Snapple to Triarc for $300 million and Triarc sold it to Cadbury Schweppes for $1.45 billion in the three following years.

Sprint and Nextel

Announcement of $35 billion merger between Sprint and Nextel to form Sprint Nextel Corporation was made in December 2004. However, customers of both Nextel and Sprint would have to purchase new phone equipment if they wanted convert their accounts to the other side. The new company faced underlying and unexpected problems. The economy started to become worse and it had to compete with other strong rivals likeAT&T, Verizon, and the iPhone. In addition, many Nextel executives and managers stepped down due to two cultures’ clash.

AOL and Time Warner

In 2001, Time Warner and American Online merged together for $111 billion. The merger was considered as a revolutionary move of the old-school media giant and AOL. However, the decline of dial-up Internet access led to the new company’s failure. Time Warner’s stock has fallen 80 percent since the merger.

Prudential/AIA

One that failed to complete, yet still caused major headaches for the putative buyer. In March 2010, UK insurance giant Prudential (LSE: PRU) launched a breath-taking $35.5 billion for AIA, the Asian arm of bailed-out US insurer AIG.
Following regulatory concerns and shareholder revolt, Pru abandoned this deal three months later, having failed to cut the asking price by $5 billion. This left Pru with deal costs nearing £1 billion and CEO Tidjane Thiam with egg all over his face.

Recent developments in the Market-SEBI

To view the larger size of image, click on it

FDI statistics..Food for thought!!

http://dipp.nic.in/fdi_statistics/india_FDI_April2011.pdf

Starbucks desperate to foray in India!!!

American coffee retail giant Starbucks is lobbying hard with lawmakers and government officials in the US to facilitate its entry into the highly lucrative Indian market.

Starbucks, which runs the world's largest coffee shop chain and enjoys cult status among coffee lovers, has been trying to enter India for many years, but has been unsuccessful in its efforts so far.

The company has been very active in lobbying with US lawmakers on various issues since way back in 2004, but it began lobbying for its Indian market entry only this year, lobbying disclosure reports filed with the US Senate show.

Lobbying is a legal activity in the US, but a disclosure report is required to be filed with the Senate every quarter regarding these activities.

As per Starbucks' lobbying disclosure reports, its lobbyists "discussed market opening initiatives in India" with the US Senate, the US House of Representatives and the US Department of State during the first quarter of 2011.

Before 2011, the entry into Indian market never figured in the lobbying disclosure reports filed by Starbucks, as per the disclosures made since 2004.

The company is estimated to have spent nearly USD 5,00,000 on various lobbying issues, including its Indian entry, so far in 2011.

Starbucks has held discussions with Indian policymakers in the past regarding its entry here, but it has not been able to finalise an Indian partner so far. The rules allow it to hold up to a 51 per cent stake in an Indian venture, while the rest would have to be with an Indian partner.

Currently, Starbucks is said to be exploring a strategic alliance with Tata Group firm Tata Coffee in areas like sourcing of coffee beans and coffee roasting facilities for its retail operations in India.

There have also been reports that Starbucks might join hands with Tata Coffee and other Tata Group firms for opening retail outlets in India. Queries sent to Starbucks in this regard remained unanswered.

On many occasions in the past, Starbucks has termed India as a high-growth market where it would like to establish a presence.

The Indian market is mostly dominated by domestic firms such as Cafe Coffee Day, while some international players such as Costa Coffee and Lavazza (through its acquisition of Barista) have also managed to establish a presence.

A growing middle-class, coupled with surging income levels and spending power, is being seen as a major driver for the growth of markets like coffee retail in India.

Source: http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/coffee-retail-giant-starbucks-lobbies-with-us-govt-for-india-entry/articleshow/10300175.cms

Top 10 debt-ridden countries

While majority of debt is from the US and Europe, India is ranked at the 28th position with an external debt of USD 3,060 million.

The United States of America (USA) is placed number one with an external debt of USD 148,253.1 million.

The very second position is taken by the European Union with an external debt of USD 137,200 million.

The United Kingdom (UK) isn't much behind. It is ranked third with an external debt of USD 89,810 million.

With an external debt of USD 47,130 million, Germany takes the fourth position.

The fifth position is taken by another European country, France. It has an external debt of USD 46,980 million.

Japan had to go through a lot of crisis due to the recent earthquakes and tsunami there. It is ranked sixth with an external debt of USD 24,410 million.

With USD 22,230 million external debt, Italy is positioned seventh in the list.

Spain is ranked at the eighth place with an external debt of USD 21,660 million.

The ninth position is taken by Luxembourg with an external debt of USD 18,920 million.

Belgium is placed at the tenth position with an external debt of USD 12,410 million.

Source: moneycontrol.com

Regulator to get more teeth in new telecom policy

The Department of Telecommunications (DoT) is planning to give more powers to the telecom regulator, Telecom Regulatory Authority of India (Trai), in the new telecom policy (NTP), including the power to impose financial penalties on the erring telecom service providers.

“There is a need for a strong and an independent regulator with comprehensive powers and clear authority to effectively perform its function,” DoT said in the draft for NTP-11, which will be officially released by Communications and IT minister Kapil Sibal on Monday. The draft will then be place for further consultations and discussions before the final formulation.

Currently, DoT has the authority of imposing penalties on the telcos, while Trai can give its recommendations on penalties or termination of licence, and the final decision rests with the DoT.

A senior official from the DoT said the department was already working on the proposal for amendment in the Trai Act to give the regulator more powers and a change in the criteria for selection of chairperson, from five years to current three years, and other members of Trai. All these proposals are expected to be included in the NTP-11.

Earlier in a letter, Sibal had asked DoT to consider giving Trai quasi-judicial powers to adjudicate on penalties imposed by the department on service providers. “The department may like to vest such powers in the Trai, which is a statutory authority, entitled to regulate the conduct of telecom service providers," Sibal said.

A quasi-judicial body has powers similar to a court of law or judge, which enables it to impose legal penalties, give orders or judgements.

The DoT has been working on the modalities of the new policy after a decade of NTP in 1999. The need for a new policy assumed importance following the alleged 2G spectrum controversy, under which the former communications and IT minister, A Raja, and other corporate officials are under judicial custody.

The draft plan will give forth the views of the government on sharing of spectrum amongst operators, introduction of mobile virtual network operator, setting up of a spectrum committee to review use of spectrum and a uniform licence fee across various services amongst others.

The new policy will also spell out the new norms for mergers and acquisitions, enhancing rural coverage, spectrum allocation among other

Merger & Acqusition

Intelenet Global in talks to acquire Excelior
Intelenet Global is in talks to acquire Excelior, a business process outsourcing firm based out of Australia and servicing local companies there,according to a report. The report stated that Intelenet was recently owned by Blackstone. Excelior employs about 2,000 people across four centres in Australia and provides consulting and BPO to government entities and private firms, says report.

Tilaknagar Industries to acquire Punjab Expo Breweries
Tilaknagar Industries Ltd has announced that it has acquired the Punjab based bottling unit, Punjab Expo for Rs. 55 mn. Punjab Expo has a bottling capacity of 50,000 cases per month. Commenting on this development, Amit Dahanukar, Chairman & Managing Director of Tilaknagar Industries Ltd. said, “We are pleased with this positive development as it will enable us to grow our business operations in North India. This acquisition will aid TI in marking its presence across India and consolidating its market share. We have built a strong presence in the South and are now excited to extend our footprint in other markets pan India.”

ExlService acquires Trumbull Services
ExlService Holdings, Inc, a leading provider of transformation and outsourcing services, today announced that it has acquired Trumbull Services, LLC ("Trumbull"), a market leader in subrogation services for property and casualty insurers, from The Hartford Financial Services Group, Inc. With this acquisition, EXL strengthens its leadership position in the insurance industry with a highly-skilled and experienced employee base and an advanced software platform, and immediately becomes a leading provider of complex insurance subrogation outsourcing services. In conjunction with the transaction, EXL will continue to provide services to The Hartford consistent with its existing Trumbull relationship. Financial terms of the transaction were not disclosed. All Trumbull employees associated with the transaction have been offered comparable positions with EXL.

In Focus Stories


Global M&A deals touch US$2.2 trillion in Jan-Sept
The cumulative value of mergers and acquisitions deals globally during January-September 2011 rose 9% year-on-year to $2.18 trn,according to a report. The report stated that the value of third quarter M&A deals stood at just $633.3 bn, down 19% compared with $783.5 bn in the corresponding period last year. The value of India-focused M&A deals touched $39.2 bn in the first nine months of this year, a significant 30 per cent decline vis-a-vis the corresponding period last year, says report.

EID-Parry completes acquisition of US Nutraceuticals
E.I.D.-Parry (India) Limited has announced acquisition of 100% of the voting shares of U. S. Nutraceuticals LLC (Valensa International), a Limited Liability Company based in Florida, USA. Parry acquired a 48% stake in Valensa in 2008 as a part of its business strategy to move up the value chain in the Nutraceuticals Business.
Valensa International is a leading science-based developer and provider of high quality nature-sourced ingredients and formulations for nutritional supplements and functional super foods with its certified organic production facilities located in a protected pine forest and Saw palmetto grove in Orlando, Florida.


Domestic News

ITC acquires stake in Russell Credit
ITC Ltd has acquired the entire shareholding of Russell Credit Ltd. (wholly owned subsidiary of the Company) in Wimco Ltd. (Wimco), comprising 9,12,38,170 equity shares of Rs. 1/- each (i.e. 96.825% of Wimco's equity share capital). Consequently, Wimco has become a direct subsidiary of the Company with effect from September 29, 2011.

GAIL plans to acquire ADB stake in Petronet LNG : report
The Asian Development Bank is planning to sell 5.2% stake in Petronet LNG Ltd, which the state- owned gas utility GAIL India Ltd is keen to acquire and may have to pay over Rs. 6bn for it, according to a report. The report stated that ADB has offered to sell its 39 million shares or 5.2 percent stake in Petronet, which is valued at over Rs. 6.14bn. GAIL, Oil and Natural Gas Corp, Indian Oil and Bharat Petroleum hold a 12.5%stake each, to restrict the public sector holding in the company at 50%, says report.

Walt Disney to acquire Indiagames for US$80-100mn

Vivimed Labs acquires stake in Klar Sehen

Total deals announced in Q3 2011 was US $8.10bn:Grant Thornton

Agco Corp plans to acquire GSI Holdings Corp: report

Adobe acquires web Typography Innovator Typekit

Hanlong to acquire Sundance Resources

Moody’s Cuts Rating on 12 UK Financial Institutions

Moody’s ratings agency lowered the rating of 12 U.K. financial institutions on Friday, saying it sees a decreased likelihood of government support for smaller institutions in particular but specifying the move does not reflect a deterioration in the financial strength of the banking system.

However, it is more likely now to allow smaller institutions to fail if they become financially troubled,” Moody’s said in a statement.

In addition, Moody's downgraded nine Portuguese banks on Friday, citing the increased risk linked to their holdings of government debt.

Food inflation rises to 9.41%

Business Line : Industry & Economy / Economy : Food inflation rises to 9.41%

Fitch cuts Spain rating two notches to AA-, outlook negative

Fitch Ratings slashed Spain's sovereign credit rating by two notches Friday, blaming regional government spending, weak economic growth and the eurozone debt crisis.

Fitch cut Spain's rating to AA-minus from AA-plus and said the outlook was negative, meaning it could be lowered again.

"The downgrade primarily reflects two factors: the intensification of the euro area crisis and secondly, risks to the fiscal consolidation effort arising from the budgetary performance of some regions and downward revision by Fitch of Spain's medium-term growth prospects," it said.

The ratings agency said a "credible and comprehensive solution" to the eurozone debt crisis "is politically and technically complex and will take time to put in place and to earn the trust of investors.

"In the meantime, the crisis has adversely impacted financial stability and growth prospects across the region," it added.

Fitch predicted Spain's annual economic growth would remain below two percent through to 2015.

The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a property bubble. It stabilised in 2010 but growth remains anaemic.

Economic output grew 0.2 percent in the second quarter from the previous three months, after a revised 0.4-percent expansion in the first quarter.

Sony in talks to buy Ericsson!!

Sony Corp is in talks to buy out Ericsson's stake in their mobile phone joint venture, a source said, in a bid to catch up with rivals.

The move could help Sony recoup ground in the battle against Apple Inc and Samsung Electronics, where it has been hampered by its disparate offerings of mobile gadgets and online content.

Tablets, games devices and other consumer electronics are offered under the Sony brand, while smartphones come under Sony Ericsson.

Sony and Telefon AB LM Ericsson have been talking for weeks about the future of the 50:50 joint venture because the companies must decide this month whether to renew their 10-year-old pact, two industry sources told Reuters.

A source with direct knowledge of the matter told Reuters on Friday Sony was discussing a buyout. The source did not want to identified because the talks were not public.

Yoshiharu Izumi, an analyst at J.P. Morgan in Tokyo, said the deal could be worth upwards of $1.3 billion, depending on what agreement the two reach about the continuing use of Ericsson's telecoms patents.

"Up to now Sony's products and network services have all been separate. Unifying them would be positive," Izumi said.

"If they can leverage their games and other network services I think they can lift their share," he added.

The Wall Street Journal said in a report on Thursday the talks between the two companies were ongoing and could break up at any time, citing people familiar with the matter.

Ericsson and Sony declined to comment on the talks. "We have a long-term commitment to our joint ventures," said an Ericsson spokesman.

"The talks are not something that have been announced by Sony. We are declining to comment," said Mami Imada, a Sony spokeswoman in Tokyo.

DEAL-FINANCING CONCERNS?

Sony's shareholders, however, appeared wary of any deal that would burden the company's finances. Its stock was down 3.3 percent at 1,422 yen on Friday afternoon, compared with a 1.4 percent gain in the benchmark Nikkei 225 index.

"It's not necessarily bad news, but the share is falling, so investors apparently see some minuses, such as concerns about how Sony would finance the purchase, as well as the difficulty of valuing Ericsson's patents," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, which owns Sony shares.

The joint venture, formed in 2001, thrived after its breakthroughs with Walkman music phones and Cybershot cameraphones, both of which leveraged Sony's brands.

But it lost out to bigger rivals Nokia and Samsung at the cheaper end of the market, and was late to react to Apple's entry into the high-end of the market.

It has refocused its business to make smartphones using Google's Android platform, but has dropped to No. 9 in global cellphone rankings from No. 4 just a few years ago.

The joint venture is making some progress and turned in a net profit of 90 million euros last year after booking a loss of 836 million euros in 2009. But it reported another loss for the April-June quarter.

The venture is due to report its September quarter results on Oct 14.

"A buyout would make a lot of sense for Ericsson as I believe their share in the joint venture is worth to them between zero and minus 1 billion euros," said Sanford Bernstein analyst Pierre Ferragu.

"Whatever price they agree on, it would be a positive for Ericsson."

Shares in Sweden's Ericsson gained on the report and closed 6 percent higher at 69.20 crowns on Thursday.

Last month at the IFA trade fair in Berlin, Sony Ericsson's phones were presented inside the Sony hall, mixed with Sony's TV sets and new tablets.

Source:http://economictimes.indiatimes.com/news/international-business/sony-in-talks-to-buy-ericsson-out-of-phone-venture-source/articleshow/10264418.cms

M&A deals down by 56% to Rs 29,000 cr in Q3

The value of merger and acquisition deals involving Indian companies witnessed a 56% decline year-on-year to $5.91 billion (approximately Rs 29,000 cr) in the third quarter of 2011, according to a report by global consultancy firm Grant Thornton.

Though the total value of merger and acquisition (M&A) deals in the third quarter this year dropped by 56.25%, there was an increase in the number of transactions, according to the latest issue of Grant Thornton's 'Dealtracker' report.

Commenting on the findings, Grant Thornton India Partner and Practice Leader, Valuations, Srividya C G said: "There has been a trend reversal, with a higher proportion coming from outbound deals, unlike the first half of the year."

During the third quarter of this calendar year, there was a significant increase in cross-border transactions, wherein 63 such deals worth $4.88 billion were announced, accounting for over 80% of the total value of M&A deals.

Meanwhile, there were 86 domestic deals worth $1.03 billion during the quarter.

The trend was exactly opposite last year, wherein domestic deals worth $11.69 billion were announced and cross-border deals were valued at just $1.82 billion.

"While cross-border transactions have shown growth, there is a considerable decline in domestic M&A. However, there is an increase in the overall activity, which is seen by an increase in the number of M&A transactions," Srividya said.

An industry-wise analysis shows that the mining sector accounted for the lion's share of M&A deals during the quarter in terms of value, primarily due to two large outbound transactions. The telecom industry was the second-most targeted sector, while the power and energy sector saw the third-highest transaction value.

Out of $4.88 billion worth of cross-border deals in the third quarter of 2011, the total value of outbound deals— Indian companies acquiring or merging with businesses outside India— was $3.69 billion (via 29 deals), five times more than the year-ago period in terms of value, Grant Thornton said.

In the corresponding period last year, 39 outbound transactions worth $0.63 billion were announced.

Meanwhile, the total value of inbound deals— foreign companies or their subsidiaries acquiring or merging with Indian businesses— in the third quarter was $1.19 billion through 34 deals, Grant Thornton added.

Source: Business Standard

Anchor Investor

What is the concept of anchor investor? When was it introduced?
An anchor investor in a public issue refers to a qualified institutional buyer making an application for a value of Rs 10 crore or more through the book-building process. Securities and Exchange Board of India (Sebi) introduced the concept of “anchor investor” in public issues in July 2009 with a view to create a significant impact on pricing of initial public offers. Since equity markets are volatile, it is believed that companies going for initial public offering (IPO) would benefit from anchor investors.

What is the significance of an anchor investor?
An anchor investor can attract investors to public offers before they hit the market to infuse confidence. The volume and value of anchor subscriptions will serve as an indicator of the company’s reputation and soundness of the offer. Finally, the anchor investor sets a benchmark and gives a guideline for issue pricing and interest among Qualified Institutional Buyers (QIBs).

What are the conditions stipulated for an anchor investor?
Up to 30% of the portion available for allocation to qualified institutional buyers
(QIBs) is required to be made available to anchor investor(s) for allocation. An
anchor investor is required to make an application for a minimum value of Rs 10 crore in a public issue. Allocation of shares to anchor investors is made on a
discretionary basis and subject to a minimum number of two such investors for
allocation of up to Rs 250 crore and five such investors for allocation of more than Rs 250 crore. Company has a right to reject the anchor investor’s bid. An anchor investor is required to pay a margin of at least 25% on application with the balance to be paid within two days of the date of closure of the issue. If the price fixed as a result of book building is higher than the price at which the allocation is made to anchor investor, he is required to bring in the additional amount. However, if the price fixed as a result of book building is lower than the price at which the allocation is made to such investors, the excess amount is not refunded. The number of shares allocated to anchor investors, and the price at which the allocation is made, is made available in public domain by the merchant banker before opening of the issue. There is a lock-in of 30 days on the shares allotted from the date of allotment in the public issue. Neither the merchant bankers nor any person related to the promoter/promoter group/merchant bankers in the concerned public issue can apply under anchor investor category. The parameters for selection of anchor investor are required to be clearly identified by the merchant banker and are made available as part of records of the merchant banker for inspection by the board.

How is an anchor investor different from a private equity or a venture
capital investor?
A private equity investor is a person with deep pockets and capacity to play the role of a venture capitalist. The anchor investor, on the other hand, is a bridge between the company and the public in the run up to an initial public offer. Getting an anchor investor would ensure greater certainty and better price discovery in the issue process. If some investor is ready to come in with prior commitment, it enhances the issuer company’s ability to sell the issue and generate more confidence in the minds of other investors.

Trichet to leave ECB this month

Jean-Claude Trichet, the euro's chief guardian, will this month leave the European Central Bank in a very different place from when he took the helm in 2003, with a dramatically expanded role to fight the government debt crisis.

The bank has gone from arbiter of interest rates to chief firefighter in the crisis, government creditor and even political enforcer of budget cuts on elected governments.

It's a role that Trichet, who on Thursday will chair his last monthly ECB news conference, took on with reluctance and, many say, with little choice.

The bank's bold steps against the debt crisis have so far kept the eurozone from a widespread collapse of government and bank finances. But those emergency measures, particularly the purchases of troubled governments' bonds, mean long-term risks for the bank's credibility as the key institution behind Europe's 12-year-old shared currency.

It is even still possible that Trichet's legacy could be marked by unforeseen events in the final three weeks of his eight-year term, which ends Oct. 31. The crisis is still alive with worries that Greece might default, which would rock Europe's banking sector.

Many expect it will be years before it is clear if the path Trichet has led the ECB down was the right one.

``The book is very much still open and the assessment of the ECB policies during this crisis will only be possible in quite some time,'' said Marie Diron, senior economic adviser to Ernst & Young. ``But on the whole he probably leaves the ECB in a stronger position.''

The 68-year-old Trichet will start saying his public goodbyes on Thursday at his final post-meeting news conference after a meeting of the bank's 23-member governing council in Berlin. Mario Draghi, currently head of the Bank of Italy, was chosen by eurozone leaders as his successor and takes over Nov. 1.

``The ECB has played probably a much bigger role during this financial crisis than it had itself would have envisaged at the beginning,'' she said, ``by the broad nature of the interventions that it had to take, the size of the interventions that it had to take, and the political roles that it had to play in negotiations on debt restructuring and fiscal policies.''

One token of the bank's burgeoning role can be seen in the detailed letter Trichet and Draghi wrote in early August to Italian Premier Silvio Berlusconi.

The two unelected central bankers pushed Berlusconi hard to move quickly on cutting Italy's deficit, and urged specific changes such as cuts in public employee wages, according to a leaked text published in Italy's Corriere della Sera newspaper.

Trichet says there was no ``negotiation'' with governments over the terms of the bank's help.

But the fact remains that the ECB and the bond purchases, which drove down interest rates on government debt after they were launched Aug. 8, were, and still are, the only thing between Italy and a possible death spiral of higher borrowing costs.

WOMEN ON TOP: Powerful business heads in 2011

The recently released Fortune Magazine list of the most powerful women in US Business shows Kraft Foods boss Irene Rosenfeld claiming the top spot by pushing PepsiCo Inc chief Indra Nooyi to second spot. Oprah Winfrey, who was at No. 6 spot in 2010 sank to No. 16 this year. While women represent about half of the United States’ white-collar workers, they are a rarity in the upper echelons of business, with female chief executives running just 3 percent of companies in the Standard & Poor’s 500 index.

Irene Rosenfeld -Rank 1

Chairman and CEO
Kraft Foods
The 58-year old was ranked number 2 in 2010

Kraft chief executive, who led a hostile $18-billion takeover of Britain’s Cadbury last year, has been defined by Fortune as a person who "made a big show of power this year with her decision to split Kraft into two companies." Her new role hasn’t been decided but she plans to remain CEO until the deal’s expected close in 2012.

Indira Nooyi--Rank 2

CEO and chairman
PepsiCo
The 55-year-old was ranked 1 in 2010

Nooyi, the only woman to appear in the top 10 most powerful as well as the top 10 highest paid list, slipped to the second spot of the first category. Fortune Magazine noted that "Nooyi has been criticized for taking her eye off the core North American soda business, which has lost share to Coke." It, however, says that "PepsiCo has forged further into nutrition-focused products, a business that the company is trying to grow to $30 billion in 2020 from about $10 billion in 2010," under Nooyi's watch.

Here is the list of Fortune's Top 10 most powerful women for the year 2011:
1. Irene Rosenfeld
2. Indra Nooyi
3. Patricia Woertz
4. Ellen Kullman
5. Angela Braly
6. Andrea Jung
7. Ginni Rometty
8. Ursula Burns
9. Meg Whitman
10. Sherilyn McCoy

Moody's cuts Italy credit rating by three notches

Reuters

6:14 p.m. EDT, October 4, 2011

NEW YORK/ROME (Reuters) - Moody's Investors Service cut Italy's bond ratings by three notches on Tuesday, saying it saw a "material increase" in funding risks for euro zone countries with high levels of debt.

Moody's downgraded Italy's ratings to A2 from Aa2, a lower rating than that of Estonia, and kept a negative outlook on the rating, a sign that further downgrades are possible within the next few years.

The move comes after Standard and Poor's cut its rating on Italy to A/A-1 from A+/A-1+ on September 19 and underlines growing investor uncertainty about the euro zone's third largest economy, which is now firmly at the center of the debt crisis.

"The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area," Moody's said in a statement.

"The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country's access to the public debt markets," it said.

Moody's also said that Italy's rating could "transition to substantially lower rating levels" if there were long-term uncertainty over the availability of external sources of liquidity support.

Italy's mix of chronically low growth, a huge public debt amounting to 120 percent of gross domestic product and a struggling government coalition has caused mounting alarm in financial markets.

The Moody's decision came as little surprise after the agency said on September 17 that it would finish a review for possible downgrade of its rating on Italy within a month.

"It's not that it was unexpected, but it doesn't help the situation at all," said Robbert Van Batenburg, Head of Equity Research, at Louis Capital in New York.

"They have already traded as if there was somewhat of a downgrade in the works, so it will probably force Italian policymakers to embark on more austerity programs. It will put another fiscal straitjacket on them," he said.

Moody's said the likelihood of a default by Italy was "remote," but the overall shift in sentiment on the euro area funding market implied a greater vulnerability to a loss of market access at affordable interest rates.

Italy's borrowing costs have soared over the past three months and have only been kept under control by the European Central Bank's purchase of its government bonds on secondary markets.

An auction of long-term bonds last month saw yields on 10 year BTPs rise to 5.86 percent, their highest level since the introduction of the euro more than a decade ago.

The center-right government of Prime Minister Silvio Berlusconi has been under heavy pressure over its handling of the escalating crisis and recently cut its growth forecasts through 2013.

It is now expecting the economy to expand by just 0.6 percent next year, down from a previous projection of 1.3 percent.

The government last month pushed through a 60 billion euro austerity package -- bringing forward by one year to 2013 a goal to balance its budget -- in return for support for its battered government bonds from the ECB.

SBI slips to 2-year low on Moody's downgrade

Shares of State Bank of India plunged over 4% after Moody's Investors Service downgraded the country's largest public sector bank's financial strength rating (BFSR), to D+ from C- on account of asset quality concerns and capital situation.

According to the note, the non-performing assets (NPA) are likely to continue rising in the near term and higher interest rates and a slower economy might weigh on the SBI's profitability and its creditworthiness.

The SBI reported a Tier 1 capital ratio of 7.60% as of 30 June 2011 which is below the 8% Tier 1 ratio that the government of India has committed for maintaining in public sector banks (PSB).

The level pushes the bank into a lower rating band which might provide an insufficient cushion to support growth and to absorb potentially higher credit costs from its deteriorating asset quality.

Further, Beatrice Woo, Moody's Vice President, said in the note, "Notwithstanding our expectations that SBI's capital ratios will soon be restored through a capital infusion by the government, SBI's efforts to secure this capital for the better part of the year demonstrates the bank's limited ability to manage its capital."

The Rs 230 billion rights issue that SBI is currently seeking would raise its Tier 1 ratio to approximately 9.30%. However, according to Moody's note, the capital deployed for loan growth, assuming 15% per annum for the next three fiscal years, will cause the Tier 1 ratio to fall below 8%, thereby necessitating another capital exercise.

Impact on stock price:

Shares of State Bank of India plunged over 4% to touch their 2-year low of Rs 1751.35 on the BSE. At 02:00 p.m., the company's shares were trading 4.8% lower at Rs 1773.

For the years the stock has slipped over 36%.

NPA's and Profitability:

The State Bank of India has a standalone business size of Rs 17 trillion. It enjoys a strong franchise and brand name in the country and has a market share of around 21%.

The bank's net profit has been under pressure for the past couple of quarters. For the first quarter ended June 2011, the net profit fell 45.7% to Rs 1,584 crore because of higher provisioning and a tax rate of 50%.

On the asset quality front, the bank's NPA, as of 30 June 2011, reached a 3-year high of 3.52% of loans and Rs 277,680 million on absolute basis.

Why 5200 is a very important level on the chart...?

Above is a daily chart of Nifty. Here I want to show that why 5200 is a very important level for the Nifty. On chart I have shown retracement level from different tops which were made during the fall from 6336 to the bottom made in August at 5720.

5260 is a 33.3% retracement level from 6336 to 4720.
5208 is a 33.3% retracement level from 6178 to 4720.
5190 is a 38.2% retracement level from 6944 to 4720.
5208 is a 50.0% retracement level from 5702 to 4720.

All the levels above shown are around 5200.

This 5200 level has been working as a support and resistance for the Nifty in past also. It is seen in the chart that up and down arrows are working as a support and resistance respectively for Nifty.

In the month of September Nifty went to 5170 twice and from there it reversed. So, all this retracements levels and past support and resistance level confirms that 5200 is very much important for market and if it breaks above that level then Nifty can go higher levels.

What is Quantitaive Easing-QE

QUANTITATIVE EASING (Q.E.2)

The US Federal Reserve is desperately trying to fix the economic system that broke down in 2007. Incomes in the US were skewed in favor of the rich, while the poor while the poor got skewed. It relocated production to the emerging countries , where cost were very cheap, and it piled on debt to consumers by keeping interest rates low. Due to this consumer confidence lost and US economy now needs money so as to make people rich which will increase production and will give rise to inflation. Also it will increase employment. So let’s understand this process of printing more money which is termed as quantitative easing or Q.E.

Q.E- It is done by buying bonds usually government paper but can also be private bonds from banks and financial institutions. Till now Japan, Zimbabwe has done this during its asset bubble period. This helps in creating a wealth effect which spurs the economy. When a government prints money, interest rates drop and inflation rises. This is simply a matter of supply and demand: the same way that corn is cheap in the summer when it’s plentiful, the Fed is making it cheaper to borrow dollars, by flooding the market with them.

Q.E 1-On 25th Nov. 2008, the Fed announced QE1, a plan for buying $100 billion of agency debt and $500 billion mortgage-backed securities (MBS). The 10-year yield fell from 3.35% to 3.02% immediately. The dollar index fell and on March 2009 Fed purchased agency debt to $200 billion, MBS to $1.25 trillion and added another $300 billion of treasury securities to its purchase plan. The dollar fell to 74.7 at the end of Nov 2009. Asset, commodities prices moved up but it posed a threat to emerging countries as interest rates in US is zero so investors will invest their money in emerging countries which will pose a threat to these countries.
Q.E 2- On Aug. Fed announced another round of QE and this time they may print $900 billion and be completed by the end of the third quarter of 2011. The central bank will buy $600 billion in long-term Treasuries. The Fed also said that it will reinvest an additional $250 billion to $300 billion in Treasuries. The Fed wants a return of inflation in the US and in turn GDP expansion.

Implications-For the world economy as a whole, this system may set the stage for an even bigger crisis even if it succeeds. Devalue of dollar will take place. Already there is currency war between US and China which may increase. Asset prices will increase which will lead to over-valuation of markets. Emerging countries will need to cap on FII inflows into their country. Too much monetary stimulus might lead to runaway inflation that could derail the economy, or future asset bubbles that could endanger economic stability over the long term in US.

Terminology used in Banking more

Tier 1 Capital

What Does Tier 1 Capital Mean?
A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves. Equity capital includes instruments that can't be redeemed at the option of the holder.

Tier 2 Capital
What Does Tier 2 Capital Mean?
A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more.

Tier 3 Capital
What Does Tier 3 Capital Mean?
Tertiary capital held by banks to meet part of their market risks, that includes a greater variety of debt than tier 1 and tier 2 capitals. Tier 3 capital debts may include a greater number of subordinated issues, undisclosed reserves and general loss reserves compared to tier 2 capital. To qualify as tier 3 capital, assets must be limited to 250% of a banks tier 1 capital, be unsecured, subordinated and have a minimum maturity of two years.

Capital Adequacy Ratio - CAR
What Does Capital Adequacy Ratio - CAR Mean?
A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. Also known as "Capital to Risk Weighted Assets Ratio (CRAR)." This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

Basel I
What Does Basel I Mean?
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets. The first accord was the Basel I. It was issued in 1988 and focused mainly on credit risk by creating a bank asset classification system. This classification system grouped a bank's assets into five risk categories:

0% - cash, central bank and government debt and any OECD government debt
0%, 10%, 20% or 50% - public sector debt
20% - development bank debt, OECD bank debt, OECD securities firm debt, non-OECD bank debt (under one year maturity) and non-OECD public sector debt, cash in collection
50% - residential mortgages
100% - private sector debt, non-OECD bank debt (maturity over a year), real estate, plant and equipment, capital instruments issued at other banks

The bank must maintain capital (Tier 1 and Tier 2) equal to at least 8% of its risk-weighted assets. For example, if a bank has risk-weighted assets of $100 million, it is required to maintain capital of at least $8 million.

Basel II
What Does Basel II Mean?
A set of banking regulations put forth by the Basel Committee on Bank Supervision, which regulates finance and banking internationally. Basel II attempts to integrate Basel capital standards with national regulations, by setting the minimum capital requirements of financial institutions with the goal of ensuring institution liquidity. Basel II is the second of the Basel Committee on Bank Supervision's recommendations, and unlike the first accord, Basel I, where focus was mainly on credit risk, the purpose of Basel II was to create standards and regulations on how much capital financial institutions must have put aside. Banks need to put aside capital to reduce the risks associated with its investing and lending practices.

Basel III
What Does Basel III Mean?
A comprehensive set of reform measures designed to improve the regulation, supervision and risk management within the banking sector. The Basel Committee on Banking Supervision published the first version of Basel III in late 2009, giving banks approximately three years to satisfy all requirements. Largely in response to the credit crisis, banks are required to maintain proper leverage ratios and meet certain capital requirements. Basel III is part of the continuous effort made by the Basel Committee on Banking Supervision to enhance the banking regulatory framework. It builds on the Basel I and Basel II documents, and seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency. A focus of Basel III is to foster greater resilience at the individual bank level in order to reduce the risk of system wide shocks.

Source: investopedia

Bernanke: Fed Prepared to Take Action to Boost Growth

The Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability,” Bernanke said today in testimony to Congress’s Joint Economic Committee in Washington.
The remarks signal Bernanke may not be finished after attempts in August and September to strengthen record monetary stimulus with unconventional tools. The central bank’s near-zero benchmark interest rate and $2.3 trillion of housing and government-debt purchases since 2008 have failed to produce self-sustaining growth in the economy and employment.
Lawmakers on the separate bipartisan congressional supercommittee charged with seeking $1.5 trillion in deficit reduction by Nov. 23 would take a “substantial step” by accomplishing that goal, Bernanke, 57, said in prepared remarks. At the same time, “more will be needed to achieve fiscal sustainability,” he said.
“A second important objective is to avoid fiscal actions that could impede the ongoing economic recovery,” Bernanke said. “Putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term,” he said, without being more specific.