Satyam-"A misnomer"

 

(Top executives of the beleaguered Indian outsourcing company Satyam Computer Services struggled to reassure investors, employees and clients(bottom) and Chairman of troubled Indian Outsourcing Company  Satyam Computer Service,Ramalingam Raju)

The Sathyam scandal has been considered as "India's Enron".The name 'satyam'  has become a misnomer as the word means truth.Seven days after the birth of the year 2009,a letter was sent from the chairman of  Satyam Computers(Ramalingam Raju) to the SEBI(Securities & Exchange Board of India).This plunged shockwaves across the country.Nobody could believe this disaster.Raju acknowledged his culpability in hiding news that he had inflated the amount of cash on the balance sheet of India's fourth-largest IT company by nearly $1 billion, incurred a liability of $253 million on funds arranged by him personally, and overstated Satyam's September 2008 quarterly revenues by 76% and profits by 97%.He apologised his inability to close what he began.He said that it was a humongous task to get down,riding a tiger and not being eaten by it."marginal gap between operating profits and the one reflected in the books of accounts" but grew unmanageable. "I am now prepared to subject myself to the laws of the land and face the consequences thereof," he wrote.

The letter shocked and angered corporate India, which has looked to IT executives as role models for a new breed of Indian entrepreneur.The benchmark Sensex stock index dropped 7.3% and Satyam shares fell nearly 78% on the day as investors fled in droves.The misfortune has happened when the India Economy just had a start of renovation against recession. 

The year started in an unpopular way.With the shocking kleptocracy in the Indian Enterpeuner sector,the Indian Corporate is in a predicament in front of the global economic hub.

REPO REDUCTION-The Painful Adjustment in Indian Economy

The temporary downturn of Indian Economy:

With blasts and terror around the Indian waters which lowered the Indian society's morale,the graph of the Indian economy is undergoing a steady recession.India will experience economic slump for a short period of time.This period is regarded as the Global economic decline period.Before going into the news let me just define some terms which might be useful in understanding the content of this post.

Repo Rate:Repo rate is the rate at which the commercial banks borrow money from RBI(Reverse Bank of India).The reduction in repo rate will help the banks to get money with a lesser rate.

Reverse Repo Rate:Reverse Repo Rate is the converse of Repo rate.Reduction in this,will facilitate the RBI to borrow money from the other commercial banks.

The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and would normally be in the form of fiat currency stored in a bank vault (vault cash), or with a central bank

SLR(Statuatory Liquid Ratio):It is the amount which a bank has to maintain in the form of cash, gold or approved securities.  

  

The RBI announced the "cut in the repo and reverse repo rate" earlier today:

Mumbai (IANS): In a bid to lower the cost of borrowings for commercial banks and help them reduce interest rates for the corporate sector, the Reserve bank of Indiaon Saturday cut two key interest rates but said a period of “painful adjustment” was inevitable for the country's economy.

Reserve Bank of India (RBI) Governor D. Subbarao told a press conference in Mumbai that the repurchase rate, or the repo rate, was being cut by 100 basis points, while the reverse repo rate will be reduced by a similar amount.

The new rates take effect on Monday.

The repo rate, currently at 7.5 per cent, is the interest charged by the RBI on borrowings by commercial banks. A reduction in the same makes the cost of borrowings cheaper for commercial banks.

The reverse repo rate, on the other hand, is the rate at which the central bank borrows money from commercial banks. A lowering of this rate, presently at 6 per cent, makes it less lucrative for banks to park funds with the central bank.

There were no changes in cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

Similarly, the CRR, the minimum liquid funds banks have to keep against deposits,is presently at 5.5 per cent. The statutory liquidity ratio (SLR), the amount these institutions have to hold in government bonds, is currently pegged at 24 per cent.

The rate cuts apart, the refinance facility for the Small Industries Development Bank of India (Sidbi) was being enhanced by Rs 7,000 crore and to the National Housing Bank (NHB) by Rs 4,000 crore

"Going forward, the outlook for the Indian economy is mixed," Subbarao told the press conference, expressing worries over the slowing down of industrial growth and the decline in merchandise exports in October.

“Confidence in global credit markets continues to be low, and credit lines remain clogged,” he said, adding: “The outlook for India going forward is mixed. There is evidence of economic activity slowing down.”

The central bank governor said there was also difficulty to precisely assess the impact of every development in the global financial system on the Indian economy but said measures will be announced from time to time to ease the pressures.

“The fundamentals of our economy continue to be strong. Once the crisis is behind us and calm and confidence are restored in the global markets, economic activity in India will recover sharply,” he said.

“But a period of painful adjustment is inevitable.”

INDIAN ECONOMICAL SPRINT!!

INDIA IS NOW A TRILLION DOLLAR ECONOMY!

According to a Credit Suisse report, Indian GDP at the current price level of the rupee (Rs 40.76 per $) stands at $1trillion. The strengthening rupee has now made India the 12th country to achieve this milestone.

With the Rupee appreciating to below 41 against the US dollar on Wednesday, it was the first day for the economy to be a trillion-dollar economy.

The report said that India's stock market capitalisation too stands at $944 billion, just shy of the $1-trillion mark. However, if one stretches the definition of what constitutes an Indian stock, plus does a rounding, the Indian stock market is also about a trillion dollars as of Wednesday.

The first ever attainment of these landmarks is likely to create many self-congratulations and media events in the coming days. Fundamentally, they do not change anything, but the likely hoopla will add to investor sentiment, says the Credit Suisse report.

The report, adding some history trivia, says that eight out of the 10 economies had their stock markets rise in the one-year period after they first crossed $1trillion mark in GDP. The United Kingdom is the only economy to stop being a trillion-dollar economy for a while after attaining the status the first time.

The report, however, says that there is nothing magical about $1trillion or any such mark; and that it is wrong to take quarter-end GDP and some interim exchange rates for the calculation of GDP in a foreign currency. Any apparent GDP growth in foreign currency denomination due to the exchange rate move is not real growth, it said.

The other economy that crossed the same mark recently is Russia, which was within the last 2.5% as per the latest published GDP data of Dec-06. Somewhat coincidentally perhaps, the economies that crossed $1t-rillion mark mostly had positive equity markets in a year after they first crossed the level, even though some may want to partly attribute the "coincidence" to the halo effect on inflows created by reaching such a milestone.