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Global - Economy and Market

Fed's Bullard: U.S. economic outlook is brighter

VANCOUVER - St. Louis Federal Reserve Bank President James Bullard said on Friday the U.S. economic outlook is righter and household confidence has improved, suggesting he sees no need for further steps to ease financial conditions.

Initial unemployment claims in U.S. hold near 4-year low, U.S. car sales reach highest level since February 2008

First-time jobless claims in the U.S. edged down after fluctuating near a four-year low for several weeks. The Labor Department said initial claims declined 2,000 last week, to a seasonally adjusted 351,000. The four-week rolling average dropped 5,500, to 354,000, the fewest since March 2008. Last month, Americans bought the most vehicles since February 2008, despite rising gas prices. Automakers weren't offering additional incentives. Analysts attributed the growth to pent-up demand by consumers who were delaying purchase as well as optimism about the economic recovery.

U.S. factory growth cools, spending stagnant, U.S. house prices reached 9-year low in December, index shows

WASHINGTON - U.S. manufacturing cooled in February and consumer spending was flat for a third straight month in January, suggesting the economy lost more steam early this year than expected. The Standard & Poor's/Case-Shiller Home Price index sank in December to its lowest since 2002, suggesting the housing market remains a threat to the U.S. economic recovery. The index dropped 4% compared with December 2010

Eurozone ministers withhold some funds for Greece, to decide on firewall in March

Eurozone finance ministers released €58 billion to Greece as part of its rescue program to smooth the country's bond restructuring, but they withheld €71.5 billion. They plan to hold a conference call on March 9 and make a decision on March 12. Athens faces a March 20 deadline to make a €14.5 billion bond payment. the European Central Bank said its extraordinary support measures would not be repeated, putting the onus squarely back on governments to act.

Troika reviews Portugal's economic reforms

The European Commission, the International Monetary Fund and the European Central Bank were expected to review Portugal's progress on fiscal reforms, paving the way for it to receive the next tranche of its rescue. Portugal continues to face significant challenges, and many economists expect that more emergency funding will be needed. European officials are striving to downplay Portugal's economic woes and differentiate its situation from that of Greece.

Risk of severe global downturn is fading, IMF says

The chances of Europe's financial problems triggering a sharp, worldwide downturn have fallen since the eurozone took several actions to deal with the sovereign-debt crisis, the International Monetary Fund said in a report. "The key risk remains that policies do not shift Europe toward a 'good equilibrium' and fail to break adverse feedback loops between real, fiscal, and financial sectors," the IMF said. The multinational development bank confirmed that the eurozone will soon enter a "mild recession."
Analysis: Stores fail to compete with online merchants

Conventional retailers are suffering because they aren't moving swiftly to compete with Internet merchants, according to The Economist. "To build a profitable online business retailers must integrate it seamlessly with their bricks-and-mortar operations," the magazine notes. "Many keep them separate, increasing the risk that they fail to communicate or work together properly." The Economist

Emerging nations want World Bank, IMF top jobs more contestable

Leaders of emerging economies called for an end to the longstanding practice of naming a U.S. citizen to head the World Bank and a European to helm the International Monetary Fund. The positions should be filled based on merit, rather than nationality, they said. Reuters

 

 

 
NMDC Price 179 Target 230

NMDC is India's largest iron-ore producer with ~30mn tonnes of annual extraction capacity and rich iron-ore reserves & resources of ~1.36 bn tonnes. It has 3 fully operating mines located in Chhattisgarh and Karnataka, having a total proved reserve of around 800mn tonnes. Debt free mining company sitting on huge cash Rupees 207.25 Billion will provide leverage to explore and develop new mines both India and globally.

Investment Arguments


~NMDC - One of the Best Players in Mining

~Quality resources in kitty

~High margin backed by low cost of production

~Diversifying Product Portfolio

~Huge Cash in Balance sheet will help company to grow inorganically

~Valuation

~Concerns


Company Description

NMDC Limited engages in the exploration and production of various minerals in India and internationally

It explores for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands. The company also focuses on coal and gold properties, as well as platinum group of elements and bauxite.

It has interests in Bailadila iron ore deposits in Chhattisgarh, as well as Donimalai iron ore mines in Karnataka; diamond mine in Panna, Madhya Pradesh; magnesite mine in Jammu; and Arki lime stone project in Himachal Pradesh.

In addition, the company involves in developing a steel plant at Jagdalpur, as well as pellet plants in Donimalai and Bacheli; and invests in the development of renewable energy resources, which include a wind mill project of approximately 10.5MW capacity in Karnataka.

It was formerly known as National Mineral Development Corp.Ltd., and changed its name to NMDC Limited in January, 2008.

Valuations

With strong domestic demand, we expect NMDC's volumes to grow at 6-8% CAGR during F11-F14e. On EV/EBITDA, it trades at 5x F13e and 4.8x F14e and EV/Sales, it trades at 3.8x FY13e and 3.6x FY14e. We feel at the current valuation, the stock is undervalued with its peers and the company should command a premium, given its cost, high ROE, debt free, market leadership in the domestic iron-ore space, huge cash balance and high margins. We assign the price target of Rs. 230 based on relative valuation in next 12-15 months.

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NMDC-AR.pdf

 
Eurozone member countries have approved just half of the €130bn bailout for Greece saying that Athens has yet to prove that it will meet all the terms and conditions required for the second bailout.

The remaining €71.5bn will be paid once officials from the European Union and IMF are happy that Greece is committed to implementing key measures aimed at putting the country back on a sound economic footing.

Athens has passed laws on fiscal consolidation, pension reform, financial sector regulation and structural reforms. It still has to issue some decrees and other ministry decisions that will translate the laws into action.

However, eurozone finance ministers did sign off on funds to underpin the debt swap aimed at cutting the value of the Greek bonds held by private investors.

The money can be paid out only after the completion of a bond swap between Athens and private investors which is to be concluded by March 9 and which aims to halve Greece's privately-held debt, cutting it by €100bn.

Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup, said Greece's official creditors would "finalise in the next few days" an assessment of Greece's steps to enshrine the bailout conditions into law.

"All required legislation by the parliament and the ministerial cabinet has been adopted and a few pending implementing acts should be completed shortly," Mr Juncker said in a statement.

The second financing programme for Greece, which follows a €110bn bailout agreed in May 2010, will total €130bn, plus €34.4bn of the undisbursed remainder of the first programme.

Heading into the finance ministers meeting, Ireland's Finance Minister Michael Noonan said the meeting would largely focus on Greece. "There will be a review of the prior agreement and there will be a review of how far they have implemented the requirements.

The ministers also agreed on a backstop facility for the recapitalisation of Greek banks. No figures were given but two euro officials said €23bn out of the €130bn was earmarked for that purpose. Another official said it could be as much as €40bn.

 

 
A desperate seller unwilling to compromise on the product's price; a product that is plagued by a major shortcoming; buyers who are aware of both the seller's desperation and the expensive price of the product. What do you get when you combine all these? Answer: a debacle called ONGC disinvestment.

The details are murky but one fact is clear: the auction process for ONGC could have bombed on the government and but for LIC coming to its rescue, the Centre may have been left red-faced with the mortification of seeing its Maharatna's shares having no takers. The insurance major coughed up as much as Rs.12,000 crore of the Rs.12,767 crore raised from the auction, or 94 per cent.

It can never be proved conclusively whether LIC was ordered to bridge the large shortfall in demand. Circumstantial evidence, however, offers some pointers. Until 3.20 p.m. on the day of the auction, only 1.43 crore shares were bid for on the BSE and NSE. It is difficult to believe that bids for the balance 40.6 crore shares were made in the remaining 10 minutes before the offer closed at 3.30 p.m.

Second, the details of the bids were declared close to midnight on Thursday, eight hours after the auction closed. Why did it take so long for the bids to be tabulated? The auction was screen-based and the exchanges have efficient computer systems that have handled several big ticket initial public offerings (IPOs) in the past. So the explanation of glitches is not convincing and the exchanges have also clarified there were no technical problems.

Third, it is also difficult to believe that institutional investors putting in large bids will wait until the last 10 minutes of the auction. One explanation being given is that they were waiting for the indicative price to be declared by the exchanges. This did not happen because there were just 1.43 crore shares bid and the exchanges could not arrive at the indicative price from them. The fact is that all bidders, not just institutional, could see the trends live on the websites of the exchanges and were aware that the indicative price might not be announced. The question of indicative price arises only if there is excessive demand which was not the case with the ONGC auction.

The evidence, therefore, points in the direction of possible intervention by the government to save the auction. That institutions such as LIC and others have in the past been treated as handmaidens of the government only bolsters the case. It might well be that LIC will make handsome gains from the investment at some point in the future. Yet, that should not be confused with whether it is right for the government to lean on such institutions to bail it out of a tricky situation of its own making. The test question is: Would LIC have invested such a large sum in a single stock on its own volition?

 
Looks like the disinvestment ministry has taken the Life Insurance Corporation's tagline ('Why go anywhere else?') a bit too seriously.

Minutes before the government's first-ever disinvestment through the auction route was about to end in a fiasco, India's government-owned life insurer had to throw its owners a lifeline. It was roped in to bail out ONGC's floundering issue on Thursday.

The disinvestment ministry's additional secretary, Siddhartha Pradhan, of course, completely denied that there was any pressure on LIC to invest in ONGC.

Having the government of India as owner is the biggest risk to the future of the LIC.

As if one cue, the insurance company on Friday said that it "had found value" in the stock and that is why it had made a small purchase worth Rs 3,880 crore.

Nice Coincidence.

This amount, by some strange coincidence, was almost equal to the shortfall that the issue faced at the close of trading hours. To top it all, LIC's buying announcement came late in the night and the delay was conveniently attributed to technical and punching errors.

It is understandable if a small retail broker makes such an error, but the orders were directed through some of the biggest brokers in the country by a fund (LIC) which buys and sells crore worth of shares every month. And if an order worth Rs 3,880 crore was to be punched, the senior-most executive is generally present. In a normal day, given the brokerage given by LIC to its brokers, this would have resulted in a brokerage income of Rs 3.8 crore in one transaction only.

The other quaint fact is LIC's discovery of value in the ONGC stock a few minutes before the auction closed. The fact is the insurer has been holding nearly 3 percent of ONGC shares and has been regularly trading in and out of the company. LIC needs to re-evaluate its discovery process as the stock did not bleep on its radar when the price was 20 percent lower a month back.

The insurance company has also 'discovered value' in a series of banks, which needed equity infusion from the government. Given the series of disinvestments planned over the next few weeks, it would not be surprising if LIC's discoveries take it the UTI way.

For a company that has made money on the pretext of covering risk, it needs to follow its own advice.

Having the government of India as owner is the biggest risk to the future of the LIC.

 
Warren Buffett released his annual letter (PDF file, Adobe Acrobat required) to Berkshire Hathaway (NYSE: BRK-B ) on Saturday. If you have the time, it's worth reading the whole thing. If not, here are 25 important quotes.

On value: "The logic is simple: If you are going to be a netbuyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day's supply."

On market moves: "Here a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham's The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life."

On foreclosures: "A largely unnoted fact: Large numbers of people who have 'lost' their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender."

On share buybacks: "The first law of capital allocation – whether the money is slated for acquisitions or share repurchases — is that what is smart at one price is dumb at another."

On predicting turnarounds: "Last year, I told you that 'a housing recovery will probably begin within a year or so.' I was dead wrong."

On housing: "I believe [low housing construction] is the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy."

On everything besides housing: "Though housing-related businesses remain in the emergency room, most other businesses have left the hospital with their health fully restored."

On recovery after the bubble: "[The] supply/demand equation is now reversed: Every day we are creating more households than housing units. I believe pundits will be surprised at how far unemployment drops once that happens. They will then reawake to what has been true since 1776: America's best days lie ahead."

More on buybacks: "Charlie and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company's intrinsic business value, conservatively calculated. We have witnessed many bouts of repurchasing that failed our second test."

On conditions for share buybacks: "First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and second, we also hope that the stock underperforms in the market for a long time as well. A corollary to this second point: 'Talking our book' about a stock we own — were that to be effective — would actually be harmful to Berkshire, not helpful as commentators customarily assume."

On risk management: "[I]f the insurance industry should experience a $250 billion loss from some megacatastrophe — a loss about triple anything it has ever faced — Berkshire as a whole would likely record a moderate profit for the year because of its many streams of earning."

On acquisitions: "We now have eight subsidiaries that would each be included in the Fortune 500 were they stand-alone companies. That leaves only 492 to go."

On Burlington Northern: "We must, without fail, maintain and improve our 23,000 miles of track along with 13,000 bridges, 80 tunnels, 6,900 locomotives and 78,600 freight cars. This job requires us to have ample financial resources under all economic scenarios and to have the human talent that can instantly and effectively deal with the vicissitudes of nature, such as the widespread flooding BNSF labored under last summer."

On Berkshire's subsidiaries: "Some of the businesses enjoy terrific economics, measured by earnings on unleveraged net tangible assets that run from 25% after-tax to more than 100%. Others produce good returns in the area of 12[%]-20%. A few, however, have very poor returns, a result of some serious mistakes I made in my job of capital allocation. These errors came about because I misjudged either the competitive strength of the business being purchased or the future economics of the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes my eyesight has been poor. Charlie's has been better; he voted no more than 'present' on several of my errant purchases."

On committing to bad investments: "Any management consultant or Wall Street advisor would look at our laggards and say 'dump them.' That won't happen. For 29 years, we have regularly laid out Berkshire's economic principles … [describing] our general reluctance to sell poor performers (which, in most cases, lag because of industry factors rather than managerial shortcomings). Our approach is far from Darwinian, and many of you may disapprove of it. I can understand your position. However, we have made — and continue to make — a commitment to the sellers of businesses we buy that we will retain those businesses through thick and thin. So far, the dollar cost of that commitment has not been substantial and may well be offset by the goodwill it builds among prospective sellers looking for the right permanent home for their treasured business and loyal associates. These owners know that what they get with us can't be delivered by others and that our commitments will be good for many decades to come."

On banking: "The banking industry is back on its feet, and Wells Fargo [ (NYSE: WFC ) ] is prospering. Its earnings are strong, its assets solid and its capital at record levels. At Bank of America [ (NYSE: BAC ) ], some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years. Concurrently, he is nurturing a huge and attractive underlying business that will endure long after today's problems are forgotten. Our warrants to buy 700 million Bank of America shares will likely be of great value before they expire."

On derivatives: "Though our existing contracts have very minor collateral requirements, the rules have changed for new positions. Consequently, we will not be initiating any majorderivatives positions. We shun contracts of any type that could require the instant posting ofcollateral. The possibility of some sudden and huge posting requirement — arising from an out-of-the-blue event such as a worldwide financial panic or massive terrorist attack — is inconsistent with our primary objectives of redundant liquidity and unquestioned financial strength.

On bond yields: "Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: 'Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.'"

On fixed-income: "Most of these currency-based investments are thought of as 'safe.' In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge. Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments ofinterest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control. Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as 'income.'"

On liquidity: "Under today's conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be."

On gold: "Gold … has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end. What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth – for a while."

On stocks: "Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola [ (NYSE: KO ) ] or some See's peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce."

On why Berkshire chooses businesses over gold or fixed-income: "Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety — but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by far the safest."

On opportunity: "[T]wo categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard 'cash is king' in late 2008, just when cash should have been deployed rather than held. Similarly, we heard 'cash is trash' in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort."

On smart investing: "Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date."

 
Small policyholders of the country's largest life insurer are carrying the can for the government's ambitious disinvestment programme. Almost all of Life Insurance Corporation (LIC) of India's investment calls in the government's disinvestment programme that restarted in 2009 have gone wrong, resulting in huge notional losses for policyholders in the underlying schemes.

 
MUKESH AMBANI is Asia's richest person with a net worth of $26.8 billion, even after his shares in India's top company by market value slid 18 percent over the past 12 months, according to the Bloomberg Billionaires Index.

Reliance Industries Ltd. Chairman Ambani




Mukesh D. Ambani, chairman of Reliance Industries Ltd

 

 
Bajaj Holdings takes 3% in MCX

Rahul Bajaj-promoted Bajaj Holdings and Investment Ltd has picked a 3.06 per cent stake in the listing-bound Multi Commodity Exchange (MCX).

In a notice to investors, MCX indicated Bajaj purchased 1.56 million MCX shares from Passport Capital LLC. The deal would lead to a change in the list of top 10 shareholders in the prospectus, the company added.

Passport Capital, which operates as a hedge fund, was the fourth largest shareholder in the company with 2.5 million shares or 4.9 per cent stake as on February 10, when the company filed a draft red herring prospectus.

After this deal, Bajaj Holdings will take a joint ninth slot in the top shareholders list, holding an identical number of shares as Nabard. Passport Capital, with less than one million shares, will drop out of that list.

According to sources, transfer agreement between Passport and Bajaj Holdings was struck at Rs 800 per share, a fews days before the MCX offering opened for subscription. The source added the Forward Markets Commission (FMC) is set to clear the share transfer.

Passport Capital had acquired these MCX shares in two tranches in the past, at Rs 860 and Rs 1,155 per share. Thereafter, MCX had issued bonus shares in the ratio of 1:4 to shareholders. After adjusting for the bonus issue, the cost of each share acquisition for Passport comes to Rs 900 plus, said sources.

HT Media, another shareholder with 0.2 per cent stake, also exited the company in the run up to the IPO, according to the above notice. MCX shareholders have raised Rs 663 crore in an offer for sale, pricing each share at Rs 1,032.

The issue is getting listed in early March.

In June 2011, Passport had sold 1.6 per cent stake for Rs 62 crore in Financial Technologies (India) Ltd, one of the promoters of MCX. Passport had been cutting its stake in MCX since 2009, when it held 10 per cent in the company.

Passport Capital had started building up stakes in Financial Technologies during January 2007, when its share was trading at around Rs 1,700. The hedge fund continued to build up stake in the firm as its stock price reached over Rs 3,000 per share and was trading between Rs 2,400 and Rs 2,700 during late 2007, thus, increasing its stake to 4.23 per cent by March 2008. The fund had later averaged out its investment by buying more shares after the financial meltdown in 2008, raising its stake to 10 per cent in March 2009.

San Francisco-based Passport Capital LLC, founded by John H Burbank III in 2000, manages approximately $4.7 billion in assets. It has invested in other Indian companies like VA Tech Wabag and Koutons Retail.

Other shareholders of MCX include Euronext, Merrill Lynch, IFCI, Intel Capital and New Vernon Private Equity, besides ad-for-equity investors HT Media and Bennett, Coleman & Co, among others.

 

 
A disorderly default in Greece would probably leave Italy and Spain needing outside help to stop risks spreading and cause more than €1 trillion damage to the eurozone, the Institute of International Finance (IIF) said.

"There are some very important and damaging ramifications that would result from a disorderly default on Greek government debt," the IIF said in a document obtained by Reuters.

"It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed €1 trillion."

The document, obtained from a market source, was dated February 18 and marked IIF Staff Note: Confidential.

The IIF wants bondholders to sign up by a Thursday (tomorrow) deadline for a bond swop deal aimed at saving Greece more than €100 billion and putting the country on a more stable footing.

If it fails to win support, the European Central Bank would likely suffer substantial losses, the document said, estimating the central bank's exposure to Greece of €177 billion was over 200% of its capital base.

Both Ireland and Portugal would need more outside help to insulate them from Greece, which could cost €380 billion over five years, the IIF estimated.

A disorderly Greek default would also probably require "substantial support to Spain and Italy to stem contagion there", which could cost another €350 billion, it said.

The IIF, which helped negotiate the bond swop deal on behalf of creditors, said there would be more massive bank recapitalisation costs, which could easily hit €160 billion. —Reuters

 
With electioneering in five states coming to an end, state-owned oil companies are pushing for raising petrol price by over Rs 5 per litre but the actual increase would depend on the government nod.

"We are losing Rs 5.10 per litre on petrol currently," a senior oil company official said. "With counting for Assembly elections in five states ending today, we would be approaching the government for appropriate directions on price revision."

Oil firms had last revised petrol prices on December 1 after which rates have not been changed because of Assembly elections in states like Uttar Pradesh.
Oil cos push for over Rs 5 per litre hike in petrol price

Indian Oil, Bharat Petroleum and Hindustan Petroleum together have lost over Rs 900 crore since the last revision which was done at international gasoline price (the benchmark for deciding domestic retail rates) of $ 109 per barrel. Gasoline rates have since risen to $ 130.71 a barrel.

"In all probability, petrol price will be increased but by how much is for the government to decide," the official said.

With Congress faring poorly in the Assembly polls, it remains to be seen if the UPA-government would give nod for an increase just ahead of the Budget session of Parliament which begins on March 12.

Oil firms also want an increase in diesel and cooking gas prices but that call would have to be taken by an Empowered Group of Ministers, where key allies like Trinamool Congress and DMK are represented. Mamata Banerjee-led TMC is opposed to any fuel price hike.

State-owned oil firms lose Rs 13.55 per litre on diesel. They also lose Rs 29.97 a litre on kerosene and Rs 439 per 14.2-kg domestic LPG cylinder.

Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum are losing about Rs 450 crore per day on sale of diesel, domestic LPG and kerosene.

Officials said the call on raising diesel prices would be taken by the EGoM as and when it meets while petrol rates would be revised by oil firms themselves.

Petrol price were freed from government control in June 2010 but rates have not moved in tandem with imported cost.

While petrol price were last revised on December 1 when they were cut by Rs 0.78 per litre to Rs 65.64 per litre in Delhi, diesel currently costs Rs 40.91 a litre.

 

 
The Greek government has won enough backing for a debt swap deal that will enable the country to avoid bankruptcy and stay in the euro.

Officials in Athens say 95% of bondholders have reportedly agreed to the plan to reduce the country's debt by more than 100bn euros (£85bn).

That is well above the minimum 75% threshold required.

A formal announcement will be posted on the Greek Finance Ministry website later.

Greece needs to secure an agreement on its debts before it can get a second bailout from the eurozone.

Athens had said it wanted 90% of banks and others to agree to a 53.5% cut in the 206bn euros (£172bn) of Greek bonds they hold.

German reinsurance group Munich Re, French banks Societe Generale and BNP Paribas, and some pension funds, are among those who have reportedly agreed to sign up.

Some small pension funds had apparently refused to back the swap, while others said they would wait to see what hedge funds decided.

The European Union (EU) and International Monetary Fund (IMF) have said without a debt swap Greece will not get its latest bailout of 130bn euros.

The head of the Institute of International Finance (IIF), the body which has been leading the debt talks for large private creditors, said on Thursday he was expecting a "very high" take-up.

Speaking from Rio de Janeiro, Charles Dallara, IIF managing director, said: "The investors must know that there is no other alternative to this process, there is no more money to save Greece.

"It's a positive deal that will allow Greece to move into the next phase of rebuilding its economy."

Had the deal had not been agreed, Greece would not have the money to meet a big bond repayment due on March 20.

The IIF says this would have cost the European economy up to a trillion euros.

The hope now is that by slashing its overall debts, Greece, which is in its fifth year of recession, can gradually return to growth.

Figures released on Thursday showed the number of people out of work in the country shot up to a record 21% in December.

Youth unemployment has also exceeded 50% for the first time, with 51.1% of Greeks aged between 15 and 24 now out of work.

The next bailout will be on top of the 109bn euros (£91m) loaned to Athens by the EU and IMF in 2010.

 

 
Eurozone members have delayed the approval of more than half of the €130bn loan for Greece, raising fears the troubled economy will officially default.

At a Brussels-based meeting yesterday eurozone finance ministers signed off funding for a €206bn restructuring of privately held Greek debt, but said they would need further reassurance from Athens before handing over the remaining €71bn in bail-out funds, the Financial Times has reported.

News of the delay has crushed hopes that the full bail-out would be completed next week and that a Greek default on a €14.5bn bond due on March 20 would be avoided.

According to reports, the decision to split the bail-out into two parts comes amid concerns from member states that Athens is not doing enough to implement austerity cuts and reforms.

Finance ministers raised several concerns over the way Greece is tackling austerity cuts, including a €300m gap that re-emerged when the Greek government changed the way unemployment benefits were paid.

As part of the signed off deal, €35.5bn will be allocated to private bondholders as part of the complex debt swap arrangement.

Another €23bn was approved to recapitalise Greek banks, which will see their reserves cut back when their Greek bonds are cut in value as part of the swap. In addition, another €35bn was approved to ensure Greek banks can access liquidity from the European Central Bank.

Yesterday a ruling by the International Swaps and Derivatives Association said the debt deal would not trigger so-called "credit default swaps" – insurance-like policies that must be paid out in the event of a default.

The ruling eased concerns that a CDS payout could reignite financial contagion because financial markets do not know which institutions would be hit by losses.

Eurozone members will meet again on March 9 to give a final sign-off on the deal.

Greece has already been downgraded to a selective default rating by S&P's.

 
The three reasons people buy insurance is:

a) To save tax.

b) As an investment, to make a good return on their money.

c) To feel good that one has some insurance or to get rid of that pesky uncle who keeps mentioning it.

The fourth — and perhaps most important — reason to buy insurance is to let your family be financially secure if you die. This is the only reason anything should be insured. Car insurance gives you money if your car has an accident, and covers costs for people you might injure. Home Fire insurance covers the damages in case there's a fire. You pay every year, and you're happy to not have to claim (because it means you've not had an accident or a fire!); and at the end, you don't get your money back.

Not so with Life insurance. The most policies bought are for the purpose of saving or investing, not for insurance. And that, further, is because Life Insurance is hardly ever bought, it's sold. The sellers get a fatter commission when they sell you a "saving" product, so you don't ever get to see the real insurance. "Pure Term" insurance is the only real deal: where your family gets paid if you die, and your premium is lost when you don't). Anything else, usually called ULIPs, Money-back, Endowment or Savings policies, involve a small amount of insurance and a higher degree of saving.

Even if it sounds like killing two birds with one cheque, you shouldn't mix investment and insurance — because you don't get enough of either. Take a 35 year old with a monthly salary of Rs. 50,000 and expenses of, say, Rs. 30,000. The minimum insurance expected would be about Rs. 1 crore; the idea is that you need your family to live another 40 years off the money, at a current return of around 8% risk-free and expenses rising at an inflation of 6%.

The cost of a "term" policy of Rs. 1 crore could be between Rs. 15,000 and Rs. 30,000 per year — or Rs. 1,500 to Rs. 2,500 per month, easily affordable. But agents find such policies unlikely to give them enough commissions, and they know that if they try, they can get the customer to pay Rs. 10,000 per month. A "ULIP" or an endowment plan with Rs. 10,000 per month as premium might give the buyer just Rs. 10-15 lakhs as insurance cover (typically 10x to 15x annual premium); a vastly inadequate sum compared to the 1 crore the person needs! But the seller persists and gets his way, largely because the customer has no idea how to work the metrics, and gets a feeling of happiness that there is some insurance and investment, when there really isn't.

In the longer term, I expect the tax-benefits of insurance to go away. There are two areas to this — first, insurance proceeds of any sort are tax free, even where the insurance cover is next to nothing and the product was primarily a product to save money. The second is a tax deduction on the amount invested every year, subject to an upper overall limit. Both are under threat in the longer term, as the government tries to find other means of raising revenue to meet increasing deficits. Additionally, it's untenable that long term savings of one nature — insurance or PF — are non-taxable, but buying long dated government bonds or (non-equity) mutual funds makes you pay tax on the gains. Lastly, if the government introduces a tax for inheritance (a proposal under discussion) then life insurance with a large one-time payment becomes an easy way to avoid such a tax; it is quite likely that the government will then plug the loophole by making "insurance as an investment" liable to tax.

In a decade, we are likely to see the tax-free exit status of many schemes vanish or dwindle, or at least force you to invest in low-yielding-annuities if you want to retain a tax advantage. Put another way: To assume that if I buy, I will not be charged a tax on exit even after 20 years is fraught with risk.

The last problem is that of complexity. Insurance products are incredibly complex, despite their heavy regulation. Financial products are typically of two types —high-risk, where the returns cannot be predicted in any reasonable manner, and low-risk, where the return is either guaranteed or specified (the risk is in whether the seller will go bust). Equity is a high-risk proposition, while fixed deposit and other debt options are the second. Insurance products provide a mix-and-match, with some products giving a vague guarantee with an additional potential upside (like 50% minimum guaranteed return or highest NAV in 10 years). Then they give you weird terms — you pay for five years, you can exit only after 10 years, the guarantee applies on the first seven years' NAV, and so on. And then, if you die, the insurance might pay out the guaranteed amount, the "sum assured", the amount that your investment has grown, or the lowest of all three. By the time you understand the terms and are able to calculate your real return, you might find it ridiculously low (if your brain hasn't turned to jelly). A case in point: the real return on that "50% in 10 years guaranteed" cases is just short of 5% per year, which is unacceptably low, even if you consider your taxes saved.

Most people give up before they reach the "real return" calculation — which is why insurers can easily stuff charges into such policies, knowing that if someone is silly enough to invest with a 5% real return, he won't even know that they can take a significant chunk of money as commissions. While we have seen charges that added up to 50% to 60% of the first few years of premium, even the lower 10% charges we see today are massive compared to the 1% to 3% that are charged by, say, mutual funds.

With the problem being that such products are sold — and sold hard — to customers, what we see in the Life insurance industry is more of industry and less of insurance. And as it increasingly sucks the blood out of unwary buyers, less of Life as well.

 
The government wanted to sell 12,000 cr. worth shares of ONGC (42.77 cr. shares at a floor price of Rs. 290) today, and the auction – a special scheme that SEBI allows for promoter entities to offload shares in a market parallel to the stock market – seems to have been rescued by the public insurer, LIC.

Only about 9 cr shares were sold until the end of the auction, which means just 4,000 crores were collected. The rest (nearly 4,000 cr.) was pushed through by LIC just before 5 mins of the end of auction.

ONGC shares ended at Rs. 287 for the day, lower than the floor price of Rs. 290. The auction by itself has been a flop – the LIC rescue is what the government does when things don't go its way; after all, who's to question the public insurer what it will do with its money?

Earlier, State Bank of India (SBI) said it will bid for shares, which doesn't make any sense – SBI has huge problems with capital, with a really low capital adequacy ratio; any money it has will have to be used to shore up its capital base. It really has no business buying equity – if it loses, say, 100 cr. when the price of ONGC falls, that further hurts its capital ratios!

This stake sale comes a few days after a huge number of bids flooded Citibank's stake sale for nearly 10% of HDFC. Perhaps the government thought they'd pull through, but there was one big difference: the price. Citi sold HDFC stake at the 660 levels when it had ended the previous day at 700+. ONGC's floor price was ABOVE market price – very strange for a large stake sale. (That said, HDFC's P/E is like 25 versus ONGC's 10)

But the main issue is: Oil under-recoveries by the likes of HPCL, BPCL and IOC are over 125,000 cr. for this year. Some of this is usually thulped on ONGC; we don't know how much, and it's decided at the whims and fancies of the government. Sure, ONGC is quoting at only 10x the profit of FY12, but if these profits can be eroded by a simple random statement that assigns ONGC the bulk of the refiners' losses, then the uncertainty in earnings makes the share a shaky buy.

The government of course does not want clarity because they need to stuff as much loss to ONGC as possible. They simply cannot subsidize the losses on their own balance sheet, where the fiscal deficit is already at 5.5% of GDP or more. So the profitable public sector oil entities (read; Oil India and ONGC) will have to take big hits through "upstream sharing". If they do reveal how much, no one will buy the ONGC shares. And I suppose because they didn't, not many were interested either. The LIC deal may have saved the day: we'll know soon when the mandatory disclosures come in (LIC already owns 5% of ONGC, they have to disclose further purchases). LIC supposedly rescued the NTPC IPO earlier!

Subsequent auctions are going to be tough. The government needs to relook pricing. It sold NHPC at Rs. 36 – a ridiculously overpriced share – and it sits at Rs. 21 today after more than a year. Too many public sector stake sales are at unreasonable prices, and LIC can't rescue them every single time.