World
Crisis brings a real chance for reform. Really?
Despite the tanking of the rupee and the lower GDP numbers, the Indian government is doing more of the same. It is trying to pass a controversial food subsidies program that could cost about $21 billion a year. The reason for the generosity is simple. Elections are coming
 
Markets rallied sharply this week. US President Obama took the novel decision to actually ask the people’s elected representatives whether he should order an act of war against another country. This decision postponed the ultimate decision for a week, but I doubt that it will change the outcome much. Punishing rulers we consider evil (and who are not acting directly in our strategic interest), is considered not only an American prerogative but also its historical duty. However, although missile strikes on Assad’s military assets may seem morally satisfying, it will not have a great affect the ultimate outcome.  In the same way, the better purchasing managers’ index (PMI) numbers out of China and Europe might delay market problems, but will not change their course. 
 
They might even make it worse. The promise or perhaps the illusion of better economic times over the past two months has allowed politicians to perpetrate more denial. Central bankers’ unorthodox policies seemed to solve the most difficult questions for our leaders. 
 
With the economy seeming to be always on the cusp of growth, any real reform was not on the agenda. The problem is that central bankers have recently realized two points. First, according to recent research, the policy known as quantitative easing has very limited effects on the real economy. Second, the unintended consequences they have guessed at are for emerging markets quite real. Central bankers have compounded the error by insisting that their policies actually strengthen the economy instead of admitting the possibility of an error. Therefore, politicians in several countries have continued former failed policies in the name of political expediency.
 
One reason for the rally was the manufacturing numbers out of China. HSBC China PMI index came in at 50.1 ending three months of numbers below 50, which indicate a contraction. This sounds like good news, but a closer examination of the official numbers reveals something more disturbing, more of the same. While the large state owned firms’ index rose to 51.8, the smaller businesses posted their 17th successive month of contracting activity with a reading of 49.2.
 
Chinese leaders have been espousing a major change of policy. They want to stop pouring money into large, inefficient, money losing and often insolvent state owned businesses. Instead, they want to encourage more consumption by consumers and small businesses. This policy, although economically necessary, is politically unpopular, because many of the local leaders of the Communist Party depend on the state owned business for patronage and power. So, it appears that China is still encouraging economic policies that will add to its massive debt mountain, while stressing businesses that rely on the shadow banking system the most fragile aspect of its financial system.
 
Italy was another country that has an encouraging PMI. It rose from 50.4 last month to 51.3 building on a trend over the last three months. However, an improving economy has just allowed its government to continue to be irresponsible for reasons of political expediency. The prior technocratic government of Mario Monti introduced an unpopular property tax on first homes to meet fiscal targets. Italy’s sovereign debt is one of highest in the world. It was recently abolished by his successor Enrico Letta against the advice of the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD). He got rid of the tax to save his fragile coalition. Abolishing the tax was part of the policy of his coalition partner, headed by the recently convicted Silvio Berlusconi. The tax was important because it is more difficult to dodge, which addresses Italy’s notoriously poor record on revenue collection.
 
India was one country that definitely did not have good economic numbers this week. Nevertheless, despite the tanking of the rupee and the lower GDP numbers, the government is doing more of the same. It is trying to pass a controversial food subsidies program that could cost about $21 billion a year. The reason for the generosity is simple. Elections are coming.
 
Instead of repeating past mistakes, it could actually try to make its laws more appropriate for a growing economy. Included in the long list are structural reforms such as insurance industry liberalization, disinvestment of state-controlled enterprises, lifting limits on foreign participation, allowing foreign investment in the private pension industry and reducing. The list is long and has been repeated often over the past 10 years. The question is it too late to make these reforms.
 
One commentator, I read recently, suggested that it was. According to this savant, it is best to make reform during good time, because it lessens the cost. True, but as we have seen in numerous countries, even countries that have the potential of major economic meltdowns, the impetus for reform is not there as long as the future looks bright. It reminds one of Citigroup former CEO’s, Chuck Prince, famous quote in July of 2007 on the eve of the meltdown that "As long as the music is playing, you've got to get up and dance." 
 
However, the music does stop and arguably, it has stopped in a number of countries. Rather than a lost chance, the crisis brings a real chance for reform. Prime Minister Manmohan Singh could never have reformed the Indian economy without the threat of collapse. The Securities Act of 1933 and the Securities Exchange Act of 1934 established the model for securities regulation around the world. They were passed only after the market crashed in the depth of the Great Depression. However, sadly these things will only happen when denial is no longer possible. Until then play on, “Give (them) excess of it; that surfeiting, The appetite may sicken, and so die.”
 
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)
 

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Nifty, Sensex in an uptrend: Weekly Market Report

The indices will move up as long as the rupee remains stable, but the gains in Nifty above 5,700 may be limited

Raghuram Rajan the new governor of Reserve Bank of India (RBI) announced his plans for strengthening the battered rupee. This helped markets close positive for the second consecutive week. The Sensex rose 650 points (or 3.49%) to close this week at 19,270 while the Nifty settled at 5,680, rose 209 points (or 3.81%).

 

The BSE 30-share Sensex closed positive on Monday, ignoring negative news of the GDP growing a mere 4.4% in Q1, the slowest growth since the January-March quarter of 2009. The HSBC Manufacturing PMI, sank to 48.5 in August from 50.1 in July, the lowest reading since March 2009.

 

On Tuesday, Sensex broke the trend of four days of consecutive gains and ended in the negative, on the rising fears about a potential US military strike on Syria, which may lead to steep rise in the crude oil prices. The rupee reached closer to its all time low of Rs68.80 per US dollar.

 

Sensex rose on Wednesday despite news of the HSBC Services PMI slipping to 47.6 in August, the weakest since April 2009, from 47.9 in July as new business dried up. Next day, steps taken by RBI to stabilize the currency and the measures to reassure investors by the new governor of RBI helped the market to close positive for the second consecutive session. The positive move continued on Friday when Sensex closed above 19,000.
 

The top two gainers among the other indices on the NSE were Bank Nifty (10%) and Finance (8%) while top two losers were IT sector (2%) and Media (1%).

 

Among the Nifty-50 stocks, the top five gainers were BHEL (20%), I C I C I Bank (19%), IndusInd Bank (16%), ONGC (16%) and Jaiprakash Associates (15%) while the top five losers were Sesa Goa (7%), Tata Power (7%), Hero MotoCorp (6%), Infosys (2%) and H C L Technologies (2%).

 

Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors were:

 

Top ML sectors

 

Worst ML sectors

 

Oil & Gas

13%

Media

-1%

Banks

8%

Consumer Products

-1%

Sugar

8%

Shipping

0%

Con_EPC_Infra

7%

Software & IT Services

0%

Financial Services

5%

Textiles

0%

 

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Sensex, Nifty up move may continue: Friday closing report
The up move will be in doubt if the Nifty closes below 5,630 
 
The indices opened positively but soon plunged into the red. In the mid-morning session, indices regained strength and edged higher. Today, for the first time after 15 trading sessions, the Sensex and Nifty managed closing above the psychological levels of 19,000 and 5,600 respectively.
 
The Sensex opened at 19,072 while the Nifty opened at 5,617. The Sensex moved in the range of 18,929 and 19,294 and closed at 19,270 (up 290 points or 1.53%) while the Nifty moved in the range of 5,566 and 5,689 and closed at 5,680 (up 87 points or 1.56%). The National Stock Exchange (NSE) recorded a volume of 70.57crore shares.
 
On NSE, the top gainers among other indices were PSE (3.12%); Infra (3.06%); Bank Nifty (2.88%); Finance (2.66%) and Energy (1.89%). The top five losers were Media (0.69%); PSU Bank (0.64%); MNC (0.46%); Auto (0.23%) and Realty (0.10%).
 
Of the 50 stocks on the Nifty, 32 ended in the green. The top five gainers were 
ICICI Bank (7.64%); Bharti Airtel (5.81%); Cipla (5.23%); ONGC (5.15%) and
Asian Paints (4.83%). The top five losers were Bank of Baroda (2.70%); Coal India (2.49%); Tata Power (2.41%); Sesa Goa (2.38%) and Lupin (1.90%).
 
The stock market will remain closed on Monday on account of Ganesh Chaturthi.
 
Foreign minister Salman Khurshid, while interviewed by a business channel, said that the oil minister, Veerapa Moily, will, on 16 September 2013, announce plans for lowering fuel consumption. Today, the partially convertible rupee was hovering at 65.71, stronger than its close of 66.01/02 recorded on Thursday, 5 September 2013.
 
Except for Nikkei 225 (down 1.45%), NZSE 50 (down 0.16%) and Taiwan Weighted (down 0.06%) all the other Asian indices ended in the green. Shanghai Composite was the top gainer at 0.83%.
 
Leaders of the world's biggest economies at the G20 summit in Russia struggled with threats to the global economy because of the ongoing Syrian conflict and possibility of an invasion, as well as a potential stimulus exit of US Federal Reserve. The BRICS countries pledged yesterday in St Petersburg to create a $100 billion pool of currency reserves to guard against economic and currency shocks. China will contribute $41 billion to a pool of BRICS reserves, with Russia, India and Brazil each adding $18 billion and South Africa providing $5 billion, according to a statement issued yesterday. The BRICS countries, which also agreed to seed a new development bank with $50 billion of capital, are seeking a shield against unintended negative spillovers from unconventional monetary policies in developed economies, according to statements issued during the G20 summit. .
 
Japan and India have decided to expand a bilateral currency swap facility to $50 billion from $15 billion, the two countries announced on Friday after bilateral talks on the sidelines of a G20 summit. The expanded facility would boost the financial backing for the rupee.
 
US indices closed in the green on Thursday. On one hand there was solid US jobs and service sector data while on the other hand plunging orders for factory goods highlighted uncertainty around the economic outlook.
 
The influential US nonfarm payroll report for August 2013 is due for release today, 6 September 2013. The employment numbers will be keenly watched given the implications for the timing of the Federal Reserve's plan to begin slowing the pace of its monetary stimulus.
 
The pace of growth in the US services sector accelerated in August to its fastest pace in almost eight years, an industry report showed on Thursday. The Institute for Supply Management (ISM) said its services index rose to 58.6, its highest since December 2005, from 56 in July. The reading handily topped economists' consensus expectations for 55 and beat the high end of forecasts.
 
Payroll provider ADP found that American businesses added 176,000 jobs in August. That was just below the 198,000 added in July but close to the past year's average monthly gain.
 
European indices were trading in the red while the US Futures displayed mix performance.
 
The international credit rating agency Moody's said Friday that it has upgraded its outlook for Germany's banks as they have improved their financial strength and stemmed their losses. "The outlook change reflects that, following a year of reduced crisis-related losses and improved capital strength, German banks are now more able to withstand shocks," it said.
 
German exports unexpectedly fell in July, even as economic recovery gathered pace in the 17-nation Euro area, its biggest trading partner. Exports, adjusted for working days and seasonal changes, fell 1.1% from June, when they gained 0.6%, the Federal Statistics Office in Wiesbaden said today.
 

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