Forex reserves slump by USD 481 mn

Forex reserves slumped by USD 481 million to touch USD 254,759 million as on Jan. 09, 2009, mainly due to a decline in foreign currency and assets collections on a weekly basis.

As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on Jan. 16, 2009, foreign currency assets decreased by USD 458 million to stand at USD 245,417 million.

During the same period, the reserve position in the International Monetary Fund (IMF) decreased marginally by USD 23 million at USD 854 million. While, the gold reserves remained steady at USD 8,485 million.

Foreign currency assets expressed in USD include the effect of appreciation or depreciation on non-US currencies (such as Euro, Sterling and Yen) held in reserves. - MyIris

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Investors can bet on larger IT companies

IT companies continue to ride along a rough patch, given the global macro-economic challenges. Though this has adversely impacted their valuations on the bourses, not all is lost for the sector.

While concerns such as lower IT budgets for ’09 and turmoil in the banking, financial services and insurance (BFSI) space remain, positive factors like increased outsourcing and offshoring opportunities and growing pie of domestic business cannot be ruled out. IT stocks have more or less followed the trend in the broader market. The ET IT index has plummeted by nearly 52% in CY08 so far, mirroring the loss witnessed by the Sensex. On a narrower time scale of the past three months, the ET IT index has declined by 30%, which is steeper than the 26% fall seen in the Sensex.

Almost all IT companies, irrespective of their revenue size, have failed to earn returns in the past three months. While four out of the sample of 90 IT companies that declared results in the September ’08 quarter earned returns during the said period, only one —Cambridge Solutions — earned double-digit returns (28%). None of the Sensex companies could fetch gains for investors during the above period.


On the operational front, the situation is even more challenging for IT companies during the current quarter, given the wild fluctuations in the rupee vis-à-vis the dollar and problems in the BFSI space. While over two-thirds of IT exports are in dollar terms, more than one-third comes from BFSI clients. Most IT vendors have shown a decline in their revenue from this space during the September ’08 quarter.

To add to their woes, auto companies in the US are in trouble. Though this will affect the order flow of some Indian IT exporters, the impact will largely be muted, as most of these companies have less than 3% revenue exposure to the auto sector. Among the top five Indian IT companies, Satyam Computer Services is likely to see greater impact since over 5% of its business comes from auto clients. Manufacturing (of which automobiles is a part) and BFSI segments together account for 40-50 % of the revenue of the top five Indian IT companies.

This means a significant portion of their revenue is currently under pressure. In the mid-sized IT space, niche players, including KPIT Cummins Infosystems, which generates over 35% of its revenue by serving auto clients, will take a hit.

Geometric, which provides product lifecycle management (PLM) solutions to auto and other manufacturing companies, is also likely to be affected. Both these companies have witnessed delays in their clients’ decisions. Apart from delay in getting new business, IT companies are also likely to witness a squeeze in the billing rates on existing and renewed projects from auto clients.

On the currency front, the average rupee-dollar rate has moved up by over Rs 2 during the December ’08 quarter so far, compared to the previous quarter. On the other hand, the average rates of rupee-euro and rupee-British pound have gone down marginally. However, the net impact of this will be dominated by the rupee-dollar relationship as majority of IT revenue is earned in dollar terms. IT companies, which consider quarterly average currency rates, are likely to witness a positive impact of currency fluctuations on their topline. This can be in the range of 3-5 %, depending on the proportion of various currencies in their revenue.

However, the currency impact is likely to be marginally negative for those IT companies which consider end-ofthe-quarter forex conversion rates if the rupee appreciates further against the dollar and moves below Rs 47 — the rate prevailing at the end of the previous quarter. IT companies are not expected to throw up any positive surprises in the December ’08 quarter and in the short term. However, the game has shifted from growth to sustainability.

As a fall-out of the economic slowdown, outsourcing and offshoring are likely to gain momentum and top Indian IT companies are set to benefit from this trend. Bigger companies have so far shown consistency in revenue growth compared to their mid- and small-sized counterparts. So, larger companies will also be the first ones to take advantage of a turnaround in the global economy, given their scale and reach. Apart from betting on large IT companies, investors can consider companies which have India-specific strategies, since the domestic economy will be impacted by the global crisis only to a limited extent.
Source - Economic Times

My View Point -
IT may see an increase in revenew as the Rupee has depreciated against Dollar.
Bad news is that its orders have become less as its recession. Not much new orders.

I am neutral on IT Sector.

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Stock Idea - Suzlon Energy.

Scrip - Suzlon Energy Ltd.
BSE Scrip Code -
CMP: - 70.70 Rs.
Market Cap: - 10583.08 Cr.
52 Week H/L: - 460.00 - 42.00

History -
This company was started in the year 1995 by Mr. Tulsi Tanti who was primarily in the textile business and was introduced to wind energy through a wind power project that he had commissioned for his textile factory. The first subscribers to the Memorandum were the family members and friends of Tulsi Tanti.
Later in the year they collaborated with a German Company sudwind to acquire technology to produce wind energy in India.

Business -
Key business as the name states is manufacturing of Wind turbine.
Generating electricity also is main business.

Result -
Suzlon Energy Q2 net profit dips by 95 pc.
Suzlon Energy Ltd., the embattled wind turbine maker, swung to a net loss of 1.3 billion rupees ($26 million) in the second quarter, hurt by foreign exchange losses and provisions related to problems with some of its blades cracking in the U.S.
Net profit declined by 95.22 per cent to Rs 16.98 crore during the second quarter ended Sep 30, over the net profit of Rs 355.56 in the corresponding period a year ago.
Suzlon's income was sharply lower than a 3.75 billion rupee net profit reported in the same quarter of 2007. Foreign exchange losses, due to a weakening Indian rupee, amounted to 2.3 billion rupees compared with a small gain in the year-ago quarter. The company also set aside 477.7 million rupees to cover potential compensation it may have to pay customers in the U.S. because of a series of blade failures.

The road ahead -
With an order book concentrated in the US, Suzlon Energy is likely to benefit from the tax credit renewal in the fastest growing wind energy market in the world.Sound low-cost manufacturing bases in India and China and access to higher end technology through acquisitions have provided the right grounds for Suzlon’s take-off as a leading wind energy company. Globally too, the stage appears set for steady ramp up in renewable energy sources, what with several nations setting targets to generate a certain percentage of their energy needs from this source.
A long-term perspective on the stock is a pre-requisite as the benefits of synergies arising from the Hansen and REpower acquisitions would accrue only over time. Meanwhile, the company could also be burdened with short-term challenges such as high debt and muted profit margins as a result of acquisitions.

Other Financial -
EPS and PE both are very low compared to the all times high.
Forex loss was due to unstable rupee and dollar.

Key Positive -
Wind energy is always in demand as it is Non Exhaustible source of energy.
Having good order book value.
Available at a dirt cheap rate.

Key Negative -
Results were not good profit dips by 95 pc.

Chart credits to MyIris.com

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Dollar may touch Rs 50 in two months, feel experts

Indian currency may lose further ground and dollar is likely to touch Rs 50 in the next two months in the wake of global financial crisis, say exporters and economists.

With foreign institutional investors (FIIs) pulling out of the equity markets in the emerging economies, rupee touched a six-year low of 48.47 against dollar yesterday.

If the prevailing sentiment for withdrawal of portfolio funds continues and RBI does not intervene, the dollar can touch Rs 50 in the next 2-3 months, ICRIER Director Rajive Kumar said.

The FIIs have net sold USD 120 million from India in the last three months with the global equity markets receiving a thrashing after collapse of several banks in the US and Europe.

With erosion of over 20 per cent rupee value since April this year, exporters are laughing their way to bank on increased realisations, though some of them got trapped in the exotic derivative contracts of the previous year.
While they want stability in the foreign exchange market, exporters seem to nurse a desire of the rupee touching 50.

"If this trend continues, the domestic currency will touch 50 against dollar in the next two months," Federation of Indian Export Organisations Director General Ajay Sahai said.

On the back of windfall resulting from currency depreciation, India's exports surged by 35.1 per cent between April and August this fiscal.

However, import increase of 37.7 per cent has left a big trade gap of USD 49 billion in the five months of the current fiscal. The trade gap could exert further pressure on the overall current account situation of the country.

The demand for dollar is still high from the oil industry despite a sharp fall in the crude oil prices.
"The scenario is volatile. The rupee would be under pressure but it will remain within 50 mark," CRISIL Principal Economist D K Joshi said.

Notwithstanding the fact that India is sitting on a foreign exchange reserve of USD 292 billion, the FIIs are fleeing the equity markets impacting the overall sentiment.

"Though it is difficult to pinpoint the number, it can touch Rs 50 if the current depreciation trend continues," Punjab National Bank General Manager, Treasury Arun Kaul said.

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Forex reserves dips $153 mn on dollar sale.

Foreign exchange reserves dipped $153 million during the week ended September 26 as RBI sold dollars to meet demand from importers.
According to the latest figures released by RBI in its weekly statistical supplement (WSS), total foreign exchange reserves, including gold and SDR dipped $153 million during the week ended September 26 to touch $292 billion.

The reserves dipped largely because foreign currency assets, predominantly comprising dollars; euro; pound and yen, among others, fell during the week by $159 million. The level of gold and SDR — the currency with the IMF — in reserves remained unchanged during the week. While reserves with IMF rose $9 million during the week.

At current levels, foreign exchange reserves have dipped by almost $18 billion since end March. This also impacted cash conditions in the domestic market. Whenever the central bank sells dollars, there is a reserves dip. But at the same times, it sucks out rupee funds for infusing dollar funds into the system.

RBI has also adopted a tight monetary policy stance and has hiked the reserve requirements (CRR) for banks — the portion of deposits that banks need to mandatorily park with the central bank. Also, the government has not been spending its revenue and parked its unspent revenue with the central bank.

In the process, it ends up blocking rupee funds in the system. As of end September 26, surplus funds parked with the central bank amounted to Rs 20,548 crore, down Rs 7,653 crore over the previous week’s levels. With more advance tax proceeds flowing into the government kitty, the government surplus with RBI could be even higher this week.

In the other developments reported in WSS, the central government has refrained from resorting to ways and means advances (WMA) — a temporary overdraft to meet its revenue mismatches — for yet another week. The states, however, borrowed Rs 7 crore during the week.
Source: - ET

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Rupee hits all-time low on global crisis

The Indian rupee fell to a record low past 49.07 per dollar on Friday as the spreading global financial crisis hurt sentiment in Asian sto

ck markets, leading to concerns of a large outflow of foreign funds India.

At 9:08 a.m. (0338 GMT), the partially convertible rupee was at 49.10 per dollar according to Reuters data, compared with Wednesday's close of 47.99/48.01 per dollar. The currency market was shut on Thursday due to a local holiday.

The previous all-time low was 49.07 hit in May 2002.
Source: - ET

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