World Markets Simplified

High double digit lending rates, high single digit inflation, high crude and a non-existent pass through mechanism for Diesel, Kerosene and LPG price, excessive pressure on Wage Inflation and the factual reality that most of India is living beyond it's means lends us to believe GDP growth for FY12 may realistically be sub-7 per cent. The big sufferers will be Real Estate, Construction, Infrastructure and Power Gen names. Worse comes to worse even demand for Automobiles of all dimensions and consumer durables too should fall sizeably.

We expect interest rates to rise a further 75-100 bps after the steep rise they have already seen raising fears of a slow-down in the economy. We tried to look at the past impact of a rising interest rate on the economy and the markets. Unfortunately, the history is limited with only one meaningful rising rate environment from Nov-2004. We saw a meaningful slow-down in sales of autos, cement and sales but overall IIP did not slow much. While global liquidity continued to drive markets, we did see a correction after the 4th hike.

Since we had only one steep rising interest rate cycle that coincided with a global world flush with liquidity, these conclusions may not be represented of what happens in future cycles. Indeed, we feel that the impact of rising interest rates will be more pronounced this time as economic environment both globally and in India is not as robust. Some observations from the last interest rate hikes:

1. There was minimal impact on the IIP which did not fall materially.

2. Non-agriculture credit growth slowed after the 3rd hike but not very significantly.

3. Autos slowed after the first hike but started surprisingly CVs and passenger vehicles recovered post the 3rd hike while 2-wheelers continued to lag.

4. Cement and steel had a pronounced slow-down (steel slowed with a lag) suggesting that construction activity did slow.

We feel that the global liquidity scenario was different in this period and hence may not be representative of markets this time.

1. Markets continued their rally though we did see a 30% correction in markets post the 4th hike.

2. Autos under-performed only after the 3rd hike (which means after a lag from the sales slow-down). CV stocks (Tata Motors, Leyland) however started correcting after earlier in the rate increase cycle.

3. Banks stocks actually outperformed till the 3rd hike. Post that at some point NPL worries started to drag stock performance.

4. Capital goods continued to outperform – we think this cycle will be different.

"Our client willingly consented to a scientific and forensic examination tonight ... at the request of the government and in light of the hour we have agreed to postpone the arraignment until tomorrow morning," lawyer William Taylor told reporters outside Manhattan Criminal Court.

"He's tired but he's fine," Taylor said when asked about Strauss-Kahn.

The IMF on Sunday said it had postponed a scheduled meeting of its board meant

to discuss the arrest of IMF chief Dominique Strauss-Kahn for the alleged sexual assault of a hotel maid.

"The tentatively scheduled informal briefing of the Executive Board has been postponed pending further developments in New York," IMF spokesman William Murray said in a statement

He did not say when the meeting would be held.

( Source: Reuters )

The IMF boss's lawyer says Strauss-Khan will plead not guilty, but the arrest could not have come at a worse time for the euro zone debt crisis as we approach crunch time on the question of what to do about Greece’s debt woes.

He has played a major role in solving debt crisis in 1997. With the exception of Jean-Claude Trichet it could be argued that no French men, including Nicolas Sarkozy, has played a bigger role in the crisis which has seen IMF money handed out to Greece, Ireland and Portugal.

His enforced absence from talks over the future of Greece will be a blow to the IMF. But despite Strauss-Khan’s deputy, John Lipsky, announcing his resignation last week, the IMF is a big organization with plenty of people able to step in if Strauss-Khan is forced to resign or take leave as the investigation into the charges progresses.

Once they finish speculating over Strauss-Khan over espressos when they arrive in Brussels, European Finance Ministers and officials will find themselves with the same problem they faced before Strauss-Khan’s arrest: what to do about the Greece’s debts.

“The most likely option—the path of least resistance, in our view—is a continuation of EU/IMF support, likely through an extension of the initial aid package or through Greece's access to EFSF funding,” said Robert Barrie, the head of European economics at Credit Suisse in a research note.

“A second option would be for the Greek government to speed up its privatisation plan and to attempt to reduce its deficit faster. Options one and two are not mutually exclusive, clearly.”

Option three involves a voluntary extension of Greek debt maturity and would be far harder to reach agreement on in Barrie’s view.

“Germany and some other northern European nations apparently supported such an option at last Friday’s ‘secret’ meeting in Luxembourg, but the ECB and several euro area countries, including France, were strongly against this option—stressing the potential broader economic, social and political consequences of such a decision,” said Barrie

“According to most declarations over the past few days, this option has been put aside, at least for now. But we wouldn’t be surprised if some form of mild private sector involvement returns to the table.”

“A fourth option—a forced restructuring—appears out of the question for all but a few politicians in the euro area at the moment,” said Barrie

With the EU/IMF mission in Greece still to have finalized its conclusions, Barrie does not expect a decision on Greece until the European Council meets in late June.

( Source: CNBC )

That time frame is worth noting, because it’s about how long the tech boom lasted (114 months) and how long the housing boom lasted (113 months), Darda said in a Friday research note.

“Most observers think ‘it’s different this time’ for commodity prices,” Darda said. And while it may be, he cautions that, in the past, “’it’s different this time’ has proven to be a costly mantra.”

This past week, the boom appeared to have stalled, as commodity prices plunged

on fears of a slowing global economy and falling demand for gasoline, in turn triggered by hard-to-swallow prices at the gas pump. On Wednesday, U.S. light crude sank 5.5 percent, while silver futures tanked 7.7 percent.

Oil prices traded slightly lower on Friday, which some market observers credited to strength in the dollar , which gained Friday against a basket of currencies as the euro fell.

While the dollar and oil may be trading in tandem Friday, a falling dollar did not play a big role in the commodity price boom these past 115 months, Darda said, pointing out that the dollar fell only 40 percent from its peak in 2001, while commodities soared 240 percent.

Instead, the dominant force in commodity prices has been China, he said.

In a Thursday research note, Darda said commodity prices are sliding because of a hike in reserve requirements for Chinese banks, which has slowed money growth and increased risk spreads in China. Another factor? A contracting balance sheet for the European Central Bank, he says.

( Source: CNBC )

Boehner said he is ready to make a deal on raising the debt ceiling but he and fellow Republicans warned of dire consequences to the U.S. economy if the debt limit is not linked to spending cuts and deficit reduction.

"I'm ready to cut the deal today. You know, we don't have to wait until the 11th hour," Boehner said on CBS's "Face the Nation."

He questioned whether Obama was serious about deficit reduction. "He's talking about it. But I'm not seeing real action yet," Boehner said.

The Treasury Department is expected to hit its $14.3 trillion borrowing limit Monday

, making it unable to access bond markets again.

Republican leaders say they will not approve a further increase in borrowing authority without steps to keep debt under control.

The Treasury Department says it can stave off default until Aug. 2 by drawing on other sources of money to pay its bills.

The department's leeway to manage the debt ceiling issue for another few months has created a sense in Washington that any deal is far off.

In remarks recorded last week and broadcast by CBS News Sunday, Obama repeated his stance that Republicans should not link the debt ceiling decision to spending cuts as part of deficit-reducing measures.

"If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system," Obama said at a CBS News town-hall meeting.

"We could have a worse recession than we already had, a worse financial crisis than we already had."

Top Republicans emphasized that increasing the debt limit must go hand-in-hand with spending cuts.

"The whole reason we're running into the debt limit so soon is because of the spending spree that has occurred over the last two years," Republican House Budget Committee Chairman Paul Ryan said on CNN's "State of the Union."

The White House and congressional Republicans are locked in a debate over the deficit and the debt ceiling.

Vice President Joe Biden is leading talks between the White House and lawmakers on how to reduce the massive U.S. budget deficits and raise the credit limit.

He told reporters Thursday that progress was being made but it was too early to be optimistic about a deal.

"We need to impress the markets, impress foreign countries that we're going to get our act together, and astonish the American people that the adults are in charge in Washington and are actually going to deal with this issue," Senate Republican Leader Mitch McConnell said on CNN's "State of the Union."

A report from the think tank Third Way to be released Monday outlined the potential consequences should lawmakers and the White House fail to reach a deal on the debt ceiling.

It said a debt default could plunge the United States back into recession, with some 640,000 U.S. jobs vanishing, stocks falling and lending activity stalling.

Estimates are that it will take until August for the US to actually default on its debt obligations, the concern in the short term is how Wall Street sees the situation and how that will be reflected in the bond market and in mortgage interest rates.


Here are opinions from few market experts:

Michael Barr/Fmr. Asst. Treasury Secretary for Financial Institutions

"If the US continues to bump up against the debt limit but Treasury uses "extraordinary measures" to keep the US from exceeding the limit, then the damage is likely to be modest and short-term. I would expect rates to rise, temporarily, by up to low single-digit basis points.

It is a bit hard to forecast exactly what the effect will be. Prior experience suggests low single digit bps, but there are a number of factors in play today that were not present in previous debt ceiling crises: fragile economy, fragile housing finance sector, fragile home prices and sales, F/F in conservatorship, no securitization to speak of, higher debt to GDP ratio, turmoil in Europe (exacerbated by DSK's arrest), extremely high levels of US dollar reserves already in China, extremely low Treasury rates.

Long term, if we actually default, it is simply devastating, and permanent."

Peter Boockvar/Miller Tabak:

"I think the market has spoken and the almost 50 bps drop in the 10 year note yield since mid April is clear evidence that the debt ceiling debate has had zero impact on market psychology. Everyone assumes that a deal of some sort will occur and the market impact will be nothing. More impactful in the direction of lower yields has been concerns with growth and a flight to safety due to renewed concerns with Europe."

Glenn Kelman, CEO Redfin

"We see people being very sensitive to the cost of money; they're very concerned about the debt crisis, they're very concerned about all these rumors that the US could have a money supply problem, so we think that interest rates are the real X factor to watch."

Treasury Secretary Timothy Geithner made it clear what would happen should the U.S. ultimately default:

"Because Treasurys represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale."

( Source: Reuters )

Dominique Strauss Kahn is International Monetary Fund ( IMF ) head and managing director. He was arrested by New York Police today for an sexual assault on hotel maid.

Who is Strauss Kahn and how his journey to the IMF director position?

Strauss Kahn was a key person in France's economic recovery in late 1990s. He known as "DSK" served in a Socialist government as Finance Minister between 1997 and 1999. He made France qualify for the euro by cutting country's deficit and also, made some state firms privatized in France.

He was forced to resign from Socialist Prime Minister Lionel Jospin's government in 1999 after he was caught up in a corruption scandal. A court later cleared him.

Strauss-Kahn lost out on the Socialist nomination for the French presidential election in 2006 but was surprisingly proposed as a candidate to run the International Monetary Fund by the eventual winner, Nicolas Sarkozy, a political rival.

Since taking over the IMF, Strauss-Kahn has won praise for making sure the Fund was at the center of global efforts to cope with the financial meltdown of 2007-09 and introduced sweeping changes at the global institution to help countries in need. He has also overseen changes that have given emerging market countries greater voting power in the institution.

Strauss-Kahn is no stranger to controversy about his private and public life. He was investigated by the IMF in 2008 over possible abuse of power involving an affair with a senior IMF economist who subsequently left the fund. The probe cleared him of abuse of power and he apologized publicly for "a serious error of judgment."

Despite being based in Washington, he has continued to spend a lot of time in France, fanning speculation that he is considering re-entering politics as a Socialist candidate for the next presidential election in France in 2012.

( Source: Reuters)

From midnight today, there will be hike in petrol prices across the India according to the latest price hike announced by Oil Companies. It will be a biggest price hike in history

The steep hike in petrol price is likely to be followed by a Rs 4 per litre increase in diesel rates and Rs 20-25 per cylinder increase in domestic LPG price later this month.

The answer from oil companies will be a definite "Yes". But let's make a comparison according to inflation, salaries and global gas prices( Petrol Prices ). We have seen a move from government to deregulate fuel prices and keep them vary according to market demand and supply to help Oil companies loosing money and government don't have to spend money on them.

If we see gas prices in United States, as of today highest price is $4.254 per gallon in California state. Now let's calculate this number in indian rupees. 1 galleon equals 3.78 liters so, 1 liter of gas ( Petrol ) costing is 50.64 Rs per liter ( Conversion: 1 USD = 45 INR ). That means highest price paid in United States per liter of Petrol ( gas ) is 50.64 Rs. If we consider average gas price in Unites States, it will come down to 46 -47 Rs / Liter. Now, an average person in United States earns an average minimum 1500 $ / per month, that is 67,500 Rs in India. So an average person can spend at least $ 200 means 9000 Rs a month on Gas. See more story links below

Let's take a case of developing country like India, People are struggling with price hikes and inflation. Government continuously hiking interest rates since last year. If we see, Petrol prices in Delhi ( Capital of India ) is close to 63 Rs/ Liter , some states like Gujarat, it will be 67 Rs/Liter after this price hike. This figure is 26 % higher than in United States as per above comparison ( 50.64 Rs / Liter in US ). If we see, average salaries in the country, it is around 15000 Rs per month ( 333 USD/ per Month ). Now if you think that an average person can afford drive a vehicle or even a public transport, how can it will be possible? In reality, Indian public can't afford such a price hike. Check out other links here, you might like it

While in India, there is no change in petrol price from higher to lower side, even if when Oil prices was above $110 a barrel and come down to below $ 100 a barrel. If the fuel prices are deregulated as per government authorities, why Petrol prices are not changing up and down as per Oil prices in international markets?

Oil companies are still claiming that they are loosing money despite of such a higher petrol prices. If we see above figures and conclude that Consumers and citizens of India are already paying a 26 % higher prices than in United States although their average earnings are way below ( One fifth ) of the minimum earnings of US consumers and citizens. How India Inc will try to manage inflation and promote higher growth?

In India, labor is way cheaper than in United States, as we can see from salary figures. Oil companies aren't able to manage competitive prices despite cheap labor or they are claiming something different than they actually are.

After all, the story here is just for comparison and to raise questions regarding private oil companies' efficiency or may be government efficiency to deal with inflation.

Robert Blake, assistant secretary of state for South and Central Asia, said the United States was puzzled and "deeply disappointed" by the decision announced last month by India's Defense Ministry.

Boeing Co. and Lockheed Martin were both bidding for a slice of the $11 billion Indian deal to supply 126 fighter jets. They were among four companies passed over for what Blake described as a "once-in-a generation" acquisition. German consortium Eurofighter Typhoon and the French company Dassault Aviation have been shortlisted for the contract.

"We did see this as a strategic opportunity to really take our defense partnership to the next level and not only share advanced technology but to think in a concrete way about co-production and co-development," Blake told a seminar at the Center for Strategic and International Studies think tank in Washington.

"It appears to have been a straightforward decision made by the Indian government. We have seen no evidence of any corruption. I think our companies are prepared to move on now and pursue what opportunities are out there."

The United States has looked to expand its ties with India as part of a broader push to benefit from growing economic opportunities in Asia and to build security alliances to counteract the rise of China. President Barack Obama visited India in November and heralded the relationship between the U.S. and India, the world's two largest democracies, as a "defining partnership" of the 21st century. He threw U.S. support behind India's ambition to become a permanent member of the U.N. Security Council.

Blake said the U.S. and India have made "undeniable strides" in building their relationship in the past decade. Trade has jumped, and cooperation is growing in areas such as clean energy, science and education. The U.S. last year lifted export controls on the Defense Research and Development Organization which develops weapons and technology for India's military.

Blake said U.S. firms have won almost $4 billion in defense sales in the past four years, and would hope to benefit from the $35 billion in defense acquisitions that India is planning in the next five years.

But he said it remains hard for American exporters to gain access to Indian markets, especially in agricultural goods, and U.S. firms also face restrictions in retail, insurance and defense.

A strict Indian nuclear liability law has stymied U.S. companies' hopes of capitalizing on the Asian nation's ambitious expansion of nuclear power generation, despite 2008 a civilian nuclear deal pushed by the Bush administration that ended three decades of atomic isolation for India, allowing it access to technology it had been denied since it conducted its first nuclear explosion in 1974.

Blake said he expected the liability law to be among the wide range of issues to be discussed when Secretary of State Hillary Clinton visits India in July for a strategic dialogue.

( Source: Associated Press )

"I tell the cowardly crusader (NATO) that I live in a place they cannot reach and where you cannot kill me," said the man on the audio tape, whose voice sounded like Gaddafi's. "Even if you kill the body you will not be able to kill the soul that lives in the hearts of millions," he said, adding he had received a "massive" number of calls after a NATO air strike on his Bab al-Aziziyah compound in Tripoli on Thursday.

Libyan leader Muammar Gaddafi is reported to have made an audio address on TV.

The comments were aired on Friday after Italy's foreign minister said Gaddafi had very likely left the Libyan capital and probably been wounded by NATO air strikes, an account Tripoli dismissed.

Government spokesman Mussa Ibrahim said Gaddafi was unharmed and in Tripoli, leading the country and in good spirits. NATO allies including the United States, Britain and France are bombing Libya as part of a U.N. mandate to protect civilians.

They say they will not stop until the downfall of the Libyan leader, who took power in a coup 41 years ago. Explosions rocked the capital of the North African country overnight, a Reuters witness said.

Rebels have mounted a three-month-old uprising against Gaddafi's rule and control Benghazi and the oil-producing east of Libya. Thousands of people have been killed in the fighting.

A NATO air strike on the eastern Libyan city of Brega on Friday that the Libyan government said killed 11 people and wounded 45, was directed against a "command and control bunker", the alliance said in a statement in Brussels.

"We are aware of allegations of civilian casualties in connection to this strike, and although we cannot independently confirm the validity of the claim, we regret any loss of life by innocent civilians when they occur," said NATO.

It said the building struck had been clearly identified as a command-and-control centre.

U.S. President Barack Obama gave the rebels his stamp of approval on Friday by having rebel leaders visit the White House for talks.

A delegation from the Transitional Council led by Mahmoud Jebril met U.S. national security adviser Tom Donilon.

U.S. recognition of the council as the representative of the Libyan people was under review, he said. Tripoli says the rebels are criminals and supporters of al Qaeda and calls NATO strikes acts of colonial aggression.

The conflict has caused a diplomatic rupture between Tripoli and Western powers and their allies. Libya was considering withdrawing from a global campaign against Islamic militants, state news agency JANA said on Friday.

The International Criminal Court prosecutor would request arrest warrants for Gaddafi and two others on Monday, Spanish radio station Cadena Ser reported, quoting ICC sources.

The war in Libya has reached a virtual stalemate and fighting of late has focused on the port city of Misrata in the west where rebels are clinging on in the face of a government siege.

Rebels took control of Misrata airport this week. A doctor, who gave his name as Khalid, said on Friday missile strikes by Gaddafi's forces stationed in positions around the city had killed 10 people and wounded 20.

Ibrahim said the city was in Tripoli's hands and that rebels were fleeing. No independent verification of the accounts about Misrata were available.