ONGC, Oil India Shares Fall on Gas Price Reduction Buzz

Shares of state-run explorers ONGC and Oil India fell on Wednesday ahead of the announcement of the revised prices for domestically-produced natural gas. ONGC fell as much as 2 per cent, while Oil India declined as much as 3.6 per cent.

Reuters, citing sources, said the government is likely to announce an 18 per cent reduction in natural gas prices. The new prices will be for the October to March period.

Prices of natural gas will be cut to $3.82 per million British thermal units (mmBtu) on gross heat value basis, Reuters said citing sources. On net heat value basis natural gas prices will cost $4.24 per mmBtu compared to $5.18 per mmBtu for the April-September period, it added.

Analysts said the price cut will impact ONGC and Oil India's profitability. A $1/mmBtu price cut will lower ONGC's FY16 earnings per share (EPS) by about 5.5 per cent, while Oil India's EPS will be impacted by 3 per cent, analysts added.

The government had introduced a new gas-pricing formula last November, which linked pricing of locally produced gas with those in the United States, Canada, the United Kingdom and Russia.

As of 12 p.m., ONGC traded 1.08 per cent lower at Rs 224 apiece, and Oil India traded 2.45 per cent lower at Rs 416.75 compared to 0.66 per cent gain in the broader Nifty

Eveready Industries Surges 7% on RBI Nod to Hike FII Investment Limit

Eveready Industries surged as much as 7 per cent on Wednesday on Reserve Bank's decision allowing foreign investors to buy up to 49 per cent in the company under the Portfolio Investment Scheme (PIS).

Traders expect foreign investors to start buying Eveready Industries shares post RBI nod.

As per data on the Bombay Stock Exchange, FIIs held 16.29 per cent in the company as of quarter ended June 2015. FIIs, NRIs and PIOs (Persons of Indian Origins) can invest in primary and secondary capital markets in India through PIS.

As of 10.54 a.m., shares of Eveready Industries traded 3.71 per cent higher at Rs 290.80 apiece compared to 0.65 per cent gain in the broader Nifty.

Blue Star Infotech Plunges 20%, Announces Sale of IT Business

Shares of Blue Star Infotech fell nearly 20 per cent to Rs 231 after it announced the sale of its IT business.

Infogain Inc, a portfolio company of private equity player ChrysCapital, with acquire the IT business of Blue Star Infotech and its subsidiaries in USA, UK and Singapore for Rs 180 crore.

Blue Star Infotech will retain the real estate business and some other assets, the fair value of which is expected to be around Rs 96.7 crore, the company said.

Following the completion of Blue Star Infotech's IT business sale, it will be merged with air conditioning and commercial refrigeration major Blue Star Limited, subject to shareholder approval of the respective companies.

Blue Star forayed into the IT space in 1983. In 2000, the Blue Star executed a strategic shift to hive off its IT business into an independent company, Blue Star Infotech.

Shareholders of Blue Star Infotech will be issued 7 equity shares of 7 Blue Star for every 10 shares held. Vir S Advani, executive director and president of Blue Star, told NDTV that the cash proceeds from sale of Blue Star Infotech's IT business will be invested in its core business.

At 11 a.m., shares of Blue Star Infotech were locked at the lower circuit band of 20 per cent while Blue Star shares were 4 per cent higher at Rs 345.30. In comparison, Nifty was 0.67 per cent higher.         

Domestic Gas Prices Lowered by 18%: Report

New Delhi: Locally produced gas in India will cost 18 per cent less during October-March compared with the first half of the current fiscal year, a source with knowledge of the matter said on Wednesday, due to a decline in global prices.

Prices will be cut to $3.82 per million British thermal units (mmBtu) in the second half of this fiscal year on gross heat value basis, the source, who is not authorised to speak to the media, told Reuters.

It will cost about $4.24 mmBtu on a net heat value basis compared with $5.18/mmBtu in April-September, the source said.

The government introduced a new gas-pricing formula last November. The formula links the prices of locally produced gas with those in the United States, Canada, the United Kingdom and Russia. 

Stocks that are in focus today: Hero MotoCorp, Sun Pharma and more

Hero MotoCorp stocks will be in focus as the country's largest two-wheeler maker unveiled two indigenously developed scooters — Duet and Maestro Edge — which will hit the market by the middle of next month.

The BSE Sensex and NSE Nifty opened on a positive note on Wednesday following firm global cues amid a rate cut of 50 bps by the Reserve Bank of India in its monetary policy review on Tuesday. At 9.20 am, Sensex was up 264.63 points at 26,043.29. Similarly, Nifty was up 67.65 points at 7,910.95 during the same time.

Stocks that are likely to be in focus today

Shree Renuka Sugars: The stocks of the company will be in focus after its said that its Brazilian subsidiary filed for bankruptcy protection as its operations were hit by a crash in sugar prices in the last two years.

TCS: The IT major on Tuesday announced a new partnership with a British mutual financial institution for providing a neural automation system which automates and optimises IT operations and processes of an enterprise.

Hero MotoCorp: Country’s largest two-wheeler maker unveiled two indigenously developed scooters — Duet and Maestro Edge — which will hit the market by the middle of next month.

State Bank of India: Country’s largest lender slashed minimum lending or base rate by 0.4 per cent to 9.3 per cent, setting the trend for benign interest rate regime.

Sun Pharma: The drug major has made a tender offer to acquire US-based eyecare firm InSite Vision for $0.35 per share in cash.

NMDC: State-owned NMDC Ltd plans to invest Rs 40,000 crore in the next eight years to reach a target of 100 million tonnes per annum of iron ore production from the current levels of little over 30 MTPA.

Reliance Industries (RIL):  Reliance Jio Infocomm has raised Rs 3,500 crore by issuing non-convertible debentures through private placement.

Eveready: Reserve Bank on Tuesday allowed foreign investors to invest up to 49 per cent stake in Eveready Industries India Ltd under the Portfolio Investment Scheme.

Asian Shares Stabilise, Japan's Nikkei Leads Gains

Tokyo: Most Asian stock markets steadied on Wednesday after sliding to 3-year lows but a weak outlook for commodities and persistent concerns about China's economy discouraged most buyers.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed in early trade after plumbing its lowest since June 2012 on Tuesday on fears that China's slowdown would curb its huge appetite for commodities and resources.

The index was on track for a 19 per cent loss for the quarter, its worst loss in four years.

"Global equities are closing in on their worst quarter since 2011, with a number of factors fuelling fears in an already jittery market, including weak global growth, driven by deceleration in emerging markets, particularly China," strategists at Barclays wrote.

"We recommend overweight positions in Japanese and European equities."

South Korea's Kospi dropped 1 per cent while Australian shares gained 0.3 per cent.

Japan's Nikkei brushed aside an unexpected drop in the country's industrial output and gained 1.6 per cent. It was still poised for a 14 percent drop over the quarter, its deepest since 2010.

Asian stocks took an early positive lead from Wall Street, which ended slightly higher overnight as the U.S. bourses took a breather, with the latest round of China fears that gripped global markets petering out for the moment.

Investors also felt relief as shares of mining and trading giant Glencore gained more than 10 per cent overnight.

Hitting risk sentiment, Glencore shares fell to a record low at the start of the week on concerns over the company's ability to withstand a prolonged decline in prices of metals.

Benchmark three-month copper on the London Metal Exchange rose 0.1 per cent to $4,970 a tonne, though the rise did not do much to move the metal away from a six-year low of $4,855 hit in August.

Prices of other industrial metals like aluminium and zinc also halted their recent routs overnight.

Commodities and the global financial markets still face a major test of nerves on Thursday, when the closely-watched Chinese Purchasing Managers' Index (PMI) is likely to show the country's factory sector shrank for the second month in a row in September.

Commodity currencies languished while the U.S. dollar stood tall. The Canadian dollar stood near an 11-year low of C$1.3463 per dollar struck overnight.

South Africa's rand managed to bounce modestly but was still in reach of a record low of 14.16 per dollar touched on Tuesday.

The greenback, meanwhile, stood little changed at 119.86 yen. The euro was steady at $1.1253.

Nifty Likely to Extend Gains; DLF, Dewan Housing Finance in Focus

The Nifty recovered over 3 per cent from its intraday lows and ended 47.6 points higher on Tuesday after the RBI reduced repo rates by 50 basis points. Derivative data suggests that Nifty is likely to extend gains.

The October Nifty future added 3.5 lakh shares in open interest (outstanding positions) and the premium increased to 32.55 points against 29.8 points earlier, clearly suggesting addition of bullish bets in the Nifty futures.

Similarly, open interest in the 7,600, 7,700 and 7,800 puts have increased substantially, which suggests that traders don't expect Nifty to fall below 7,800 in the near future. However, on the upside 8,000 level is likely to act as a strong resistance as the 8,000 strike Nifty call has further added 8.3 lakh shares in open interest.

Overall 45.1 lakh shares have been added to Nifty put open interest while 43 lakh shares got added to call open interest pushing the Nifty put-call-ratio (PCR) to 0.91 from 0.9 earlier. PCR is an indicator of market sentiment. A PCR of more than 1 indicates positive outlook about the market.

The India VIX or the volatility index fell 0.45 per cent to end at 21.57 as premiums on out-of-the-money options (options having zero intrinsic value) decreased as the uncertainty regarding RBI rate decision is behind us now.

Among individual stocks DLF, Dewan Housing Finance, Apollo Hospitals are expected to gain further as huge long positions have been added to these stocks. On the other hand Aditya Birla Nuvo, Arvind saw addition of bearish bets.

Rajan Rally Set to Continue, Sensex Poised to Open Higher

BSE Sensex and Nifty are likely to open higher, tracking mostly higher Asian markets. The SGX CNX NIFTY was up 0.44 per cent to 7,885.50, indicating a higher start for Indian markets.

Here Are Top 10 Developments:

1) Analysts say that the bigger-than-expected rate cut from Reserve Bank of India chief Raghuram Rajan has turned the sentiment in domestic markets positive in the short term.

2) However, Indian markets are likely to see selling pressure at higher levels, say analysts. 8050 to 8100 levels are likely to be the resistance level for Nifty, they say.

3) Bihar (state) elections and upcoming results season will make investors cautious in the near term, analysts say.

4) Selling pressure from foreign investors is also likely to keep a cap on gains. Foreign investors have so far this month have sold (net) nearly Rs 6,000 crore worth of Indian equities.

5) Rate sensitive banking, auto and realty stocks are likely to be in also in focus today after the RBI's rate cut. These stocks had outperformed the markets yesterday, buoyed by the rate cut.

6) Metal and oil & gas stocks are also likely to see some value-buying today after their recent selloff. Prices of copper, which is seen as a benchmark for commodity demand, ticked higher in domestic markets yesterday.

7) The value of the rupee would also closely watched. The rupee ended at 65.96/dollar on Tuesday against its previous close of 66.04.

8) Most Asian stock markets were steady on Wednesday after sliding to 3-year lows but a weak outlook for commodities and persistent concerns about China's economy discouraged most buyers.

9) Japan's Nikkei was up 1.8 per cent while China's Shanghai Composite rose 0.40 per cent.

10) US stocks ended higher after a volatile session on Tuesday as concerns about the health of the global economy kept investors cautious after more than a month of turbulence. The Dow Jones industrial average rose 0.3 per cent to end with 16,049.13 points and the S&P 500 gained 0.12 per cent to 1,884.09. The Nasdaq Composite dropped 0.59 percent to 4,517.32.

RBI expects CPI Inflation at 5.8% in January 2016

In the monetary policy statement of April 2015, the Reserve Bank said that it would strive to reach the mid-point of the inflation band by the end of fiscal 2017-18.

RBI Governor Raghuram Rajan in his speech said that the January 2016 target of 6 per cent inflation is likely to be achieved. In the monetary policy statement of April 2015, the Reserve Bank said that it would strive to reach the mid-point of the inflation band by the end of fiscal 2017-18. Therefore, the focus should now shift to bringing inflation to around 5 per cent by the end of fiscal 2016-17. 

In this context, the weakening of global activity since our last review suggests that commodity prices will remain contained for a while. Still-low industrial capacity utilisation indicates more domestic demand is needed to substitute for weakening global demand in order that the domestic investment cycle picks up. The coming Pay Commission Report could add substantial fiscal stimulus to domestic demand, but the government has reaffirmed its desire to respect its fiscal targets and improve the quality of its spending. Under these circumstances, monetary policy has to be accommodative to the extent possible, given its inflation goals, while recognizing that continuing policy implementation, structural reforms and corporate actions leading to higher productivity will be the primary impetus for sustainable growth. Furthermore, investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow. Therefore, the Reserve Bank has front-loaded policy action by a reduction in the policy rate by 50 basis points. 

Given our year-ahead projections of inflation, this ensures one year expected Treasury bill real interest rates of about 1.5-2.0 per cent, which are appropriate for this stage of the recovery.

16. While the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed. The Reserve Bank will continue to be vigilant for signs that monetary policy adjustments are needed to keep the economy on the target disinflationary path.

RBI cuts FY16 GDP growth target to 7.4%

RBI Governor Raghuram Rajan in his speech said that the modest pick-up in the growth momentum in the first half of 2015-16 benefited from soft commodity prices, disinflation, comfortable liquidity conditions, some de-clogging of stalled projects, and higher capital expenditure by the central government.

RBI Governor Raghuram Rajan in his speech said that the modest pick-up in the growth momentum in the first half of 2015-16 benefited from soft commodity prices, disinflation, comfortable liquidity conditions, some de-clogging of stalled projects, and higher capital expenditure by the central government. Underlying economic activity, however, remains weak on account of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity. 

With global growth and trade slower than initial expectations, a continuing lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning business confidence, output growth projected for 2015-16 is marked down slightly to 7.4 per cent from 7.6 per cent earlier.

Concurrent indicators also suggest that the new GDP series shows higher growth than would the old series, which necessitates recalibrating old measures of potential output and the output gap to the new series.

Sensex, Nifty in green post RBI policy

The BSE Mid-cap Index is trading down 1.17% at 10,450 whereas BSE Small-cap Index is trading down 0.94% at 10,814.

Acceding to the growing voices for a rate cut from the Indian industry at large and perhaps exceeding their expectations, Reserve Bank of India, in its fourth bi-monthly monetary policy of the current fiscal, has cut the repo rate by 50  basis points to 6.75%, its lowest since May 2011. The cash reserve ratio (CRR), currently at 4 per cent, expectedly was kept the same.

At 11:05 AM, the S&P BSE Sensex is trading at 25,598 down 19 points, while NSE Nifty is trading at 7,816 up 20 points.

The BSE Mid-cap Index is trading down 1.17% at 10,450 whereas BSE Small-cap Index is trading down 0.94% at 10,814.

Some buying activity is seen in IT sector, while banking, auto, pharma, oil&gas, capital goods and realty sectors are showing weakness on BSE.

BHEL, Infosys, Coal India and TCS are among the gainers, whereas Vedanta, Hindalco, ICICI Bank, Axis Bank, Tata Steel and Bharti Airtel are losing sheen on BSE.

The India VIX (Volatility) index rose nearly 6% to 23.06.

A total of 10 stocks registered a fresh 52-week high in trades today, while 43 stocks touched a new 52-week low on the NSE.

Rajan plays Santa, cuts repo rate by 50 basis points to 6.75%

Reserve Bank of India, in its fourth bi-monthly monetary policy of the current fiscal, has cut the repo rate by 50 basis points to 6.75%, its lowest since May 2011. The cash reserve ratio (CRR), currently at 4 per cent, expectedly was kept the same.

Acceding to the growing voices for a rate cut from the Indian industry at large and perhaps exceeding their expectations, Reserve Bank of India, in its fourth bi-monthly monetary policy of the current fiscal, has cut the repo rate by 50  basis points to 6.75%, its lowest since May 2011. The cash reserve ratio (CRR), currently at 4 per cent, expectedly was kept the same.
 
The RBI said in its statement that since the third bi-monthly statement of August 2015, global growth has moderated, especially in emerging market economies (EMEs), global trade has deteriorated further and downside risks to growth have increased. In the United States, industrial production slowed as capital spending in the energy sector was cut back and exports contracted, weighed down by the strength of the US dollar. Consumer spending stayed buoyant, however, amidst steadily improving labour market conditions. In the Euro area, a fragile recovery strengthened, supported by domestic consumption, less slack in the labour market and improving financial conditions engendered by ultra-accommodative monetary policy.
 
Due to a consistent downtrend in the consumer inflation in the recent months, the conditions were right for the rate cut. The earlier monetary policy statement from RBI had reiterated that the interest rate trajectory will be influenced by inflationary scenario, transmission of policy action and exogenous variable of US Fed policy. India’s retail inflation for August slowed to 3.66%, when compared with the reading of 3.69% during the prior month. Earlier, the government reported that wholesale prices contracted for the tenth consecutive month. WPI inflation for August was reported at -4.95%.
 
A Reuters poll last week had majority of economists rooting for the rate cut. However, since the monsoons have not been kind and have fallen below their long-term average, a pause in expected in any further rate cut. 

Bank Nifty slips 2.3% ahead of RBI policy

The Bank Nifty has slumped 2.3% to 16,702, and the PSU Bank index has tumbled nearly 3.4% to131.

Banking stocks have fallen all eyes are set at the RBI fourth bi-monthly monetary policy review for the year 2015-16 scheduled today at 11 AM.

The Bank Nifty has slumped 2.3% to 16,702, and the PSU Bank index has tumbled nearly 3.4% to131.

PNB has tanked 3.5 percent at Rs. 169.

Syndicate Bank, Andhra Bank, Orient Bank, SBI, Union Bank and Canara Bank are all down over 3 percent each.

Meanwhile, the Sensex has crashed 307 points to 25,309.

World Bank to give US$30bn aid to Railways: Suresh Prabhu

The Minister was talking to reporters in New Delhi on the 11th edition of International Railway Equipment Exhibition (IREE), scheduled from 14-16th October at Pragati Maidan

The World Bank has promised US$30bn financial assistance to the Indian Railways, Union Railways Minister Suresh Prabhu said on Monday.

Prabhu also said that the proposed station development project will attract ~US$20bn in phases.

The Minister was talking to reporters in New Delhi on the 11th edition of International Railway Equipment Exhibition (IREE), scheduled from 14-16th October at Pragati Maidan.

Maintaining that funds will not be a problem for completing infrastructural projects for the Railways, Prabhu said that the capital expenditure for FY16 will surpass the budget estimates.

Almost 89% of the budget announcements have been fulfilled, he said.

The Railway Minister also said that the Railways has envisaged an ambitious programme of electrifying ~10,000 km of railway lines in the next five years.

Discussions with Japan and South Korea have progressed to build water-less, odour-less toilets in trains, Prabhu said.
He also said that Google has offered cooperation to set up WiFi connectivity at railway stations and platforms.

L&T Construction bags orders worth Rs.15.09 billion; stock flat

The company has bagged orders worth Rs. 15.09 billion so far this month.  Larsen & Toubro Infotech Limited, a subsidiary of Larsen & Toubro Limited, has filed its draft red herring prospectus with the SEBI in order to undertake an initial public offering of its Equity Shares (the Issue).

Larsen & Toubro Ltd is currently trading at Rs. 1424, down by 0.41% from its previous closing of Rs. 1430.1 on the BSE.

The company has bagged orders worth Rs. 15.09 billion so far this month.  Larsen & Toubro Infotech Limited, a subsidiary of Larsen & Toubro Limited, has filed its draft red herring prospectus with the SEBI in order to undertake an initial public offering of its Equity Shares (the Issue).

The scrip opened at Rs. 1424.9 and has touched a high and low of Rs. 1429.5 and Rs. 1413.15 respectively. So far 99426(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs. 133093.97 crore.

The BSE group 'A' stock of face value Rs. 2 has touched a 52 week high of Rs. 1892.95 on 04-Mar-2015 and a 52 week low of Rs. 1400 on 08-Oct-2014. Last one week high and low of the scrip stood at Rs. 1562.95 and Rs. 1425 respectively.

The promoters holding in the company stood at 0 % while Institutions and Non-Institutions held 55.68 % and 41.93 % respectively.

The stock is currently trading above its 100 DMA.

Volkswagen scandal will send costly ripples through auto industry

VW has long burnished a reputation for producing fuel-efficient and environmentally friendly cars. But because of a trade-off in diesel cars between fuel efficiency and actual emissions, the company used a “defeat device” to cheat emissions tests, deceiving both regulators and consumers.

Volkswagen CEO Martin Winterkorn paid the price of losing his job after last week’s revelation that software designed to circumvent emission testing was installed on as many as 500,000 “clean diesel” vehicles sold in the US and as many as 11 million worldwide.
 
VW has long burnished a reputation for producing fuel-efficient and environmentally friendly cars. But because of a trade-off in diesel cars between fuel efficiency and actual emissions, the company used a “defeat device” to cheat emissions tests, deceiving both regulators and consumers.
 
Criminal and civil courts in multiple countries for years will be sorting whether Winterkorn is simply falling on his sword or bears more direct responsibility. One thing for certain is that when the total cost is determined, Winterkorn and Volkswagen are not the only ones who will bear the burden of its employees' actions.
 
The ripples will spread far beyond its headquarters in Wolfsburg, Germany, and the price tag borne by customers and suppliers could be staggering.
 
Costs to VW and its customers
 
The company stands to lose billions of dollars in the US alone as a result of this deception, with EPA fines of as much as US$37,500 per car potentially tallying $18 billion. The liability in regulatory fines could grow much larger as other regulators around the world get involved.
 
Volkswagen has itself set aside almost $8 billion for recalls, and its market value has already plunged almost $28 billion (about 30%). This puts a conservative estimate of the cost to Volkswagen and its shareholders in the vicinity of at least $54 billion given fines outside the US and lost sales that result from the scandal.
 
To the extent that consumers extrapolate Volkswagen’s breach of their trust beyond its “clean diesel” models, the impact on future sales could be devastating.
 
VW’s customers will likely end up losing out too, potentially through lost resale value.
 
Diesel technology has long held a fuel economy advantage over gasoline engines, yet older ones were much dirtier, emitting 500 parts per million of sulfur, a key source of particulate emissions. “Clean diesel” engines of the last decade are designed to emit 97% less sulfur emissions, and yet still get as much as 30% better fuel economy than comparable gasoline-powered engines. This gave the cars both a “green” image and a fuel efficient one as well.
 
This led customers to pay more for a diesel car. But without that expected fuel efficiency, VW owners of “clean diesel” vehicles will incur lost resale value as high as $5,000 per vehicle. Adding up all the cars affected, that puts the potential loss in the neighborhood of $55 billion.
 
Class actions suits may recover some of that, but it’s not likely. In 1987, for example, Suzuki Samurai was a popular small on- and off-road vehicle selling at a premium to the manufacturer’s suggested retail price because of their popularity. When they were found to have an unsafe potential for rollover, resale value plummeted as much as 30% (I know, I had one!). While class action suits sought to recover the owner value of $2,000-$3,500, courts ultimately rejected class action claims to recover those consumer losses.
 
What’s at stake for rest of the auto industry
 
Auto suppliers, too, will feel some pain. In today’s auto industry, best practice for supply chain management (SCM) includes just in time (JIT)delivery of parts to the auto manufacturers. A company like VW also buys the majority of each part from a single supplier.
 
Common sense (and a popular cliche) has long dictated that when faced with uncertainty, you “don’t put all your eggs in one basket.” The auto industry’s mantra, in light of SCM and JIT, might be summed up as: “do put your eggs in one basket, but make sure it’s a darn good basket!”
 
But that has a cost. In 1996 and again in 1998, a few thousand workers at key GM part suppliers decided to strike, resulting in almost 500,000 workers being laid off across the industry in a matter of only a few days.
 
In the 1996 incident, virtually all the GM assembly plants had put their demand for brakes in the “basket” of that single plant. As the assembly plants that used the brakes had to stop making cars, they stopped buying parts from their other first-tier suppliers (wheels, engines, fenders, etc). Then those suppliers stopped buying parts from their own suppliers (spark plugs, engine blocks, rubber), and they in turn stopped buying from their suppliers, and so on.
 
The implications of the increased trust in the “basket” go both ways. Now that all VW sales could be dramatically affected, the subsequent sales of their suppliers and supplier’s suppliers could be affected as well. The increased reliance on single-source suppliers and lean inventory levels throughout the supply chain only increases the speed and relative severity of this impact on suppliers.
 
Most automakers outsource (or spend with suppliers) about 80% of the vehicle sticker price. Volkswagen sold about 10 million vehicles in 2014. Assuming an average sticker price of $30,000, VW reaped $300 billion in revenue.
 
If the 80% figure holds, its first-tier suppliers have $240 billion in revenue at stake. But assume that those suppliers spend 80% of their revenue with second-tier suppliers, the total impact could reach $432 billion. As this keeps building down the supply chain, the potential losses could be staggering were VW to implode.
 
While a complete implosion of VW is not likely, no one thought 3,000 striking workers in Dayton could idle 500,000 workers in a week’s time in 1996 either.
 
Who really pays the ultimate price
 
Winterkorn paid a high personal cost. VW and their shareholders will in all likelihood pay a very high monetary price for this breach of trust as well, especially if the fallout grows beyond the “clean diesel” models and consumers find it hard to trust the VW brand.
 
But unless the company does fall apart, eventually its stock will likely rebound, consumer trust will probably return and fines by the EPA and other regulators may be reduced and turn out to be less damaging than current estimates suggest.
 
The many others who put their trust in VW may not be so lucky, especially the 11 million people who owned the affected models, whose potential cost could easily match or exceed the direct hit to VW. And a recovery of much of that loss isn’t likely.
 
Meanwhile, suppliers with a significant business link to VW will be hit hard as will the companies that supply them. Some of the impact will be softened when other car makers pick up the demand fleeing VW, but their supply chains were not likely expecting this either. They will bear the extra costs of ramping up production.
 
All in all, it’s important to remember that Volkswagen’s deception will affect more than just its balance sheet, and many people stand a good chance of losing their job as a result of unethical employees and poor corporate governance. Let’s hope that those responsible for assessing fines and assigning culpability remember that.

I will continue to be USL Chairman: Vijay Mallya

According to a deal with Diageo in November 2012, Mallya was to continue as USL chairman for the next five years.

Vijay Mallya on Monday said that he would continue to be the chairman of United Spirits Ltd. (USL).

“I still hold a significant portion of stake in USL and will chair the forthcoming AGM of the company,” Mallya told shareholders at the AGM of United Breweries Holdings Ltd. (UBHL).

Through his group companies Mallya holds 4.09% in USL, while in his individual capacity he owns only a 0.01% stake.

Diageo holds a majority stake of 54.78% in USL.

In April this year, Diageo had asked Mallya to resign from the USL Board following allegations of fund diversion from USL to UB Group entities. But, Mallya has rejected the demand for his resignation.

According to a deal with Diageo in November 2012, Mallya was to continue as USL chairman for the next five years.

However, USL later said that its Board had lost confidence in Mallya continuing in his role as a director and Chairman, and therefore the company's Board had asked Mallya to resign.

It may be recalled that USL is yet to file its annual report for the fiscal year 2014-15 with the stock exchanges.