Dawn of 17th Feb 09

Budget Disappoints: INR Weak, (49) Stocks Tumble- Borrowing above forecast at 3.62 Trillion, Deficit 5.5% of GDP could go to 6% Vs target of 2.5%, No credit off take, Yields run away 25BP , OMO & MSS give hope, Dollex Rises.

US Holiday, OIL & CU SLIP, Honda Rises on Insight (Hybrid Car), JP Shares hit 3m low, Lloyds issues profit warning

IIFCL to lend to banks at 7.45%, Air India to ground planes , LIC Housing to launch VC Fund

Rupee
INR OPENED WEAK AT 49.02/03. INR dropped on Monday after the government’s interim budget for the next fiscal year failed to deliver major steps to boost a faltering economy and helped shares tumble 3.4 %. Gains in the USD against major units overseas also prompted banks to buy the USD. INR closed at 48.84/85 0.4 % weaker than 48.67/68 at close on Friday. “There was nothing positive for the INR in the budget and since the stock market reacted negatively, that is likely the reason for fall in INR,” said V. Kumar, chief dealer with State Bank of Travancore. “The pressure is on the downside for INR,” he said, adding the local unit could drop towards 52 per USD levels. . The USD index was up 0.2 %, hurting INR sentiment.

Bonds
Yields rose on Monday as investors fretted about a higher-than-expected government borrowing plan for the next financial year which could exhaust appetite for debt. 8.24 % 2018 ended at 6.42 %, off the day’s high of 6.48 % but 25 basis points above Friday’s close of 6.17 %. Trading was volatile with the yield moving in a broad 32 BP in the day. The acting FM, Pranab Mukherjee, said gross market borrowing for 2009/10 was seen at 3.62 trillion. That was higher than market expectations of 2.3-2.9 trillion, and way above 2008/09 net market borrowing of 2.6 trillion. FM said the fiscal deficit would rise to 6 % of gross domestic product in 2008/09, its highest since 6.1 % in 2001/02, and well above an original forecast of 2.5 %. While the number was not a surprise, investors are worried the gap could widen further as the economy slows. That could force the government to raise more funds from the bond market leading to investor fatigue for debt. Mukherjee predicted a deficit of 5.5 % of GDP in 2009/10, but implied this could rise if further economic stimulus was needed. Dealers bought hope from unwinding of MSS and RBI OMO.

Stocks
STOCKS MAY OPEN WEAKER SGX NIFTY -29.5. Stocks Fell 3.4 % on Monday, its biggest drop in two weeks, after an interim budget failed to provide a much needed impetus to struggling sectors such as construction and autos. Traders said the budget, which unveiled few populist measures ahead of a general election that must take place by May, disappointed investors who had been speculating on a stimulus plan to lift flagging growth. India’s economy is expected to slow to 7.1 % in 2008/09, the slowest pace in six years and below 9 % expansion last year.

Call
Rates held near the RBI’s main borrowing rate of 4 % on Monday on surplus funds in the banking system. Rates ended at 4.00/15 %, lower than Friday’s close of 4.10/15 %. It had closed at 4.10/25 % in an illiquid market on Saturday. Indian banks’ loans rose only 19.3 % year-on-year in the two weeks to Jan. 30, down from 22.10 % in the previous fortnight, and compared with 29.4 % in early October, the RBI said on Friday.

Banks parked 488.10 billion with the RBI at its twin money market operations, while no banks borrowed any Money, indicating ample funds in the system.

Global
Ø DJIA 7,850.41 -82.35 Nikkei 7,637.49 -112.68 FTSE 4,134.75 -54.84 H Seng 12,977.25 -478.63 US10Y 2.895 EUR 1.2667 Yen 92.32 Gold 942.50 Crude 37.27

Ø Wall Street was closed for the Presidents Day holiday.

Ø FTSE leading share index ended 1.3 %lower on Monday, with the grim economic backdrop pressurizing heavyweight commodity stocks, while insurers fell on funding concerns prompted by bank losses.

Ø Nikkei fell 1.5 % on Tuesday to hit 3M low, with banks such as Mitsubishi UFJ Financial Group down after a profit warning for Britain’s Lloyds shook global peers. Honda rose for most of the morning on strong demand for its Insight hybrid, before turning down before the morning close.

Ø USD and yen rose broadly on Monday with recession worries coming to the fore after figures showing Japan’s economy shank sharply in the final quarter of 2008.

Ø Gold was little changed in Europe on Monday, consolidating after last week’s more than 3 % rise, although buying of gold and bullion-backed exchange-traded funds supported prices.

Ø Copper fell to its lowest in more than a week on Monday, hurt by a further deterioration in the demand outlook after Japan suffered its biggest contraction in decades and inventories jumped.

Ø U.S. oil prices slipped below $37 a barrel on Monday as a raft of bearish economic data focused attention on declining global oil demand.

India Front Page
Ø State-owned India Infrastructure Finance Co will lend proceeds raised through 26.7 billion-rupee-bond issue at 7.85 % to banks.

Ø Siemens AG and General Electric have emerged sole bidders in separate contracts for a $6 billion Indian Railways project to make electric and diesel locomotives. The bid process is still live, but three of the five companies in the running have not bid.

Ø Air India would have to ground at least 25 planes in the next 12 months as fewer passengers fly and carriers would be forced to reduce the number of seats by 30 % to arrest losses.

Ø The government has reversed a January decision to grant security clearance to consortia led by Monnet Ispat and the Lanco Infratech bidding for terminals at the Paradip Port in Orissa because of their links with Chinese and UAE firms.

Ø U.S.-based global head of financial services at fraud-hit Satyam Computer Services , Anil Kumar, has quit.

Ø LIC Housing Finance Ltd is set to launch financial services subsidiary, LIC Housing Finance Financial Services, in a month but market conditions has forced it to defer its venture capital fund till the first quarter of the next fiscal year.

Ø Gammon India Ltd is keen on acquiring Maytas Infra Ltd , the infrastructure firm linked to fraud-hit Satyam Computer Services.