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India responsible for US inflation: Fed

Washington, Feb 27: Partly attributing the rising inflation in the US to growing demand in India, China and other emerging economies, a key US Federal Reserve official on Wednesday said the central bank would focus on price stability and growth.

"To some extent, these increases (prices of food, energy and other commodities) have resulted from a strong demand in rapidly-growing emerging market economies like China and India," Vice-Chairman of Federal Reserve Donald L Kohn said while speaking at the University of North Carolina at Wilmington.

He further said," events beyond our border could continue to put upward pressure on inflation rates...Our job at the Federal Reserve is to put in place those policies that will promote both price stability and growth over time. We have the tools."

The remarks of the official assume significance as the central bank may take a decision on interest rates at its scheduled meeting next month.

Referring to a recovery in the financial markets, Kohn said it may be a prolonged process and recuperation period would depend on developments in the housing market.

"If the deterioration in the housing market were greater than expected in coming months, the losses borne by the financial institutions would be even greater, and lenders might further reduce credit availability," he warned.

Stating that these are the difficult times for the US economy, Kohn said," we will see a return to stronger growth, lower unemployment, lower inflation and improved flows in financial market, but it probably will take a little while."

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Fed chief signals another rate cut

Washington, Feb 27: Federal Reserve Chairman Ben Bernanke warned Congress that the nation is in for a period of sluggish business growth and sent a fresh signal Wednesday that interest rates will again be lowered to steady the teetering economy.

"The economic situation has become distinctly less favorable" since the summer, the Fed chief told the House Financial Services Committee.

Since Bernanke's last such comprehensive assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said that the confluence of these factors has turned people and businesses alike toward a more cautious attitude toward spending and investment. This, he said, has further weakened the economy.

Incoming barometers continue to "suggest sluggish economic activity in the near term," Bernanke told lawmakers. At the same time, he added, the Fed must keep a close eye on inflation given the recent run-up in energy and other prices paid by consumers and businesses.

For now though, the No. 1 battle is shoring up the economy.

Bernanke pledged anew to slice a key interest rate to help the wobbly economy, which many fear is on the verge of a recession — or possibly has already toppled into one.

The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said, hewing closely to assurances he offered earlier this month.

The central bank, which started lowering a key interest rate in September, has recently turned much more aggressive. Over the span of just eight days in January, it slashed rates by 1.25 percentage points — the biggest one-month reduction in a quarter century. Economists and Wall Street investors predict the Fed will cut rates again at its next meeting on March 18.

There are dangers that the economy will weaken even further. "The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further," Bernanke cautioned.

As Bernanke began his first day of back-to-back appearances on Capitol Hill to discuss the economy, there was more bad news on the housing and manufacturing fronts.

• Sales of new homes fell in January for a third straight month, pushing activity down to the slowest pace in nearly 13 years, the Commerce Department reported. The median price of a new home dropped to the lowest level in more than three years.

• And, orders to US factories for big-ticket manufactured goods dropped in January by the largest amount in five months.

On Wall Street, stocks fluctuated at first, then moved higher after the release of Bernanke's prepared comments.

The Fed chief was hopeful that previous rate reductions along with a $168 billion stimulus package of tax rebates for people and tax breaks for business will energize the economy in the second half of this year.

Bernanke has come under some criticism for not acting sooner in cutting rates to respond to the economy's problems. However, Rep. Spencer Bachus, R-Ala., offered the Fed chief some sympathy. "There is perhaps no other public figure in American who has been subjected to as much Monday morning quarterbacking as you have over the past six months," Bachus said.

Even as the Fed tries to shore up the economy, it must remain mindful of inflation pressures, Bernanke said.

Record high oil prices — topping $100 a barrel — are pushing consumer prices upward. That's shrinking paychecks, and with people feeling less well off because the values of their homes have dropped, consumer spending "slowed significantly" toward the end of the year, the Fed chief said.

The Fed forecasts that inflation will moderate this year compared with last year. But the Fed's recently revised inflation projection of an increase between 2.1 percent and 2.4 percent is higher than its old forecast from the fall.

Wall Street rallies

Wall Street advanced Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank will remain vigilant should inflation accelerate, but also said the Fed would remain open to interest rate cuts to help the economy.

Stocks fluctuated and then moved higher after the release of Bernanke's prepared comments for an appearance before lawmakers on Capitol Hill. His remarks come as the dollar plunged to a record low against the 15-nation euro, which sent oil and gold further into record high territory and raised the prospect of accelerating inflation.

Investors have been hoping for some kind of indication as to whether the Fed is more concerned about the sagging economy or the risk of inflation.

Harry Clark, president of Clark Capital Management in Philadelphia, said Bernanke's initial remarks indicate he is "finally getting it" and continuing to focus on boosting the economy. The Fed, widely expected to make a half-point cut in interest rates, will meet again on March 18.

"We all know inflation is back to a degree but they've all said that inflation won't keep the Fed from lowering rates further," Clark said.

FIIs invest in shares worth Rs 350 cr on bourses .................Mumbai, Feb 27: Foreign Institutional Investors were net investors in equities on Wednesday as the Bombay Stock Exchange benchmark index, Sensex, ended 20 points up.

FIIs made gross sale of equities worth Rs 3,027.55 crore and gross purchase of Rs 3,378 crore, resulting in a net investment of Rs 350.45 crore.

Domestic institutional investors also were net investors in shares worth Rs 341.35 crore, provisional data available on the BSE show.

Among other categories, non-resident Indian entities and proprietors sold shares worth Rs 0.89 crore and Rs 39.61 crore respectively.

Brokers also sold shares worth Rs 96.84 crore for their clients or retail investors.

According to the information available on the SEBI website, FIIs invested in shares worth Rs 85.40 crore.

The Sensex ended the day at 17,825.99, a rise of 19.80 points or 0.11 per cent.

Reliance Energy dips 4% on bourses

Mumbai, Feb 27: Shares of Reliance Energy on Wednesday declined by four per cent on the Bombay Stock Exchange, as if virtually rejecting the buy-back offer announced by the Anil Ambani Group company.

The board of directors yesterday had said that they would decide on the buyback next month on March five.

The scrip of the company opened firm at Rs 1,730 over its yesterday's closing price of Rs 1,697.25 but could not sustain the initial gains and witnessed an intra-day low of Rs 1616 on BSE. It was the day second biggest loser, ending trading session 3.88 per cent lower at the BSE.

On the National Stock Exchange also, the scrip witnessed similar movement and fell to an intra-day low of Rs 1623.20, after opening firm at Rs 1750, up 2.94 per cent over its previous close.

The shares of the company settled at Rs 1,634.50 on NSE and at Rs 1,631.35 on BSE.

Another ADAG Group firm Reliance Power closed down 0.23 per cent at Rs 446.90 on BSE.

ADAG's share repurchase announcement follows a series of investor-friendly decisions aimed at improving scrip prices of group companies.

The firm on February 24 announced bonus shares for non-promoter stakeholders in reliance power, which faced erosion of up to 20 per cent in market capitalisation on the day of listing of Reliance Power on February 11, after it mopped up a record Rs 11,560 crore through an IPO.

Anil Ambani, while announcing the bonus issue, said that he would contribute 2.6 crore equity shares of Reliance Power from his promoters quota to Reliance Energy. The move was aimed at offsetting any dilution in REL's shareholding in Reliance Power in the wake of the bonus issue. Shares of Reliance Energy had witnessed a rise of nearly five per cent, yesterday on BSE.

Big investments may exert "stress" on Tata Sons` finances

New Delhi, Feb 27: Large investment plans of the Tata Group, likely to be supported by Tata Sons, may exert "some stress" on the finances of the parent company, rating agency ICRA said.

"Large investment plans of some of the major Tata companies, which are likely to be supported by Tata Sons, could result in some stress in the financial profile of the company," the agency said.

Tata Group has announced its decision to acquire US-based soda-ash maker general chemical industrial products. It is also in an advanced stage of negotiations for buying British luxury car Marquees Jaguar and Land Rover.

However, it has assigned 'LAAA' rating indicating the highest credit quality to the Rs-500 crore debenture programme of Tata Sons.

The rating reflects the company's status as the principal investment arm of the Tata Group.

The ICRA assessment draws comfort from the management policy of "limiting its leveraging to prudent levels by effecting sales of some of its investments, should the need arise".

Meanwhile, ICRA also inked an agreement with State Bank of Travancore to assign ratings to the bank's loans and its other exposures under the standardised approach of RBI's new capital adequacy framework for meeting Basel-II global banking norms.

The risk weights would be linked to the various rating categories and would be as per RBI's Basel II guidelines, it said.

Economic Survey to be tabled today

New Delhi, Feb 28: Finance Minister P Chidambaram will, on Thursday table in Parliament, the Economic Survey, a report card on the economy during this fiscal that will also show the direction of government policy in the year ahead.

It will be followed by the presentation of the budget for 2008-09 on Friday.

The industry, which is upbeat after the presentation of a populist railway budget yesterday, expects the Finance Minister too to announce cut in income tax and excise duty on various commodities to sustain GDP growth, now under pressure due to a slowdown in the US economy.

The survey, mainly authored by the Chief Economic Advisor Arvind Virmani, is expected to indicate the government's priorities and thrust areas for the Budget 2008-09.

After posting a scorching 9.6 per cent growth in 2006-07, the Indian growth story was seen slowing down in 2007-08.

The survey is expected to indicate policy measures to dampen inflation, which is ruling above the four per cent mark, reverse slowdown in export growth, tackle the impact of rising rupee and address the issue of spurt in global crude oil and food prices.

It is also expected to present a rosy picture of the economy and outline the achievements of the United Progressive Alliance government, besides high growth in tax collections.

But a booming internal market for goods and services, thanks to a spurt in domestic savings and investment coupled with capital inflow, is likely to see growth at close to the 9 per cent mark this fiscal.

However, on the agriculture front, the survey may express concern about stagnation in food grain and oilseeds production and the need to raise public investment in farm sector to attain 4 per cent targeted growth in the sector.

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Dabur Pharma weighing PE partner, outright sale
28 Feb, 2008, 0052 hrs IST,Chaitali Chakravarty & Javed Sayed,...........
NEW DELHI: The Dabur Group is learnt to be evaluating a range of options for determining the future direction of Dabur Pharma, the anti-cancer drug company, including a sellout. The options being considered include inducting a private equity investor or a strategic investor, as well as a strategic alliance with a foreign company.

It is understood that Dabur Pharma has held discussions with a German pharma company for a partnership, where the possibility of an outright sale has also figured.

IDBI Bank may raise funds via rights issue, FPO
27 Feb, 2008, 0344 hrs IST,.............MUMBAI: IDBI Bank plans to raise funds through a combination of a rights issue and a follow-on public offer (FPO) next year. The state-owned bank has already submitted its capital restructuring plans to the government. The government owns a 52% stake in the bank which cannot be diluted.

“I am in talks with the government for raising capital next year, which will be partly through a rights issue and partly through FPO while maintaining the government’s 52% stake,” said IDBI Bank chairman and managing director Yogesh Agarwal.

According to him, the bank doesn’t have a pressing need for capital at the moment, as its capital adequacy ratio (CAR) is at 14%, well above the central bank’s stipulation. The bank will need additional funds next year to meet Basel II norms and carrying out its expansion plans.

Details about the FPO and rights issues are still being worked out between the bank and the government and cannot be disclosed unless the scheme is approved, Mr Agarwal said. IDBI Bank had brought out its initial public offer (IPO) in 1999.

Mr Agarwal was speaking at the launch of IDBI Bank’s tie-up with Motilal Oswal Securities (MOSL). Through this initiative, the bank plans to offer online trading facilities to all its customers. To start with, the facility will be open to customers of 120 branches. The customers need to open a three-in-one account, comprising of a savings account and demat account with IDBI Bank and a trading account with MOSL.

IDBI’s subsidiary, IDBI Capital Market Services, is already offering the customers of IDBI Bank a similar service. Explains Mr Agarwal, the entry of MOSL will promote a spirit of healthy competition among the two, which will result in a better situation for the bank and its clients. Further, the bank will gain from the fee-based income the service will generate.

The initiative is a part of bank’s efforts to take online trading services to tier-II and tier-III cities. Recently, public sector counterpart Canara Bank had launched its online trading portal while State Bank of India has been in a tie-up with MOSL to offer online trading for over a year now.

Mr Agarwal also informed the media that his bank was constantly on the lookout for an acquisition if it makes sense. He added that IDBI Bank would be opening a representative office in Shanghai and a branch each in Dubai and Singapore. “The branches will mainly focus on the offshore needs of our corporate clients,” said Mr Agarwal.

BGR Energy bags Rs 793 crore order from AP govt
27 Feb, 2008, 1214 hrs IST, .............MUMBAI: BGR Energy Systems has bagged a turnkey contract valued at Rs 793 crore from Andhra Pradesh Power Generation for the execution of balance work of Kothagudem Thermal Power Station of 1x500 MW. The contract scope of work includes design, engineering, procurement and construction of complete mechanical, electrical, instrumentation and plant civil works for project. This contract will be completed in 26 months.

The company is completing three balance plant contracts of 500 MW capacity coal based power projects. The current order book of the company stands at Rs 3,715 crores.

At 12 pm, BGR Energy shares were up 2.49 per cent at Rs 584.90 on BSE.