Vijaya, Union Bank say no to rate cut

TIMES NEWS NETWORK 

Kolkata: Nationalised banks are not making a beeline to reduce lending rates and are only planning small sops for the home loans and SME segments. Vijaya Bank executive director S C Kalia made it clear that it is not possible to cut the basic prime lending rate everytime there is a cut in the repo rate. “We have to reduce our cost of deposits too. Otherwise, there will be pressure on margins,” he said. Vijaya Bank cut BPLR by 0.75% in November. 
    UBI chairman & MD S C Gupta also said there is no immediate possibility to reduce the lending rate following the RBI’s announcement. Gupta even said there may not be any cut in home loan rates. The bank is planning a few sops for the small and medium scale industries. 
    UBI will establish a special cell dedicated to micro, small and medium enterprises which will focus on structuring and re-structuring existing arrangements.

Source: TOI, Page 15- Dated: 15-Dec-08

Team Obama mulls $1 trillion stimulus plan

New York: 

US Presidentelect Barack Obama’s team is considering an economicstimulus programme of up to $1 trillion to revive the economy, a media report says. Quoting people familiar with the process a financial newspaper said, “Obama’s economic team is considering an economic-stimulus program that will be far larger than the two-year, half-trillion-dollar plan under consideration two weeks ago.” 
    The daily further said, “Obama aides and advisers have set $600 billion over two years as “a very lowend estimate,” and the final number is expected to be significantly higher, possibly between $700 billion and $1 trillion over two years. However, transition spokeswoman Stephanie Cutter denied that any decisions have been made on the scope of the plan and the newspaper quoted her as saying “any speculation on size or scope is premature at this time.” 
    “Christina Romer, who will lead Obama’s Council of Economic Advisers, is trying to build political consensus around a larger number before it is presented to Congress in January,” the report said. As economic conditions worsen, Obama’s economists now say the package will have to be larger than expected. 
    “The economic team would brief Obama next week, largely about the size of the package. Discussions are still under way about content,” the report said. Obama is scheduled to take office on January 20. The report said Lawrence Lindsey, President Bush’s first National Economic Council director, has counseled $800 billion to $1 trillion in stimulus over two years. AGENCIES

Source: TOI, Page 15 - Dated: 15-Dec-08

To SPEND or NOT to SPEND?

Neelam Raaj | TNN 

    Spending has become a dirty word. The planned trip to London has become the trip to Lonavala. Parsimonious Warren Buffet is now the ideal, not flashy Donald Trump. Thrift, which had a negative connotation, has become a virtue. 
    But is fiscal prudence good for your country and, ultimately for you? Definitely not, if you belong to the John Maynard Keynes’ school of free market theory. In the 1930s, Keynes introduced the concept of the “paradox of thrift”. Put simply, the concept means that if everyone decides to save, consumer spending will fall, causing total demand to slump, along with total income, which will ultimately mean that people will have less to save. 
    This means everyone is worse off and a recession can become self-reinforcing. 
    Industry understands the paradox of thrift. The key to ending a slowdown lies in the hands of the consumer, says Sunil Alagh, former MD of Britannia Industries. Alagh, who runs a consultancy, says this is particularly true in India, where domestic consumption makes up 60% of GDP. “When the consumer starts spending, companies starts investing.” 
    But how best to persuade the reluctant consumer to spend? Keynes believed only the government could make the right, believable arguments. This is why governments in the US, the UK and China are intervening in the markets. Back home, the Manmohan Singh government has already rolled out one stimulus package and another is on its way. 
    But not everyone believes the stimulus-bailout route can rescue the free market. Many economists are skeptical because budget deficits balloon from enhanced government spending programmes. 
    But it is true that governments are walking a fine line. Do too little to boost growth and the recession deepens. Do too much and the cycle of easy borrowing and spending that contributed to the credit crisis could start all over again. 
    It is easy to understand the comman man’s reluctance to spend. He can hardly be criticized for being too careful considering he reads bad economic news stories every day and finds his portfolio worth thousands of rupees less than six months ago. 
    The annual MasterCard Worldwide Index of Consumer Purchasing Priorities recently revealed that 92% of Indian consumers say that saving is important or very important to them. 
    But Mahesh Vyas, CEO of the Centre for Monitoring Indian Economy (CMIE), says it is important to look beyond the gloom. “There have been no large-scale lay-offs in India and, hence, no loss of income. This is a knee-jerk reaction to the anxiety that has gripped the world.”

Source: TOI, Page 11 - Dated 15-Dec-08

No quick end seen to spiralling US job cuts

More workers may face the axe as cos make cuts before closing year-end books

Reuters BOSTON 

THE USexperienced its sharpest monthly drop in employment in more than three decades during November, and there is no end in sight to the bloodletting as companies search for ways to cut costs. American employers shed far more workers than expected last month — cuts made even before this week’s confirmation that the country has been in a recession for a year. 
    “This clearly demonstrates that the decline is accelerating,” said Tig Gilliam, chief executive of North American operations for Adecco SA, the world’s biggest staffing firm. “It looked midyear like maybe things would get a little bit better, and now the numbers are just dropping dramatically.” The Labor Department said US nonfarm payrolls plunged by 533,000 in November, a steeper fall than the 340,000 decline that economists surveyed by Reuters had expected. It marked the biggest tumble since December 1974 and means the economy has lost some 1.9 million jobs this year. 
    The cutting continued on Friday, with US companies, including General Motors Corp, asset manager Legg Mason Inc, auto parts supplier Gentex Corp, BMC Software Inc and Sonoco Products Co announcing new layoffs. 
    Earlier this week, such blue-chip companies as AT&T Inc, DuPont Co, United Technologies Corp and General Electric Co said they planned to shed workers as they look for ways to cut costs. The range of companies cutting jobs shows the economic contagion that started with the collapse of the US subprime mortgage market, went on to knock the legs out from under the nation’s home prices and sparked a global credit crunch that is hammering the whole economy.
Bleak December: As Americans prepare for the December holidays, typically a season of spending as shoppers buy presents and entertain, more workers may face the prospect of holiday unemployment as corporations make cuts before closing their year-end books. 
    “It’s hard to gauge where the bottom is,” said Sheldon Schur, vice president at Manpower Inc, the world’s No. 2 staffing company. “It will be interesting to see what happens in the first quarter, because December will be another large job-loss month. We’re going to see a lot of employers continue to shed to position themselves for 2009. And the bigger question will be what happens in January and February.” 
    US retailers, bracing for a soft holiday selling season, added fewer seasonal workers in November than in the past two decades. 
    Woolworths cuts 450 jobs 
STRICKEN British retailer Woolworths is cutting 450 jobs from support operations, administrators Deloitte said on Friday, as they remained locked in talks aimed at finding a buyer for the sweets-to-DVDs chain. Separately, US computer games retailer GameStop denied a report by computer games publication MCV that it had made a bid for around half of Woolworths’ 815 stores. Last week, Woolworths’ retail and distribution businesses sank into administration, a form of creditor protection, the biggest British casualty so far of a sharp slowdown in consumer spending. 
Worthington to give pink slips 
METALSprocessor Worthington Industries Inc said it would cut about 300 jobs in its steel processing and metal framing business, citing steep declines in pricing and demand. The company said the job cuts represent about 4% of its total workforce. The metal framing segment will shut down one facility by the end of February and suspend operations at two others, the company added. Worthington expects to record about $5 million in restructuring charges and sees annual savings of about $17 million from these actions. The metal framing segment “continues to be heavily impacted by the steep drop off in construction that has resulted from the global financial crisis,” Worthington said. 

Source: ET, Page 5, 7-Dec-08

Slowdown forces M&M to shut down plants

PTI MUMBAI

REELING under pressure from a slowdown in the country's auto market, homegrown major Mahindra & Mahindra today said it will shut down its five manufacturing plants, which produces cars, utility and commercial vehicles, for 3-6 days this month. “The manufacturing plants of the automotive sector (Nasik, Kandivli, Igatpuri, Zaheerabad and Haridwar) will work partially during the month,” M&M said in a communique to the Bombay Stock Exchange.
Most of these plants would be shut down for around three to six days depending on the market demand of the products manufactured in the respective plants, it added. “Taking into account the slowdown in demand for the company's products, it has been decided to align the company's production plan with the expected demand for the month of December, 2008,” M&M said.
The company's announcement comes days after its President (Automotive Sector) Pawan Goenka stating that production would always be as per sales and it would not over-produce unnecessarily to build up inventories at its facilities as well as with the dealers.
Goenka had said along with domestic market, exports were facing slowdown in each country where M&M was present. M&M said the ongoing economic slowdown in the automotive industry was mainly on account of inadequate funding and high interest cost.

Source: ET, Page 3, Dated: 7-Dec-08

US treasuries seen at risk of bubble trouble

Reuters NEW YORK 

US GOVERNMENT debt, long considered the safest investment in the world, looks like it too has been hit by “bubble” fever. Prices of US Treasury bonds appear dangerously overstretched after a soaring rally, another sign of how financial markets have been turned on their head. “Treasuries are the riskiest securities on the planet,” said Tom Sowanick, chief investment officer for $22 billion in assets at Clearbrook Financial LLC in Princeton, New Jersey. 
    While few fear that the US government will fail to honor its debts, many see a risk that bond prices may plunge just as spectacularly as house, commodity and stock prices have in recent months. “It looks like the Treasury market is in bubble territory,” said William Larkin, fixed-income portfolio manager with Cabot Money Management, in Salem, Massachusetts. The rally in the nearly $5 trillion US government bond market picked up speed this week when the Federal Reserve hinted it may buy longer maturity government bonds. 
    Fears of a bubble in Treasuries underscore how far investors have fled from risk since ballooning house price valuations popped in 2007, causing huge losses in markets across the board and sparking a global economic crisis. Yields on long-maturing bonds are below 3 percent and only 1-2 basis points on three-month T-bills, the lowest in decades. After buying billions of dollars worth of government debt, US institutional investors and foreigners including Asian central banks could incur enormous capital losses. “Treasuries are pricing in depression and I just don't think we will dive into depression-like activity. I wouldn't buy them here,” said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas. That said, the relentless rise in Treasury prices may continue further amid little sign of an end to the panicked exodus from stocks which are down nearly 40 percent this year, and corporate bonds, hurt by fears of default. 
    Data on Friday showing November as the worst month for US job losses since 1974, which prompted some economists to predict the country's recession could be longer than previously thought. Some investors and economists also fear deflation, an environment of falling prices. That would push yields, or the return for investors on bonds, yet lower than their already five-decade troughs. 
    The stampede into Treasuries has left the benchmark 10-year Treasury note's yield, which moves inversely to its price, at 2.51 percent this week, the lowest since the 1950s. “I think it is safe to say that Treasuries have moved into a self-destructing yield environment,” Sowanick said. Treasuries got a hefty boost on Monday after Fed Chairman Ben Bernanke said the US central bank might buy long-dated Treasuries. Such a move would help lower mortgage rates and address one of the root causes of the global credit crisis. Despite the slump in yields and fears of a new bubble, investors are reluctant to move away from their favorite safe-haven. Many fund managers are staring at huge losses in riskier markets and would be unwilling to make big bets there. “You will have many hiding there, bidding up the market, because many investors can't stand to lose anymore money before closing the books this year,” Sowanick added. The latest gains bring the US government bond market closer to the brink of a potentially vicious sell-off. It is now highly vulnerable to a surge of between $1 trillion and $2 trillion of new government issuance to pay for massive bailouts of the financial sector, bond analysts warn. 
    If that issuance impacts the market just when investors start venturing back into corporate bonds, the fall in prices could be rapid. “Once confidence returns, which I expect over a six-month time horizon, safe-haven flows will go into some of these markets with more appealing returns such as corporate bonds,” said Ward Mc-Carthy, MD with Stone & McCarthy Research Associates, in Princeton, New Jersey.

Source: ET, Page 3, Dated: 7-Dec-08

Consultancies in makeover mode

Aman Dhall, Mansi Tiwari & Ishani Duttagupta NEW DELHI 

DESPERATEtimes, they say, call for desperate measures. And who would know that better than the Big 4 consultancy firms PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG. 
    The American economic downturn has opened up new windows of opportunity for business consultancies and the ripple effect is being felt in India too. With India Inc in a restructuring mode, the Big 4 as well as other consultancies across sectors are witnessing a rejuvenated demand for help in rationalising costs and enhancing employee productivity and efficiency in tough times. And to deal with the new reality, the consultancies are actually looking at changing their conventional business model and looking for new adaptive solutions. This involves measures such as a focus on sectors such as pharma and education, which are largely seen to be recession-proof, and a move away from the crisis-hit financial sector. 
    Business consultancies across the board have confirmed to SundayETthat they have re-aligned their strategy in line with the market expectations to tackle the current state of affairs. In fact, to meet the restructuring needs of their clients, KPMG India has even trained and re-positioned its mergers & acquisitions team to handle the new task. Pharma, healthcare, FMCG, food processing and education sectors are leading the charge. 
    Internally, the consultancies are beefing up teams which were earlier low-profile such as business risk services. Earlier risk management programmes were used only to keep companies out of trouble, but today they are broader and are being used to help improve business performance and to map risk at every level, namely, strategy operations, financial reporting and compliance. “Today our job, which is a part of the advisory activity of the organisation, has become very diverse and critical,”says Inge Boets, partner & global head business risk services, E&Y. Never out of fashion 
“FROM setting up an audit committee for a company to cost reduction, which could be a matter of life and death or helping to improve the efficiency of an organisation, we are everywhere,” says Inge Boets, partner and global head business risk services, Ernst & Young. 
    Business pundits, in fact, believe that consultancies can never go out of fashion — they will only fashion themselves according to the new ground realities. “The consulting model is all about finding solutions. As things have changed, we have re-aligned our solution areas in line with the market necessity. There’s a struggle but if you can put in that extra bit of effort, results are still forthcoming,” says KPMG India chief operating officer Richard Rekhy. The consultancy has seen a manifold increase in the number of companies approaching it for restructuring their businesses that includes cost-cutting and improving profitability. Agrees Arvind Singhal, chairman of consultancy firm Technopak: “It’s not that the companies don’t require consultancies but their priorities have definitely changed. It’s no longer growth but performance improvement that the companies are looking at consultancies to guide them through.” A case in point is the outsourcing business. Initially, when financial services firms were badly hit in the Wall Street meltdown, many were ready to ring the death knell of the outsourcing business altogether. But outsourcing has in fact become a strategic decision in the tough times rather than a tactical one. Moreover, there are new areas where outsourcing is becoming necessary to cut costs. 
    “For larger companies, outsourcing is not a tap that can be shut off at will, but an integral part of critical business processes. The more value-added the service provided by the outsourcing agency, the more difficult for the customer to reverse the outsourcing decision,” feels Kaushal Sampat, chief operating officer, Dun & Bradstreet India. According to Mr Sampat, no downturn is permanent — it’s just a tough part of the business cycle and is always followed by happier times! “That’s why we are constantly communicating the message to our associates that — this too shall pass,” he says. 
    Biz consultants don’t expect any significant reduction in the trend towards outsourcing. While a slowdown may free up some internal capacity, they, however, think that outsourcing will continue to offer significant cost arbitrage and access to the right skill sets (in terms of outsourced employees) to companies. “There can be a case of prices of outsourcing contracts getting re-negotiated to reflect the prevailing tough times. That can’t be ruled out,” says Sampat. 
    And the good news, according to most consultants, is that Indian companies need not entirely sacrifice their growth aspirations and plans at the altar of the current slowdown. 
    aman.dhall@timesgroup.com 

Source: ET, Page 1, Dated: 7-Dec-08