11.10.2008

• The market mayhem continues
• It was a day of wild rumours and pure panic, with ICICI Bank and MFs becoming the market’s whipping boys. RBI slashed CRR and FM assured markets, but investors weren’t convinced. To make life worse, growth dipped. And, while inflation slipped below 12%, few cared. SENSEX TAKES AN 800-POINT POUNDING AS FEAR LOOMS OVER D-STREET.
• This was how the ET headlines are screaming. There was an all pervasive negative sentiment. The stock markets tanked with BSE Sensex losing over 800 points in a single day to settle at 10,527. Similar was the fate of NSE Nifty which closed at 3279. The steep drop in industrial production growth during August to 1.3% added to the negative sentiment.
• The RBI slashed the CRR (Cash Reserve Ratio) by 100 basis points (i.e., one percent) from 8.5 to 7.5 less than a week after it reduced it by 50 basis points on 6th October. Infosys which announced better than expected results with a 30% YoY (Year on Year) rise in its net profit also could not cheer the markets.
  
• Are we waiting for another black Monday? Only time can tell. Let's wait and watch.
  
• Pundits and conventional wisdom say that it is times like these that are best for making investments in stock markets. But how many of us have the guts? My jogging mates believe that Sensex will be testing the 8500 levels in the next one or two months.
• Even as the market mayhem continued, the Finance Minister announced the setting up of a panel chaired by the Finance Secretary Arun Ramanathan
• The panel will quickly assess the liquidity crunch faced by India Inc and advise the government on the measures to overcome the crisis.
• The Ramanathan panel includes TS Narayanasami, chairman of the Indian Banks Association; UK Sinha, chairman and managing director of UTI Asset Management; Yeshwant M Deosthalee, chief financial officer of Larsen & Toubro; and RM Malla, chairman and managing director of state-controlled Small Industries Development Bank of India.
• What are the sources of weakness for India's liquidity or economic problems?
• India’s bank assets to GDP ratio is relatively low at 55% compared with over 150% in the overleveraged western economies. Credit is growing at over 26%. At 21%, money supply is increasing at above target rate. Therefore, India should not be facing any liquidity crisis. But why this present panic?
• India’s crisis of confidence need not mirror that of the US or Europe, where fundamental errors have been committed. It can stem from fear psychosis of the market players.
• With commodity prices dropping sharply and demand destruction gathering momentum, inflation could drop at a faster pace. But as of now it does limit policy choices. The government has tied itself in fiscal knots because of the wasteful petroleum and fertiliser subsidies, not to mention the farm loan-waiver package and pay commission award. There is no room for fiscal stimulus apart from prioritising expenditure towards more productive use. A focused impetus to reforms may, however, help improve investment sentiment.
• For the present therefore, creative intervention by the RBI, finance ministry and other regulators can create enough confidence for the domestic financial and real economies to chug along.
• Whatever might be Yashwant Sinha's political proclivities, not all advice coming from him can be regarded as politically coloured or motivated. Take a look at his prescription for coming out of the current challenging times:
• First, the government of India should even now cut its taxes on petroleum products more extensively, persuade the state governments to do likewise and go for substantial reduction in petroleum product prices. This will have a salutary effect on inflation.
  
• Second, the Reserve Bank of India should go for a deeper cut in the Cash Reserve Ratio (CRR). Another 150 basis points cut in the CRR is warranted.
  
• Third, the RBI, in order to signal that not only is liquidity available in the market, but it is also available at a reasonable rate should cut interest rates by 150 basis points.
  
• Fourth, the government should use its foreign exchange reserves to meet the foreign borrowing requirements of Indian corporates at reasonable rates of interest.
  
• Fifth, at the international level, India must be seen in a more proactive role in order to secure global solutions to the global crisis. The United States cannot afford to live beyond its means either. It cannot run the astronomically high budget and current account deficits it has been running for years. It must also open itself for external oversight, like the rest of the world. There must be a clear role for the International Monetary Fund (IMF) in all this. The IMF cannot merely be a silent bystander.
  
• Sixth, all these measures, specially the ones to be taken by us in India, must be taken at one go instead of in bits and pieces like the RBI has done with regard to the CRR cut in the last few days.
• Any takers for these measures? But it is times like these that should catapult all the political parties into agreeing to some common minimum programme of action to see that the country tides over the crisis. We have had some sagacious give and take on issues like the land allotment to the Amarnath Shrine Board. Why not now, on economy?
  
• IBSA summit on October 15 at Delhi
• India, Brazil and South Africa are going to have their annual summit in Delhi on October 15. The one topic that will be on top in their minds -- whether or not it is mentioned in the agenda -- is the unfolding global financial crisis.
• Prime minister Manmohan Singh, South African president Kgalema Motlanthe and Brazilian president Luiz Incio Lula da Silva are likely to discuss the financial crisis.
• Infosys crosses the 1 lakh mark in head count
• This small piece is worth a read; because it gives a glimpse into the hiring scenario in a major IT company like Infosys.
• India sees a surge in patent filings under the Patent Cooperation Treaty (PCT) route
  
• The PCT is an international patent law treaty that was concluded in 1970. It provides an unified procedure for filing patent applications to protect inventions in each of 139 countries that are signatories to the pact. The PCT system is a multilateral agreement administered by World Intellectual Property Organisation (WIPO). The number of international patent filings submitted through the PCT in 2007 was estimated at 158,400 representing a 5.9 per cent increase over the previous year.
• Ban on smoking in public places
• It is a very good editorial that appeared in The Hindu today. Look at it here. Some excerpts worth our noting:
  
• The World Health Organisation estimates that out of the global total of about 800 million tobacco-users, nearly a third are in India.
• The ban came into effect with the notification of the Prohibition of Smoking in Public Places Rules, 2008. The ban is in effect from October 2, 2008.
• The new rules provide the much-needed teeth to the Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003.
  
• They define public places to include hotels, restaurants, pubs, bars, refreshment rooms, coffee houses, and other places used by the general public; designate the officers empowered to enforce them; and provide for penalties.
• Post cold war era is over; but not US supremacy
• It is yet another very good article that appeared in today's Hindu. From Ramesh Thakur.
• It is an excellent analysis of the situation in the post cold war period and the present situation. A must read; especially for Political Science students. Read it here.
• It is after many many years that I am reading V. R. Krishna Iyer, the irrepressible commentator on Indian law. His body might have aged; but not his pen. Get even 10% of the force of his arguments on any subject, not necessarily law, and you will not leave anybody unimpressed with your arguments.
• Take a look at what he wrote on the need for a resurrection of the rule of law in the country.