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I expect markets to consolidate
Deven Shah
Wednesday, 13,FEBRUARY (New Delhi) Mayhem prevailed at Dalal Street last week with the Bulls taking a knock out punch. Markets hit lower circuit on successive days to wipe out more than 4,000 points on the Sensex - the largest fall ever registered in the history of stock markets.

Margin calls & F&O unwinding added fuel to the existing systematic troubles. However, a surprise cut from the US Fed by 75 bps points gave some support to the global markets.

Indian indices managed to bounce back from the week’s lows by close of trade on Friday. The Sensex closed at 18,361 levels, down 3.4 per cent or 651 points and Nifty ended at 5,385 levels, down 5.6 per cent or 321 points.

Among sectoral indices, the BSE oil and gas index was the biggest loser that skidded 11 per cent followed by metals, pharma, power and realty indices.

FII’s were strong sellers for the week to the tune of Rs 8,281 crore, while the Derivative segment saw net inflows for Rs 18,000 crore. Domestic Funds also lent support to the markets mopping up equity worth Rs 4,700 crore in the last week.

Mid-caps and small-caps that have been attracting selling pressure since the last two weeks tanked 60-70 per cent in a span of two days on account of F&O unwinding. Momentum stocks like Neyveli Lignite, Reliance Natural Resources Limited (RNRL), Nagarjuna Fertilizers, SRF and MRPL saw erosion of more than 70 per cent but recovered some ground to post a weekly loss of almost 30 per cent each.

Expect markets to consolidate

The crash last week broke all medium-term supports for the indices. However, the long-term supports have are still intact and stand at 15,500 and 4,400 for the Sensex and Nifty respectively.

The Sensex can consolidate between 17,000 – 19,000 mark and steadily rise to 19,000-19,300 levels in the days to come. Global pressures could bring in volatility movements.

One can accumulate IDFC at every decline. Above Rs 220, I expect it to test all-time highs at Rs 235-240. There is some support at Rs 190-192 levels. Among banking counters, Kotak Mahindra Bank looks attractive. The stock can find support at Rs 1,025-1,030 levels. A breach of its resistance level at Rs 1,130-1,135 levels can take it higher to Rs 1,180-1,200 mark.

Telecom sector eyes new tax regime
Harishankar Subramaniam
Tuesday, February 12, 2008 (New Delhi)
The Indian telecom sector has been one of the fastest growing sectors in the Indian economy in past few years. The sector has within its ambit a diverse range of activities like telephony services, leased circuits, provision of passive infrastructure, value added services, network management services, and the basic activity of setting up telecom infrastructure.

It has emerged as the 4th largest in the world in terms of wireless subscribers and 5th largest in terms of total telecom subscribers. The phenomenal growth witnessed by the sector has resulted in massive investments and expansion of teledensity that are indicative of a vibrant sector.

Previous Budget: A Neutral Event

The Union Budget last year was rather neutral towards the telecom sector, with no radical changes affecting the industry.

On the indirect tax front, the budget introduced new service categories of telecommunication service and development and supply of content service, providing a comprehensive coverage of various telecom related services. This has put to rest the controversies prevailing earlier with respect to taxability of various telecom services, such as interconnect usage charges, dark fibers, etc. Also, since almost all services provided by telecom operators have now become taxable, the need for maintaining elaborate records for tracking taxable and exempt services, to claim appropriate Cenvat credit has now been obviated.

The Finance Minister also recognized the long pending demand of the industry to rationalize the number of levies on the sector, by directing the Department of Telecommunications to commission a study for a unified tax structure for the sector. However, anything concrete on this front is yet to happen.

All in all, it may be said that the previous year’s budget did not have anything significant for the telecom sector, in that some of the issues faced by the industry remained unaddressed. These have now turned into wish-list for the forthcoming budget. The key issues have been discussed below.

Budget 08-09: The Wish-list

Credit for Additional Customs Duty (ADC)

Various Information Technology Agreement bound items including BTS, Routers, VAS equipment, etc. are subject to 4% Additional Customs Duty (ADC). Since telecom operators/ network service providers are not manufacturers but service providers, they are not entitled to avail credit of this 4% ACD. In light of the fact that most of these equipments are generally imported from outside the country, an additional 4% cost on such equipments translates into an increased cost of service. Considering the long standing demand from telecom sector, it remains to be seen whether the forthcoming budget would provide any relief on this front.

Customs Duty on Telecom Software

Telecom companies purchase telecom software, which is generally equipment specific and has to be configured in the equipment. Most players in the industry have taken a position that telecom software may thus, be classified as customized software and not canned or off the shelf software, which currently attracts 8% duty. However, the authorities are often not convinced about the customized nature of telecom software and seek to levy customs duty on such software. Hence, the industry is eagerly anticipating an appropriate exemption or clarification that would bring telecom software out of the purview of customs duty.

Cenvat credit on telecom equipment

Telecom service providers undertake installation of assets such as BTS, cables, boosters across their respective service areas. To avail credit of such capital goods, these are required to be installed in the registered ‘premises’ of the telecom service provider, which leads to practical difficulties in terms of defining and registering the premises.

Availability of credit of duties paid on goods like towers and shelters is also an area of ambiguity for most telecom operators. On a strict interpretation of the Cenvat credit rules, it appears that these do not qualify as capital goods, and hence, the dispute about their eligibility for credit.

Special direct tax incentives

On direct taxes, licenses which are granted up to 31 March 2005 only are eligible for tax benefits under Section 80 IA of the Income Tax Act. Further, even the holders of these licenses are not getting the same tax incentives as are available to other infrastructure activities like power, ports, roads etc. Also, even after such tax deduction provided in the income tax code, companies end up paying Minimum Alternate Tax (MAT).

Amending tax benefits on the above lines would help existing players to re-invest the funds, and encourage new players to enter into the industry. In both ways, the Government would see more investment flowing into the sector.

Conclusion

To exploit the full potential of the industry, it requires a continuous support from government in terms of policy changes and tax benefits. Taxes, which constitute a significant component of the industry costs, have been a topic of constant advocacy by industry forums. Issues such as those highlighted in this article lead to diversion of resources and efforts towards tax representations, litigation, etc., which are already scarce in this fast growing sector. The forthcoming budget would hopefully embody propositions to assist the industry look beyond the issues it is currently facing under the prevailing tax regime.

The writer can be contacted at: sharishanker@kpmg.com

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updated 8:57 a.m. ET Feb. 14, 2008
WASHINGTON - The number of workers filing new claims for jobless benefits fell by 9,000 last week, the government said on Thursday, though a more reliable gauge of layoff trends rose to its highest in more than two years.

Initial claims for state unemployment insurance aid fell for the second straight week, slipping to 348,000 in the week ended February 9, down from a slightly upwardly revised 357,000 for the prior week, the Labor Department said.

The number of new claims was slightly more than the 347,000 Wall Street forecast.


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SINGAPORE - Forget about graphs, charts and economic forecasts. Wary investors in Asia are turning to feng shui masters to tell them which way the markets will head in the Chinese Year of the Rat.

Perhaps not surprisingly for investors already burnt by recent stock market slides, feng shui experts are predicting a gloomy year for shares, not good news for those hoping for a rebound in global markets hit by worries over the U.S. economy.

"The rat will become aggressive at the tail end of the year and its underlying water element will cool the stock market," said Vincent Koh, a feng shui master at Singapore Feng Shui Centre.

Story contin

Feng shui is popular across East Asia, where it is traditionally practiced by ethnic Chinese. It relies on movements of the cosmos as well as placement of furniture and arranging space to generate a "flow of wealth."

Believers say it can be used to improve wealth, health and personal relationships.

In Hong Kong and Singapore, it's taken so seriously that corporations consult feng shui experts about everything from business strategy to interior design. Disneyland changed the angle of the main entrance of its Hong Kong theme park after consulting a feng shui expert.

So great is the interest in feng shui, that CLSA, a regional brokerage house, issued a feng shui client note which predicted the stock market would rise from May to August and the U.S. dollar would remain weak.

"Be mindful of your speculations, especially in the third quarter," said the note, which CLSA described as "topical" rather than a formal investment advisory.

Raymond Lo, a feng shui master in Hong Kong who does readings for corporations, expects industries linked to earth and metal signs to flourish during the Year of the Rat.

"The rat is a symbol of money to the earth industry ... Strong water element in the year indicates productivity and strong activity in the metal industries," said Lo, who suggested investors put their money into property, mining and gold.

He predicts stock markets will be soft this year as the elements of earth and water, which he says are strong in the Year of the Rat, weaken the fire element that influences shares.

"The water element affects the fire of the markets. I can foresee a lot of correction in the stock market," said Koh.

With stocks markets from Japan to New York cooling since the start of the year on concerns of a global economic slowdown, skeptics may argue that you don't need to be a feng shui master to make such predictions.

Yet Malaysian feng shui master Yap Boh Chu is optimistic with predictions that Southeast Asian markets will be stable after a tumultuous start.

"The whole concept we have for the year is the image of a seed sprouting from the ground — the beginning is hard," he said.

Lim, a dealer at a Singapore brokerage house, has his fortune read annually at the start of the Chinese New Year and he adorns his office with bull figurines in the hope of a bullish market.

He is a big believer in Ba Zi or "four pillars of destiny," Chinese fortune telling that uses the date and time of birth to determine your life path.

However, despite his superstitious beliefs in bulls, Lim's investments have taken a hit as Singapore's benchmark Straits Times Index has fallen 15 percent since the start of the year.

"I can't say that it works or it doesn't work — when the market is down, there's not much you can do to not lose money," Lim said.

Terence Tea, chief executive of copper recycling firm Advance SCT, gets feng shui masters to vet his firm's blueprints before construction begins on new offices, factories and other facilities.

But despite his devotion to the art, he admits that feng shui is not entirely responsible for his wealth and success.

"I think feng shui has helped my business, but being hardworking is fundamental," Tea said.

Many may be skeptical that feng shui or other fortune telling can bring in riches. And even the faithful in the financial community realize its limitations.

"Unfortunately we have no predictions on who will win Euro 2008 or who will be the next U.S. president," CLSA said in its feng shui report.

Election '08: Seeking a 'Tech President'
Technology companies have much at stake in 2008. Here's where the candidates stand on the issues of crucial importance to Silicon Valley
by Aaron Ricadela

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View Slide Show
Editor's note: This is the second of two stories (BusinessWeek, 9/17/07) examining how top Presidential candidates are grappling with the major science and technology topics of the day.

Presidential candidates, their eyes on early primaries, have understandably been spending much of their time lately courting voters in Iowa and New Hampshire. But Silicon Valley has merited some important side trips.

Democratic front-runner Hillary Clinton unveiled her technology agenda May 31 to an audience of executives from Microsoft (MSFT), Hewlett-Packard (HPQ), Intel (INTC), and Google (GOOG) in Santa Clara, Calif. Clinton, fellow Democrats Barack Obama and John Edwards, as well as Republican John McCain have appeared at question-and-answer sessions with Google employees at the company's headquarters in Mountain View, Calif. And McCain bolstered his tech bona fides with July appearances at Stanford University and the Churchill Club.

Candidates are making time for Silicon Valley in part thanks to the area's ascendance as a source of fund-raising. "There has never been this degree of attention paid by Presidential candidates to the Valley," says Gary Fazzino, vice-president of government affairs at Hewlett-Packard and a two-time former mayor of Palo Alto, Calif. The computer industry contributed $2.2 million to candidates in the first half of 2007, up from $1.2 million in the first six months of the 2004 and 2000 primary campaigns, according to figures cited by The New York Times.

Primary Clout
Courting California in an election this wide open is especially important given the early California primary, to be held on Feb. 5, 2008, and the role played by the state's industries in some of the most pressing matters of the day, including technological competitiveness with Asia and Europe and the need for sources of alternative energy.

So even while the general election is likely to be dominated by the war in Iraq, the continued threat of terrorism, and economic issues, candidates have staked out early positions on topics dear to the tech industry, including increasing federal spending on research and development, allowing more highly educated foreign workers into the country, widening the availability of high-speed Internet service to create new markets for hardware and online services, and improving the state of U.S. math and science education.

Also on the tech agenda: tougher sanctions against violations of American companies' intellectual property in China and greater leeway for courts to limit damages in patent-infringement lawsuits. "We want to make sure the next President is a 'tech President'—that they understand how innovation happens and have some concrete ideas about how to keep the tech economy growing," says Adam Kovacevich, a spokesman for Google.

Lobbying by information technology companies has taken on added urgency in light of tightened rules on appropriating funds for federal programs. "The IT sector needs to spend more of its political capital in the appropriations process," says HP's Fazzino. Meanwhile, the venture capital industry has been vocal about exempting corporate earnings from the higher capital-gains tax rate that some lawmakers want to apply to the booming private equity industry. "We might get tarred with the same brush," says Paul Maeder, a managing general partner at Highland Capital Partners.

The Candidates' Plans
Some candidates, including Clinton, McCain and Obama, have outlined ambitious tech agendas, while others, such as former Massachusetts Governor Mitt Romney and former New York Mayor Rudolph Giuliani, have yet to take strong, nuanced stances

Election '08: Seeking a 'Tech President'
(page 2 of 3)

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Senator Clinton has proposed creating a $50 billion national alternative-energy investment fund and increasing basic research budgets at key federal agencies by 50% over the next decade. Senator Obama has posited wider broadband penetration as a way to create job opportunities for the urban poor and says he'll overhaul fees the government charges phone companies to pay for it. McCain favors peeling back layers of Federal Communications Commission regulations to promote competition in Internet services.

Below is a closer look at how the major candidates for president stack up on issues important to the tech industry, including research and development spending, patent law reform, the foreign-worker visa shortage, math and science education, and telecommunications regulation.

Federal R&D Funding
Allocating more government money to basic scientific research is a big priority for Microsoft, HP, Intel, and other tech companies that benefit when breakthroughs create new markets for products. "There's a growing awareness that we can't take [U.S.] economic preeminence as a given," says James Jarrett, vice-president for legal and corporate affairs at Intel. But federal funding for the National Science Foundation, the National Institute of Standards & Technology, and other agencies has been stagnant for several years.

To address the concern, President George W. Bush in August signed the America Competes Act, which allocates $22 billion to the NSF, $17 billion to the Energy Dept.'s Office of Science, and $2.7 billion to NIST from 2008 to 2010, with a goal of eventually doubling the agencies' budgets. Congress still needs to appropriate the money, which means tech companies are reacting cautiously. "It's an important step," says Jack Krumholtz, managing director of federal government affairs at Microsoft. "More funding for basic research primes the pump for a virtuous cycle of innovation."

Boosting federal research spending is at the heart of Clinton's technology agenda. In addition to the alternative-energy fund and support for increases in R&D budgets at the departments of Defense and Energy and the NSF, she has called for federal agencies to set aside at least 8% of their research budgets for high-risk exploratory work, citing Defense Dept. research that led to the creation of the Internet and the global positioning system. Clinton says she would also promote collaborative research among the computer, biotech, and nanotechnology industries.

Obama has joined Clinton in calling for the government to make permanent a corporate tax credit for new R&D spending that is usually renewed annually by Congress. Edwards has proposed an alternative-energy fund to promote wind and solar power, and biofuel to make cars and trucks more efficient. Romney has said the country needs to invest heavily in new technology for power generation, nanotechnology, and creating new industrial materials.

Patent Reform
The tech sector wants Congress to pass a law that would curb what it considers frivolous, innovation-stifling litigation by patent holders. It's HP's No. 1 lobbying priority and also a key plank in Microsoft's Washington agenda. The House of Representatives passed a patent-reform bill Sept. 7 that could limit damage awards in infringement cases and improve the quality of awarded patents. A similar version is pending in the Senate. Pharmaceutical and biotech companies such as Johnson & Johnson (JNJ) and Amgen (AMGN) and cell-phone chipmaker Qualcomm (QCOM) oppose the House bill because they say it weakens protection for patents in their portfolios.

Obama, Edwards, and McCain have been most explicit on patent reform. Obama's campaign says such a law would promote more scientific research and discourage excessive litigation.

Election '08: Seeking a 'Tech President'
(page 3 of 3)

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On the other side of the issue is Edwards, whose campaign says: "Patent litigation reforms that may encourage innovation in some industries may hinder innovation in others," including alternative energy. "American competitiveness is too important for us to let our intellectual-property rules be skewed by lobbyists arguing for their own industries' narrow interests." McCain's campaign says the U.S. patent system should change to improve patent quality and reduce litigation.

Immigration
The foreign-worker problem faced by tech companies is played out in the struggle over so-called H-1B visas, which are awarded to foreign nationals who attend American universities and want to work for U.S. companies. This year the government allocated 65,000 of the visas. Tech companies, eager to land well-educated and highly skilled employees from abroad, say that's too few. "Historically, America has succeeded because the best and the brightest come here," says Maeder of Highland Capital Partners.

A sweeping 2007 immigration bill proposed raising the cap on the visas to 115,000 in 2008, but it was defeated in the Senate in June. Microsoft is taking matters into its own hands. In September the company opened a development office in Vancouver, Canada, largely to employ foreign workers who were prohibited from employment in the U.S. "We haven't given up hope," Krumholtz says.

McCain was a strong supporter of President Bush's attempt at immigration reform, which also included a path to citizenship for illegal immigrants and measures to strengthen border security. According to McCain policy director Douglas Holtz-Eakin, standalone H-1B legislation could also be a possibility. In a policy paper written for BusinessWeek.com, the McCain campaign says the Arizona senator supports expansion of the H-1B cap but that the measure alone won't make the U.S. more competitive. "Opening new and integrated world markets won't automatically translate into higher quality of life for every American," the paper says, echoing a position taken by opponents of H-1Bs. The government should do more to help U.S. workers get education and training, McCain's campaign says.

Edwards' position may be seen as less tech-friendly. He would require employers to show they couldn't have given an H-1B job to an American, and he would increase fees for companies that employ H-1B workers, his campaign says.

Math and Science Education
Not surprisingly, Democrats have staked out the most comprehensive proposals for improving the state of math, science, engineering, and computer-science education at the K-to-12 level. The America Competes Act authorizes more funding for university research and K-to-12 education, but Clinton, Obama, and Edwards want to go further.

Clinton has said she'll triple the number of NSF fellowships and increase the size of each award by a third. She also plans to provide incentives for women and minorities to enter math-, science-, and engineering-related fields by making diversity a requirement for federal education and research grants. Clinton also proposes federal spending on university programs that encourage women and minorities to pursue those fields. Edwards' campaign says he would create a national plan whereby the government pays for a year of public college for more than 2 million students who take college-prep courses in high school, work part-time during college, and stay out of trouble.

Telecom Regulation
Two front-burner issues in telecommunications are expanding the availability of high-speed Internet access to more Americans in rural and inner-city areas, and the debate over whether phone and cable companies should be allowed to charge extra fees to high-traffic sites whose data is transmitted over their networks.

Most of the major candidates support higher broadband penetration, though they differ on how to get there. Obama has taken perhaps the most nuanced position, arguing that increasing broadband access not only creates markets but constitutes vital social policy as well. "That makes him doubly attractive to lots of people," says Frederick Baron, a partner at law firm Cooley Godward Kronish. A technology adviser to Obama says the Illinois senator sees broadband as an engine for job creation and tackling urban poverty.

Then there's the sticky issue of Net neutrality, or the idea that telecommunications and cable companies shouldn't be able to discriminate among companies that deliver content via networks—say, by giving precedence to certain companies in exchange for higher tolls. Network operators such as AT&T (T), Verizon Communications (VZ), and Comcast (CMCSA) rail against federally mandated constraints on their ability to charge fees and navigate network traffic. Intel, Google, and ***** (YHOO) are among the tech companies that favor Net-neutrality legislation.

Here, the candidates split by party lines. Giuliani's campaign says in a statement that the federal government "must fight the urge to unnecessarily tax and overregulate the Internet" and that government intervention should be limited largely to protecting consumers and businesses against hackers and others who commit cybercrimes. McCain favors reshaping the FCC so that it takes a less regulatory approach and intervenes in markets only when there has been an infraction or unfair competition. Among Democrats, Obama supports Net neutrality and has positioned the issue as one of equal speech on the Internet. Clinton in January announced that she supports a reintroduced version of a Net-neutrality bill that has failed to make headway in Congress.

For more on the 2008 Presidential candidates and their positions on technology issues, visit BusinessWeek's slide show.

Ricadela is a writer for BusinessWeek.com in Silicon Valley .

Bernanke Says Economic Outlook Is Worse- AP
Federal Reserve Chairman Ben Bernanke told Congress Thursday that the country's economic outlook has deteriorated and signaled that the central bank is ready to keep on lowering a key interest rate -- as needed -- to shore things up.

Trade Deficit Falls After 5 Record Years- AP

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