Upto 35% Wage increase expected in Sixth Pay Commission, CNBC Reports

CNBC Awaaz reported recently that there may be an increase of 30 - 35 % in wages of employees in Sixth Pay Commission. If this happens, it will be a great news for the middle class in India. Main tax payers in the country are salaried employees. So giving benefit to a common man will help the Congress government to get more votes in upcoming elections. I expect the Finance Minister to pass the recommendations of salary revision from Sixth Pay commission panel.

I just wanted to share some basic concepts about the pay commission. There may be certain things which many of us may not be aware of. Sixth Pay Commission is an administrative group of members of the Union Cabinet of India for increasing the salaries of government employees.

Everyone is now waiting for the government to announce the 6TH Pay Commission 2008 proposed pay scales. Looking for more Sixth Pay Commission News and Pay structure for 2008.

5.5 Million government employees will be directly benefit from the Sixth Pay Commission. It may result in wage increase in private sectors as well. Also, it will prompt state governments to extend benefits to their employees. Sixth pay commission pay scales may help employees to fight with the ever increasing inflation.

The first pay commission was constituted in May 1946, which submitted its report within 12-months. The second panel had been set up in August 1957, which submitted its report after two years. The financial impact of the second pay commission was Rs 396 million.

The third pay commission, which was established during April 1970 gave its report in March 1973, and formed plans, which cost the government Rs 1.44 billion.

The fourth commission that constituted in June 1983 submitted its report in three different stages within four years and the financial burden to the government was Rs 12.82 billion.

The Fifth Pay Commission, constituted during Narasimha Rao's regime in 1994, was executed in 1997 at a cost of Rs 17,000 crore.

In July 2006, the Cabinet sanctioned setting up of the sixth pay commission. According to it, the cost of increase in salaries is projected to be around Rs 20,000 crore for a total of 5.5 million government employees.

The report on Sixth Pay Commission, formed by the Union Cabinet, chaired by Prime Minister Manmohan Singh, would be 'beneficial' for the employees as government is desperate to offer complete salary packages to attract quality human resource.

Ajay Maken, Union Minister for Urban Development (State) said, "The Sixth Pay Commission report will be good for the employees. We do not want efficient employees to leave government services to join the private sector."

The Sixth Pay Commission, likely to submit its report by early April, would give recommendations regarding the pay structure of government employees comprising industrial as well as non- industrial central government employees, all-India services, armed forces personnel and employees in the Union

Territories. Additinally, the commission would examine the pay structure for Indian audit and ac-counts department, regulatory bodies set up by Acts in Parliament and Supreme Court employees. Sixth pay commission pay structure will help decide the pay structure for various private sector employees as well.

The expected pay scale table for Sixth Pay commission will also offer pending arrears to employees.

"The Sixth Pay Commission will have a multiplier effect in the economy; those salaries that are benchmarked against central government will also increase. The relativities are disturbed" a senior government functionary said.

For the railways, out of the Rs 5,000 crore allocated, Rs 500 crore is for pension and the remaining Rs 4,500 crore for salaries, wages and other allowances. For a staff strength of 14 lakh, therefore, the additional Rs 4,500 crore expenditure amounts to an average monthly hike of over Rs 2,000 irrespective of the various grades of employees and officers.

6TH Pay Commission Pay Scale Table should be released in first week of April. I will also request TopNews Media to keep us updated with the Sixth central pay commission latest news and expected central 6th Pay Commission Scales.

As the government announced many good things for Farmers and Tax Payers in its Election Budget, i hope the Sixth Pay commission report will also recommend a decent rise in pay scales for central government employees.

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Sixth Pay Commission Report : What will employees get on April 4, 2008

The government has declared that the Sixth Pay Commission would submit its report by April 4, 2008. In a written reply to the Rajya Sabha, Mr. P K Bansal, the Minister of State for Finance said, "The Commission is to finalise and submit its report within 18 months of its constitution, that is 4th April, 2008."

About effectuation of the Pay Commission's suggestions, Mr. Bansal stated, "Since the report is to be submitted, the time frame for its implementation cannot be stated."

Regarding the terms of reference of the Sixth Pay Commission, he said that the Commission was analyzing the interest and requirement to approve any interim relief until its commendations were completed.

Employees can expect a decent rise in salary as the Elections are coming near. Government may not miss this chance to give additional benefits to employees in all pay scales to grab a bigger vote bank. The salary increase in Sixth Pay commission report 2008 may bring cheer among various government departments.

The new 6th pay commission pay scale table may also result in increase in salary for employees in private sector. Big companies are paying well but there are still many workers in small companies who are finding it very difficult to run their house on meagre income.

On media reports regarding big increase in salaries of civil service staff, Mr. Bansal told that the Commission is yet to settle down and present its report, so the media might be doubtful.

In October 2006, the Sixth Pay Commission was formed to suggest comprehensive changes in salary structure of the government employees.

It would also provide suggestions regarding the pay arrangement of government workers including industrial as well as non- industrial central government employees, Armed Forces personnel, All India Services, and employees in the Union Territories.

Additionally, the Commission would study the pay structure for Indian Audit and Accounts Department, regulatory bodies establish by Act s in the Parliament and Supreme Court employees, Mr. Bansal said.

Central 6th pay commission scales may trigger state governments to offer salary hike to their employees. The expectations are higher and things may be clear by April 4, when the expected pay scale tables 2008 under VIth pay commission will be unveiled.

 

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Mutual Fund - NFO Details - DSP Merrill Lynch Natural Resources & New Energy Fund

DSP Merrill Lynch Natural Resources & New Energy Fund

Invest in Mutual Fund – Transact Online Invest in Mutual Fund - Offline

The growing economies like India, China and Vietnam have increased the demand for energy and natural resources. The supply of these resources is not commensurate to its demand and almost negligible hope of new discoveries, should take the prices of these resources to new highs.

Investment Strategies: DSPML has brought out many new and innovative products in the past like DSP TIGER Fund which have surpassed all expected returns. Now it plans to tap the energy sector world wide and plans to invest major chunk of its funds in India which is growing at a very fast pace. Other than India it also plans to harness good returns by tapping International Energy and Natural resources market by putting 35% of its funds in BlackRock Energy fund which is the largest quoted asset management company in the world and has a successful past of launching many Energy funds and manages natural resources sector funds in excess of $42.2 billion.

Key Features :

• Investment in growing energy sectors
• Demand High, Supply Low-Positive outlook
• Growing economies are nurturing more demand for energy

The various areas of Investment

Major focus areas of investment that the fund will look at are

1 Natural resources Theme:

• Base Metals
• Water
• Agriculture
• Commodities

2. Energy

• Oil
• Gas
• Coal

4. New Energy

• Renewable Energy
• Alternative Fuels

Strategy:

Its main strategy is to take advantage of strong growing economy of India which will be fuelled by high energy demands. As more and more people are moving to urban areas, demand for energy has increased and increased participation of private sector has also improved the prospects of this sector. The Fund aims to benefit from the consumption story of India and other emerging markets. As these economies grow, the demand for natural resources and other forms of energy will also increase.

Mergers and acquisitions in these sectors has also led to consolidation and the values of these companies have also improved

Target Investors:

Investors with moderate risk appetite who are looking at long term investment horizon and also those investors who believe in the long term growth story of India should consider investing.

Fund Facts:

Options available:

• Growth
• Dividend

>>Payout
>>Reinvest

Payment Plans:

Minimum Rs.5000/- in regular plan

Minimum Rs.5 crores in Institutional Plan

Load structure:

Entry Load: 2.25% for investments less than Rs.5 Crores

Exit Load :

< 6 months:1%

>=6 months to <12 months: 0.50%

>=12 months: Nil

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Mutual Fund - NFO Details - JM Tax Gain Fund

JM Tax Gain Fund

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JM Financial Mutual Fund has launched "JM Tax Gain Fund" an Open Ended ELSS Scheme with an objective to generate long-term capital growth from a diversified and actively managed portfolio of equity and equity related securities and to enable investors a deduction from total income, as permitted under the Income Tax Act, 1961 from time to time.
The NFO period opens on 24th December, 2007 and closes on 25th March, 2008.

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US Economy Review - How worse is it and to what extent it can go?

Is it a 'recession'?

Whether the country is officially in recession is determined by the National Bureau of Economic Research, a private nonprofit research organization. The group considers several economic indicators, as well as the severity and duration of a downturn.

The NBER says the most recent recession lasted from March 2001 until November 2001 and that the economy has been in "expansion" since then.

The group typically does not declare a recession for anywhere from 6 to 18 months after its arrival. On Friday, the NBER's president, Harvard University economist Martin Feldstein, said we are in a recession, though it was not an official NBER declaration.

 

Economic Growth: Slumping

Gross domestic product - or GDP - is the broadest measure of the nation's economic growth and the government takes its pulse every three months.

In the last quarter of 2007, GDP growth slowed considerably, to less than 1%. Even so, the economy has not actually contracted since a short period in 2001 and there is still a debate about whether it will this year.

In a recent survey of 51 economists by the Wall Street Journal, 53% of respondents said GDP would decline in the first three months of 2008.

According to the Anderson Forecast by the University of California at Los Angeles, released last week, overall growth in 2008 will be 1.5%.

 

Jobs: Labor pains

There is little question that companies are getting more conservative with hiring.

U.S. companies cut their payrolls by 63,000 jobs in February, the biggest decline since March 2003.

The traditional unemployment rate is historically low at 4.8%, though that is in part because of discouraged job seekers - those out of work but not looking don't get counted.

 

Inflation: Bubbling up

There are many measures of inflation, and the Consumer Price Index is the most commonly cited.

It's issued each month by the government's Bureau of Labor Statistics and measures the change in a hypothetical shopping cart, which includes what a typical family might spend money on each month - everything from a gallon of gas and a box of cereal to rent and doctors' visits. To make the hypothetical cart useful, the BLS has surveyed thousands of families on their actual spending habits.

As of the most recent reading, prices were 4% higher than a year ago - not near the runaway inflation of the 1970s, but much higher than in recent history. And the recent spike in gas prices is expected to push next month's reading higher still.

Gas prices are projected to jump 40 cents a gallon on average this year, according to the U.S. Energy Information Administration. In 2007, the average driver consumed 578 gallons of gas per vehicle, according to the Federal Highway Administration.

So if gasoline consumption holds steady, it could cost $231 more to fuel a car in 2008.

 

Home prices: Falling faster

It's proven difficult for forecasters to keep up with the sliding real estate market.

The National Association of Realtor's tracks home sales in roughly 150 markets. The group's most recent reading, for the last three months of 2007, showed a steep drop in prices of 5.8% - the largest decline since it began keeping track in 1979.

As people's homes drop in value, that means they can't tap home equity to free up cash. A recent report by the Federal Reserve showed that Americans' percentage of equity in their homes has fallen below 50% for the first time on record since 1945.

Some good news: Seventy-three of the markets tracked by NAR showed price gains in the most recent quarter.

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Global Oil Valuations - Why Oil Is Overpriced

Even after plunging from a record high, crude prices are out of touch with reality and could drop well below $100 a barrel before year end. - By Steven Goldberg

Speculation in commodities seems out of control. In the not-too-distant-future, investors will discover that oil prices -- like the prices of everything else -- go down as well as up.

A central pillar for commodity bulls was synchronized global growth. With the U.S. almost certainly mired in recession and economies in much of the developed world slowing, too, that pillar is gone.

True, emerging markets are likely to continue growing robustly, albeit at a slower pace than they have been -- and it's surging demand from countries such as China and India that has fueled most of the commodities boom.

Even so, the price of oil and other commodities has gotten well ahead of supply and demand. In fact, after hitting a high of $111.80 during the day March 17, oil prices plunged to a close of $105.68 per barrel. "At least in the United States, fundamentals continue to point to weakness in oil markets," James Crandell, an energy analyst at Lehman Brothers, said in a recent note to clients. "Product demand in every fuel category is suffering this year on account of the dual blow of economic slowdown and high prices."

Just as Americans learned to conserve energy during the oil shocks of the 1970s, we're learning now. The Energy Department reports that gasoline demand is down 1% compared with a year ago. Meanwhile, U.S. inventories of crude oil continue to build.

Charles Ober, the veteran manager of T. Rowe Price New Era (symbol PRNEX), has done a good job predicting oil prices since the energy bull market began. He sees the price of crude oil falling to $85 a barrel by year's end, then rising toward $100 over the next two years.

Of course, oil isn't the only commodity on a tear. Inflation fears and demand from emerging markets have pushed up the price of everything from corn to gold. "All of these commodities have been dramatically affected by inflows into commodity funds," Ober says. "Last year, only about $22 billion flowed into commodity funds compared with $20 billion to $30 billion in the first two months of 2008. I suspect that this wave has pushed prices above a sustainable level in the short run."

Commodity funds have been all the rage of late. Pimco Commodity Real Return D (PCRDX), which tracks the Dow Jones AIG Commodity index, has surged an annualized 19% over the past five years-including a 26% gain so far this year through March 13.

For my money, I'd rather invest in stocks or stock funds. If Ober is right and the price of oil falls and then climbs over the next two years to a point at which it is 10% lower than the current level, investing directly in the commodity will be a bad bet.

Many experts argue that an investment in pure commodities is a better diversifier for a long-term portfolio. That's because commodities don't rise and fall with stock prices, while share prices of commodity-related companies do have some correlation with other stock prices.

But I'd much rather make money than worry about assembling a perfectly diversified portfolio. And if oil and other commodity prices stabilize, you'll still be able to make money by owning good companies in those industries.

The managers of RS Global Natural Resources A (RSNRX) -- McKenzie Davis, Ken Settles and Andy Pilara -- see it the same way. They don't make predictions on the price of oil or other commodities. In the energy sector, they hunt for companies that can produce oil at low costs -- for years to come. That means traveling around the world to inspect oil and gas fields.

A huge advantage of investing in stocks instead of pure commodities is that savvy managers, such as the trio who run the RS fund, can identify attractive companies and bargain-priced stocks.

One prime example: XTO Energy (XTO), which explores for and produces natural gas and oil. With huge holdings in gas fields in the Southwest U.S., XTO is able to sell its products at healthy profit margins -- and reinvest increasing amounts in other projects.

At the March 17 close of $59.19, the stock trades at 11 times estimated 2008 earnings of $5.38 a share. And it sells at just 8 times estimated cash flow (earnings plus depreciation and other non-cash charges).

Another favorite stock of the RS managers is Eastman Chemical (EMN), a turnaround candidate. With new management, the company is expanding the use of its sophisticated technology to convert coal into gas. Davis expects earnings to double by 2012, from the $4.98 per share that analysts expect the company to earn this year. Meanwhile, Eastman is buying back 20% of its stock. It closed at $63.64, or about 13 times estimated '08 earnings.

The RS fund is a superb one. It has returned an annualized 31% over the past five years through March 17. On the negative side, it sports a 4.75% sales charge and annual expenses of 1.49%. T. Rowe Price New Era, meanwhile, has produced the same five-year return, has no sales charge and boasts expenses of just 0.63% annually. Note that the five-year returns for both funds leave that of the Pimco commodity fund in the dust.

Should you invest in commodities at all -- even a stock fund? First look at your other stock holdings. Standard & Poor's 500-stock index has 12.5% of its holdings in energy stocks now, and many fund managers have been adding to their energy holdings in recent years. Until recently, I had been advocating placing an extra 5% of assets in T. Rowe Price New Era. I'm not so sure anymore.

 

Steven T. Goldberg is an investment adviser and freelance writer.

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Bear Stearns & JP Morgan Deal - Where does the Fed get $30 Billion to lend - New York Times

Where does the Fed get $30 Billion to lend - easy when it owns the printing presses

OE NOCERA, Business Columnist, New York Times: It's like something seizes up; that's really the best way to describe it. There was panic among its counterparties, the people they traded with, that they wouldn't have the money to pay them back.

So people, gradually first and then with increasing acceleration, stopped trading with them. In fact, hedge funds that did business with them were sending notes to their clients over the last week or so saying, "Don't worry. We've stopped trading with Bear Stearns."

When you're an investment bank and you depend on trading, and you depend on liquidity, and suddenly no one will trade with you, it really doesn't matter how many securities you have, how much money you have. You have no business and the securities that you hold have no value, because no one will trade with them.

So this is a classic -- this is the modern version of the run on the bank. And, you know, there's a reason their stock closed on Friday at $30 a share and by Sunday night they were bought for $2 a share. They had no business.

So I get that the Fed gave JPMorgan a 28 day $30 Billion dollar line-of-credit to help make this deal happen - not a gift of $30 Billion. But the idea that the Fed helped finance this fire sale does make me uncomfortable. What other shoes out there are waiting to drop?

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Life may never be the same for investors

A few friends would cease to be friends. Invitations for rave parties would stop. And some will prefer moving into smaller homes. Exotic holidays or a second car will have to wait for better days.

The near 30% fall in the market, erasing about two years of investments of an average investor, in plain 47 trading sessions will change the lives of many who have made their fortunes in the market. From what it appears, life will not be easy below 15,000 points.

 "It's already a financial mess for people who bought shares on borrowed money. From what we see, there could be some heavy sell-off of accumulated assets to repay debts. It might take years for these people to recover their losses," says Mumbai-based financial planner Gaurav Mashruwala.

But what better could investors have done all the while when their equity portfolios were rushing downhill? Not that investment analysts knew about it, investors in silver and metal commodities (in that order) would have made more money than investors in any other prominent asset.

The return profile (for the period between January and March 2008) of various investible assets show that silver has managed to show the maximum return at 28%. Gold, ranked third, returned 22% while investments in arts (paintings) have logged a 6% returns.

Investors who have invested in the MCX metal, energy or agri indices would have logged 24%, 20% and 8% returns, respectively, while currency traders would have been better off pocketing 3% more than what they did in the new year.

"We are already seeing a shift in asset class, that's from equities to commodities. But I'd still say, there is value left in equities; it's so hazy, no one can see it," says Motilal Oswal Securities vice-president (equities) Manish Sonthalia.

"It is safe to invest in equities at these levels. There couldn't be a deeper fall than the one we are experiencing now," adds KRIS Securities director Arun Kejriwal.

 One positive about the current market, according to experts, is that mutual fund investors have not begun redeeming their portfolios. The expert view is that investors should hang-on to their investments, as fund managers would have adopted measures to support NAVs.

Retail investors are advised to buy index funds or index stocks at this point to time. Stay away from mid-caps and small-caps for now is the general warning.

As a result of abysmally low trading volumes and the consequential widening of buyer-seller (bid-ask) spreads, the impact cost of trading in securities has been rising immensely over the past one month. This is keeping arbitrageurs and day traders out of the market, experts say.

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India Prospects - A 10 years of high growth rate is achievable : FM

Dispelling doubts about the sustainability of the country's economic performance, finance minister P Chidambaram has said India's growth story is here to stay. Stepping up public and private investment, protecting price lines, ensuring smooth delivery of goods & services and completing projects without time and cost overruns is part of his prescription to ensure high growth rates, beyond 8%, over 5-10 years.

"I believe investment boom will continue for the next five years. The principle driver of India's economic growth is investment. We should be ambitious. I'm very optimistic that if we can hold the price line, get investments, improve production and implementation, 5-10 years of high growth is achievable," he said.

Pointing out that the Budget had addressed people's aspiration to consume more by leaving "more money in their pockets", Mr Chidambaram said the economy should strive to produce more both in the agriculture and manufacturing sectors. He said the country should reduce dependence on import of agri products by producing more wheat, rice, pulses and edible oil.

On the manufacturing side, the FM cautioned the industry against giving in to the temptation of taking advantage of medium-term demand-supply mismatch. "The industry should resist the self-defeating strategy of exploiting medium-term demand-supply mismatch. Instead, they should enhance production to meet demand," he said.

He pointed out that manufacturing, which had a weightage of 52% in the inflation basket, played a significant role in keeping inflation rates high. "The manufacturing sector also has the responsibility of holding the price line," he said.

Another significant challenge the economy faced was of improving delivery. All the capital that was invested would come to naught if the delivery system was not improved. "There exist notorious inefficiencies in delivery of primary education and healthcare," he said. In a bid to get around the delivery problem, the FM said the government had decided to set up a non-profit organisation outside the government to impart skills to the youth.

Delivering projects without cost and time over-runs was an important problem which the economy has to overcome. "Most public sector projects and programmes run beyond the initial estimates of cost and time. If we are able to keep projects within estimates, we will not only get 8-9% growth, we should be way beyond," he said.

Comparing China's growth indicators with India, the finance minister said the gap with China was expanding. He said India had no reason to feel complacent, as it had a lot of catching up to do.

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Market Review - Most indices fall with Sensex

Most indices fall with Sensex

With a fall of close to thousand points on Monday, the Sensex has gone right back (14,842) to where it was on August 27 last year.

During this seven-month roller-coaster ride, many indices have risen to new highs, only to fall all the way back to their earlier levels. In fact, quite a few have fallen below the levels that they were at seven months ago.

A detailed analysis by the ET Intelligence Group of different ET sectoral indices reveals a rather interesting picture. A close examination of the mid-cap and small-cap indices, these were red-hot during most part of the past year, reveals that both of them have almost lost the entire value they gained in the latter half of the past year.

The ET mid-cap and ET small-cap indices stand at 7,501 and 10,494, respectively, which is 5% lower and 4.4% higher than what they were in August 2007. It does seem that these indices have fallen twice as fast as the time it took them to reach the dizzy heights of a few months ago.

Sectoral indices have also had a torrid time. Out of the 20 ET sectoral indices we have considered, nine are still in the green compared to their values in August last year. The average return of all these sectoral indices as compared to their values in August last year is still a positive 3.69%.

Of the 11 sectoral indices that showed a decline, ET Infotech showed the steepest decline at 25.7% and Bank Index showed the least decline at 0.02%. Similarly, amongst the indices that went up, the two biggest gainers were ET Sugar and ET Shipping, which have gone up 44.2% and 32%, respectively.

Interestingly, while some indices have fallen steeply, they are still trading well above the level that they were in August. For instance, the ET Metal index, which fell by almost 7%, on Monday is trading at 29% higher from its level in August last year. With the markets showing no signs of reversing course, it is very likely that many of these indices could see still deeper cuts

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US slowdown may affect India's growth rate: UNDP

The slowdown in the US economy could affect the growth rate of India, a top official of the United Nations Development Programme said here on Tuesday.

"India achieved eight per cent plus growth rate over the last three years, when the global economy was doing well," Kemal Dervis, Administrator of UNDP, told a press conference.

But if there is a slowdown in the US, which could affect the global growth, it may be difficult for India to sustain the growth rate of eight per cent, Dervis said.

The UNDP is the global development network of the United Nations.

When asked whether recession would hit the US, Dervis said it is difficult to say, though 70 per cent of the economists believe so. But there could be a substantial slowdown, which may impact the world economy and markets.

He said the impact of the US slowdown would impact countries based on the their dependence on the world's largest economy. The financial markets are interlinked and equity and other financial assets could see a decline, he said.

"The slowdown will affect imports into the US as the people feel less rich, they will spend less," he said.

Talking about representation for India on the Security Council of the UN, Kemal Dervis, who is the third highest ranking official in the United Nations System after the Secretary-General and the Deputy Secretary-General, said he would not like to comment on it as an UN official.

But he said the current structure of the security council reflects post World War II scenario and it would be fair if there are some changes in it.

Referring to the UNDP, he said global assistance under UNDP is worth 2 billion dollars and bulk of it goes to countries from Sub-Sahara and Africa.

The allocation for India is 50 million dollars. The focus of the UNDP is on poverty eradication, sustainable livelihoods and capacity building among the poor, he added.

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Bear Stearns sold to JP Morgan - $240 million buyout

Bear Stearns sold to JP Morgan

NEW YORK: JPMorgan Chase & Co agreed to buy Bear Stearns for $240 million, about 90% less than its value last week, after a run on the company ended 85 years of independence for Wall Street's fifth-largest securities firm.

Shareholders of Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the New York-based companies said in a statement late Sunday. The Federal Reserve is providing financial backing to JP Morgan, the second-biggest US bank, and also cut the rate on direct loans to banks in its first emergency weekend action in almost three decades to stave off a broader market panic.

JPMorgan CEO Jamie Dimon bought Bear Stearns, once the biggest underwriter of US mortgage bonds, for less than the value of its real estate after clients, alarmed by speculation about a cash shortage, withdrew $17 billion in two days. Faced with the prospect of bankruptcy, Bear Stearns CEO Alan Schwartz was forced to accept the deal less than five days after he assured investors that the company's "liquidity cushion" was sufficient to weather credit-market losses.

"Bear Stearns shareholders are at the short end of the stick," said David Hendler, an analyst at New York-based CreditSights. "This was done in the market's best interests. They had to get this done or they would risk runs on other companies."

JPMorgan will give investors 0.05473 shares of its common stock for every share of Bear Stearns they own. Including shares in an employee-incentive plan, the purchase price may reach $270 million. JPMorgan, whose shares closed at $36.54 in New York trading on March 14, will get funding for the transaction from the Fed, including support for as much as $30 billion of Bear Stearns's "less-liquid assets".

Bear Stearns plunged 87% to $3.97 in Frankfurt trading on Monday. "Jamie Dimon's done a great deal because the Federal Reserve is paying for it," said investor Jim Rogers, who co-founded the Quantum Hedge Fund with George Soros in the 1970s, during an interview. JPMorgan "stands behind Bear Stearns," Dimon, 52, said in the statement.

"Bear Stearns's clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns's counterparty risk," he said. Without a resolution this weekend, Bear Stearns's situation would have continued to deteriorate when markets resumed trading, according to analysts and investors. Yet the value placed on the company, whose shares closed as high as $158.39 last April, raised questions about share prices for the rest of Wall Street.

"This is a serious crisis," said David Goldman, portfolio strategist at Asteri Capital in New York and former head of debt research at Bank of America, the biggest US bank by market value. "For Bear's stock price to go to effectively zero, contrary to market expectations, even at the close on Friday, tells us that something is systematically very wrong and we're at a very dangerous moment," Goldman said. If a sale hadn't been announced, Bear Stearns, which employs about 14,000 people, probably couldn't open its doors for trading, he said.

Founded in 1923, Bear Stearns survived the Great Depression and first sold shares to the public in 1985, under then-CEO Alan "Ace" Greenberg. Monday's fire-sale to JPMorgan caps an eight- month slide in the company's fortunes that began last July with the collapse of two of its hedge funds, which invested in securities linked to subprime mortgages.

Those failures caused investors to doubt the value of any asset linked to the mortgage market, Bear Stearns's biggest business. The collapse of Bear Stearns ranks along with Drexel Burnham Lambert as the biggest in Wall Street history.

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Sensex takes 951 pts pounding, sinks below 15K

Wall Street's fifth-biggest securities house, Bear Stearns, was sold to JPMorgan for just $240 million (less than Rs 1,000 crore), the kind of money that has changed hands in some land deals in Mumbai.

Singapore bank DBS reportedly told its traders not to deal with Lehman Brothers, fanning speculation that it could be the next casualty.

▪ The world's second-biggest economy, Japan, is not able to decide who will head its central bank at a time when its spiralling currency is unsettling global markets. If Japan slows down, it would be big bad news.

▪ Back home, our trade deficit is hovering around $10 billion a month (thanks to oil, gold and capital goods import), causing an outflow that's making the rupee less attractive.

▪ And on Dalal Street, a portfolio management scheme run by one of the biggest operators is facing big redemptions.

 

Also, four banks (two foreign and two local) active in the capital market were demanding more liquid stocks as margins from investors who had borrowed to play the market.

These are difficult times for children of the bull market. And there's every hint that the worst is not over for retail investors, institutional players or mighty corporates. Any move by regulators is seen as a sign of desperation.

When the US Federal Reserve had a weekend emergency meeting, the first time in three decades, to cut the interest rate at which it lends to banks and bond houses, many thought that the world's most powerful monetary authority was preparing for some more bad news. All eyes are now on big houses like Lehman Brothers, Morgan Stanley, Merrill Lynch and Citi.

As key Asian markets fell 3-5% and the US dollar sank to record lows against the euro and Swiss franc following the collapse of Bear Stearns, India could not escape the blow.

Much of the slide was caused by the firesale (around Rs 1,000 crore between Friday and Monday) of Bear Sterns' holdings in Indian shares, causing the 30-share Sensex to breach the psychologically crucial 15,000-mark, to close at 14,809.49, down 951.03 points, or 6%, over its previous close. This is the second-biggest fall for the Sensex.

The 50-share Nifty closed at 4,503.10, down 242.70 points, or 5%, over the previous close as FIIs sold Rs 658 crore while Dow opened weak in early trades.

"There could be further dips. On current earning consensus, the market is fairly valued. But this consensus may change for reasons like decline in commodity prices and derivative losses," said BRICS Securities equities head Anand Tandon.

Interestingly, the FII selling, though large in absolute terms, hasn't exactly been brutal till now. Since January, FIIs have sold around $4 billion, over 20% of what they invested in 2007. While FIIs hold around $150 billion worth of stocks and only 3% of that has been reallocated, what has really changed is the sentiment and absence of fresh inflows.  Story

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Where are all the 'cash cows' of brokerages? - ET

The bear assault on medium- and small-cap shares, since mid-January, has killed the cash-cows of brokerages, especially those which service retail clients.

While the massive fall in these shares would have otherwise triggered a bout of fresh 'buy' ratings, as seen in the five-year bull run, this time, brokerages seem hesitant to take such calls amid concerns over adverse impact of global slowdown on business prospects and valuations of these companies.

Analysts in these brokerages are no longer recommending potential "multi-baggers", a euphemism for stocks that are expected to rise multi-folds. This is in stark contrast to the scenario prior to mid-January (start of the ongoing bear phase), when the seemingly never-ending list of multi-baggers, mostly mid-caps, had confused investors.

The question is, what has changed for medium- and small-cap companies in the last couple of months? Fund managers say valuations have corrected in line with the changes in global business scenario.

Also, with fund-raising plans of several companies hitting the roadblock after the fall in stock markets and interest rates still remaining high, there are concerns that their expansion plans could be delayed or shelved which, in turn, may affect their future earnings, they say.

Reflecting these concerns also is much sharper fall in valuations of mid-cap and small-cap indices in comparison to the broader indices. For instance, the BSE Midcap index slipped nearly 4,000 points, or 40%, from its peak of 10,113 recorded on January 1, '08. Against this, the Sensex has fallen 28% to 14,809 during the period.

"Valuations of several companies are on the basis of their expansion plans; many of them would be implemented only two-three years down the line. There are concerns that these companies may not achieve their targets," said a CIO at a domestic mutual fund.

The period prior to December '07 saw promoters and top officials of small companies visit reputed brokerages regularly, hoping to sell their growth story to the research analysts, who would in turn recommend the stock ideas to their clients.

Brokerages also regularly held investor conferences, inviting several companies to speak about their growth and other plans to potential investors. Companies made such visits usually with an intention to boost their valuations ahead of a fund-raising exercise from the stock market.

Some brokerages added to this frenzy in mid-cap shares, which is usually triggered by active participation from retail investors, through "unconventional methods of stock-picking". A retail brokerage, as part of its attempts to cater to its clients' demand for "cheaper" stocks, is believed to have collated a list of stocks with prices in two-digits.

"Several retail investors mistake valuation of a share to the stock price figures unlike textbook methods like PE (price-to earnings) ratio," said a senior official at Mumbai-based brokerage, Sharekhan. Simplifying the official's point with an example, if XYZ shares are trading at Rs 1,000 and its PE ratio is 15, while ABC shares are at Rs 50 and its PE ratio is 20, such retail investors would prefer ABC shares because of their lower price.

Heightened investor interest in mid- and small-cap shares drove prices way ahead of their value, while analysts justified these price jumps with the embedded value theme.

This method evaluates a company's worth, taking into account the valuation of its subsidiaries, listed or unlisted, and certain assets, that are not part of the core business. The sharp correction across the board, over the last couple of months, has disturbed analyst calculations of arriving at a value for such companies.

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