INDIAN NEWSPAPER HIGHLIGHTS – JULY 5, 2010

Highlights of today’s newspapers:

BUSINESS STANDARD:

- Reeling under a financial crisis, state-owned Bharat Sanchar Nigam Ltd (BSNL) plans to outsource its third generation (3G) mobile services. The company is working on details for a franchisee agreement and would invite expressions of interest (EoIs) by the end of this month, Chairman and Managing Director Kuldeep Goyal told Business Standard.

- The Anil Dhirubhai Ambani Group’s (ADAG’s) gas transportation company, Reliance Natural Resources Ltd (RNRL), will merge with sister firm Reliance Power (R-Power) in a Rs 50,000-crore, all-stock deal. The board of directors of the two companies, in meetings held today, approved a swap ratio of 4:1, meaning RNRL shareholders are to get one R-Power share for every four they hold. The ratio is based on the valuation made by consultancy firm KPMG, a statement issued by the two companies said. The proposed merger is subject to approvals of the shareholders of R-Power and RNRL, the stock exchanges, the High Court here, and all other requisite permissions, sanctions and approvals, it said.

- The National Advisory Council (NAC), meant to be an advisory body to the Union government, has two members who had resigned from the body in its previous avatar under the first Manmohan Singh government, having used many harsh words against the latter. One is Aruna Roy, 64, the IAS officer-turned-grassroots organiser, who won a Magsaysay award for helping build an accountability movement in rural Rajasthan. The movement laid the groundwork for the national Right to Information (RTI) Act, among other things. The other is Jean Dreze, 51, the Belgian-born economist who has adopted the country and its problems and has been studying these from below, not above, for the past three decades. He’s one of the few economists to have done extensive studies on poverty and its manifestations while living in urban tenements and village huts.

THE ECONOMIC TIMES:

- Indian markets were witnessing a lacklustre session as one-day bandh by opposition political parties in protest to fuel price hike kept most of the investors out of action. Mixed cues from Asian markets also kept the bulls under check. We see Nifty spot to trade around 5225-5220 in opening trade. If Nifty spot is able to cross the 5260 level we could see some support buying to initiate in market.

- At the time of uncertainty, buying low-price stocks may not always pay off well. Instead, going for a company with higher P/E multiple is likely to offer much superior returns.

- Given India’s growth story and low returns on debt, equities have become part of mainstream investments, even for middle-class salaried individuals. But salaried individuals have to deal with two issues when it comes to dealing with stock markets. One is the access to trades since most salaried people are at work during office hours, and second is adherence to their employers’ code of conduct regarding investments.

THE HINDU BUSINESSLINE:

- Shareholders of Reliance Natural Resources Ltd will get one share of Reliance Power for every four shares held by them, the board of directors of both the companies decided on Sunday, while approving the merger of RNRL with RPower. A news release from ADAG called it a Rs 50,000-crore deal. The swap ratio is based on an independent evaluation by KPMG.

- Going by Friday’s share prices, the 4:1 swap ratio for the merger of RNRL with RPower works out to a notional loss of Rs 20 a share for RNRL shareholders. On Friday the RNRL stock had, after losing 1.93 per cent, closed at Rs 63.65 on the BSE. (Four shares of the company work out to Rs 253.) RPower, which was up 3.33 per cent, closed at Rs 175.15 on the BSE. The share price of RNRL is almost sure to fall on Monday, as market forces will bring it down till investors feel it has levelled with the swap ratio, said analysts. However, RNRL shareholders can draw solace from the fact that they can now be associated with a company that has a stronger business model, said Mr Vishwas Agarwal, Independent Technical Analyst.

THE financial EXPRESS:

- The government approved on June 25 the deregulation of auto fuels that were subsidised for most of the last five years. Kerosene price was also hiked for the first time since 2002 and so was LPG. Coming on the back of the higher-than-expected administered pricing mechanism (APM) gas price hike, it has been confirmed that the government is finally serious about oil & gas sector reforms. Diesel deregulation and further LPG, kerosene price hikes need to follow and may be done in the second half of 2010-11. In fact, we believe it is unlikely if it’s not done in 2010-11. Oil sector deregulation now looks possible. High oil prices and political compulsions are the risks that could again derail deregulation.

- As in FY09, UBI’s loan growth in FY10 was significantly higher than the banking system at 23.6%. The growth was back-ended with H2FY10 contributing more than 90% to the incremental credit during the year. SME, retail and agriculture credit segments were the main drivers of this robust growth. In FY11, UBI is targeting a 25% loan growth; a material 5% above the system. Improving credit demand, robust branch expansion and initiatives taken under the ‘Nav Nirman’ programme back the bank’s confidence to outgrow industry. The C/D (credit deposit) ratio is expected to remain firm in the year with deposits growth targeted at lower 22%.

THE MINT:

- The Commonwealth Games in New Delhi are just four months away, and residents of India’s capital city are bracing for more traffic nightmares as players and guests from at least 40 countries pour into town. The city already contends with crumbling public transportation and mind-numbing traffic jams. National and state governments have opened their wallets to meet the growing costs, arguing this will help realize the Capital’s long-term infrastructure needs. This is the triumph of hope over experience, especially when it comes to the wisdom of the government’s urban planners. Take Delhi’s Metro rail system, built over the past five years with the help of Japanese contractors. It is being completed mostly on time, and within budget. Yet demand always exceeds capacity, because of perpetual shortfall in coaches. Many admirers have resumed use of their own vehicles.

- For the longest time, important businesses have relied too heavily on the rule of the golden gutthe experience and judgement of the decision maker. Analytics at Work is about using data and analysis to make the right decisions. Leadership, according to the authors, is one of the five most critical components of effectively using analysis. So what are the qualities an analytical leader needs to develop? Find out for yourself. Edited excerpts from the book:

FINANCIAL CHRONICLE:

- Top hospitals reject cap on treatment costs With effect from July 1, the four public sector non-life insurance companies — New India, Oriental, United India and National – have capped the treatment cost of 45 common surgeries in case of retail policyholders. The caps do not apply to corporate covers.

- Shriram Equipment Leasing Finance, the wholly-owned subsidiary of Shriram Transport Finance Company, plans to generate business worth Rs 6,000 crore by the end of financial year ended March 31, 2013, on the back of the high pace of infrastructure development in the country.

- The advertisement warns of speculative financial bubbles. It mocks a group of gullible Frenchmen seduced into a silly, 18th-century investment scheme, noting that the modern shareholder, armed with superior information, can avoid the pitfalls of the past. ”How different the position of the investor today!” the ad says enthusiastically. It ran in The Saturday Evening Post, a U.S. magazine, on Sept. 14, 1929. A month later, the U.S. stock market crashed. ”Everyone wants to think they’re smarter than the poor souls in developing countries, and smarter than their predecessors,” said Carmen M. Reinhart, an economist at the University of Maryland.

THE INDIAN EXPRESS:

- In a mega Rs 50,000-crore deal, Anil Ambani group announced merger of RNRL with another group firm Reliance Power, which would now become a direct beneficiary of the gas deal signed with Mukesh Ambani- led Reliance Industries. As part of the all-stock deal, Reliance Power will give one of its shares for every four held in RNRL.

- Real estate prices may go up with a plea of Urban Development Ministry for withdrawal of 2.5 per cent service tax from the sector not being heeded to by the Finance Ministry. The Budget for 2010-11 proposed a service tax of 2.5 per cent on all under-construction projects in the real estate sector. The Urban Development Ministry, however, wanted to get the tax revoked on the plea that the sector was still to recover from the economic slowdown which it witnessed two years ago.

- The Central Government suffers an annual loss of Rs 1,800 crore on account of thousands of coal mafia, which involve themselves in illegal mining across different states, a senior official said. “Thousands of coal mafia (gangs) active in coal-producing belts, including that of Coal India Ltd (CIL), plunder about six million tonnes of coal annually. Going by current prices in the domestic market, this amounts to Rs 1,800 crore a year,” the official said.

THE HINDU:

- The Reserve Bank of India’s directive to Banks to switch over to a base rate system was implemented from July 1. Almost all Banks announced their base rates quickly. The very next day the RBI hiked the repo and the reverse repo rates by 0.25 percentage point each, a move that is intended to dampen inflation by making an immediate impact on the lending rates. Its efficacy would, however, depend on how well the monetary transmission mechanism works. That is where the significance of the new base rate mechanism is seen.

- The UPA Government is keen on reducing the fiscal deficit to 5.5 per cent in 2010-11 and further to 4.1 per cent in the subsequent year from 6.9 per cent in 2008-09 (actual). The Finance Ministry would seem to be in a hurry to secure additional funds through further withdrawal of benefits from the stimulus packages despite an improved ground situation. Apart from a surge in non-tax revenues this year, with the auctions of 3G spectrum and broadband wireless access spectrum facilities fetching around Rs. 106,000 crore against the budget estimate of Rs. 35,000 crore, net revenues from indirect taxes too are likely to exceed budget estimates. While the new indirect levies will raise Rs. 46, 000 crore the increase in receipts from excise and customs duties and service tax will be Rs. 70,523 crore.

THE TIMES OF INDIA:

- Reserve Bank of India deputy governor K C Chakrabarty on Sunday termed the increase of repo and reverse repo rates last week as a “baby step” to curb inflation, while keeping his card close to his chest on whether another hike is likely on July 27 when the apex bank meets to take a call on monetary policy.

- Banks, real estate and automobile shares could lead the stock market lower on Monday, after the Reserve Bank of India (RBI) raised interest rates sooner than expected to combat inflation. With the Reserve Bank of India expected to go in for another increase in policy rates during its upcoming review on July 27, the market undertone is cautious, as investors fear these rate hikes may hamper economic growth. Weak global markets last week may also contribute to the subdued mood in the market.

- During the week, the market continued to be driven by global cues moving in a tight range. The Nifty moved down marginally by 0.61% to close at 5237 while the Sensex fell 0.65% to close at 17461, respectively. Action was more stock specific with the small cap and mid-cap indices, outperforming the broader indices. The BSE Mid-cap index gained 0.51% to end at 7118 and the BSE small-cap index gained 1.28% to end at 9104. Among corporate news of interest, Reliance Power has plans to merge RNRL with itself.

HINDUSTAN TIMES:

- The rise in swine flu cases has given the nutraceutical sector segment a reason to cheer. Nutraceuticals include food products that provide health and medical benefits such as dietary supplements. Due to increased awareness among the public, nutraceutical manufacturing companies are seeing a jump in sales. The sales of nutraceutical products in the country have risen after the emergence of swine flu cases, due to public awareness that nutraceutical products will enhance immunity, said Akkshay Mehta, MD, Mission Vivacare, a manufacturer of nutraceutical products.

- The advertisement warns of speculative financial bubbles. It mocks a group of gullible Frenchmen seduced into a silly, 18th-century investment scheme, noting that the modern shareholder, armed with information, can avoid the pitfalls of the past. How different the position of the investor today! the ad enthuses. It ran in The Saturday Evening Post on September 14, 1929. A month later, the stock market crashed.