Sensex up over 1000 points in 2 days

Frenzied buying in index pivotals led by Reliance Industries, ICICI Bank and Bharti Airtel coupled with short covering triggered a solid rally on the bourses. A sharp fall in crude oil prices for the third day in a row on Thursday, 17 July 2008, boosted the sentiments. The rally was spread across sectors barring IT and metal. The market breadth was strong.

As per provisional data, foreign funds bought shares worth a net Rs 408.21 crore and domestic institutional investors sold shares worth a net Rs 70.47 crore today, 18 July 2008.

On the New York Mercantile Exchange, August 2008 crude settled $5.31 lower at $129.29 a barrel yesterday, 17 July 2008.

European markets, which opened after Indian market, were in the red. Asian markets, which opened before Indian market, were mixed.

The wholesale price index (WPI)-based annual rate of inflation rose to 11.91% in the week ended 5 July 2008, marginally higher than the 11.89% rise in the previous week. Inflation for the week ended 10 May 2008 was revised upwards to 8.57% from 7.82% reported earlier. The data was released after market hours yesterday, 17 July 2008.

The 30-share BSE Sensex surged 523.55 points or 3.99% to 13,635.40. It hit a high of 13,684.27 in late trade. At the day's high, the Sensex surged 572.42 points. The Sensex lost 18.51 points at day’s low of 13,093.34 hit in mid-morning trade.

The broader based S&P CNX Nifty advanced 145.05 points or 3.67% to 4,092.25. Nifty July 2008 futures were at 4056.70, at a discount of 35.55 points as compared to spot closing.

Sensex has risen 1059.60 points or 8.42% in last two trading days from its close of 12575.80 on 16 July 2008. Prior to this the BSE Sensex plunged 1350.44 points or 9.67% in four trading sessions from 13964.26 on 9 July 2008 to 12575.80 on 16 July 2008.

Sensex is down 6651.59 points or 32.78% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2007. It is 7571.37 points or 35.70% away from its all-time high of 21,206.77 struck on 10 January 2008.

Back to today's trade, the market breadth was strong on BSE with 1614 shares advancing as compared to 990 that declined. 83 remained unchanged.

The BSE Mid-Cap index was 1.48% to 5,231.42 and the BSE Small-Cap index rose 1.05% to 6,454.03, as per provisional closing. Both these indices underperformed the Sensex.

Political uncertainty will continue to weigh on the market early next week. The government is holding a two-day special session of parliament on 21 July 2008 and 22 July 2008 to seek vote of confidence after it was reduced to minority following withdrawal of support by Left parties on 8 July 2008. The government hopes to retain power due to backing from Samajwadi Party, a regional party in Uttar Pradesh.

The total turnover on BSE amounted to Rs 5312 crore as compared to Rs 4,865.47 crore on Thursday, 17 July 2008. NSE's futures & options (F&O) segment turnover was Rs 52,794.98 crore, which was higher than Rs 46,300.96 crore on Thursday, 17 July 2008.

Among the 30-member Sensex pack, 22 advanced while the rest slipped.

Shares from banking and financial services providers rallied after the latest data showed inflation rose at a slower pace than expected in the year through 5 July 2008.

India’s largest private sector bank in terms of net profit ICICI Bank vaulted 13.02% to Rs 622.95 on 30.74 lakh shares after the bank’s American depository receipt (ADR) rallied 9.4% to $29.02 on the New York Stock Exchange (NYSE) yesterday, 17 July 2008. It was the top gainer from Sensex pack.

HDFC Bank (up 7.54% to Rs 1030.35), and State Bank of India (up 5.37% to Rs 1293), surged.

India's largest dedicated housing finance company in terms of operating income HDFC soared 10.13% to Rs 2080. The stock rallied 9.91% yesterday, 17 July 2008 after the company's chairman Deepak Parekh denied rumors that Citigroup may sell its 11.74% stake in firm.

India’s largest private sector firm by market capitalization and oil refiner Reliance Industries advanced 4.69% at Rs 2110 on 14.12 lakh shares. The stock moved in a range of Rs 2125 and Rs 1995.05 in the day.

Reliance Communications, the country’s second largest cellular services provider in terms of market capitalisation was up 3.61% to Rs 433.

Mukesh Ambani-owned Reliance Industries (RIL) on Thursday, 17 July 2008 said it has started arbitration proceedings against younger brother Anil Ambani’s Reliance Communications (RCOM) to thwart the latter’s merger with Africa’s largest telco MTN. According to reports, RCom has dismissed the RIL move and said the arbitration can only happen when both parties refer the dispute to a person outside the court. RCom's talks with MTN, which have been extended once, are scheduled to end on 21 July 2008.

Two oil exploration heavyweights saw edged higher. Oil & Natural Gas Corporation (ONGC) gained 3.68% to Rs 937 while Cairn India rose 0.72% to Rs 218

Bharti Airtel (up 7.50% to Rs 805), and Jaiprakash Associates (up 8.86% to Rs 162.25), gained from the Sensex pack.

DLF (up 6.65% at Rs 455.55), Unitech (up 3.72% to Rs 147.90), Ansal Infrastructures (up 8.27% to Rs 93.95), Parsvnath Developers (up 1.70% to Rs 110), and Indiabulls Real Estate (up 6.54% to Rs 287.35), surged from the real estate space.

Most IT pivotals declined after India’s third largest software services exporter Wipro said it was cautious in the near term, echoing its larger rivals TCS and Infosys.

Wipro slumped 4.23% to Rs 363.75. The company posted 3.16% rise in consolidated net profit to Rs 907.8 crore on 5.18% rise in total income to Rs 6087.1 crore in Q1 June 2008 over Q4 March 2007. The company announced the results before trading hours today, 18 July 2008.

India’s fourth largest software services exporter Satyam Computer Services plunged 7.53% to Rs 383 on 45.77 lakh shares. It was the top loser from Sensex pack. The company reported 17.32% rise in consolidated net profit to Rs 547.70 crore on 8.47% increase in consolidated sales to Rs 2620.83 crore in Q1 June 2008 over Q4 March 2008. The company declared the results before market hours today, 18 July 2008.

India’s second largest software services exporter Infosys was down 1.76% to Rs 1555.

However India’s largest software services exporter TCS staged a strong recovery from day’s low of Rs 748.60. It rose 1.54% to Rs 791.20

Ranbaxy (down 3.72% to Rs 435.40), and ACC (down 1.06% to Rs 533.10), edged lower from Sensex pack.

Metal stocks slipped on selling pressure. Tata Steel (down 3.38% to Rs 586.90), Sterlite Industries (down 3.02% to Rs 590), JSW Steel (down 2.23% to Rs 725), Sesa Goa (down 1.74% to Rs 2708.85), and Hindustan Zinc (down 1.02% to Rs 526), declined from metal sector.

Reliance Capital topped the turnover chart on BSE with a turnover of Rs 323.70 crore followed by Reliance Industries (Rs 291.50 crore), Reliance Petroleum (Rs 193 crore), ICICI Bank (Rs 185 crore) and Satyam Computer Services (Rs 177.70 crore).

Reliance Natural Resources led the volume chart with volumes of 1.67 crore shares followed by IFCI (1.45 crore shares), Reliance Petroleum (1.28 crore shares), IDFC (1.05 crore shares) and Chambal Fertilisers (90.25 lakh shares).

Fertiliser shares rallied. Coramandel Fertilisers (up 4.41% to Rs 119.65), Nagarjuna Fertilizers & Chemicals (up 2.68% at Rs 30.60), Gujarat State Fertilizers & Chemicals (up 1.18% at Rs 145.80), Chambal Fertilisers & Chemicals (up 4.98% at Rs 60.05), Rashtriya Chemicals and Fertilizers (up 1.76% at Rs 49.05), soared

State run oil-marketing companies extended gains for the third straight day today, 18 July 2008, tracking sharp fall in crude oil prices for the third straight day yesterday, 17 July 2008. Hindustan Petroleum Corporation (up 4.36% to Rs 218), Bharat Petroleum Corporation (up 3.11% to Rs 283.25), and Indian Oil Corporation (up 5.06% to Rs 382), surged.

Kirloskar Brothers slumped 10.42% to Rs 166 on reporting a net loss of Rs 4.48 crore in Q1 June 2008 as against net profit of Rs 25.71 crore in Q1 June 2007. The company announced the results during trading hours today, 18 July 2008.

Ballarpur Industries soared 6.35% to Rs 31 on reports cigarette maker ITC bought over 23 lakh shares or 0.5% of the equity of the company for Rs 5.60 crore in the last couple of months. The move has created a stir in corporate circles as ITC has major interests in paper through ITC Bhadrachalam Paperboard.

Gujarat NRE Coke jumped 8.79% to Rs 113.30 after posting 120.46% surge in net profit to Rs 94.4 crore on 150.77% increase in total income to Rs 382.12 crore in Q1 June 2008 over Q1 June 2007. At the time announcing Q1 June 2008 results today, 18 July 2008, he company’s board has also announced issue of bonus shares in the ratio of 2:5.

Infrastructure Development Finance Company soared 14.58% to Rs 108 after the company reported 22% jump in net profit to Rs 204.73 crore on a 45.42% rise in revenue to Rs 809.71 crore in Q1 June 2008 over Q1 June 2007.

Finance Ministry P Chidambaram yesterday, 17 July 2008 said more measures might be taken to tame prices even as the steps taken by the Reserve Bank of India (RBI) take effect. Inflation is hovering at a 13-year high and is well above the RBI’s tolerance level of 5.5% set for the current fiscal.

The RBI is scheduled to review monetary policy on 29 July 2008 and analysts opine that the central bank may tighten monetary policy again. Last month, the RBI increased its key lending rate by 75 basis points and hiked the banks' reserve requirements by 50 basis points to combat inflation.

European markets, which opened after Indian markets were in the red. Key benchmark indices in UK, Germany and France were down by between 0.22% and 0.90%.

Asian markets which opened before Indian markets were trading mixed today, 18 July 2008. Key benchmark in Taiwan, South Korea, Singapore and Japan, and were down by between 0.65% and 2.28%. However indices from China and Hong Kong gained 3.49% and 0.64% respectively.

US stocks rallied building on optimism spurred by several unexpectedly strong earnings reports, including JPMorgan Chase. The Dow Jones Industrial Average surged 207.38 points, or 1.85%, to 11,446.66. The Standard & Poor's 500 index rose 14.96 points, or 1.20%, to 1,260.32, and the Nasdaq Composite index gained 27.45 points, or 1.20%, to 2,312.30.

RCom, MTN call off talks for deal

In a surprise development, Reliance Communication Ltd (RCom) said on Friday evening that the company and the South African telecom major MTN Group have mutually decided to call off their talks for a business deal.

In a release issued by the company said “owing to certain legal and regulatory issues, the parties are presently unable to conclude a transaction. Accordingly, it has been mutually decided to allow the Exclusivity Agreement to lapse”.

Both RCom and MTN had entered into a 45-day exclusive negotiations for the proposed merger of their business. The deadline for the talks, which was on July 9, was extended to July 21.

However, before the end of the deadline, the parties have mutually decided to call off the talks.

According to sources, there could be reasons except “legal and regulatory issues, which have forced RCom, headed by Mr Anil Ambani, to end the talks. RIL headed by his estranged brother, Mr Mukesh Ambani, has been opposing the deal and initiated arbitration proceedings against RCom.

Yesterday, RIL said it had commenced arbitartion proceedings and has nominated Mr Justice B.P. Jeevan Reddy, a former Supreme Court judge.

Helping rag-pickers to become entrepreneurs

After bringing rag-pickers under the banking network a year ago, the Dharwad-headquartered Karnataka Vikas Grameen Bank (a regional rural bank sponsored by Syndicate Bank) has now taken a step forward to identify entrepreneurship skills among them.

The bank has issued ‘laghu udyami’ credit cards to 25 women members of the rag-picking community.

The bank initiated the process of bringing rag-pickers under the banking network by forming five self-help groups (SHGs) of rag-pickers in Dharwad in June 2007. In September that year, the bank went ahead with credit-linking the five SHGs .

Mr M. Dhananjaya, Chairman, told Business Line that the SHGs, which were given loans, have started repaying the loans and now some of the members of the group have started depositing the amount in the bank.

Credit cards

After observing the banking habits of rag-pickers for a year, the bank decided to develop entrepreneurship skills among the womenfolk and came up with the idea of extending ‘laghu udyami’ credit cards to them.

Mr Ullas Gunaga, who was actively involved in the formation of the SHGs, said that five groups were sanctioned loans to the tune of around Rs 5.25 lakh. The loans were closed before term, denoting their sincerity and promptness in credit dealings.

Added to this, five members of these SHGs have deposited Rs 10,000 each in the savings bank account of the bank. Members of these SHGs are illiterate and migrants from northern India.

Asked about the reasons for extending ‘laghu udyami’ credit cards to them, he said this will help them bypass middlemen in their work. Added to this, some women members have started persuading their husbands to start work using the items they collect while picking rags.

Maintaining account

During the coming days, the bank plans to expose them to issues such as health, hygiene, and education, Mr Dhananjaya said. To a query on how these members maintain their accounts, he said that a social worker from the area, Ms Geeta Patil, is maintaining accounts for them.

Britannia to explore new international markets

With a plan to take its share of exports from the current 5 per cent to 10 per cent over the next few years, Britannia is exploring forays into new markets. The biscuit maker has just started operations in Sri Lanka, and plans to launch at least four to five new products in other international markets. Ghee export

“We are also looking at ghee very seriously, and exploring the possibilities of exporting it to West Asia and Far East countries,” said Mr T. N. Nandakumar, Regional Manager – International business. The new markets being evaluated for the export of ghee are the UAE, Singapore and Malaysia amongst others.

With the Indian diaspora already hooked onto its products, Britannia, which sells in the US, Canada and Southern Africa, is looking to tweak tastes and portfolio for other American citizens. It will be launching a new cream biscuit, “the Oreo kind”, and pushing its digestive range, cream crackers, and Nutrichoice, which has been doing well in the international markets and is preferred by a more health-conscious consumer. “We already have the Indian diaspora taken care of, now we are looking at the average American consumer, and other communities with different palettes. We would like to be in certain States, that we are identifying, which we believe are more stable for our business,” he said.

It already exports to Malaysia and Singapore. The West Asian and central Asian markets of Jordan, Yemen and Iran are being catered to by the companies in which it acquired a majority stake last year — the Dubai-based Strategic Foods International LLC and the Oman-based Al Sallan Food Industries, through its association with the Khimji Ramdas Group.

It also plans to target East Africa and Madagascar through its own Indian operations. Mr Nandakumar said that prices for Britannia’s products had been raised in markets abroad too, but the rising costs issue was something that consumers understood.

Foster Wheeler in talks with BGR Energy for boiler manufacture

Corporation, the global engineering and construction contractor and power equipment supplier, is in talks with Chennai-based BGR Energy for a possible collaboration for manufacturing power plant boilers in India.

The talks are still open as to whether the collaboration will be a joint venture or a technology transfer. At a recent press conference, the Chairman and Managing Director of BGR Energy, Mr B.G. Raghupathy, said that the company was in talks with a large multinational company for collaboration for producing power boilers.

While he did not mention Foster Wheeler, he said that the MNC had supplied the boiler for a 460-MW project in Poland, of the ‘circulating fluidised bed combustion (CFBC)’ type. Foster Wheeler fits the description.

Foster Wheeler has supplied the boiler for the 460 MW Lagisza project in Poland — the biggest CFBC boiler ever to be supplied in the world.

(Incidentally, it is also the only one in the world which is a CFBC and supercritical — combining the advantages of both the technologies.)

Later, sources in BGR Energy confirmed to Business Line that the prospective collaborator is indeed Foster Wheeler.

They, however, said that a lot of negotiations are yet to be covered before a partnership agreement is signed.

Foster Wheeler, which has supplied equipment for over 1,10,000 MW of capacity across continents, has a back office in India for design work.

It was to have supplied equipment to the 1,000 MW lignite-based Jayamkondan project in Tamil Nadu, when Reliance bagged the contract for that project.Foster Wheeler’s expertise is in CFBC technology. CFBC boilers can burn any type of fuel — such as a combination of imported and indigenous coals, lignite and refinery residue.

Demand in India for CFBC boilers are expected to grow mainly because of this flexibility.

For example, Neyveli Lignite Corporation is putting up two units of 250 MW using CFBC boilers. Coastal Energen of the Dubai-based ETA group is planning to put up four units of 350 MW each, again with CFBC boilers.

Foster Wheeler has supplied over 300 CFBC boilers globally. The shortage of power equipment manufacturing capacity in India has attracted many domestic and international players to set up facilities.

L&T-Mitsubishi Electric, Cethar Vessels with technology from Riley Power of the US, and the joint venture of NTPC and BHEL are some examples.

BGR Energy, an engineering company that specialises in supplying ‘balance of plant (BoP)’ for power projects, has been saying for some time that it would get into the manufacture of boilers and turbines also.

No TDS certificates for returns

The Central Board of Direct Taxes on Friday said that tax deduction at source (TDS) or tax collected at source (TCS) certificates are not required to be annexed to the income-tax returns to be filed with the Income-Tax Department. “Wherever documents are attached with the return, the receiving official is required to detach and return to the tax payers such annexures,” an official release issued by CBDT said. This clarification came in the wake of doubts raised on whether TDS/TCS certificates, counterfoil of challan for tax payment and other documents should be filed along with the return or not.

Mukesh Ambani meets PM, decries demands for windfall tax

With UPA government’s new found ally Samajwadi Party gunning for Reliance Industries, the company head Mukesh Ambani on Monday met Prime Minister Manmohan Singh and a host of other senior government functionaries to explain how demands for levy of windfall tax was bad economics.

Ambani first met Singh and there were unsubstantiated reports that he followed this with a meeting with Congress President and UPA Chairperson Sonia Gandhi.

Flying in from Mumbai this morning, Mukesh started a series of meeting with top bureaucrats, including a call to Cabinet Secretary K M Chandrasekhar.

Ambani’s visit assumes importance in the wake of Amar Singh raising a number of issues, including a demand for withdrawal of EOU status for RIL’s Jamnagar refinery along with a suggestion that Prime Minister should intervene to bring peace between Mukesh and younger brother Anil.

Sources said Ambani pleaded that the demand for levy of so-called windfall profit tax on private firms was no more than a populist slogan based on the misleading logic that with rising prices of oil across the globe, these companies are making profits far in excess of what they legitimately deserve.

While Government shares production from oil and gas fields and is a beneficiary of high oil prices, the refinery business is highly cyclical and with new capacities coming on stream world over margins will decline precipitously.

Ambani is believed to have told policy makers that fiscal revenue gain from a WPT would be short-term in nature, but the economic costs of introducing an unstable fiscal regime could be long lasting.

Ambani is believed to have told policy makers that during boom periods of business cycles diverse sectors enjoy high returns like the IT boom in the late 1990s, but a WPT was not even contemplated for them.

Presently, many domestic natural resource-extracting entities in non-oil sectors have also benefited financially from the unprecedented global commodity boom. Will it be justified to impose WPT on them, he asked.

The US imposed a WPT in 1980 but repealed it in 1988 as it led to increased dependence on imported oil and gross revenue gains were significantly less than anticipated.

Ambani is believed to have stated that the current high crude oil price has led to an unprecedented increase in supply and service costs raising both exploration and development of oil and gas by a factor of 3 times over the last 3-4 years.

In economic terms, taxes such as WPT increase marginal production costs, and profit maximising firms respond to it by reducing output and raising prices.

Imposing WPT could have several adverse economic affects. If imposed as an excise tax, the WPT would increase marginal production costs, reduce domestic oil production and increase the level of oil imports.

Windfall profit tax is a tax on actual profit or profit margins. If levied on actual profit then it would need to take into account the capital invested, asset base and similar parameters while if levied on profit margins it was necessary to look at margins of other businesses especially during boom periods.

Refining business, Ambani is believed to have argued, is cyclical in nature. Product deficits catalyses expansion plans. But as new capacities come on stream, refining margins decline precipitously. Also, refining needs large and continuous investments just to meet stringent clean fuel specifications and stay in business.

Usha Mittal, Tina Ambani in Forbes list

They are married to the wealthiest individuals in the world but a few of them have etched out their own identity, with two Indians-Usha Mittal and Tina Ambani making a cut in the latest ’Wives of Billionaires’ list compiled by US business magazine Forbes.

Usha Mittal is the wife of world’s fourth richest person and steel tycoon Lakshmi Mittal while Tina Ambani is married to sixth wealthiest person Anil Ambani, whose flagship firm Reliance Communications. In an article on its website, Forbes said that "gaining membership to the billionaire wives’ club is no easy feat... so what does it take to marry one... For starters, looks are great-but brains are even better."

Prior to marrying Anil Ambani, Tina Munim was a famed Bollywood actress, it noted. Usha Mittal also has worked in the steel business for 15 years, one time running a plant in Indonesia Forbes said.

Inflation to touch 17% by September: Barclays

Global investment banker Barclays Capital has projected that inflation may surge to 17 per cent by September on back of another round of hike in fuel prices in the same month.

"We believe WPI inflation will remain in double-digit territory until May 2009. We expect WPI inflation of 17 per cent by September 2008," the report said.

For the week-ended June 28, wholesale prices-based inflation touched a new 13-year high of 11.89 per cent much higher than the Reserve Bank’s tolerance limit of 5.5 per cent for the current fiscal.

According to the report, the government is likely to hike fuel prices between 10 and 20 per cent again as early as September to limit fiscal risks.

Rise in the price of the Indian crude oil basket to $145-150 per barrel from the current $132 per barrel could be the trigger for another round of increase in fuel prices, it said.
The government last revised retail petroleum prices with effect from June 5, when petrol prices was increased by Rs 5 a litre, diesel by Rs 3 per litre and cooking gas by Rs 50 per cylinder.

This resulted in inflation touching a double digit figure of 11.05 per cent for the week ended June 7.

Last week, even Finance Minister P Chidambaram’s adviser Shubhashis Gangopadhyay predicted that double digit inflation will continue throughout the year 2008 and could impact the economic growth negatively.

Barclays Capital said, "we believe the momentum in core inflation will pick up steam in the next two quarters".

Over the next two quarters, manufacturing sector inflation would add to 200-300 basis points to the headline WPI rate, food and oilseed inflation would add 100-200 basis points, and energy inflation a further 100-150 basis points, it said.

The second-round effects of recent commodity price shocks are already passing through, and this process is expected to accelerate, it added.

RBI is also expected to further tighten monetary policy by hiking short term lending rate (repo rate) and mandatory cash requirements for banks to tame inflation.

The two monetary policy tools the RBI would utilise to rein in inflation would be the CRR and repo rate, it said.

"We forecast repo rate hikes of 200-250 basis points by end-2008, versus our earlier outlook for 150-200 basis points, from the current 8.5 per cent," it said.

In addition, the CRR which is currently at 8.75 per cent would be increased by 125-175 basis points by the year-end, it added.

The investment banker also revised average WPI forecast for the current year to 14 per cent from the earlier estimate of 13 per cent.

PM, govt top guns may broker Ambani peace deal

When it comes to getting the prime minister to intervene in a corporate battle, there is no better name than Ambani to do it. The stakes are rising for Mukesh and Anil Ambani, among the top 10 richest men in the world, and sensing the dangers of getting caught up in the corporate battlefield, the government is expected to intervene at the top level to work out a truce between the two feuding brothers.

The decision to step in comes on the backdrop of the two brothers taking their recently renewed rivalry over the MTN deal to a new level — national politics.

The development, which coincides with the new power play in the Capital, is symbolic of the government’s anxiety to insulate itself from the consequences of the fratricidal corporate war. There is acknowledgement in the government that a truce, at least a temporary one, was possible only if the top two of the ruling arrangement — Prime Minister Manmohan Singh or Sonia Gandhi — prepare the groundwork for negotiations between the two brothers.

The prime minister, who has been discussing the charges and counter-charges levelled by the two sides with oil minister Murli Deora during the past one week, is conscious that the minister does not have the wherewithal to bring about a truce. Anil feels the oil minister is closer to big brother Mukesh, while Mukesh is said to be wary of finance minister P Chidambaram’s alleged proximity to his younger brother. Both are, thus, effectively ruled out as negotiators.

The nitty-gritty can be worked out by leaders like SP’s Amar Singh and Congress president’s political secretary Ahmed Patel. But it can only happen after the big two enter the frame,” said a leader familiar with the patch-up efforts. He was confident that the issue will remain on the “must do” list of the prime minister till the two brothers reach the negotiating table. South Block is learnt to have already broached the issue with the brothers.

The government’s jitters over the on-going feud is understandable. Ever since Amar Singh proved that impossible is nothing by negotiating a deal with the Congress with whom his SP was daggers drawn, there have been whispers that the entry of the SP, with whom Anil has close relations, would trigger the escalation of the six-year-old feud within the family.

The rumours gathered momentum as the day after the SP announced its support to the UPA, Mukesh was served with a show-cause notice by the Customs department for under-invoicing the purchase of an Airbus, which he had bought as a gift for his wife Nita on her birthday last year. The impression of the government, getting mired in the sibling warfare, got credence when Amar Singh placed his charter of demands that looked inimical to Mukesh’s interests. Amar Singh refutes charges that he is acting at the behest of his friend, the younger Ambani, saying “my closeness with Anil does not prevent me from taking up matters of public interest.”

Anil Ambani, who was in the Capital earlier this week, had met external affairs minister Pranab Mukherjee on Tuesday. The meeting, sources claimed, was to brief him about his side of the MTN story.

The feud escalated last month after Anil stepped in with a $60-billion offer for South Africa’s MTN which would have then made the combined entity the world’s seventh-largest telecom operator. But the Mukesh group, which handed over RCOM to Anil on a truce worked out by their mother, claims that under the family settlement arrived at in 2005, if there is any sale of majority stake in any company (RCOM was formed after demerger of Reliance Industries), Mukesh Ambani group has the right of first refusal. In the MTN deal, RCOM is considering a reverse merger; i.e. MTN will buy RCOM in a particular ratio, though technically it is the sale of RCOM to MTN, but Anil Ambani will be the largest shareholder in combined company formed after the merger of MTN and RCOM.

It is this clause that pressed the alarm buttons in the Mukesh camp. But ADAG claims that there is no such clause in the family settlement, and before the demerger of RCOM, some board members of RCOM, who were on Mukesh’s side, had signed this agreement. ADAG claims that it was a forged settlement and Bombay High Court, in one case, had set aside this agreement under which Mukesh Ambani is claming the right of first refusal.

In another case, ADAG claims that under the family settlement, RIL was supposed to supply gas from KG basin at an agreed price of $1.65 to $2.25 mmbtu to RNRL and for the Dadri power project of Reliance Energy in Uttar Pradesh. But RIL now maintains that it will not supply gas at this price. It will supply either at $4.45 mmbtu (decided by a committee formed by the government) or at $6.65 mmbtu (current international price). Dadri project can be made financially viable only if gas is supplied at price less than $2 mmbtu. ADAG claims that under family settlement, gas has to be supplied first to his company and only the surplus can be supplied to the third party. Mukesh Ambani contests this claim and wants to sell it to third party at international prices.

With both sides remaining diffident, the government seems caught between a rock and a hard place. But with the stakes being what they are, the government is expected to trying its hands at bringing the curtains down on this long-running business soap opera.

Okhai outlet opened in Ahmedabad

Ahmedabad: Okhai – a brand created & promoted by Tata Chemicals Society for Rural Development (TCSRD) with the aim of generating employment in rural areas - opened its first retail outlet at Himalaya Mall, Drive-in Road, Ahmedabad.

According to a release issued by Tata Chemicals today, the Okhamandal region in Gujarat is a drought-prone area where handicrafts have been identified as a promising means of generating livelihood for hundreds of women of the area. TCSRD has taken the initiative by forming self help groups (SHGs) in the villages of Okhamandal region. Handicrafts made by these women are promoted under the brand name Okhai.

Dr Arup Basu, chief operating officer (chemicals), Tata Chemicals, said: "We are delighted to launch the first Okhai retail outlet in Ahmedabad. The opening of the outlet is a step towards our dream of a prosperous rural Gujarat. The initiative is an amalgamation of rural & urban India – a platform to bring the products of rural craftsmanship to a growing city like Ahmedabad."

Left gives July 7 deadline to govt

Left parties said on Friday the government must tell them by Monday if it plans to press ahead with the next step in a controversial civilian nuclear deal with the United States, which they strongly oppose.

The communists have threatened to withdraw support from the government if it seeks approval for the deal from the International Atomic Energy Agency (IAEA), the next international move needed to operationalise the pact.

"We wish to know definitely whether the government is proceeding to seek the approval of the safeguards agreement by the board of governors of the IAEA," said Prakash Karat, head of the Communist Party of India (Marxist), reading out a letter addressed to the government.

"Please let us know the position by July 7, 2008."

The party said it would launch a national campaign from July 14 to explain its opposition to the nuclear deal and what it called "runaway" inflation.

A senior Left leader said the parties will come up with a "charge-sheet" against the UPA citing its several drawbacks and failures, including "surrendering of national interest, rising prices and inflation and unkept promises with regard to
the Common Minimum Programme."

Meanwhile, the government is attempting to line up support from UP's Samajwadi Party to provide it with a parliamentary majority and avoid early elections if the communists pull out.

Market at end Mon, July 04, 2008 - Sensex ends up 360pts, RCom zooms 12%

The Sensex opened with a positive gap of 33 points at 13,127, but dropped to a low of 13,028 in early deals. Buying in heavyweights like L&T, ICICI Bank and Reliance saw the index zoom to a high of 13,510 - an intra-day gain of 482 points. The Sensex finally closed with a gain of 360 points (2.75%) at 13,454.

The BSE Realty index advanced 7.8% (335 points) to 4,630. The BSE Capital Goods and Power indices moved up over 6% each to 10,686 and 2,306, respectively. All the other sectoral indices, except the metal index, logged gains today. The metal index was down 0.63% (76 points) at 12,038.

Advances were ahead of declines nearly 2:1 - out of over 2,670 scrips traded, nearly 1,700 logged gains and over 890 declined.

RCom zoomed 12.5% to Rs 438. Jaiprakash advanced 11% to R 153. DLF moved up 8.5% to Rs 414. BHEL was up 7% at Rs 1,500.

L&T and HDFC gained over 6% each at Rs 2,380 and Rs 2,055, respectively.

ICICI Bank was up over 4% at Rs 600. Reliance moved up 1% to Rs 2,099. Ranbaxy, Ambuja, HUL, Satyam, SBI and ONGC also closed with gains today.

Tata Steel dropped over 2% to Rs 640. Cipla, TCS and Wipro also declined today.

Reliance Capital was the most active counter with a turnover of Rs 505 crore followed by Reliance (Rs 447 crore), Reliance Infra (Rs 260 crore), RNRL (Rs 193 crore) and Reliance Petroleum (Rs 190 crore).

Kingfisher buying SpiceJet?

Vijay Mallya's Kingfisher Airlines is close to acquiring a controlling stake in another low-cost carrier SpiceJet.

The deal will value SpiceJet around $300 million dollars. It is likely to be a cash-and- share swap deal.

Mallya is likely to acquire 26% stake in SpiceJet, and make an open offer for an additional 20% stake. He is also likely to retain Spice as the low-cost carrier of Kingfisher Airlines

If the deal goes through, Mallya, through Kingfisher Airlines, Deccan and Spice, will control 40% marketshare beating Jet (along with Sahara), which has a marketshare of 33%.

It will also give Mallya the position to dominate fares in the marketplace. Currently, because of the low cost airline fares, Kingfisher and Jet are forced to sell tickets below cost.

SpiceJet is a fairly well run, lean operation with the smallest loss in the industry. Experts say it will give Kingfisher the right product in the low cost space. And, of course, access to trained manpower.

What may not work too well for the two airlines is the fact that they operate different fleets. Spice flies Boeing while Kingfisher is an Airbus customer. So, there are no clear synergies in operations. Analysts say if the two airlines continue to function separately, it will not pose a big challenge for Mallya.

If the deal does fructify, it could change the aviation landscape in the country and make the airline industry more viable.

Volatile market may benefit NRI investors

NRI investors are watching the current bearish days on the Indian stock market with trepidation. From the peak of the bull run at over 20,000 on June 8, the Sensex has plummeted to less than 14,000 now. The rise in crude prices has fuelled inflation at over 11 per cent and the recent monetary policies to curb demand have accelerated the decline of the Sensex.

Considering the current volatility in the equity market, what does an NRI investor do? For some, the knee jerk reaction would be to panic and start selling in anticipation of the market weakening further due to rocketing oil prices and spiralling inflation.

For others, it could be ’Hold on!’ The market can go lower and better bargains can be picked up for stocks, including blue chips. It all depends on how much lower will be the market decline and for how long.

And as Indian stocks may get sucked in the global spiral of depression, the third option for some NRIs would be to buy right now, as the market seems to be heading to its bottom.

This opposite view is for the adventurous. Those who look to the silver lining and have an appetite for risk taking think that the market will go up again because of India’s overall economic strength.

Inflation in India is expected to come down after six months, according to the finance minister. So these investors are bullish on the long-term prospects of the Indian economy where the Risk-Reward Ratio is in their favour. Thus they can invest now to add low priced stocks to their portfolios for possible high gains later on.

Finally, there are the extra-cautious NRI investors. They do not want to speculate in the market but want to safeguard their hard earned investment funds 100 percent and so go for fixed returns. With real returns from fixed income options turning negative due to spiralling inflation and uncertain equity markets in the medium term, they do not know what to do

Now with all these conditions, how can you have your cake and also eat it? Since stocks are not the answer for these trepid investors, mutual funds have recently launched innovative structured products for them. Known as Equity-Linked Fixed Maturity Plans, these schemes provide a 100 percent capital safety with returns linked to the equity market albeit with some conditions.

Investment advisor Sanjay Durgan of AbunDanze explains how it works: "There is an Initial Value, Observation Value and the Closing Value of the Reference Index that is NIFTY. The Observation Date for NIFTY is fixed as the last Thursday of every month during the tenure of the plan. Returns are determined based on the difference between the Closing and Initial Value of NIFTY. Depending on the structure of the scheme, the Closing Value could be the average of the last three months NIFTY Observations of the period of the scheme."

Adds Durgan: "Depending on the structure of the scheme, the Initial Value of NIFTY could be the closing date of investment in the plan or some average of the initial few months. Observation dates for NIFTY are fixed as the last Thursday of every month. The catch lies in the Observation Values that are pre-conditions known as ’triggers’ that could apply if any Observation Value were to breach them."

For example, if at Closing Level, NIFTY rises by 50 per cent from the initial level, the investor gets 150 per cent participation (i.e. 50 multiplied by 1.5 ensure 75 per cent absolute return on investment).

However, a trigger condition could be if NIFTY were to rise by more than 100 percent or any Observation Date, then the investor gets a flat 65 percent absolute return after 36 months.

If NIFTY falls, the investor still gets the principal amount in full. The minimum amount for investment is Rs.5,000 and the period is fixed for such investments. It can be 21, 36 months or as structured by the fund house.

In this ’heads you win and tails you win’ situation, a risk averse investor is protected for the face value of the capital with a potential to generate returns linked to the equity market.

Since these are close-ended schemes, they are ideally suited for those who have the relevant time horizon for investment and are looking for a little more excitement than the plain old vanilla fixed-income options.

"Though the capital is safe, the returns are maximized only if the market moves within a certain range. This is more like the casino that works on probabilities but your money is safe," said Durgan. If you are a conservative investor, this is a ’win-win’ situation.

Now brain drain from Britain to India

Thousands of people face the prospect of losing their jobs due to the current credit crunch and a downturn in the British economy. A steep rise in the cost of living in recent months has further prompted professionals to look beyond borders.

Fresh MBA graduates from the University of Oxford’s Said Business School have taken the initiative to organise a recruitment fair in Mumbai on July 30 and 31. They have already received an enthusiastic response from potential recruiters.

Apart from Britons and British-Asians seeking employment abroad, professionals leaving the country include many among the recently arrived highly skilled migrants from Poland, Nigeria and Australia.

The Institute of Public Policy Research says that they may have better job prospects back home, where they can also avoid Britains spiralling cost of living.

Private hospitals in India often recruit doctors working in the National Health Service (NHS). These include Indian doctors who came to the UK some years ago and are now choosing to return home for better working conditions.

A recent survey revealed that British graduates were prepared to fill nearly 200,000 jobs in Indian call centres by 2009. Several Indian and British call centres recruit British graduates from regions that have large Asian population. Their accent helps them interact with British customers while working in call centres in India.

For British Asians, working in Indian call centres has a double attraction they get a job that helps them connect with their roots.

A Scottish history graduate recently made news by quitting his job in Sky Television with an annual salary of 21,000 pounds to work in an Indian call centre.

Officials at Oxfords Sad Business School said that the recruitment event in Mumbai will offer Indian recruiters a unique opportunity to meet outstanding postgraduate student talent under one roof.

One of the organisers, MBA student Tarun Dhillon, who has a background in Aerospace and Defence, said, "With the advent of India as a global business leader, many of the bright minds from Oxford look forward to taking on the business challenges in the booming Indian economy and to be part of India’s success story."

"I am delighted with the level of interest from the class and we hope to engage with a range of companies in a variety of sectors. We hope this inaugural event will become an annual fixture in the School’s recruitment calendar," Dhillon said.

Simon Tankard, Head of Careers at the business school, said, "It is a fantastic opportunity for recruiters in India to get to know our students and for the students to learn about the organisations that interest them."

"Many of our students are looking to high-flying international careers and we are delighted to support this student-led initiative that brings together the collective insight and connections of the organising group with the services and connections of the Business School."

Another MBA student Deepti Gali said, "The buoyancy in the Indian economy is evident in the number of outbound cross border deals and the amount of private equity money flowing in."

"I am sure working in India would provide a perfect platform from which to launch my post-MBA career."

India, Iran pipeline deal 'by next month'

India expects to finalise a deal "by next month" on a pipeline that will transport gas from Iran, Oil Minister Murli Deora told on Thursday.

"We discussed this here again yesterday," Deora said in an interview on the sidelines of the World Petroleum Congress in Madrid when asked about the project. "There should be an end to dialogue now."

"The only issue still being negotiated is the delivery point. We wanted it on the border of India and Pakistan and they were suggesting on the border of Pakistan and Iran."

"But these things are being sorted out at a very high level now, and I hope by next month things will be okay," he said.

Asked when the deal could be signed, he said: "I hope by next month."

Why Reliance is going Hollywood

Over the past 18 months, executives from Hollywood studios have been reaching out to their Indian counterparts in Bollywood, Mumbai’s answer to Tinseltown. Studios such as Walt Disney (DIS), Sony Pictures (SNE), and Paramount have signed deals with ambitious Indian entertainment companies eager to take advantage of the booming Indian economy.

The No. 2 movie in the US, The Happening, was co-produced by Fox Searchlight and Mumbai-based UTV Motion Pictures, which financed half of the film’s $57 million budget. On May 18, a division of Reliance Big Entertainment, a unit of India’s giant Reliance group of companies, signed deals (BusinessWeek, 5/12/08) to produce and develop movies with A-list actors Tom Hanks, George Clooney, Nicolas Cage, and Brad Pitt. "If you have global ambitions, then Hollywood is the right starting point," says Rajesh Sawhney, president of Reliance Big Entertainment.

Now, comes possibly the biggest Indian move into Hollywood yet. Steven Spielberg and David Geffen’s DreamWorks SKG is in talks with India’s Reliance Big Entertainment, part of the Reliance ADA empire owned by Anil Ambani, to spin off a new movie joint enterprise. The $1.5 billion debt-equity deal, which Reliance is expected to partly finance, came after weeks of speculation that DreamWorks’ team was looking for private equity after telling Viacom’s (VIA) Paramount Pictures last year they intended to bolt from their three-year deal.

Soros Holds 3% Reliance Stake

Reliance insiders claim that the deal is "yet to be structured and too premature," but investment bankers in India believe the Reliance funding in DreamWorks could largely be private equity. In exchange, Reliance may pick up a stake in the new DreamWorks venture, and also sign a pact to make movies.

If the deal goes through, it will be DreamWorks’ second association with an Indian company. In January, DreamWorks Animation (DWA), an independent unit set up four years ago, tied up with Paprikaas Interactive Services, an animation house based in Bangalore, for creative and technical services. The first animation alliance by DreamWorks outside the US, the partnership is part of the studio’s pact with Thomson (TMS), the $9.3 billion French media house, to have a dedicated studio in Bangalore. Thomson’s entertainment business arm Technicolor holds a controlling stake in Paprikaas.

DreamWorks’ talks with Reliance come at a time when the Indian conglomerate, a fairly new entrant into the business, is firing on all the entertainment fronts. In February, George Soros invested $100 million for a 3% stake. The company said it would use the money for expansion. "We want more of every bit of the entertainment pie," says Reliance Entertainment Chairman Amit Khanna. "To be a significant global player, we believe that we need to raise the bar and aspire more."

Soros already owns the rights to 59 of DreamWorks’ older films, which his Soros Strategic Partners bought in 2006 from Paramount Pictures. (Paramount continues to distribute the films for Soros.)
Casting a Wide Entertainment Net

Reliance scripted its Hollywood entry more than eight months ago. Last year, Reliance invested (BusinessWeek.com, 4/15/08) in Phoenix Theatres, a Knoxville (Tenn.)-based film management company. It bought Burbank (Calif.)-based Lowry Digital Images, a film imaging and restoration outfit, in April. Early this year, Reliance, which owns more than 170 cinemas in India, quietly acquired 250 cinemas from mom-and-pop operators in 28 cities in the US including San Jose, Chicago, and Washington, DC.

The US isn’t the only country where Reliance is expanding. In May, it bought a chain of 25 cinemas in Malaysia. Like the purchases in the US, the Malaysian cinemas were targeting the large Indian diaspora and also other Asian communities such as the Chinese, Koreans, and Japanese. The plan is to exhibit Bollywood movies, as well as regional Indian films in languages like Telugu and other Asian languages.

Reliance may be a newcomer, but it has already shown it can command attention from the film industry’s elite. At the Cannes Film Festival last month, Khanna (an erstwhile Bollywood director and lyricist) announced that Reliance was spending $1 billion to develop films over the next two years. It struck deals with the production houses of eight Hollywood actors including Clooney, Pitt, Hanks, and Cage. The deal, brokered by Hollywood’s Creative Artists Agency, allows Reliance to pay for the development of scripts and gives it the option to fund up to half the cost of making any film it develops-and thereby reap half the profits. The films would then likely be distributed by Hollywood studios, with Reliance retaining some foreign rights.

Reliance’s global aspirations cut across every business category, with interests in power, telecom, and financial services, as well as music, broadcasting, social networking, and gaming Web sites. Reliance, India’s second-largest telecom player, is also currently in merger talks (BusinessWeek.com, 5/27/08) with South Africa’s MTN to create a $63 billion telecom juggernaut with 116 million subscribers, larger than AT&T (T) and many European players. In its bid for MTN, Anil Ambani’s company is fighting against Reliance Industries, controlled by his elder brother Mukesh Ambani, with whom he has had an ongoing feud. Mukesh says that he has the first right of refusal in the MTN deal.

One crore Indians starve as grains rot in FCI godowns

Over 10 lakh tonnes of foodgrains worth several hundred crores of rupees, which could have fed over one crore hungry people for a year, were damaged in Food Corporation of India (FCI) godowns during the last one decade.

The damages were suffered despite the FCI spending Rs 242 crore while trying to prevent any loss of foodgrains during storage. Ironically another 2.59 crore was spent just to dispose off the rotten foodgrains.

These startling facts came in reply to a Right to Information (RTI) application filed by a Delhi resident. FCI informed that 10 lakh tonnes of foodgrain was damaged in the godowns of government owned agency which is responsible for procurement and distribution of foodgrains across the country.

The FCI informed that 1.83 lakh tonnes of wheat, 3.95 lakh tonnes of rice, 22 thousand tonnes of paddy and 110 tonnes of maize were damaged between 1997 to 2007.

The FCI said in the northern region -- UP, Uttarakhand, Haryana, Jammu and Kashmir, Punjab, Rajasthan, Himachal Pradesh and Delhi -- the damage incurred was seven lakh tonnes and the PSU spent Rs 87.15 crore to prevent the loss besides spending over Rs 60 lakh to dispose off the damaged foodgrain.

Keeping in view the amount of money spent by the FCI for preservation of foodgrains in its godown, the quantum of damage is huge. Is it not a national shame?" the RTI applicant Dev Ashish Bhattacharya said.

Similarly in eastern India -- Assam, Nagaland, Manipur, Orissa, Bihar, Jharkhand and West Bengal -- the damage incurred was 1.5 tonnes of foodgrains while the FCI spent Rs 122 crore to prevent it from rotting. But the damaged lot was disposed off after spending another Rs 1.65 crore.

In southern region -- Andhra Pradesh, Tamil Nadu, Karnataka and Kerala-- the damage incurred was 43,069.023 tonnes despite spending Rs 25 crore. This damaged foodgrain was disposed off after spending another Rs 34,867.

While damage in Maharashtra and Gujarat mounted to 73,814 tonnes, the FCI spent Rs 2.78 crore to prevent the loss. However, this lot was also disposed off later at a cost of Rs 24 lakh.

In Madhya Pradesh and Chhattisgarh, the damage incurred was 23,323.57 tonnes of foodgrains and the amount spent to stop the damage was Rs 5.5 crore.

The story was no different from other go-downs as the FCI spent Rs 10.64 lakh for disposing damaged foodgrains.

"The data given by FCI seems manipulated. In case of Jharkhand, the foodgrain damage is 3,699 tonnes which is comparatively low than other states. But the money spent to dispose off the damage is Rs 1.4 crore, which is high when compared to the other states," Dev Ashish said.

Derivatives don't kill people; people kill people

Did you know...? Private investors like you can make 230% of emerging Asia’s super-soar-away gains between now and 2014.You’re only tied in for three years. An early exit will return 130% of your initial investment. And yes – it really does sound just too good to be true.

"Citigroup said these products should be for sophisticated investors only. But the municipalities were definitely not sophisticated investors..."

So says Eystein Kleven of the Financial Supervisory Authority in Norway, speaking this week to The Guardian newspaper. He’s investigating the collapse of public funds in Narvik, a small town of 18,000 people some 140 miles north of the Arctic Circle.

"Terra Securities misled them," Kleven goes on. The municipality lost $35 million on high-risk US mortgage-backed investments. Seven other small Norwegian towns were also hit, apparently.

Why? Terra got busy selling Citigroup-issued derivatives to profit-hungry public investors. But it failed to explain that if their market price fell below 55% of face value, the products would be forcibly redeemed, leaving small towns like Narvik with an instant loss of 45 cents in the dollar or more.

Which is just what happened last summer, of course. Yet Narvik opted to pump fresh funds into these products, hoping they’d come back in due course. So now the same dumb investment has made the town’s fund managers look stupid twice.

"Terra Securities did not disclose this mechanism to the municipalities," says Kleven in mitigation. "We are not sure whether the broker understood the mechanism himself." But so what? A lack of understanding should never get in the way of making an investment. Or so you’d guess from the professional market.

According to a survey released this week by The Economist and KPMG:

One-in-five asset managers worldwide lacks the staff needed to understand their more complex investments;
One-in-four hedge funds admits the same;
All told, one-in-three institutions now holding collateralized debt or structured products has "no in-house expertise" in understanding them.
Just 42% of fund managers reckon they can quantify their true exposure to complex investments.

Interviewing more than 330 professionals in 57 countries worldwide – and with one-third of respondents based in the United States – Beyond the Credit Crisis also found that the blow-up in credit and debt derivatives has directly dented returns at 60% of investment funds. And as a result, a huge 70% of institutional investors now want to cut their exposure to derivatives and "other complex financial products".

Yet of those managers running $10bn-plus, three-in-four say their use of such instruments is growing regardless!

Of course, "Derivatives don’t kill people; people kill people," as Frank Partnoy quotes a fellow Morgan Stanley salesman from the early ’90s in his classic book F.I.A.S.C.O. Yet even now, more than 15 years after Orange County blew up, people wielding derivatives continue to "go postal" every so often.

Just take a look at the carnage amongst under-informed, over-reaching investment funds.

"Staff skill sets have struggled to keep up with the growing sophistication of the industry," says Tom Brown, head of KPMG’s investment management division in Europe. "These firms cannot afford to continue flying blind." Flying blind worked up to summer ’07; it’s also much cheaper than training or hiring qualified staff. Quicker, too. Time is money when structured products with hidden clauses are waiting to get triggered.

But "if the fund management industry is to retain the trust of investors," reckons the KPMG-Economist survey, "it would seem imperative for it to both develop the necessary skills and then offer these skills to investors."If only! Investors right down to the retail level are going need all the same "necessary skills" they can get. Because trigger-happy derivatives are heading your way, and they’ve got a big fat marketing budget – plus the entire financial media – queued up right behind them.

"Groups are continuing to flood the market with structured products as investors seek safety from volatile markets," reports IFAonline here in the UK, a website aimed at financial advisors. Originally offering zero downside – so-called capital protection – structured products on stocks, bonds and property now come with such juicy options as:

"10 times the upside in the index with a cap at 70%..."
"positive returns even if the index falls by 35%..."
"100% of any growth between 65% of the initial reading and the closing level..."
"one-for-one downside with no guarantees or protection but an uncapped geared return of 170% of growth..."
"the greater of 0.24 times initial capital or 0.75 times the growth of the index..."

Got that? Whatever you used to think investing should taste like, it no longer needs to just come in vanilla. Starbucks’ menu of frappuccino flavorings has got nothing on Wall Street, La Defense and the City of London.

Which brings us back to multiplying Asia’s stock market gains by 230%, courtesy of Morgan Stanley UK. There’s no fee for investing in the bank’s new Asia ex-Japan Protected Growth Plan 5. (We guess here at BullionVault that means there are already four in issue.) And with the exception of a transfer charge of £100 plus VAT (approx. $230), "all other charges are taken into account in setting the terms offered," says the brochure.

Nor could you ask for better timing. The Hang Seng in Hong Kong – one half of Morgan Stanley’s basket in this plan (which then only runs to Taiwan in offering "Asia ex-Japan") – just suffered its worst month since, umm...well, since February in fact. Losing 10% of its value during the worst June in 19 years, the Hang Seng just put in its worst half-year since 2001.

That will go towards cutting your purchase price by one-fifth from New Year’s ’08. And seeing how the Hang Seng has still doubled inside five years, it’s only heading one way long term, you might guess.

But if that were the case, why on earth would Morgan Stanley want to offer you 230% of the next six years’ of growth?

"The Early Exit Basket Level is the official closing level of the Basket on 1st September 2011," explains the brochure. If this level is 30% or more above the initial starting level of Sept. ’08, then the Early Exit will be triggered and "you will be able to elect to receive an amount equal to 130% of your Initial Investment."

Bully for you! Thirty per cent up in three years, regardless of any extra gains above that level which Asia stocks might deliver. Nor did you get any capital protection in between. And if you now neglect to quit the scheme, then 30% is all you’ll get after the following three years as well.

Your growth is protected, in short, but not your capital and certainly not your upside exposure if the Early Exit is triggered. So the last thing investors in Morgan Stanley’s new Asia ex-Japan Protected Growth Plan 5 actually want is a quick bounce in Asian stocks. To get a shot at making 230% of Asia’s gains to 2014 instead, they’ll actually need sub-30% gains between now and 2011. Which might be just what they get, of course. We have nothing against Morgan Stanley’s new offer, nor the terms on which it’s made. But we are getting a head-ache trying to figure out why anyone might buy this structured product.

Like all structured investment offers, it’s clearly built from a fistful of complex derivative contracts which Morgan Stanley has bought. At least, we hope Morgans have laid off their risk with derivatives contracts...) Squeezing the new retail market for structured products ever tighter, Morgans have even raised that six-year gearing from the 200% recently offered in ex-Asia Growth Plan 4.

More gearing for you equals more risk for somebody, somewhere...and the brochure from Morgan Stanley UK is bold enough to re-state the facts more than once.

"Your money will be invested in securities issued by financial institutions with a credit rating, at the time of publication of this brochure, of A+ or better by Standard & Poor’s...In the event of these financial institutions going into liquidation or failing to comply with the terms of the securities, you may not receive the anticipated returns on your investment and you may lose all or part of the money you originally invested.

"The Plan is not a guaranteed investment," in short, which is just as it should be. Nothing is certain, least of all in investment. But you’d do well to acknowledge your counter-party and trigger risks next time you find 230% gearing attractive. Either that, or put a little of your wealth into something simple, stupid and brutally blunt.

Buying Gold doesn’t offer to pay three times Fed funds minus your sister-in-law’s birthday divided by the number you first thought of. But Gold owned outright is at least sure to sit free of counterparty and trigger risk. And that’s got to be worth buying as banks fight to bamboozle investors with a new raft of complex derivatives...even as the last derivatives bubble continues to blow up.

Top gainers & Top losers 30/06/08

Top Gainers

• Hindalco

• ITC

• Infosys

• Jaiprakash Asso

Top Losers

• Reliance Infra

• ACC

• Ambuja Cements

• DLF

Market at end Mon, Jun 30, 2008 - Sensex ends down 341pts, ACC drops 10%

The Sensex opened marginally (11 points) lower at 13,791, but moved up to a high of 13,872 in early deals.

Relentless selling in heavyweights like ICICI Bank and Reliance saw the index drop to a low of 13,405 - an intra-day decline of 467 points.

The Sensex finally closed with a huge loss of 341 points (2.47%) at 13,462.

The BSE Realty index plunged nearly 7% (332 points) to 4,543. The BSE Oil & Gas index declined over 4% (378 points) to 9,009. The BSE Consumer Durables, Power, Capital Goods and Bankex also dropped sharply today.

Market breadth was extremely bearish - out of nearly 2,700 scrips traded, over 2,100 declined today.

Reliance Infrastructure plunged over 11% (Rs 102) to Rs 751. ACC declined nearly 10% to Rs 512. Ambuja Cement was down 7% at Rs 73.

Reliance dropped over 4% to Rs 2,076. SBI slipped 4% to Rs 1,101, and L&T was down 3.7% at Rs 2,165.

ICICI Bank, Tata Motors, RCom, DLF and HDFC also declined today.

Infosys advanced 1.6% to Rs 1,735. Hindalco added 2% at Rs 142. ITC, Jaiprakash, NTPC and BHEL also closed with gains.

Reliance was the most active counter with a turnover of Rs 379 crore followed by Reliance Petroleum (Rs 262 crore), Reliance Capital (Rs 243 crore), MVL (Rs 210 crore) and Niraj Cement (Rs 148 crore).