04.11.2008

America goes to vote

• History is being made on Tuesday morning when Americans go to the polls to elect their 44th President
• The goal is to reach the magic number of 270 electoral votes to seal the presidency
• As always, election day is not a holiday in the US. Already 15 million voters have opted for early ballots which only some states allow
• May the best man win
• Look at this graphic on how America votes


PM to India Inc: Don’t cut jobs

• Prime Minister Manmohan Singh on Monday assured business leaders that the Government would not hesitate in cutting levies and borrowing costs to prevent the economy from going into a tailspin and urged industry not to resort to largescale job cuts
• The Reserve Bank of India has already cut rates as it looks to bolster the economy from a credit crunch that has roiled global financial markets and economies
• Last week, the government cut duties on aviation fuel and steel to give a boost to the aviation and steel sectors
• The Government plans to invest more in infrastructure, speed up social spending and take other steps to maintain growth and stability in the economy
• The government expects gross domestic product (GDP) growth to slow to 7.5-8% this year. The economy expanded by 9% last year


Overseas loans may get costlier next year

• Top corporates planning to raise funds abroad at cheaper rates may be in for a rude shock. Despite the expected end to the liquidity crisis next year, instead of a fall in their borrowing costs, they may have to pay extra as political/reform risk premium
• The debt market has been bracing for a rating downgrade for India. ICICI Bank’s and Tata Motors’ credit default swaps (CDS) — derivatives that provide insurance against defaults — have been quoting at spreads of above 1,000 basis points (bps) for the past few days. CDS spreads measure the premium to the risk-free interest rate
• Overseas borrowing costs for Indian companies have risen dramatically in the past one year. Last year, Indian corporates could raise five-year funds at Libor plus 50-75 basis points. This has now gone up to at least 350 bps above Libor
• Reason for this is the reduction in appetite for Indian paper because of oversupply and high leveraging following M&A activity. Corporate profitability is seen to be under pressure.
• Also, Elections will result in lenders pricing in political risk premium, thus increasing cost. Fears of downgrade in the medium term continue to loom despite S&P reaffirmation.


Budget carriers set to cut fares by 15%

• The country’s three low-cost airlines — SpiceJet, IndiGo and GoAir — are likely to slash fares between 10% an d 15% from November 15
• This follows the oil companies’ decision to cut aviation turbine fuel (ATF) prices, coupled with the government’s move to withdraw the 5% Customs duty
• The airlines have taken an in-principle decision to slash fares to pass on the benefit of the fall in ATF prices to customers. An announcement is expected in a couple of days
• State-owned oil firms once again cut jet fuel prices by up to Rs 2,100 per kilolitre on Monday night. Another cut in ATF prices is likely to come on November 15. Thus, there has been a 20% reduction in jet fuel prices in three days
• Currently, fuel constitutes 50% of the overall costs of airlines. Analysts said ATF prices would now come down drastically and would help the loss making airlines reduce their operating costs
• Finally some reason for cheer for the air travelers