I am doing a research on the relationship between the financial access to a consumer and their consumer behavior ( spending pattern ) . I found a interesting comment mad my ceo of CITI India in this Article ......
New Delhi: Some good news for those seeking consumer loans, a group that was hit hard when the three major players in the business - Citifinancial, GE-Money and ICICI Bank - drew back from financing consumer goods this May.
Moreover, the consumer durables segment saw a rise in prices. It was a double whammy for consumers as the Reserve Bank of India raised key interest rates three times in two months, leading to a significant rise in the cost of borrowing.
banks say they are far from saying goodbye to the consumer loan sector. Says Sanjay Nayar the chief executive officer of Citigroup India, ”To each bank his own. As far as we are concerned, yes, we have experienced a high rate of defaults. But we are going to continue with the business. That I think India needs because the consumer debt to GDP is low. Over 80% of the people are excluded from formal lending. There is still $80 Million of informal borrowing that goes on.”
Banks and financial institutions decided to slow down consumer lending due to rising instances of defaults. Consumer loans also have a high cost of operations due to the short tenure, small ticket size and a tiny profit margin.
Banking experts say once the consumer finance business takes off it gives a high return on equity. Many say they may use this channel to market insurance policies, mutual funds and mortgages.
Bankers say the method of disbursal of consumer durable loans may undergo a change. The loans may be offered to those who hold a credit card. A bank branch, instead of a direct sales agent, may handle the disbursal operations. “Some would say we much rather offer consumer finance if you already have a banking product with us rather than your own product. So I think some of the filters of who you offer this product to and how do you offer this may change,” says managing director and chief executive officer of Deutsche Bank. Chadha says he believes consumer durable loans remains an attractive product in the long term.
Though bankers feel a small part of consumer loans may be taken care of by credit cards, they are two completely different segments. Since the profile of a consumer loan customer is very different from the one who is issued a credit card. Many bankers say there is need for a regulated credit bureau, greater automation of credit records and unique identification numbers that make it easy for banks to ascertain credit worthiness of consumers.
Friday, September 26, 2008
Wednesday, September 24, 2008
China Shuns Paulson's Free Market Push as Meltdown Burns U.S.
Wire: BLOOMBERG News (BN) Date: 2008-09-24 12:04:34
By Zhao Yidi and Kevin Hamlin
Sept. 24 (Bloomberg) -- Eighteen months ago, U.S. Treasury
Secretary Henry Paulson told an audience at the Shanghai Futures
Exchange that China risked trillions of dollars in lost economic
potential unless it freed up its capital markets.
``An open, competitive, and liberalized financial market can
effectively allocate scarce resources in a manner that promotes
stability and prosperity far better than governmental
intervention,'' Paulson said.
That advice rings hollow in China as Paulson plans a $700
billion rescue for U.S. financial institutions and the Securities
and Exchange Commission bans short sales of insurers, banks and
securities firms. Regulators in the fastest-growing major economy
say they may ditch plans to introduce derivatives, and some
company bosses are rethinking U.S. business models.
``The U.S. financial system was regarded as a model, and we
tried our best to copy whatever we could,'' said Yu Yongding, a
former adviser to China's central bank. ``Suddenly we find our
teacher is not that excellent, so the next time when we're
designing our financial system we will use our own mind more.''
The recent moves by Paulson, the former chief executive
officer of Goldman Sachs Group Inc., contradict what the U.S.
told Asian governments over the past decade. Thailand, South
Korea and Indonesia were urged to let unviable banks fail during
the 1997-98 Asian financial crisis.
`Turning Left'
``It's the end of an era,'' said Shanghai-based Andy Xie, a
independent analyst who was formerly Morgan Stanley's chief Asia
economist. ``In 1989, when the Berlin Wall fell, socialism was
discredited and the whole world turned right. Now financial
capital has been discredited and the whole world, including the
U.S., is turning left.''
China's economy has grown an average of 9.9 percent a year
since former leader Deng Xiaoping ditched hard-line Communist
policies and began moving toward a free market in 1978.
Since joining the World Trade Organization in 2001, China
has gradually opened its markets to foreign competition, allowing
international investment banks to form joint ventures with local
partners and permitting the biggest state banks to sell shares on
overseas stock exchanges. In the past three years, China dropped
a decade-old currency peg to the dollar, introduced foreign-
exchange swaps and forwards that allow investors to hedge or bet
on currency fluctuations, and expanded the bond market.
China has yet to allow margin trading -- where investors
borrow money to buy shares -- or futures contracts based on
equity indexes.
`It's Ironic'
Since China permitted securities backed by assets such as
mortgages in 2005, only 14 such instruments have been approved
for sale, according to the Web site run by China Government
Securities Depository Trust and Clearing Co., the country's
biggest debt clearing house.
China's financial institutions were slow to buy the
mortgage-related securities that triggered the U.S. meltdown,
incurring just $4.3 billion in losses and writedowns, according
to data compiled Bloomberg.
Globally, banks have written down more than $520 billion as
the credit crisis led to the demise or makeover of Wall Street's
five biggest investment banks. In response, the U.S. government
nationalized insurer American International Group Inc., as well
as mortgage giants Fannie Mae and Freddie Mac.
``It's ironic Paulson has become the manager of many large
financial institutions,'' said Wang Jun, a finance specialist at
the World Bank in Beijing. ``He will have to ask the Chinese
leaders about their experience of managing state-owned assets.''
`Double-Edged Sword'
Plans to introduce many financial products, including
derivatives, may be shelved as China focuses on improving risk-
management, said Fan Wenzhong, deputy head of research at the
China Banking Regulatory Commission, at an industry conference
Sept. 18 in Beijing.
``Financial innovation is a double-edged sword,'' Fan said.
``We can't just concentrate on product innovation and overlook
the need to build the financial system.''
Derivatives are contracts whose value is derived from
stocks, bonds, loans, currencies and commodities, or linked to
specific events such as changes in interest rates or the weather.
Eventually, China's leaders will have to take a cue from the
U.S. and western Europe by allowing more competition to provide
cheaper funding for companies and consumers, said Fraser Howie,
co-author of ``Privatizing China: The Stock Markets and Their
Role in Corporate Reform'' (Wiley 2003).
Rethinking Strategies
``China doesn't have any choice except to continue with the
U.S. model because there is no competing system,'' he said.
``More people die in cars than they did on horses, but are people
going to say we should stick with horses?''
Even so, company bosses are rethinking their strategies.
China Life Insurance (Group) Co., parent of the country's
biggest insurer, once planned to emulate New York-based AIG,
which offers annuities, holds real estate assets and leases
aircraft, in addition to selling insurance.
``We used to look at AIG as our model and think, `That's
where we want to go,''' said Zhang Fengming, vice president of
the firm's asset management arm. ``Now it's got restructured,''
so China Life will focus on its main business.
The China Insurance Regulatory Commission will create a
``new road'' for insurers, Li Kemu, the agency's vice chairman,
said at the Sept. 18 conference, without elaborating.
That road may be different from the one Paulson proposed 18
months ago, according to Arthur Kroeber at economic research
company Dragonomics Advisory Services Ltd. in Beijing.
``China's made it clear it won't listen to these snake-oil
salesmen who come from Wall Street, even if they're wearing suits
issued by the Treasury Department,'' he said. ``It's strengthened
the hands of all the people who are very skeptical about
financial liberalization in China.''
By Zhao Yidi and Kevin Hamlin
Sept. 24 (Bloomberg) -- Eighteen months ago, U.S. Treasury
Secretary Henry Paulson told an audience at the Shanghai Futures
Exchange that China risked trillions of dollars in lost economic
potential unless it freed up its capital markets.
``An open, competitive, and liberalized financial market can
effectively allocate scarce resources in a manner that promotes
stability and prosperity far better than governmental
intervention,'' Paulson said.
That advice rings hollow in China as Paulson plans a $700
billion rescue for U.S. financial institutions and the Securities
and Exchange Commission bans short sales of insurers, banks and
securities firms. Regulators in the fastest-growing major economy
say they may ditch plans to introduce derivatives, and some
company bosses are rethinking U.S. business models.
``The U.S. financial system was regarded as a model, and we
tried our best to copy whatever we could,'' said Yu Yongding, a
former adviser to China's central bank. ``Suddenly we find our
teacher is not that excellent, so the next time when we're
designing our financial system we will use our own mind more.''
The recent moves by Paulson, the former chief executive
officer of Goldman Sachs Group Inc., contradict what the U.S.
told Asian governments over the past decade. Thailand, South
Korea and Indonesia were urged to let unviable banks fail during
the 1997-98 Asian financial crisis.
`Turning Left'
``It's the end of an era,'' said Shanghai-based Andy Xie, a
independent analyst who was formerly Morgan Stanley's chief Asia
economist. ``In 1989, when the Berlin Wall fell, socialism was
discredited and the whole world turned right. Now financial
capital has been discredited and the whole world, including the
U.S., is turning left.''
China's economy has grown an average of 9.9 percent a year
since former leader Deng Xiaoping ditched hard-line Communist
policies and began moving toward a free market in 1978.
Since joining the World Trade Organization in 2001, China
has gradually opened its markets to foreign competition, allowing
international investment banks to form joint ventures with local
partners and permitting the biggest state banks to sell shares on
overseas stock exchanges. In the past three years, China dropped
a decade-old currency peg to the dollar, introduced foreign-
exchange swaps and forwards that allow investors to hedge or bet
on currency fluctuations, and expanded the bond market.
China has yet to allow margin trading -- where investors
borrow money to buy shares -- or futures contracts based on
equity indexes.
`It's Ironic'
Since China permitted securities backed by assets such as
mortgages in 2005, only 14 such instruments have been approved
for sale, according to the Web site run by China Government
Securities Depository Trust and Clearing Co., the country's
biggest debt clearing house.
China's financial institutions were slow to buy the
mortgage-related securities that triggered the U.S. meltdown,
incurring just $4.3 billion in losses and writedowns, according
to data compiled Bloomberg.
Globally, banks have written down more than $520 billion as
the credit crisis led to the demise or makeover of Wall Street's
five biggest investment banks. In response, the U.S. government
nationalized insurer American International Group Inc., as well
as mortgage giants Fannie Mae and Freddie Mac.
``It's ironic Paulson has become the manager of many large
financial institutions,'' said Wang Jun, a finance specialist at
the World Bank in Beijing. ``He will have to ask the Chinese
leaders about their experience of managing state-owned assets.''
`Double-Edged Sword'
Plans to introduce many financial products, including
derivatives, may be shelved as China focuses on improving risk-
management, said Fan Wenzhong, deputy head of research at the
China Banking Regulatory Commission, at an industry conference
Sept. 18 in Beijing.
``Financial innovation is a double-edged sword,'' Fan said.
``We can't just concentrate on product innovation and overlook
the need to build the financial system.''
Derivatives are contracts whose value is derived from
stocks, bonds, loans, currencies and commodities, or linked to
specific events such as changes in interest rates or the weather.
Eventually, China's leaders will have to take a cue from the
U.S. and western Europe by allowing more competition to provide
cheaper funding for companies and consumers, said Fraser Howie,
co-author of ``Privatizing China: The Stock Markets and Their
Role in Corporate Reform'' (Wiley 2003).
Rethinking Strategies
``China doesn't have any choice except to continue with the
U.S. model because there is no competing system,'' he said.
``More people die in cars than they did on horses, but are people
going to say we should stick with horses?''
Even so, company bosses are rethinking their strategies.
China Life Insurance (Group) Co., parent of the country's
biggest insurer, once planned to emulate New York-based AIG,
which offers annuities, holds real estate assets and leases
aircraft, in addition to selling insurance.
``We used to look at AIG as our model and think, `That's
where we want to go,''' said Zhang Fengming, vice president of
the firm's asset management arm. ``Now it's got restructured,''
so China Life will focus on its main business.
The China Insurance Regulatory Commission will create a
``new road'' for insurers, Li Kemu, the agency's vice chairman,
said at the Sept. 18 conference, without elaborating.
That road may be different from the one Paulson proposed 18
months ago, according to Arthur Kroeber at economic research
company Dragonomics Advisory Services Ltd. in Beijing.
``China's made it clear it won't listen to these snake-oil
salesmen who come from Wall Street, even if they're wearing suits
issued by the Treasury Department,'' he said. ``It's strengthened
the hands of all the people who are very skeptical about
financial liberalization in China.''
Wednesday, September 10, 2008
PTC stands by Nepal's giant power project
KATHMANDU: Leading public-private partnership agency PTC India Ltd has agreed to stand by Nepal's biggest but becalmed power project, re-inking a deal to buy electricity for power-starved north Indian states.
The West Seti Hydroelectric Project (WSHP) in remote far western Nepal, the biggest energy project in the Himalayan state with the capacity of generating 750 MW, has signed a new memorandum of understanding (MoU) with PTC, re-negotiating the tariff.
"In 2003, when the negotiations started, PTC had agreed to buy power at 4.95 cents per unit," Bill Bultitude, managing director of the project company, West Seti Hydro Ltd (SWH), told reporters.
"However, due to delays in getting the project off the ground, costs went up considerably. Now the estimated cost is $1.6 billion instead of the earlier $1.2 billion. A tariff for the sale of electricity to PTC has been re-negotiated at a significantly higher rate," Bultitude said.
As a confidentiality clause prevents SWH from disclosing the new figures immediately, Bultitude said they would be made public once the final agreement was signed.
Though negotiations on Nepal's biggest hydropower project started in the 1990s, West Seti remained becalmed due to political instability and local opposition.
Nepal's political parties and local groups opposed the project since it intended to sell the generated power entirely to India at a time Nepal was suffering from an acute funds crunch.
Consequently, SWH re-negotiated its agreement with the government of Nepal recently and will now offer 10 percent of the power free to Nepal. Of the generated 3,636 GWh of electricity per annum, 90 percent will be routed to India through a 230km transmission line that will go to Atamanda in India.
Besides New Delhi, northern states like Rajasthan, Haryana and Punjab will benefit from the project. Bultitude said work is expected to start at the end of monsoon and the first power generation from end-2013.
SWH is a multinational project with stakeholders from Nepal, Australia, China and India as well as the Asian Development Bank.
Australian company SMEC Developments Pvt Ltd, the main sponsor, will hold 26 per cent equity, China's state-owned China National Machinery and Equipment Import and Export Corporation 15 percent, ADB another 15 percent and India's Infrastructure Leasing and Financial Services an additional 15 percent. The remaining 30 per cent will be raised by Nepal as well as Nepali financial institutions.
Built under the BOOT (Build Own Operate Transfer) scheme, SWH will have a 30 year licence to own and operate the project after which it will be handed over to Nepal. Nepal can then choose to continue to sell energy to India or use it domestically.
The project requires the construction of a 195m high dam that is expected to provide winter irrigation benefits to both India and Nepal.
The West Seti Hydroelectric Project (WSHP) in remote far western Nepal, the biggest energy project in the Himalayan state with the capacity of generating 750 MW, has signed a new memorandum of understanding (MoU) with PTC, re-negotiating the tariff.
"In 2003, when the negotiations started, PTC had agreed to buy power at 4.95 cents per unit," Bill Bultitude, managing director of the project company, West Seti Hydro Ltd (SWH), told reporters.
"However, due to delays in getting the project off the ground, costs went up considerably. Now the estimated cost is $1.6 billion instead of the earlier $1.2 billion. A tariff for the sale of electricity to PTC has been re-negotiated at a significantly higher rate," Bultitude said.
As a confidentiality clause prevents SWH from disclosing the new figures immediately, Bultitude said they would be made public once the final agreement was signed.
Though negotiations on Nepal's biggest hydropower project started in the 1990s, West Seti remained becalmed due to political instability and local opposition.
Nepal's political parties and local groups opposed the project since it intended to sell the generated power entirely to India at a time Nepal was suffering from an acute funds crunch.
Consequently, SWH re-negotiated its agreement with the government of Nepal recently and will now offer 10 percent of the power free to Nepal. Of the generated 3,636 GWh of electricity per annum, 90 percent will be routed to India through a 230km transmission line that will go to Atamanda in India.
Besides New Delhi, northern states like Rajasthan, Haryana and Punjab will benefit from the project. Bultitude said work is expected to start at the end of monsoon and the first power generation from end-2013.
SWH is a multinational project with stakeholders from Nepal, Australia, China and India as well as the Asian Development Bank.
Australian company SMEC Developments Pvt Ltd, the main sponsor, will hold 26 per cent equity, China's state-owned China National Machinery and Equipment Import and Export Corporation 15 percent, ADB another 15 percent and India's Infrastructure Leasing and Financial Services an additional 15 percent. The remaining 30 per cent will be raised by Nepal as well as Nepali financial institutions.
Built under the BOOT (Build Own Operate Transfer) scheme, SWH will have a 30 year licence to own and operate the project after which it will be handed over to Nepal. Nepal can then choose to continue to sell energy to India or use it domestically.
The project requires the construction of a 195m high dam that is expected to provide winter irrigation benefits to both India and Nepal.
Tuesday, September 9, 2008
NEPSE UP AND DOWNS
Economist kancha : IF you readers are interested about the doll street ( nepal stock exchange ) then defiently check out arthexpress.com .I found an interesting fact in that website and wanted to share with you guys ..check it out
According to the central bank, year-on-year (y-o-y) market capitalisation increased by 96.6 per cent to Rs 366.3 billion by the end of fiscal year 2007-08. Market capitalisation to GDP ratio also increased to 44.6 per cent from 25.6 per cent a year ago. “Of the total market capitalisation, banks and financial institutions constituted the highest share of 89.3 per cent,” said the yearly record of Nepal Rastra Bank (NRB). Total paid up capital of listed companies stood at Rs 29.5 billion in mid-July 2008, with an increase of 35.5 per cent over a period of one year. This increase was due to the additional listing of securities. Of the increased amount, the portion of rights shares was 55 per cent, bonus shares 31 per cent and ordinary shares 14 per cent, it said. Monthly turnover to market capitalisation ratio stood at 0.72 per cent in mid-July 2008 compared to 0.77 per cent a year ago. The twelve-month rolling standard deviation stood at 104.5 during the period compared to 85.6 a year ago, reflecting an increased volatileness in the stock market. Securities Board of Nepal (Sebon) permitted Rs 11.6 billion worth new issuance. These consisted of ordinary shares of Rs 1012.7 million to eighteen companies, right shares of Rs 7605.2 million to 49 companies and debentures of Rs 2950 million to five companies including Nepal Electricity Authority. “Likewise, Nepse listed bonus shares of Rs 2109 million to 50 companies in the review year,” the yearly data stated. The government issued fresh treasury bills worth Rs 12.5 billion, development bonds of Rs 6.1 billion and Citizens’ Saving Certificates worth Rs 1.9 billion in the fiscal year 2007-08.
According to the central bank, year-on-year (y-o-y) market capitalisation increased by 96.6 per cent to Rs 366.3 billion by the end of fiscal year 2007-08. Market capitalisation to GDP ratio also increased to 44.6 per cent from 25.6 per cent a year ago. “Of the total market capitalisation, banks and financial institutions constituted the highest share of 89.3 per cent,” said the yearly record of Nepal Rastra Bank (NRB). Total paid up capital of listed companies stood at Rs 29.5 billion in mid-July 2008, with an increase of 35.5 per cent over a period of one year. This increase was due to the additional listing of securities. Of the increased amount, the portion of rights shares was 55 per cent, bonus shares 31 per cent and ordinary shares 14 per cent, it said. Monthly turnover to market capitalisation ratio stood at 0.72 per cent in mid-July 2008 compared to 0.77 per cent a year ago. The twelve-month rolling standard deviation stood at 104.5 during the period compared to 85.6 a year ago, reflecting an increased volatileness in the stock market. Securities Board of Nepal (Sebon) permitted Rs 11.6 billion worth new issuance. These consisted of ordinary shares of Rs 1012.7 million to eighteen companies, right shares of Rs 7605.2 million to 49 companies and debentures of Rs 2950 million to five companies including Nepal Electricity Authority. “Likewise, Nepse listed bonus shares of Rs 2109 million to 50 companies in the review year,” the yearly data stated. The government issued fresh treasury bills worth Rs 12.5 billion, development bonds of Rs 6.1 billion and Citizens’ Saving Certificates worth Rs 1.9 billion in the fiscal year 2007-08.
China, India Should Boost Trade, Investment Ties, Yang Says
China and India, the world's fastest-growing major economies, should boost trade and investment andimprove mutual trust, Chinese Foreign Minister Yang Jiechi said. ``We should fully tap the potential in business cooperation,upgrade trade quality, improve trade mix,'' Yang said in NewDelhi today. China is ready to ``take effective measures toremove trade and investment barriers,'' he said. India and China, which fought a border war in 1962, have improved political and military ties in recent years. The twonations, whose combined population accounts for two-fifth of theworld's total, aim to consolidate trade and economic cooperationby ending years of mistrust. Trade between the two countries rose 64 percent from a yearearlier to $33.5 billion in the first seven months, Yang said.Trade volume between the two nations was $38.6 billion last yearand both countries have agreed to raise the target for bilateral trade to $60 billion by 2010, the minister said. Yang said the two nations should work beyond bilateralcooperation and contribute to global peace. ``There is no conflict of fundamental interests betweenChina and India,'' Yang said. ``We are partners not rivals.''
Border Disputes
Both sides, rivals for energy resources in Africa and elsewhere, have tried to ensure that their ties aren't marred bydisputes along parts of the more than 3,500-kilometer (2,175-mile)border they share. India says China has occupied 38,000 square kilometers ofterritory in Jammu & Kashmir while China lays claim to 90,000square kilometers of land in India's northeastern ArunachalPradesh state. ``This is an arduous and complex task,'' Yang said. ``Weshould adopt a strategic approach.'' China fully understood India's desire to make peaceful useof nuclear energy and had adopted ``a responsible and productiveapproach'' at the Nuclear Suppliers Group meeting in Vienna lastweek, Yang said. The 45-nation group on Sept.6 granted a waiver for sales ofatomic reactors and fuel to India outside the nuclear Non-Proliferation Treaty. ``Let us work together to move beyond doubts to build astronger relationship between us,'' Yang said.
Border Disputes
Both sides, rivals for energy resources in Africa and elsewhere, have tried to ensure that their ties aren't marred bydisputes along parts of the more than 3,500-kilometer (2,175-mile)border they share. India says China has occupied 38,000 square kilometers ofterritory in Jammu & Kashmir while China lays claim to 90,000square kilometers of land in India's northeastern ArunachalPradesh state. ``This is an arduous and complex task,'' Yang said. ``Weshould adopt a strategic approach.'' China fully understood India's desire to make peaceful useof nuclear energy and had adopted ``a responsible and productiveapproach'' at the Nuclear Suppliers Group meeting in Vienna lastweek, Yang said. The 45-nation group on Sept.6 granted a waiver for sales ofatomic reactors and fuel to India outside the nuclear Non-Proliferation Treaty. ``Let us work together to move beyond doubts to build astronger relationship between us,'' Yang said.
JPMorgan Recommends Options as Indian Rupee May Slide
Economist kancha : Indian RS has fallen the most since 1991 ,I would like the readers to discuss the reason behind it . I was watching kadlow and company this evening ,Mr kadlow was taking about global economy slowing down ,which is one of the reason why oil closed at 102.61 .What is the re ason behind RS to fall ? WHat can be done? Monetary policy is already tight to curb inflation .WIll lowering the money supply help or something else needed to be done .. trade deficit is growing ,which means to strenghth the rs ,dollar can not be sold
By Anil Varma Sept. 9 (Bloomberg) -- Investors should use currencyoptions to guard against losses as India's rupee heads for thesteepest slide since 1991, when a balance of payments crisisforced the nation to pawn its gold, JPMorgan Chase & Co. said. Investors should buy rupee put options granting the rightto sell the currency against the dollar, said Vikas Agarwal, astrategist at the third-biggest U.S. bank. The rupee will fallto a two-year low by Dec. 31 as funds pull money out of emergingmarkets, he said. ``The odds of further rupee losses are more as fund flowsstay weak,'' Mumbai-based Agarwal said in an interview. ``Addedlosses will stoke expectations of prolonged rupee weakness, andthe ensuing adjustment in the currency would be swift, sharp andpotentially disruptive.'' JPMorgan recommends buying options as ``insurance'' againstsuch a slump, forecasting the Indian currency will drop to 45per dollar, its lowest since November 2006, by the end of thisyear. It closed at 44.825 against the dollar in Mumbai. Such a decline would take the year's loss to 12.4 percent, the most since 1991's 29.7 percent, according to data compiled byBloomberg. The rupee is the third-worst performer among the 10 most-active Asian currencies this year with a 12.1 percent loss. Thecurrency advanced 12.2 percent in 2007, the biggest gain sinceat least 1974. Investors should buy a rupee put and with a so-calledstrike price of 47, which is 3.8 percent higher than the rupee-dollar contract due by the end of December in the currencyforward market. Forwards are agreements to buy and sell assetsat current prices for delivery at a specified time and date.
`Rupee Volatility'
``Although this option isn't cheap anymore due to increasedrupee volatility, it still protects against outsized losses inthe currency,'' Agarwal said. Implied volatility on one-month dollar-rupee options roseto a one-year high of 11.8 percent today, Bloomberg data show.Traders quote implied volatility, a gauge of expected swings inexchange rates, as part of option prices. Options are derivative contracts that give the holder theright to buy or sell an asset without the obligation to do so. Astrike is the price an option holder may buy or sell a currency.Forward rates adjust for interest-rate differentials betweencurrencies. The rupee is headed for a third quarterly loss as overseasinvestors pulled out almost $7.5 billion from local equitiesthis year. India's benchmark share index has lost 27 percentthis year, following 2007's 47 percent advance. ``Capital inflows have slowed to a trickle and a sustainednear-term rebound looks unlikely owing to a still tentativeglobal backdrop for risk-taking,'' Agarwal said.
Current Account
The rupee will also weaken as the South Asian nation'scurrent-account deficit widens, he said. The deficit, a measureof trade and investment flows, increased to $17.4 billion in thefinancial year ended March 31 from $9.8 billion in the previousyear, central bank data show. India's central bank may ``check the possibility of runawayrupee weakness'' by intervening in the local currency market tosell dollars, Agarwal said. Dollar sales by the Reserve Bank of India in June exceededpurchases for the first time in 20 months, a central bank reportshowed last month. The monetary authority sold $7 billion duringthe month and bought $1.77 billion, taking net sales to $5.23billion. The Reserve Bank's foreign-exchange reserves havedeclined by almost $21 billion from a record high of $316.2billion reached in May, indicating it sold dollars.
1991 Crisis
India faced a balance of payments crisis in 1991 when theIraq war sent oil prices higher, inflating the South Asiannation's import bill and depleting its reserves. That forced thecountry to pledge its gold reserves with the InternationalMonetary Fund to borrow foreign exchange to pay for imports. A falling rupee will stoke demand for options designed toprotect against currency losses, boosting the value of suchcontracts, Agarwal said. ``That would give an opportunity to unwind the option witha profit before it expires, by selling a similar contract at ahigher price,'' he said.
--Editors: Chris Young, Sandy Hendry
By Anil Varma Sept. 9 (Bloomberg) -- Investors should use currencyoptions to guard against losses as India's rupee heads for thesteepest slide since 1991, when a balance of payments crisisforced the nation to pawn its gold, JPMorgan Chase & Co. said. Investors should buy rupee put options granting the rightto sell the currency against the dollar, said Vikas Agarwal, astrategist at the third-biggest U.S. bank. The rupee will fallto a two-year low by Dec. 31 as funds pull money out of emergingmarkets, he said. ``The odds of further rupee losses are more as fund flowsstay weak,'' Mumbai-based Agarwal said in an interview. ``Addedlosses will stoke expectations of prolonged rupee weakness, andthe ensuing adjustment in the currency would be swift, sharp andpotentially disruptive.'' JPMorgan recommends buying options as ``insurance'' againstsuch a slump, forecasting the Indian currency will drop to 45per dollar, its lowest since November 2006, by the end of thisyear. It closed at 44.825 against the dollar in Mumbai. Such a decline would take the year's loss to 12.4 percent, the most since 1991's 29.7 percent, according to data compiled byBloomberg. The rupee is the third-worst performer among the 10 most-active Asian currencies this year with a 12.1 percent loss. Thecurrency advanced 12.2 percent in 2007, the biggest gain sinceat least 1974. Investors should buy a rupee put and with a so-calledstrike price of 47, which is 3.8 percent higher than the rupee-dollar contract due by the end of December in the currencyforward market. Forwards are agreements to buy and sell assetsat current prices for delivery at a specified time and date.
`Rupee Volatility'
``Although this option isn't cheap anymore due to increasedrupee volatility, it still protects against outsized losses inthe currency,'' Agarwal said. Implied volatility on one-month dollar-rupee options roseto a one-year high of 11.8 percent today, Bloomberg data show.Traders quote implied volatility, a gauge of expected swings inexchange rates, as part of option prices. Options are derivative contracts that give the holder theright to buy or sell an asset without the obligation to do so. Astrike is the price an option holder may buy or sell a currency.Forward rates adjust for interest-rate differentials betweencurrencies. The rupee is headed for a third quarterly loss as overseasinvestors pulled out almost $7.5 billion from local equitiesthis year. India's benchmark share index has lost 27 percentthis year, following 2007's 47 percent advance. ``Capital inflows have slowed to a trickle and a sustainednear-term rebound looks unlikely owing to a still tentativeglobal backdrop for risk-taking,'' Agarwal said.
Current Account
The rupee will also weaken as the South Asian nation'scurrent-account deficit widens, he said. The deficit, a measureof trade and investment flows, increased to $17.4 billion in thefinancial year ended March 31 from $9.8 billion in the previousyear, central bank data show. India's central bank may ``check the possibility of runawayrupee weakness'' by intervening in the local currency market tosell dollars, Agarwal said. Dollar sales by the Reserve Bank of India in June exceededpurchases for the first time in 20 months, a central bank reportshowed last month. The monetary authority sold $7 billion duringthe month and bought $1.77 billion, taking net sales to $5.23billion. The Reserve Bank's foreign-exchange reserves havedeclined by almost $21 billion from a record high of $316.2billion reached in May, indicating it sold dollars.
1991 Crisis
India faced a balance of payments crisis in 1991 when theIraq war sent oil prices higher, inflating the South Asiannation's import bill and depleting its reserves. That forced thecountry to pledge its gold reserves with the InternationalMonetary Fund to borrow foreign exchange to pay for imports. A falling rupee will stoke demand for options designed toprotect against currency losses, boosting the value of suchcontracts, Agarwal said. ``That would give an opportunity to unwind the option witha profit before it expires, by selling a similar contract at ahigher price,'' he said.
--Editors: Chris Young, Sandy Hendry
Friday, September 5, 2008
Reliance close to Terai highway deal in Nepal
sector, Indian blue chip company Reliance is now edging close to sealing a major construction deal in the Himalayan republic. Reliance Infrastructure edged out peers Gammon India and Punjab National Bank's joint venture Everest Bank to make it to the shortlist of companies chosen to build a 77 km fast-track highway that will link Kathmandu Valley with the Terai plains. Nepal's physical planning and works ministry said it had shortlisted Reliance and South Korea's Landmark Worldwide Company for a massive highway project that, according to initial estimates, will cost about Nepali Rs.50-67 bn ($780,000 - $1 mn). Expected to be completed by 2014, the highway will run from Khokana in central Lalitpur district to Nijgadh in Bara district in south Nepal. A feasibility study conducted with technical assistance from the Asian Development Bank (ADB) assesses that the highway will reduce travel time from south to central Nepal by almost two hours and slash fuel costs by over 32 mn litres annually. Tulsi Sitaula, director-general of the department of roads, told the media the two shortlisted companies have been asked to submit their proposals by January 2009. The work is expected to start from April next year. Sitaula said the final selection would be made on the basis of the lower bid as well as the toll charge imposed on passing vehicles and benefits to the government of Nepal, which were not specified immediately. If Reliance swings the deal, it would operate the highway for 30 years under the Build-Operate-Transfer (BOT) model under private financing in Nepal's Infrastructure Development and Operations Act. The feasibility study recommends either a two or four-way lane.
Subscribe to:
Posts (Atom)