By Jeanette Rodrigues - Dec 30, 2011 7:05 PM GMT+0530
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India increased its record borrowing program for the year by 8.5 percent to narrow a budget shortfall as a slowing economy damps tax collections.
Prime Minister Manmohan Singh’s government will sell an additional 400 billion rupees ($7.5 billion) of bonds in the year ending March 31 raising an unprecedented total of 5.1 trillion rupees, the central bank said in a statement today.
Indian 10-year benchmark bond yields (GIND10YR) have jumped the most in Asia after Vietnam, as the government sold more debt to meet its target of keeping the budget gap to 4.6 percent of gross domestic product. The rate on the 8.79 percent note due November 2021 climbed two basis points today and 20 this week to 8.57 percent, according to the central bank’s trading system.
“The market is already burdened by supplies,” Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “However this increase was expected, and so while we could see yields rising in early trades on Monday, they will settle down soon.”
The 10-year bond yield could rise as high as 8.70 percent, according to Development Credit Bank and IDBI Bank Ltd. (IDBI) following the increase in the bond-sale plan.
The Reserve Bank of India (RBI) has said the government must rein in borrowings to help check price gains and boost economic growth. The $1.7 trillion economy may miss the central bank’s growth estimate of 7.6 percent for the 12 months ending March 31, Governor Duvvuri Subbarao said Dec. 22.
The government increased its borrowing plan by 528.7 billion rupees in September.
Wider Spread
The nation’s indirect tax revenue rose 16.9 percent in the eight months through November from a year earlier, S.K. Goel, chairman of the Central Board of Excise and Customs, said Dec. 9. That compares with a target for a 17.3 percent increase this fiscal year.
The extra yield (GIND10YR) sought on the notes over similar maturity U.S. Treasuries surged 205 basis points in 2011 to 667 basis points. The spread reached a 12-year high of 697 basis points in November.
Rupee-denominated notes returned 5.9 percent this year compared with the region’s best performance of 22 percent for Indonesian securities, HSBC Holdings Plc indexes show. Overseas investors raised holdings (FIINDEBT) of Indian debt by $8.5 billion this year to a record $26.3 billion on Dec. 23, exchange data show.
“Government borrowing is pressuring the yields upward,” said Roy Paul, deputy general manager of treasury at Federal Bank Ltd. (FB) in Mumbai. “But the slowing economy will force an interest-rate cut next year and so yields should move downward in 2012.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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Saturday, December 31, 2011
Friday, December 30, 2011
India to Boost Record Borrowing by 8.5% as Slowing Growth Cuts Tax Revenue By Jeanette Rodrigues - Dec 30, 2011
India increased its record borrowing program for the year by 8.5 percent to narrow a budget shortfall as a slowing economy damps tax collections.
Prime Minister Manmohan Singh’s government will sell an additional 400 billion rupees ($7.5 billion) of bonds in the year ending March 31 raising an unprecedented total of 5.1 trillion rupees, the central bank said in a statement today.
Indian 10-year benchmark bond yields (GIND10YR) have jumped the most in Asia after Vietnam, as the government sold more debt to meet its target of keeping the budget gap to 4.6 percent of gross domestic product. The rate on the 8.79 percent note due November 2021 climbed two basis points today and 20 this week to 8.57 percent, according to the central bank’s trading system.
“The market is already burdened by supplies,” Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “However this increase was expected, and so while we could see yields rising in early trades on Monday, they will settle down soon.”
The 10-year bond yield could rise as high as 8.70 percent, according to Development Credit Bank and IDBI Bank Ltd. (IDBI) following the increase in the bond-sale plan.
The Reserve Bank of India (RBI) has said the government must rein in borrowings to help check price gains and boost economic growth. The $1.7 trillion economy may miss the central bank’s growth estimate of 7.6 percent for the 12 months ending March 31, Governor Duvvuri Subbarao said Dec. 22.
The government increased its borrowing plan by 528.7 billion rupees in September.
Wider Spread
The nation’s indirect tax revenue rose 16.9 percent in the eight months through November from a year earlier, S.K. Goel, chairman of the Central Board of Excise and Customs, said Dec. 9. That compares with a target for a 17.3 percent increase this fiscal year.
The extra yield (GIND10YR) sought on the notes over similar maturity U.S. Treasuries surged 205 basis points in 2011 to 667 basis points. The spread reached a 12-year high of 697 basis points in November.
Rupee-denominated notes returned 5.9 percent this year compared with the region’s best performance of 22 percent for Indonesian securities, HSBC Holdings Plc indexes show. Overseas investors raised holdings (FIINDEBT) of Indian debt by $8.5 billion this year to a record $26.3 billion on Dec. 23, exchange data show.
“Government borrowing is pressuring the yields upward,” said Roy Paul, deputy general manager of treasury at Federal Bank Ltd. (FB) in Mumbai. “But the slowing economy will force an interest-rate cut next year and so yields should move downward in 2012.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Prime Minister Manmohan Singh’s government will sell an additional 400 billion rupees ($7.5 billion) of bonds in the year ending March 31 raising an unprecedented total of 5.1 trillion rupees, the central bank said in a statement today.
Indian 10-year benchmark bond yields (GIND10YR) have jumped the most in Asia after Vietnam, as the government sold more debt to meet its target of keeping the budget gap to 4.6 percent of gross domestic product. The rate on the 8.79 percent note due November 2021 climbed two basis points today and 20 this week to 8.57 percent, according to the central bank’s trading system.
“The market is already burdened by supplies,” Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “However this increase was expected, and so while we could see yields rising in early trades on Monday, they will settle down soon.”
The 10-year bond yield could rise as high as 8.70 percent, according to Development Credit Bank and IDBI Bank Ltd. (IDBI) following the increase in the bond-sale plan.
The Reserve Bank of India (RBI) has said the government must rein in borrowings to help check price gains and boost economic growth. The $1.7 trillion economy may miss the central bank’s growth estimate of 7.6 percent for the 12 months ending March 31, Governor Duvvuri Subbarao said Dec. 22.
The government increased its borrowing plan by 528.7 billion rupees in September.
Wider Spread
The nation’s indirect tax revenue rose 16.9 percent in the eight months through November from a year earlier, S.K. Goel, chairman of the Central Board of Excise and Customs, said Dec. 9. That compares with a target for a 17.3 percent increase this fiscal year.
The extra yield (GIND10YR) sought on the notes over similar maturity U.S. Treasuries surged 205 basis points in 2011 to 667 basis points. The spread reached a 12-year high of 697 basis points in November.
Rupee-denominated notes returned 5.9 percent this year compared with the region’s best performance of 22 percent for Indonesian securities, HSBC Holdings Plc indexes show. Overseas investors raised holdings (FIINDEBT) of Indian debt by $8.5 billion this year to a record $26.3 billion on Dec. 23, exchange data show.
“Government borrowing is pressuring the yields upward,” said Roy Paul, deputy general manager of treasury at Federal Bank Ltd. (FB) in Mumbai. “But the slowing economy will force an interest-rate cut next year and so yields should move downward in 2012.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, December 29, 2011
Food Inflation Rate in India Falls to Lowest Level in at Least Five Years By Tushar Dhara - Dec 29, 2011
India’s food inflation rate fell to the lowest level in at least five-and-a-half years, increasing the scope for the central bank to cut interest rates after it halted a record pace of monetary tightening.
An index measuring wholesale prices of agricultural products, including rice, wheat and vegetables, rose 0.42 percent in the week ended Dec. 17 from a year earlier, the commerce ministry said in a statement in New Delhi today. The increase compares with a 1.81 percent gain the previous week, and is the smallest gain since at least April 2006, according to the earliest available data compiled by Bloomberg.
The Reserve Bank of India refrained from raising rates this month for the first time in eight meetings as inflation eases and the fallout from Europe’s debt crisis threatens growth in Asia’s third-largest economy. Slowing expansion in the region has prompted policy makers to cut or hold borrowing costs in recent months to counter faltering global demand.
“Food inflation is coming off rapidly,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “We expect the RBI may cut the repurchase rate by 50 basis points in March to support growth.”
India’s benchmark inflation gauge, the wholesale-price index, rose 9.11 percent in November from a year earlier, the smallest gain in a year.
To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
An index measuring wholesale prices of agricultural products, including rice, wheat and vegetables, rose 0.42 percent in the week ended Dec. 17 from a year earlier, the commerce ministry said in a statement in New Delhi today. The increase compares with a 1.81 percent gain the previous week, and is the smallest gain since at least April 2006, according to the earliest available data compiled by Bloomberg.
The Reserve Bank of India refrained from raising rates this month for the first time in eight meetings as inflation eases and the fallout from Europe’s debt crisis threatens growth in Asia’s third-largest economy. Slowing expansion in the region has prompted policy makers to cut or hold borrowing costs in recent months to counter faltering global demand.
“Food inflation is coming off rapidly,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “We expect the RBI may cut the repurchase rate by 50 basis points in March to support growth.”
India’s benchmark inflation gauge, the wholesale-price index, rose 9.11 percent in November from a year earlier, the smallest gain in a year.
To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, December 28, 2011
Billionaire Ambanis Dance, Pray at Family Home, Signaling Thaw By Siddharth Philip, Ketaki Gokhale and Rakteem Katakey - Dec 28, 2011
Billionaires Mukesh and Anil Ambani danced and prayed in their ancestral village on the eve of their father’s 80th birth anniversary in the strongest display of bonhomie since ending a feud that split the Reliance empire.
The brothers, who have a combined wealth of $28.5 billion and control the world’s biggest oil refining complex and India’s second-largest phone company, were seen together on Dec. 27 for the first time since they pledged harmony in May 2010. Yesterday, they inaugurated a memorial to the late Dhirajlal Ambani in Chorwad in the western state of Gujarat.
Reliance Communications Ltd. (RCOM), controlled by 52 year-old Anil, climbed to a two-week high on Dec. 27 on speculation that improved sibling relations may help the company clinch a deal to lease mobile-phone towers to Reliance Industries Ltd. (RIL), run by Mukesh, 54. The elder Ambani operates India’s biggest natural gas field, while Anil needs the fuel for his power plants.
“It will matter to shareholders if it is a business reunion,” said Jagannadham Thunuguntla, strategist at SMC Global Securities Ltd. in New Delhi. “That would be a huge positive rerating opportunity for Anil Ambani group stocks. From Reliance Industries’ perspective, it would be an opportunity to expand their dream of entering into telecom.”
When India’s second-largest business group split in 2005, Mukesh got the Reliance group’s petrochemicals, oil and gas units, while Anil took the power, financial services, telecommunications, and entertainment businesses. Both retained rights to the Reliance name.
Last year the brothers scrapped agreements that prevented them from competing in similar businesses.
Dandiya Dance
Mukesh Ambani and Anil yesterday traveled in separate Mercedes-Benz cars to pray and have breakfast at the local Ambaji Mata temple after spending the previous evening performing the dandiya, a traditional Gujarati folk dance, along with their wives, mother and sister, Bloomberg UTV showed.
Anil flew in a Reliance Industries helicopter yesterday morning to offer prayers at the ancient Hindu temple of Somnath, Parimal Nathwani, group president for corporate affairs at Reliance Industries, said in an interview in Chorwad. Security arrangements in the village were managed by the officials from the company’s refinery complex at Jamnagar and 60 local volunteers, he said.
Daljeet Singh, a spokesman for Reliance ADA Group, declined to comment.
Share Performance
Reliance Industries shares fell 1.9 percent to 739.05 rupees at close in Mumbai yesterday, compared with a 0.9 percent decline in the benchmark Sensitive Index. (SENSEX) Reliance Infrastructure Ltd., the Anil Ambani-controlled builder of a mass rapid transit system in Mumbai, dropped 2.9 percent to 358.6 rupees and Reliance Communications lost 1.4 percent to 71.9 rupees.
Shares of Reliance Industries have more than tripled in value since the brothers divided the family business in June 2005. Anil’s flagship Reliance Communications has slumped 76 percent since it started trading in 2006.
Chorwad, a coastal fishing village where Dhirajlal Ambani, known as Dhirubhai, grew up, lies 855 kilometers (530 miles) northwest by road from Mumbai, where Mukesh has built a skyscraper home. The building equipped with helipads and a movie theater cost $1 billion, according to Forbes.
Dhirubhai founded Reliance Commercial Corp. to trade spices and yarn in 1959, the year Anil was born, and built an empire with businesses ranging from textiles to petrochemicals. His two sons fought for control of the group after he died in 2002 without leaving a will. They split the family business three years later in a settlement brokered by their mother, Kokila Ambani.
‘Old Wounds’
In the following five years their battle over the price and supply of natural gas from Reliance Industries’ assets halted plans for a major north Indian power plant, while a merger between Anil’s Reliance Communications and South Africa’s MTN Group Ltd. was scuttled after Mukesh said he had the first right to buy shares in his brother’s company.
“It looks like they’ve reconciled to working together, and that could be the best thing for them individually,” said U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai. “Old wounds can’t completely be healed, but they can be stitched. There’s a scar nevertheless.”
To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Arijit Ghosh at aghosh@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The brothers, who have a combined wealth of $28.5 billion and control the world’s biggest oil refining complex and India’s second-largest phone company, were seen together on Dec. 27 for the first time since they pledged harmony in May 2010. Yesterday, they inaugurated a memorial to the late Dhirajlal Ambani in Chorwad in the western state of Gujarat.
Reliance Communications Ltd. (RCOM), controlled by 52 year-old Anil, climbed to a two-week high on Dec. 27 on speculation that improved sibling relations may help the company clinch a deal to lease mobile-phone towers to Reliance Industries Ltd. (RIL), run by Mukesh, 54. The elder Ambani operates India’s biggest natural gas field, while Anil needs the fuel for his power plants.
“It will matter to shareholders if it is a business reunion,” said Jagannadham Thunuguntla, strategist at SMC Global Securities Ltd. in New Delhi. “That would be a huge positive rerating opportunity for Anil Ambani group stocks. From Reliance Industries’ perspective, it would be an opportunity to expand their dream of entering into telecom.”
When India’s second-largest business group split in 2005, Mukesh got the Reliance group’s petrochemicals, oil and gas units, while Anil took the power, financial services, telecommunications, and entertainment businesses. Both retained rights to the Reliance name.
Last year the brothers scrapped agreements that prevented them from competing in similar businesses.
Dandiya Dance
Mukesh Ambani and Anil yesterday traveled in separate Mercedes-Benz cars to pray and have breakfast at the local Ambaji Mata temple after spending the previous evening performing the dandiya, a traditional Gujarati folk dance, along with their wives, mother and sister, Bloomberg UTV showed.
Anil flew in a Reliance Industries helicopter yesterday morning to offer prayers at the ancient Hindu temple of Somnath, Parimal Nathwani, group president for corporate affairs at Reliance Industries, said in an interview in Chorwad. Security arrangements in the village were managed by the officials from the company’s refinery complex at Jamnagar and 60 local volunteers, he said.
Daljeet Singh, a spokesman for Reliance ADA Group, declined to comment.
Share Performance
Reliance Industries shares fell 1.9 percent to 739.05 rupees at close in Mumbai yesterday, compared with a 0.9 percent decline in the benchmark Sensitive Index. (SENSEX) Reliance Infrastructure Ltd., the Anil Ambani-controlled builder of a mass rapid transit system in Mumbai, dropped 2.9 percent to 358.6 rupees and Reliance Communications lost 1.4 percent to 71.9 rupees.
Shares of Reliance Industries have more than tripled in value since the brothers divided the family business in June 2005. Anil’s flagship Reliance Communications has slumped 76 percent since it started trading in 2006.
Chorwad, a coastal fishing village where Dhirajlal Ambani, known as Dhirubhai, grew up, lies 855 kilometers (530 miles) northwest by road from Mumbai, where Mukesh has built a skyscraper home. The building equipped with helipads and a movie theater cost $1 billion, according to Forbes.
Dhirubhai founded Reliance Commercial Corp. to trade spices and yarn in 1959, the year Anil was born, and built an empire with businesses ranging from textiles to petrochemicals. His two sons fought for control of the group after he died in 2002 without leaving a will. They split the family business three years later in a settlement brokered by their mother, Kokila Ambani.
‘Old Wounds’
In the following five years their battle over the price and supply of natural gas from Reliance Industries’ assets halted plans for a major north Indian power plant, while a merger between Anil’s Reliance Communications and South Africa’s MTN Group Ltd. was scuttled after Mukesh said he had the first right to buy shares in his brother’s company.
“It looks like they’ve reconciled to working together, and that could be the best thing for them individually,” said U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai. “Old wounds can’t completely be healed, but they can be stitched. There’s a scar nevertheless.”
To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net; Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Arijit Ghosh at aghosh@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, December 27, 2011
Asian Stocks Fall, Copper Snaps Four-Day Rally on Europe, Growth Concerns By Shiyin Chen and Wes Goodman - Dec 27, 2011
Asia stocks (MXAP) fell, extending the MSCI Asia Pacific Index’s annual loss, while copper snapped a four- day rally amid concern economic growth in the region is slowing and before Italy sells debt today and tomorrow.
The MSCI Asia Pacific Index declined 0.4 percent at 11:07 a.m. in Tokyo. Futures on the Standard & Poor’s 500 Index rose less than 0.1 percent. Copper lost 1.1 percent in London, soybeans slid for the first time in nine days and gold sank to a one-week low. The 17-nation euro was little changed against the dollar and yen. Treasury 30-year yields slipped two basis points to 3.01 percent.
Economic reports today showed Japan’s industrial production dropped and confidence among South Korean manufacturers sank to a 30-month low. U.S. home prices fell more than projected in October even as consumer confidence gained in December to an eight-month high, data showed yesterday. Italy is scheduled to sell 9 billion euros ($12 billion) of 179-day bills and as much as 2.5 billion euros of zero-coupon 2013 bonds today.
“We haven’t seen any resolution from the European area, and the situation is going to be the same next year,” said Chungkeun Oh, a debt trader in Seoul at Industrial Bank of Korea, South Korea’s largest lender to small- and medium-sized companies.
More than two shares slid for every one that rose on the MSCI Asia Pacific Index. The measure has fallen 18 percent this year, compared with a 12 percent drop on the Stoxx Europe 600 Index and a 0.6 percent gain in the Standard & Poor’s 500 Index.
Australia’s S&P/ASX 200 Index declined 1 percent and Hong Kong’s Hang Seng Index retreated 0.6 percent as the markets open after a two-day holiday. South Korea’s Kospi Index slipped 1 percent. SK Telecom Co. (017670) led losses among companies that trade without the right to the year’s final dividend payments.
U.S. Economy
The S&P 500 was little changed yesterday following last week’s 3.7 percent rally. The Conference Board’s index of consumer confidence rose to 64.5, exceeding all estimates in a Bloomberg News survey, and the highest reading since April, figures from the New York-based private research group showed.
The S&P/Case-Shiller index of home values in cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said yesterday. The median forecast of 27 economists in a Bloomberg survey projected a 3.2 percent decline.
“The U.S. housing market has yet to get on a firm recovery path because we don’t know if prices will actually come back,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $29.6 billion. “Market participants are in vacation mode and aren’t doing much.”
Treasury 10-year yields fell one basis point to 2 percent today. Treasuries have returned 9 percent this year, according to Bank of America Merrill Lynch indexes.
Italian Sales
The euro was little changed at $1.3072 and weakened 0.1 percent to 101.71 yen. In addition to today’s sales, Italy is scheduled to sell bonds maturing in 2014, 2018, 2021 and 2022 tomorrow. The nation’s 10-year bond yields climbed two basis points yesterday to 7 percent, the level that spurred Greece, Ireland and Portugal to seek bailouts.
A report tomorrow may show Italian business confidence dipped to the lowest in almost two years.
The won traded at 1,158.60 per dollar, near a one-week low, after the Bank of Korea said an index of manufacturers’ expectations for January was 79, the least since July 2009.
Three-month copper fell to $7,544 a metric ton in London after gaining 4 percent last week. The metal is down 21 percent this year, set for the first annual fall since 2008. Soybean futures dropped 1.2 percent to $11.945 a bushel, halting an eight-day, 9 percent jump. Corn declined 0.4 percent to $6.305 a bushel after prices rose 9.4 percent in the previous seven days.
Gold Falls
Gold for immediate delivery slid as much as 0.5 percent to $1,586.13 an ounce, the lowest prices since Dec. 19, on concern that an escalation of Europe’s debt crisis may weigh on global growth amid slowing demand in India and China. Futures were on course for the longest losing streak since 2009.
The cost of insuring corporate bonds against non-payment fell in Australia and Japan. The Markit iTraxx Australia index decreased two basis points to 179 basis points, Westpac Banking Corp. prices show. The index is headed for its lowest close since Nov. 8 and at those levels would have risen 75.5 basis points this year, according to data provider CMA.
The Markit iTraxx Japan index declined 1 basis point to 186, Deutsche Bank AG prices show. The gauge is set for its lowest close since Dec. 27, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Shiyin Chen in Singapore at schen37@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The MSCI Asia Pacific Index declined 0.4 percent at 11:07 a.m. in Tokyo. Futures on the Standard & Poor’s 500 Index rose less than 0.1 percent. Copper lost 1.1 percent in London, soybeans slid for the first time in nine days and gold sank to a one-week low. The 17-nation euro was little changed against the dollar and yen. Treasury 30-year yields slipped two basis points to 3.01 percent.
Economic reports today showed Japan’s industrial production dropped and confidence among South Korean manufacturers sank to a 30-month low. U.S. home prices fell more than projected in October even as consumer confidence gained in December to an eight-month high, data showed yesterday. Italy is scheduled to sell 9 billion euros ($12 billion) of 179-day bills and as much as 2.5 billion euros of zero-coupon 2013 bonds today.
“We haven’t seen any resolution from the European area, and the situation is going to be the same next year,” said Chungkeun Oh, a debt trader in Seoul at Industrial Bank of Korea, South Korea’s largest lender to small- and medium-sized companies.
More than two shares slid for every one that rose on the MSCI Asia Pacific Index. The measure has fallen 18 percent this year, compared with a 12 percent drop on the Stoxx Europe 600 Index and a 0.6 percent gain in the Standard & Poor’s 500 Index.
Australia’s S&P/ASX 200 Index declined 1 percent and Hong Kong’s Hang Seng Index retreated 0.6 percent as the markets open after a two-day holiday. South Korea’s Kospi Index slipped 1 percent. SK Telecom Co. (017670) led losses among companies that trade without the right to the year’s final dividend payments.
U.S. Economy
The S&P 500 was little changed yesterday following last week’s 3.7 percent rally. The Conference Board’s index of consumer confidence rose to 64.5, exceeding all estimates in a Bloomberg News survey, and the highest reading since April, figures from the New York-based private research group showed.
The S&P/Case-Shiller index of home values in cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said yesterday. The median forecast of 27 economists in a Bloomberg survey projected a 3.2 percent decline.
“The U.S. housing market has yet to get on a firm recovery path because we don’t know if prices will actually come back,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $29.6 billion. “Market participants are in vacation mode and aren’t doing much.”
Treasury 10-year yields fell one basis point to 2 percent today. Treasuries have returned 9 percent this year, according to Bank of America Merrill Lynch indexes.
Italian Sales
The euro was little changed at $1.3072 and weakened 0.1 percent to 101.71 yen. In addition to today’s sales, Italy is scheduled to sell bonds maturing in 2014, 2018, 2021 and 2022 tomorrow. The nation’s 10-year bond yields climbed two basis points yesterday to 7 percent, the level that spurred Greece, Ireland and Portugal to seek bailouts.
A report tomorrow may show Italian business confidence dipped to the lowest in almost two years.
The won traded at 1,158.60 per dollar, near a one-week low, after the Bank of Korea said an index of manufacturers’ expectations for January was 79, the least since July 2009.
Three-month copper fell to $7,544 a metric ton in London after gaining 4 percent last week. The metal is down 21 percent this year, set for the first annual fall since 2008. Soybean futures dropped 1.2 percent to $11.945 a bushel, halting an eight-day, 9 percent jump. Corn declined 0.4 percent to $6.305 a bushel after prices rose 9.4 percent in the previous seven days.
Gold Falls
Gold for immediate delivery slid as much as 0.5 percent to $1,586.13 an ounce, the lowest prices since Dec. 19, on concern that an escalation of Europe’s debt crisis may weigh on global growth amid slowing demand in India and China. Futures were on course for the longest losing streak since 2009.
The cost of insuring corporate bonds against non-payment fell in Australia and Japan. The Markit iTraxx Australia index decreased two basis points to 179 basis points, Westpac Banking Corp. prices show. The index is headed for its lowest close since Nov. 8 and at those levels would have risen 75.5 basis points this year, according to data provider CMA.
The Markit iTraxx Japan index declined 1 basis point to 186, Deutsche Bank AG prices show. The gauge is set for its lowest close since Dec. 27, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Shiyin Chen in Singapore at schen37@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, December 26, 2011
Japan Set to Unveil India Currency Swap Deal By Kyoko Shimodoi - Dec 26, 2011
Japan is poised to unveil a currency-swap line with India in its second international financial agreement with top Asian powers this week.
Finance Minister Jun Azumi told reporters today in Tokyo that Japan is negotiating an agreement with India, the third- largest economy in Asia, after China and Japan. The deal is likely to be unveiled during a trip by Prime Minister Yoshihiko Noda to India that starts today, with the amount of the swap line about $10 billion, a Japanese government official said on condition of anonymity.
Japan two days ago agreed with China to promote direct trading of the yen and yuan without using dollars and start purchases of Chinese bonds for its foreign-exchange reserves. The nation has also deployed some of its reserves, the world’s second biggest, after China’s, for aiding Japanese companies in making overseas acquisitions.
For India, the deal expands the ability to respond to financial shocks as Prime Minister Manmohan Singh’s administration contends with a slump in the rupee that risks stoking inflation.
To contact the reporter on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Finance Minister Jun Azumi told reporters today in Tokyo that Japan is negotiating an agreement with India, the third- largest economy in Asia, after China and Japan. The deal is likely to be unveiled during a trip by Prime Minister Yoshihiko Noda to India that starts today, with the amount of the swap line about $10 billion, a Japanese government official said on condition of anonymity.
Japan two days ago agreed with China to promote direct trading of the yen and yuan without using dollars and start purchases of Chinese bonds for its foreign-exchange reserves. The nation has also deployed some of its reserves, the world’s second biggest, after China’s, for aiding Japanese companies in making overseas acquisitions.
For India, the deal expands the ability to respond to financial shocks as Prime Minister Manmohan Singh’s administration contends with a slump in the rupee that risks stoking inflation.
To contact the reporter on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, December 25, 2011
China, Japan to Back Direct Trade of Currencies By Toru Fujioka - Dec 25, 2011
Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for the exchange, to cut costs for companies, the Japanese government said.
Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday.
The deals between the world’s second and third-largest economies come as the two-year-old European debt crisis keeps global financial markets volatile. Japan will start to buy “a small amount” of China’s bonds, a Japanese government official said on condition of anonymity because of the ministry’s policy, without elaborating on when and how much of the debt the nation plans to purchase.
“Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.
Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would be beneficial for Japan because it would help reveal more information about financial markets in China, the world’s largest holder of foreign currency reserves.
Biggest Trading Partner
Encouraging direct yen-yuan trades will aim to reduce currency risks and trading costs, Japan’s government said. Currently, about 60 percent of trade transactions between the two nations are settled in dollars, according to Japan’s Finance Ministry. China is Japan’s biggest trading partner.
Then-finance minister Noda said in September 2010 that Japan should be able to invest in China’s market given that China buys Japanese debt. Japan holds $1.3 trillion of foreign- currency reserves, the world’s second largest.
Austria has already been granted the eligibility to buy Chinese bonds, according to the Japanese government official. Central banks from Thailand to Nigeria plan to start buying yuan assets as slowing global growth has capped interest rates in the U.S. and Europe.
Investing in Chinese debt has become easier for central banks as issuance of yuan-denominated bonds in Hong Kong more than tripled to 112 billion yuan ($18 billion) this year and institutions were granted quotas to invest onshore.
China sold the second-biggest net amount of Japanese debt on record in October as the yen headed for a postwar high against the dollar and benchmark yields approached their lowest levels in a year. It cut Japanese debt by 853 billion yen ($11 billion), Japan’s Ministry of Finance said on Dec. 8.
Separately, the Japan Bank for International Cooperation, JGC Corp., Mizuho Corporate Bank Ltd., the Export-Import Bank of China and other Chinese companies will establish a $154 million fund to invest in environment-related businesses such as recycling and energy, the Japanese government said.
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday.
The deals between the world’s second and third-largest economies come as the two-year-old European debt crisis keeps global financial markets volatile. Japan will start to buy “a small amount” of China’s bonds, a Japanese government official said on condition of anonymity because of the ministry’s policy, without elaborating on when and how much of the debt the nation plans to purchase.
“Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd.
Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would be beneficial for Japan because it would help reveal more information about financial markets in China, the world’s largest holder of foreign currency reserves.
Biggest Trading Partner
Encouraging direct yen-yuan trades will aim to reduce currency risks and trading costs, Japan’s government said. Currently, about 60 percent of trade transactions between the two nations are settled in dollars, according to Japan’s Finance Ministry. China is Japan’s biggest trading partner.
Then-finance minister Noda said in September 2010 that Japan should be able to invest in China’s market given that China buys Japanese debt. Japan holds $1.3 trillion of foreign- currency reserves, the world’s second largest.
Austria has already been granted the eligibility to buy Chinese bonds, according to the Japanese government official. Central banks from Thailand to Nigeria plan to start buying yuan assets as slowing global growth has capped interest rates in the U.S. and Europe.
Investing in Chinese debt has become easier for central banks as issuance of yuan-denominated bonds in Hong Kong more than tripled to 112 billion yuan ($18 billion) this year and institutions were granted quotas to invest onshore.
China sold the second-biggest net amount of Japanese debt on record in October as the yen headed for a postwar high against the dollar and benchmark yields approached their lowest levels in a year. It cut Japanese debt by 853 billion yen ($11 billion), Japan’s Ministry of Finance said on Dec. 8.
Separately, the Japan Bank for International Cooperation, JGC Corp., Mizuho Corporate Bank Ltd., the Export-Import Bank of China and other Chinese companies will establish a $154 million fund to invest in environment-related businesses such as recycling and energy, the Japanese government said.
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Friday, December 23, 2011
Bond Auction Overload Eased by $9.5 Billion Fund Program: India Credit By Jeanette Rodrigues and V. Ramakrishnan - Dec 23, 2011
A government plan to borrow 500 billion rupees ($9.5 billion) from state banks will reduce the need to increase record sales of new bonds and help the market extend the best rally among the biggest emerging nations.
The country may use land and shares as collateral to raise the money, two officials with direct knowledge of the matter said yesterday. Rupee-denominated notes returned 2.7 percent this month, JPMorgan & Chase Co. data show, as 10-year yields slid 34 basis points to 8.40 percent. Local-currency debt earned 0.8 percent in Brazil, 1.1 percent in China and 0.06 percent in Russia, the data show.
Sovereign bonds have surged the most this month since May 2010 as the Reserve Bank of India halted a record run of interest-rate increases on the first contraction in factory output since 2009. Nomura Holdings Inc. and Standard Chartered Plc predict that the government will raise its debt-sale target for a second time in the fiscal year ending March 31 as the deepening slump erodes revenue.
“This would help the government’s budget management and lowers the chances of another increase in market borrowings,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura, Japan’s biggest brokerage, said in an interview yesterday. “If indeed there is no further increase in debt supply, then we could see benchmark bonds rallying further.”
India will set up a fund by Jan. 15 that will use government stakes in non-state companies including ITC Ltd. (ITC), Axis Bank Ltd. (AXSB) and Larsen & Toubro Ltd. (LT) as collateral, the officials said, declining to be identified before a public announcement on the deal. The company will use the funds raised to buy the government’s stakes in state-run firms, the officials said, boosting federal revenue and supporting Finance Minister Pranab Mukherjee’s efforts to trim the budget deficit.
Delayed Sales
The plan may help the nation use assets the officials said are valued at 1 trillion rupees and prevent the failure of an earlier government proposal to raise 400 billion rupees in the fiscal year ending March 31 from sales of shares in state-owned companies.
A 23 percent drop in the benchmark BSE India Sensitive Index (SENSEX) of shares this year prompted Mukherjee to delay selling stock of Oil & Natural Gas Corp., Steel Authority of India Ltd. and Indian Oil Corp. The minister has raised 11.44 billion rupees through asset sales this fiscal year compared with 227.63 billion rupees in the 12 months through March, 2011, according to data provided by the Department of Disinvestment.
Deficit Challenge
The government plans to cut the revenue shortfall to a four-year low of 4.6 percent of gross domestic product by March 31, according to budget estimates. Moody’s Investors Service said this week that the deficit will widen to 7.6 percent this year. The Finance Ministry increased its annual debt-sale target by 13 percent in September to a record 4.7 trillion rupees.
Bond risk in India surged the most among the largest developing nations in 2011 amid concern public finances will worsen.
The cost of protecting the debt of State Bank of India, seen as a proxy for the nation, against non-payment for five years using credit-default swaps jumped 231 basis points this year to 392 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Contracts on China’s government bonds increased 77 basis points to 149, while Russia’s climbed 132 to 279 and Brazil’s added 50 to 161. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
The rupee strengthened 0.1 percent to 52.70 a dollar today.
‘Surprise Move’
“There’s no doubt that this surprise move by India will help in meeting the deficit target and have a benign impact on market sentiment,” Gopal Agrawal, chief investment officer at a local unit of South Korea’s Mirae Asset Financial Group in Mumbai, said in an interview yesterday. “Everybody will be keenly watching how quickly and effectively the government works out the modalities.”
Yields on benchmark 8.79 percent notes due in November 2021 declined 15 basis points after a government report on Dec. 12 showed that industrial production shrank 5.1 percent in October from a year earlier. The yield, which rose five basis points today, will drop to 8.25 percent next month, should the government refrain from increasing debt sales, Nomura predicts.
Growth Forecast Cut
Central bank Governor Duvvuri Subbarao signaled yesterday that Asia’s third-largest economy may expand less than an earlier estimate of 7.6 percent in the year through March 2012. Indian inflation, which slowed to 9.11 percent last month from 9.73 percent in October, will decelerate to 7 percent by March, the central bank predicts.
“Growth worries are probably beginning to outweigh inflation concerns,” M. Natarajan, Mumbai-based head of treasury at the Bank of Nova Scotia, said in an interview on Dec. 20. “Investors now expect the Reserve Bank to cut rates in January instead of waiting until March or April.”
Slower inflation is encouraging international investors to boost investments in Indian bonds, which yield more than four times as much as U.S. Treasuries. Overseas funds bolstered holdings of rupee government and corporate debt by $8.2 billion this year to a record $25.8 billion on Dec. 20. The extra yield demanded on 10-year Indian government debt over similar-dated Treasuries was 638 basis points today.
Government bonds are also rallying after the central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 331 billion rupees of government debt at auctions in the past month, central bank data show.
“The outlook for bonds is positive in the medium term as the monetary cycle may turn,” Roy Paul, deputy general manager of treasury at Federal Bank Ltd. in Mumbai, said in an interview yesterday.
To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The country may use land and shares as collateral to raise the money, two officials with direct knowledge of the matter said yesterday. Rupee-denominated notes returned 2.7 percent this month, JPMorgan & Chase Co. data show, as 10-year yields slid 34 basis points to 8.40 percent. Local-currency debt earned 0.8 percent in Brazil, 1.1 percent in China and 0.06 percent in Russia, the data show.
Sovereign bonds have surged the most this month since May 2010 as the Reserve Bank of India halted a record run of interest-rate increases on the first contraction in factory output since 2009. Nomura Holdings Inc. and Standard Chartered Plc predict that the government will raise its debt-sale target for a second time in the fiscal year ending March 31 as the deepening slump erodes revenue.
“This would help the government’s budget management and lowers the chances of another increase in market borrowings,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura, Japan’s biggest brokerage, said in an interview yesterday. “If indeed there is no further increase in debt supply, then we could see benchmark bonds rallying further.”
India will set up a fund by Jan. 15 that will use government stakes in non-state companies including ITC Ltd. (ITC), Axis Bank Ltd. (AXSB) and Larsen & Toubro Ltd. (LT) as collateral, the officials said, declining to be identified before a public announcement on the deal. The company will use the funds raised to buy the government’s stakes in state-run firms, the officials said, boosting federal revenue and supporting Finance Minister Pranab Mukherjee’s efforts to trim the budget deficit.
Delayed Sales
The plan may help the nation use assets the officials said are valued at 1 trillion rupees and prevent the failure of an earlier government proposal to raise 400 billion rupees in the fiscal year ending March 31 from sales of shares in state-owned companies.
A 23 percent drop in the benchmark BSE India Sensitive Index (SENSEX) of shares this year prompted Mukherjee to delay selling stock of Oil & Natural Gas Corp., Steel Authority of India Ltd. and Indian Oil Corp. The minister has raised 11.44 billion rupees through asset sales this fiscal year compared with 227.63 billion rupees in the 12 months through March, 2011, according to data provided by the Department of Disinvestment.
Deficit Challenge
The government plans to cut the revenue shortfall to a four-year low of 4.6 percent of gross domestic product by March 31, according to budget estimates. Moody’s Investors Service said this week that the deficit will widen to 7.6 percent this year. The Finance Ministry increased its annual debt-sale target by 13 percent in September to a record 4.7 trillion rupees.
Bond risk in India surged the most among the largest developing nations in 2011 amid concern public finances will worsen.
The cost of protecting the debt of State Bank of India, seen as a proxy for the nation, against non-payment for five years using credit-default swaps jumped 231 basis points this year to 392 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Contracts on China’s government bonds increased 77 basis points to 149, while Russia’s climbed 132 to 279 and Brazil’s added 50 to 161. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
The rupee strengthened 0.1 percent to 52.70 a dollar today.
‘Surprise Move’
“There’s no doubt that this surprise move by India will help in meeting the deficit target and have a benign impact on market sentiment,” Gopal Agrawal, chief investment officer at a local unit of South Korea’s Mirae Asset Financial Group in Mumbai, said in an interview yesterday. “Everybody will be keenly watching how quickly and effectively the government works out the modalities.”
Yields on benchmark 8.79 percent notes due in November 2021 declined 15 basis points after a government report on Dec. 12 showed that industrial production shrank 5.1 percent in October from a year earlier. The yield, which rose five basis points today, will drop to 8.25 percent next month, should the government refrain from increasing debt sales, Nomura predicts.
Growth Forecast Cut
Central bank Governor Duvvuri Subbarao signaled yesterday that Asia’s third-largest economy may expand less than an earlier estimate of 7.6 percent in the year through March 2012. Indian inflation, which slowed to 9.11 percent last month from 9.73 percent in October, will decelerate to 7 percent by March, the central bank predicts.
“Growth worries are probably beginning to outweigh inflation concerns,” M. Natarajan, Mumbai-based head of treasury at the Bank of Nova Scotia, said in an interview on Dec. 20. “Investors now expect the Reserve Bank to cut rates in January instead of waiting until March or April.”
Slower inflation is encouraging international investors to boost investments in Indian bonds, which yield more than four times as much as U.S. Treasuries. Overseas funds bolstered holdings of rupee government and corporate debt by $8.2 billion this year to a record $25.8 billion on Dec. 20. The extra yield demanded on 10-year Indian government debt over similar-dated Treasuries was 638 basis points today.
Government bonds are also rallying after the central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 331 billion rupees of government debt at auctions in the past month, central bank data show.
“The outlook for bonds is positive in the medium term as the monetary cycle may turn,” Roy Paul, deputy general manager of treasury at Federal Bank Ltd. in Mumbai, said in an interview yesterday.
To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, December 22, 2011
India Plans to Borrow $9.5 Billion Pledging Assets to Fund Budget Deficit By Anto Antony - Dec 22, 2011
India plans to borrow as much as 500 billion rupees ($9.5 billion) using land and shares as collateral in an effort to narrow a budget deficit, two government officials with direct knowledge of the matter said.
The South Asian nation will set up a fund manager by Jan. 15 that will pledge stocks it holds in non-state companies including ITC Ltd. (ITC), Axis Bank Ltd. (AXSB) and Larsen & Toubro Ltd. (LT), the officials said declining to be identified before a public announcement. The company will use the proceeds to buy the government’s stakes in state-run firms, the officials said.
Finance Minister Pranab Mukherjee is exploring options to bridge a widening budget deficit after raising just 3 percent of a 400 billion rupee asset-sale target for the year ending March 31. The decision may help the government utilize assets the officials said are valued at 1 trillion rupees and narrow the gap that’s fanned inflation and driven the rupee to a record low.
“The government is doing this to raise funds as the market isn’t conducive for asset sales, while they are hard pressed to meet deficit targets,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd.
Share Slump
A 23 percent drop in the benchmark Sensitive Index (SENSEX) this year prompted Mukherjee to delay selling shares of Oil & Natural Gas Corp. (ONGC), Steel Authority of India Ltd. (SAIL) and Indian Oil Corp. (IOCL) He has raised 11.44 billion rupees from asset sales this fiscal year compared with 227.63 billion rupees in the 12 months through March, 2011, according to data provided by the Department of Disinvestment.
Mukherjee said in October that it would be a “challenge” to meet his aim of narrowing the budget gap to a four-year low of 4.6 percent of gross domestic product as slowing growth reduce tax collections. Moody’s Investors Service yesterday said the deficit will widen to 7.6 percent this year.
The yield on 10-year government bonds fell as much as 2 basis points at 3:26 p.m. in Mumbai, while the Sensex reversed losses and gained 0.8 percent. The rupee pared losses and traded at 52.66 a dollar, 0.3 percent weaker than yesterday’s close.
“There’s no doubt that this surprise move by India will help in meeting the deficit target and have a benign impact on sentiments,” said Gopal Agrawal, chief investment officer at a local unit of South Korea’s Mirae Asset Financial Group in Mumbai. “Everybody will be keenly watching how quickly and effectively the government works out the modalities.”
Transfer Assets
The new holding company will pledge the stakes and real- estate properties transferred to it from the Specified Undertaking of the Unit Trust of India, to state-run banks, the officials said. Specified Undertaking, formed in 2003, will be wound up within three weeks, the officials said.
Moody’s said yesterday that India’s public debt at 70 percent of gross domestic product is a constraint on the nation’s ratings, which are at the lowest investment grade. India’s $1.7 trillion economy expanded 6.9 percent in the three months through September, the slowest pace in more than two years.
The Reserve Bank of India has raised interest rates 13 times since the start of 2010 to lower the inflation rate that has stayed above 9 percent all of this year. In October Governor Duvvuri Subbarao has partly blamed the fiscal deficit for contributing to inflation.
To contact the reporter on this story: Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The South Asian nation will set up a fund manager by Jan. 15 that will pledge stocks it holds in non-state companies including ITC Ltd. (ITC), Axis Bank Ltd. (AXSB) and Larsen & Toubro Ltd. (LT), the officials said declining to be identified before a public announcement. The company will use the proceeds to buy the government’s stakes in state-run firms, the officials said.
Finance Minister Pranab Mukherjee is exploring options to bridge a widening budget deficit after raising just 3 percent of a 400 billion rupee asset-sale target for the year ending March 31. The decision may help the government utilize assets the officials said are valued at 1 trillion rupees and narrow the gap that’s fanned inflation and driven the rupee to a record low.
“The government is doing this to raise funds as the market isn’t conducive for asset sales, while they are hard pressed to meet deficit targets,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd.
Share Slump
A 23 percent drop in the benchmark Sensitive Index (SENSEX) this year prompted Mukherjee to delay selling shares of Oil & Natural Gas Corp. (ONGC), Steel Authority of India Ltd. (SAIL) and Indian Oil Corp. (IOCL) He has raised 11.44 billion rupees from asset sales this fiscal year compared with 227.63 billion rupees in the 12 months through March, 2011, according to data provided by the Department of Disinvestment.
Mukherjee said in October that it would be a “challenge” to meet his aim of narrowing the budget gap to a four-year low of 4.6 percent of gross domestic product as slowing growth reduce tax collections. Moody’s Investors Service yesterday said the deficit will widen to 7.6 percent this year.
The yield on 10-year government bonds fell as much as 2 basis points at 3:26 p.m. in Mumbai, while the Sensex reversed losses and gained 0.8 percent. The rupee pared losses and traded at 52.66 a dollar, 0.3 percent weaker than yesterday’s close.
“There’s no doubt that this surprise move by India will help in meeting the deficit target and have a benign impact on sentiments,” said Gopal Agrawal, chief investment officer at a local unit of South Korea’s Mirae Asset Financial Group in Mumbai. “Everybody will be keenly watching how quickly and effectively the government works out the modalities.”
Transfer Assets
The new holding company will pledge the stakes and real- estate properties transferred to it from the Specified Undertaking of the Unit Trust of India, to state-run banks, the officials said. Specified Undertaking, formed in 2003, will be wound up within three weeks, the officials said.
Moody’s said yesterday that India’s public debt at 70 percent of gross domestic product is a constraint on the nation’s ratings, which are at the lowest investment grade. India’s $1.7 trillion economy expanded 6.9 percent in the three months through September, the slowest pace in more than two years.
The Reserve Bank of India has raised interest rates 13 times since the start of 2010 to lower the inflation rate that has stayed above 9 percent all of this year. In October Governor Duvvuri Subbarao has partly blamed the fiscal deficit for contributing to inflation.
To contact the reporter on this story: Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, December 21, 2011
Bearish Rupee Bets at Three-Year High as RBI Confidence Ebbs: India Credit By Jeanette Rodrigues - Dec 21, 2011
International investors are boosting bets that India’s rupee will extend the worst slide since 2008 as an economic slump deepens, suggesting a lack of confidence in the central bank’s steps to curb exchange-rate volatility.
Twelve-month non-deliverable forward contracts on the rupee dropped 2 percent this month to 55.85 per dollar even as the Reserve Bank of India introduced measures to boost dollar supply and curb rupee sales. Forwards fell as much as 6.5 percent below onshore spot rupee prices yesterday, the deepest discount since 2008, data compiled by Bloomberg show. Similar contracts signal a 0.7 percent drop in China’s yuan and a 1.2 percent decline for South Korea’s won.
Bond risk in India has surged the most among the largest developing nations this year as the rupee’s 15 percent tumble threatens to further fuel inflation that’s already more than 9 percent, according to CLSA Asia-Pacific Markets. The sliding rupee is also boosting costs for Indian companies, faced with a record $11.4 billion of dollar-bond repayments in 2012.
“While the RBI has taken decisive steps to reduce speculation, these measures don’t necessarily address the underlying cause for the rupee’s weakness,” Olivier Desbarres, head of foreign-exchange strategy for Asia-Pacific ex-Japan at Barclays Capital in Singapore, said in an interview on Dec. 16.
The rupee, the worst performer against the dollar among Asian currencies and of the so-called BRIC nations in 2011, plunged to a record low of 54.305 per dollar on Dec. 15, poised for a third straight quarter of declines, data compiled by Bloomberg show.
Worst of BRICs
Brazil’s real lost 11 percent this year to 1.8598 per dollar and the Russian ruble retreated 3.6 percent to 31.72. The Chinese yuan gained 4.2 percent to 6.3391. The rupee may slide to 60 per dollar next year, according to CLSA and Skandinaviska Enskilda Banken AB.
Currency options signal further declines in the Indian currency. Implied volatility on three-month dollar-rupee options, a gauge of expected exchange-rate swings, doubled in the second half of 2011 to a 19-month high of 14.2 percent this week, data compiled by Bloomberg show.
Similar-dated contracts offering the right to sell the rupee against the dollar cost 350 basis points more than those to buy yesterday, compared with 115 at the end of June. The so- called risk reversal rate was 74 basis points for the yuan, 475 for the ruble, and 825 for the real.
‘Not Real Money’
“This is a sign of rupee weakness driven by foreign investors,” Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, said in a phone interview on Dec. 13. “Offshore forwards are leading onshore forwards. This means it is possibly not real money.”
Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars on currencies that are traditionally not easily convertible for foreign investors.
The rupee has rebounded 3.5 percent from last week’s lows after the Reserve Bank restricted trades in onshore forward contracts to temper speculation and freed interest rates on dollar deposits held locally to spur fund inflows.
Companies can’t enter into multiple forward contracts to cover a single overseas transaction, the central bank said on Dec. 15. The monetary authority eased rules for overseas borrowings by microfinance companies on Dec. 19.
‘Other Measures’
Last month, policy makers relaxed rules for firms to sell foreign currencies through swaps. They also sold dollars in recent weeks to curb the rupee’s slide, according to Mumbai- based IndusInd Bank Ltd. The central bank sold $943 million of foreign currency in October, compared with $845 million in the previous month, data on its website show.
“These are not the only measures we have,” Reserve Bank Deputy Governor Subir Gokarn told reporters in Mumbai on Dec. 20. “There are other measures we can undertake to bring stability to this market. But for the moment, clearly some degree of stability has returned, and that’s important.”
Indian local currency-denominated debt has returned 6.3 percent this year, compared with the 17 percent earned on Brazilian real bonds, JPMorgan data show. Chinese notes returned 6 percent, while Russia’s gained 5.4 percent, the data show.
The rupee fell more than other Asian currencies as India’s economy slowed and Europe’s debt crisis spurred capital outflows from developing nations. India is more vulnerable as it has Asia’s widest current-account deficit.
Investor Exodus
Factory output fell 5.1 percent in October from a year earlier, the first decline since June 2009, government data showed last week. Governor Duvvuri Subbarao, who has raised borrowing costs 13 times since early 2010 to stem inflation, left rates unchanged on Dec. 16 to support the slowing economy.
Global investors pulled almost $20 billion this year from the stock markets of India, South Korea, Taiwan and Thailand, exchange data show. India’s current-account shortfall widened to $14.2 billion in the three months ended June 30, from $5.4 billion in the first quarter, government data showed.
The gap may widen to to 3.5 percent of gross domestic product in the year ending March, Commerce Secretary Rahul Khullar said this month. India’s GDP was $1.7 trillion in 2010, according to the World Bank.
“The RBI’s measures, along with some intervention, will buy time for the country to address medium-term issues such as the current-account deficit and capital outflows,” Ananth Narayan G., Mumbai-based head of South Asia currency and bonds trading at Standard Chartered Plc in Mumbai. “Those are the root causes of the rupee’s weakness.”
Bond Risk
Yields on 10-year government bonds climbed 42 basis points, or 0.42 percentage point, in 2011. The yield on the 8.79 percent note due 2021 climbed six basis points yesterday in Mumbai to 8.34 percent, according to the central bank’s trading system. Rupee-denominated bonds returned 6.5 percent in 2011, compared with the 20.5 percent earned by Indonesian debt, HSBC Holdings Plc indexes show.
The cost to protect the debt of State Bank of India against non-payment has surged the most this year since 2008 as the rupee weakened. Credit-default swaps on the state-owned lender jumped 234 basis points in 2011 to 395 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. China’s government bonds increased 84 to 152, while those for Russia climbed 128 to 275 and Brazil’s added 51 to 162.
Retail Investment
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. State Bank is viewed as a proxy for India by investors as the nation doesn’t have dollar- denominated debt.
The central bank predicts Indian inflation, which slowed to 9.11 percent in November from 9.73 percent the previous month, will slow to 7 percent by March.
“Since inflation is on an easing path, investors are betting on a cut in interest rates in the coming months,” N.S. Venkatesh, head of treasury at Mumbai-based IDBI Bank Ltd., said in an interview on Dec. 16. That is “encouraging for bond investors.”
Overseas funds boosted holdings of rupee-denominated government and corporate debt by $8.16 billion this year to a record $25.8 billion on Dec. 20, exchange data show. Investors still demand extra yield of 642 basis points to hold India’s 10- year sovereign notes over similar-dated U.S. Treasuries.
The central bank’s latest measures show “the commitment of the RBI to fight further rupee depreciation,” Sebastien Barbe, chief emerging-market strategist in Paris at Credit Agricole CIB, said in an interview on Dec. 15. “I think this draws a line in the sand at close to 54 per dollar.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Twelve-month non-deliverable forward contracts on the rupee dropped 2 percent this month to 55.85 per dollar even as the Reserve Bank of India introduced measures to boost dollar supply and curb rupee sales. Forwards fell as much as 6.5 percent below onshore spot rupee prices yesterday, the deepest discount since 2008, data compiled by Bloomberg show. Similar contracts signal a 0.7 percent drop in China’s yuan and a 1.2 percent decline for South Korea’s won.
Bond risk in India has surged the most among the largest developing nations this year as the rupee’s 15 percent tumble threatens to further fuel inflation that’s already more than 9 percent, according to CLSA Asia-Pacific Markets. The sliding rupee is also boosting costs for Indian companies, faced with a record $11.4 billion of dollar-bond repayments in 2012.
“While the RBI has taken decisive steps to reduce speculation, these measures don’t necessarily address the underlying cause for the rupee’s weakness,” Olivier Desbarres, head of foreign-exchange strategy for Asia-Pacific ex-Japan at Barclays Capital in Singapore, said in an interview on Dec. 16.
The rupee, the worst performer against the dollar among Asian currencies and of the so-called BRIC nations in 2011, plunged to a record low of 54.305 per dollar on Dec. 15, poised for a third straight quarter of declines, data compiled by Bloomberg show.
Worst of BRICs
Brazil’s real lost 11 percent this year to 1.8598 per dollar and the Russian ruble retreated 3.6 percent to 31.72. The Chinese yuan gained 4.2 percent to 6.3391. The rupee may slide to 60 per dollar next year, according to CLSA and Skandinaviska Enskilda Banken AB.
Currency options signal further declines in the Indian currency. Implied volatility on three-month dollar-rupee options, a gauge of expected exchange-rate swings, doubled in the second half of 2011 to a 19-month high of 14.2 percent this week, data compiled by Bloomberg show.
Similar-dated contracts offering the right to sell the rupee against the dollar cost 350 basis points more than those to buy yesterday, compared with 115 at the end of June. The so- called risk reversal rate was 74 basis points for the yuan, 475 for the ruble, and 825 for the real.
‘Not Real Money’
“This is a sign of rupee weakness driven by foreign investors,” Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, said in a phone interview on Dec. 13. “Offshore forwards are leading onshore forwards. This means it is possibly not real money.”
Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars on currencies that are traditionally not easily convertible for foreign investors.
The rupee has rebounded 3.5 percent from last week’s lows after the Reserve Bank restricted trades in onshore forward contracts to temper speculation and freed interest rates on dollar deposits held locally to spur fund inflows.
Companies can’t enter into multiple forward contracts to cover a single overseas transaction, the central bank said on Dec. 15. The monetary authority eased rules for overseas borrowings by microfinance companies on Dec. 19.
‘Other Measures’
Last month, policy makers relaxed rules for firms to sell foreign currencies through swaps. They also sold dollars in recent weeks to curb the rupee’s slide, according to Mumbai- based IndusInd Bank Ltd. The central bank sold $943 million of foreign currency in October, compared with $845 million in the previous month, data on its website show.
“These are not the only measures we have,” Reserve Bank Deputy Governor Subir Gokarn told reporters in Mumbai on Dec. 20. “There are other measures we can undertake to bring stability to this market. But for the moment, clearly some degree of stability has returned, and that’s important.”
Indian local currency-denominated debt has returned 6.3 percent this year, compared with the 17 percent earned on Brazilian real bonds, JPMorgan data show. Chinese notes returned 6 percent, while Russia’s gained 5.4 percent, the data show.
The rupee fell more than other Asian currencies as India’s economy slowed and Europe’s debt crisis spurred capital outflows from developing nations. India is more vulnerable as it has Asia’s widest current-account deficit.
Investor Exodus
Factory output fell 5.1 percent in October from a year earlier, the first decline since June 2009, government data showed last week. Governor Duvvuri Subbarao, who has raised borrowing costs 13 times since early 2010 to stem inflation, left rates unchanged on Dec. 16 to support the slowing economy.
Global investors pulled almost $20 billion this year from the stock markets of India, South Korea, Taiwan and Thailand, exchange data show. India’s current-account shortfall widened to $14.2 billion in the three months ended June 30, from $5.4 billion in the first quarter, government data showed.
The gap may widen to to 3.5 percent of gross domestic product in the year ending March, Commerce Secretary Rahul Khullar said this month. India’s GDP was $1.7 trillion in 2010, according to the World Bank.
“The RBI’s measures, along with some intervention, will buy time for the country to address medium-term issues such as the current-account deficit and capital outflows,” Ananth Narayan G., Mumbai-based head of South Asia currency and bonds trading at Standard Chartered Plc in Mumbai. “Those are the root causes of the rupee’s weakness.”
Bond Risk
Yields on 10-year government bonds climbed 42 basis points, or 0.42 percentage point, in 2011. The yield on the 8.79 percent note due 2021 climbed six basis points yesterday in Mumbai to 8.34 percent, according to the central bank’s trading system. Rupee-denominated bonds returned 6.5 percent in 2011, compared with the 20.5 percent earned by Indonesian debt, HSBC Holdings Plc indexes show.
The cost to protect the debt of State Bank of India against non-payment has surged the most this year since 2008 as the rupee weakened. Credit-default swaps on the state-owned lender jumped 234 basis points in 2011 to 395 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. China’s government bonds increased 84 to 152, while those for Russia climbed 128 to 275 and Brazil’s added 51 to 162.
Retail Investment
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. State Bank is viewed as a proxy for India by investors as the nation doesn’t have dollar- denominated debt.
The central bank predicts Indian inflation, which slowed to 9.11 percent in November from 9.73 percent the previous month, will slow to 7 percent by March.
“Since inflation is on an easing path, investors are betting on a cut in interest rates in the coming months,” N.S. Venkatesh, head of treasury at Mumbai-based IDBI Bank Ltd., said in an interview on Dec. 16. That is “encouraging for bond investors.”
Overseas funds boosted holdings of rupee-denominated government and corporate debt by $8.16 billion this year to a record $25.8 billion on Dec. 20, exchange data show. Investors still demand extra yield of 642 basis points to hold India’s 10- year sovereign notes over similar-dated U.S. Treasuries.
The central bank’s latest measures show “the commitment of the RBI to fight further rupee depreciation,” Sebastien Barbe, chief emerging-market strategist in Paris at Credit Agricole CIB, said in an interview on Dec. 15. “I think this draws a line in the sand at close to 54 per dollar.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, December 20, 2011
Double Whammy for Corporates as Record Debt Payments Looming: India Credit By Anurag Joshi - Dec 20, 2011
Indian companies have a record $11.4 billion of dollar-denominated bonds to repay in 2012 just as the rupee falls to an all-time low and borrowing costs in the U.S. currency exceed all but one of Asia’s markets.
Companies have more than double the debt coming due next year compared with a five-year average of $5.6 billion, while ICICI Bank Ltd. (ICICIBC) and Bank of Baroda have the most maturing debt, according to data compiled by Bloomberg. Yields on Indian company dollar-denominated bonds have increased for five straight quarters and currently sit at 6.85 percent, the second- highest level among 11 Asian countries tracked by HSBC Holdings Plc.
The rupee’s 15.5 percent drop against the dollar this year to the weakest level in data compiled by Bloomberg going back to 1973 makes paying back dollar debt more expensive for Indian companies earning income in rupees. Lower profits will damp economic growth that Prime Minister Manmohan Singh said will increase 7.5 percent in the fiscal year ending March 31.
“There is a dual impact on widening of refinancing costs and the depreciating rupee,” Ananda Bhoumik, a Mumbai-based vice president at Fitch Ratings said in a phone interview on Dec. 16. “Dollar spreads have widened overseas, so refinancing debt through borrowing abroad is also costlier.”
The extra yield investors demand to hold dollar-denominated bonds sold by Indian companies rather than U.S. Treasuries rose 290 basis points, or 2.9 percentage points, this year to 615.2 basis points yesterday, according to indexes compiled by HSBC. Borrowers are paying a premium that’s more than double the 262 basis-point spread for debt of U.S. corporates, according to Bank of American Merrill Lynch indexes.
No Access
Yields on India’s corporate bonds may be pushed higher by a decline in benchmark Treasury bonds, with yields on 10-year Treasury notes expected to rise 88 basis points to 2.7 percent by the end of 2012, according to 70 analysts surveyed by Bloomberg.
“Our liquid funds and repayments from the asset side would be the primary source of funding for meeting the bond repayment obligations and we do not expect to access the markets for refinancing,” ICICI Bank said in an e-mailed reply to questions yesterday. Bank of Baroda Chairman M.D.Mallya declined to comment yesterday.
Indian companies sold $9.2 billion of non-rupee bonds this year, compared with $8.7 billion last year, according to data (BOB) compiled by Bloomberg.
“The rupee’s fall is beyond any speculation and now issuers have to ensure they repay bondholders,” M.V. Tanksale, chairman of Central Bank of India, said in an interview yesterday. “Their refinancing options are few because domestic liquidity is tight and there is a debt crisis in Europe.”
Europe’s Debt Crisis
Relative yields on company bonds from the U.S. to Europe and Asia have expanded 102 basis points to 271 this year as the European sovereign debt crisis intensified, threatening global growth and corporate earnings. That’s the biggest annual increase since a 329 basis-point jump in 2008, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index.
“Issuers would resort to an approach that doesn’t disrupt their business processes and that won’t hamper investor confidence,” Arun Kaul, chairman of Kolkata-based Uco Bank said in a phone interview yesterday. “They will have to bear a cost for this which has risen in an unprecedented way in the form of a sharp depreciation in the rupee.”
Refinancing overseas debt in the next 12 months may be challenging for Indian companies “if Europe’s credit crunch reaches Asia and causes spreads to widen or curtails lending,” Moody’s Investors Service said in the Dec. 14 report.
Rising Yields
Lenders borrowed 1.7 trillion rupees ($32 billion) from the Reserve Bank of India overnight on Dec. 19, the most this year, indicating a shortage of cash in the banking system. They borrowed 1.6 trillion rupees yesterday, according to central bank data.
ICICI Bank, India’s largest private lender, has the equivalent of $3.7 billion of principal payments on bonds and loans due in 2012, data compiled by Bloomberg show. Bank of Baroda, a Vadodara, north-east India-based lender, has $216 million of interest payments due, the data show.
The rupee was little changed at 52.89 per dollar in Mumbai yesterday, according to data compiled by Bloomberg.
Yields on 10-year government bonds have gained 40 basis points this year as the central bank raised the benchmark repurchase rate by 375 basis points since March 2010 to curb inflation. Reserve Bank of India Governor Duvvuri Subbarao left the rate unchanged at a three-year high of 8.5 percent on Dec. 16, halting the fastest round of increases on record.
Yields on the 8.79 percent bonds due November 2021 fell five basis points to 8.28 percent in Mumbai yesterday, according to the central bank’s trading system.
Default Swaps
The cost of insuring the debt of State Bank of India against non-payment was little changed at 395 basis points on Dec. 19, up from 161 at the end of last year, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. State Bank is regarded as a proxy for the nation, which doesn’t have dollar debt.
Credit-default swaps insuring the sovereign debt of the biggest emerging-market nations have also increased. Contracts on Brazil have risen 53 basis points to 164 this year, while those on China have more than doubled to 150, according to CMA. Russia’s are up 129 to 276. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Rupee ‘Surprise’
Sales of rupee-denominated bonds plunged 15 percent to 1.7 trillion rupees this year as companies sought cheaper methods of fundraising, data compiled by Bloomberg show.
The cost of borrowing in rupee bond markets is 250 basis points higher than average yields for dollar debt, with five- year AAA rated corporate debt yielding 9.35 percent, according to data compiled by Bloomberg.
“The rupee’s fall will come as a surprise for many companies,” Parthasarathi Mukherjee, Mumbai-based president of treasury and international banking at Axis Bank Ltd., the biggest rupee-denominated bond arranger this year, said in a phone interview on Dec. 19. “Some companies will be under pressure and defaults can’t be entirely ruled out.”
To contact the reporter on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Companies have more than double the debt coming due next year compared with a five-year average of $5.6 billion, while ICICI Bank Ltd. (ICICIBC) and Bank of Baroda have the most maturing debt, according to data compiled by Bloomberg. Yields on Indian company dollar-denominated bonds have increased for five straight quarters and currently sit at 6.85 percent, the second- highest level among 11 Asian countries tracked by HSBC Holdings Plc.
The rupee’s 15.5 percent drop against the dollar this year to the weakest level in data compiled by Bloomberg going back to 1973 makes paying back dollar debt more expensive for Indian companies earning income in rupees. Lower profits will damp economic growth that Prime Minister Manmohan Singh said will increase 7.5 percent in the fiscal year ending March 31.
“There is a dual impact on widening of refinancing costs and the depreciating rupee,” Ananda Bhoumik, a Mumbai-based vice president at Fitch Ratings said in a phone interview on Dec. 16. “Dollar spreads have widened overseas, so refinancing debt through borrowing abroad is also costlier.”
The extra yield investors demand to hold dollar-denominated bonds sold by Indian companies rather than U.S. Treasuries rose 290 basis points, or 2.9 percentage points, this year to 615.2 basis points yesterday, according to indexes compiled by HSBC. Borrowers are paying a premium that’s more than double the 262 basis-point spread for debt of U.S. corporates, according to Bank of American Merrill Lynch indexes.
No Access
Yields on India’s corporate bonds may be pushed higher by a decline in benchmark Treasury bonds, with yields on 10-year Treasury notes expected to rise 88 basis points to 2.7 percent by the end of 2012, according to 70 analysts surveyed by Bloomberg.
“Our liquid funds and repayments from the asset side would be the primary source of funding for meeting the bond repayment obligations and we do not expect to access the markets for refinancing,” ICICI Bank said in an e-mailed reply to questions yesterday. Bank of Baroda Chairman M.D.Mallya declined to comment yesterday.
Indian companies sold $9.2 billion of non-rupee bonds this year, compared with $8.7 billion last year, according to data (BOB) compiled by Bloomberg.
“The rupee’s fall is beyond any speculation and now issuers have to ensure they repay bondholders,” M.V. Tanksale, chairman of Central Bank of India, said in an interview yesterday. “Their refinancing options are few because domestic liquidity is tight and there is a debt crisis in Europe.”
Europe’s Debt Crisis
Relative yields on company bonds from the U.S. to Europe and Asia have expanded 102 basis points to 271 this year as the European sovereign debt crisis intensified, threatening global growth and corporate earnings. That’s the biggest annual increase since a 329 basis-point jump in 2008, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index.
“Issuers would resort to an approach that doesn’t disrupt their business processes and that won’t hamper investor confidence,” Arun Kaul, chairman of Kolkata-based Uco Bank said in a phone interview yesterday. “They will have to bear a cost for this which has risen in an unprecedented way in the form of a sharp depreciation in the rupee.”
Refinancing overseas debt in the next 12 months may be challenging for Indian companies “if Europe’s credit crunch reaches Asia and causes spreads to widen or curtails lending,” Moody’s Investors Service said in the Dec. 14 report.
Rising Yields
Lenders borrowed 1.7 trillion rupees ($32 billion) from the Reserve Bank of India overnight on Dec. 19, the most this year, indicating a shortage of cash in the banking system. They borrowed 1.6 trillion rupees yesterday, according to central bank data.
ICICI Bank, India’s largest private lender, has the equivalent of $3.7 billion of principal payments on bonds and loans due in 2012, data compiled by Bloomberg show. Bank of Baroda, a Vadodara, north-east India-based lender, has $216 million of interest payments due, the data show.
The rupee was little changed at 52.89 per dollar in Mumbai yesterday, according to data compiled by Bloomberg.
Yields on 10-year government bonds have gained 40 basis points this year as the central bank raised the benchmark repurchase rate by 375 basis points since March 2010 to curb inflation. Reserve Bank of India Governor Duvvuri Subbarao left the rate unchanged at a three-year high of 8.5 percent on Dec. 16, halting the fastest round of increases on record.
Yields on the 8.79 percent bonds due November 2021 fell five basis points to 8.28 percent in Mumbai yesterday, according to the central bank’s trading system.
Default Swaps
The cost of insuring the debt of State Bank of India against non-payment was little changed at 395 basis points on Dec. 19, up from 161 at the end of last year, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. State Bank is regarded as a proxy for the nation, which doesn’t have dollar debt.
Credit-default swaps insuring the sovereign debt of the biggest emerging-market nations have also increased. Contracts on Brazil have risen 53 basis points to 164 this year, while those on China have more than doubled to 150, according to CMA. Russia’s are up 129 to 276. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Rupee ‘Surprise’
Sales of rupee-denominated bonds plunged 15 percent to 1.7 trillion rupees this year as companies sought cheaper methods of fundraising, data compiled by Bloomberg show.
The cost of borrowing in rupee bond markets is 250 basis points higher than average yields for dollar debt, with five- year AAA rated corporate debt yielding 9.35 percent, according to data compiled by Bloomberg.
“The rupee’s fall will come as a surprise for many companies,” Parthasarathi Mukherjee, Mumbai-based president of treasury and international banking at Axis Bank Ltd., the biggest rupee-denominated bond arranger this year, said in a phone interview on Dec. 19. “Some companies will be under pressure and defaults can’t be entirely ruled out.”
To contact the reporter on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, December 19, 2011
Default Swaps Jump Most in BRICs as Gandhi Subsidizes Food: India Credit By V Ramakrishnan and Kartik Goyal - Dec 19, 2011
India’s plan to boost food subsidies by 50 percent is threatening efforts to cut the budget deficit, extending the biggest jump in bond risk among the largest developing nations.
The cost to protect the debt of State Bank of India, seen as a proxy for the nation, against non-payment rose 234 basis points in 2011 to 395 basis points, the most in three years, according to data provider CMA. Credit-default swaps on China’s government bonds increased 78 to 146, while those for Russia climbed 124 to 270 and Brazil’s added 53 to 164.
Indian Prime Minister Manmohan Singh is tapping public finances to boost assistance as the economy of the nation, where the World Bank says more than 75 percent of the people live on less than $2 a day, slows. Nomura Holdings Inc. and Standard Chartered Plc predict Finance Minister Pranab Mukherjee will raise his borrowing target for a second time in the fiscal year ending on March 31.
“The passage of the food security bill may further pressure the government’s finances and push its borrowings higher,” A. Balasubramanian, the Mumbai-based chief executive officer of Birla Sun Life Asset Management Co. who oversees the equivalent of $12.1 billion in assets, said in an interview yesterday. “Given the persistent fiscal problems, the continuous supply of government debt will remain a negative factor for the market.”
India’s cabinet approved the Food Security Bill to grant the nation’s poor the right to buy food grains at discount rates, Information and Broadcasting Minister Ambika Soni told reporters in New Delhi on Dec. 18. The bill, aimed at meeting a pledge by the ruling Congress party to spread the benefits of economic growth, will need the consent of the parliament to become law.
Wooing Voters
Prime Minister Singh is betting on the legislation, the drafting of which was overseen by Congress party President Sonia Gandhi, to woo voters before elections in five states in the first half of next year. The government needs to boost food subsidies by 320 billion rupees ($6 billion) to 950 billion rupees a year to implement the policy, which will provide grains to 64 percent of India’s 1.2 billion-strong population, about 768 million people, Food Minister K.V. Thomas told reporters last week.
“The government’s eyes are on state elections next year and the upcoming federal election and hence we will see such populist measures,” Amol Agrawal, a Mumbai-based economist at STCI Primary Dealer Ltd., said in an interview yesterday. “Such measures may be good for the poor but will have negative implications for fiscal health.”
Rising Yields
The rising subsidy burden will force the government to increase its borrowings, maintaining “upward pressure” on sovereign bond yields, Agrawal predicts.
Ten-year government bond yields in India climbed 40 basis points, or 0.40 percentage point, this year, the most after Vietnam among Asian local-currency debt markets, as inflation accelerated and an economic slowdown threatened to crimp government revenue and stymie efforts to narrow the budget shortfall. Yields fell five basis points to 8.33 percent in Mumbai yesterday, according to the central bank’s trading system.
Finance Minister Mukherjee plans to cut the government’s deficit to a four-year low of 4.6 percent of gross domestic product by March 31, according to budget estimates.
Factory output in Asia’s third-largest economy fell 5.1 percent in October from a year earlier, the first contraction since June 2009, as the highest borrowing costs in three years damped demand for goods, government data showed this month. The $1.7 trillion economy expanded 6.9 percent in the three months ended September from a year earlier, the slowest pace since 2009, according to government data.
‘Downward Trajectory’
“Given that we are on a downward growth trajectory, the timing is not appropriate for coming up with policies like the food subsidy bill that add to the fiscal burden when revenues falter,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings, said in an interview yesterday.
Japan’s biggest brokerage predicts India’s government will borrow 300 billion rupees more than already planned in the year through March. Standard Chartered estimates the increase may be at least 400 billion rupees. The Finance Ministry last increased its annual debt-sale target by 13 percent in September to a record 4.7 trillion rupees ($88.5 billion).
Lower Tax Collections
India’s Finance Ministry said in a Dec. 9 report that lower tax collections in a slowing economy and delayed plans to sell stakes in state-owned companies mean it may miss its goal to narrow the budget gap. The economy may expand 7.25 percent to 7.75 percent this fiscal year, less than the 9 percent growth estimated in February, the report showed. Nomura’s Rajpal predicts the budget deficit will widen to 5.5 percent of GDP from 4.7 percent the previous year.
Reserve Bank of India Governor Duvvuri Subbarao has raised the benchmark repurchase rate by 375 basis points since March 2010 to curb inflation. Subbarao left the repo rate unchanged at a three-year high of 8.5 percent on Dec. 16, halting the fastest round of rate increases on record in the country.
DSP Blackrock Investment Managers and Credit Suisse Group AG predict that the Reserve Bank will cut rates in the first half of 2012 as inflation slows, joining central banks from Brazil to China in easing monetary policy. Brazil’s central bank has cut the Selic rate by a total 150 basis points since August to 11 percent, while the People’s Bank of China decreased the reserve ratio for banks by 50 basis points from Dec. 5, the first reduction since 2008.
Improving Bond Returns
Indian bonds are outperforming debt of the largest emerging markets this month as the central bank predicts inflation to slow to 7 percent by March from 9.11 percent in November.
Rupee-denominated notes have returned 2.22 percent in December, JPMorgan & Chase Co. data show. Local-currency securities lost 0.1 percent in Brazil and earned 1.1 percent in China and 0.04 percent in Russia.
“The outlook for bonds will improve over the next six months,” Ganti N. Murthy, the Mumbai-based head of investments at Peerless Mutual Fund, said in an interview yesterday. “Falling inflation may increase returns on fixed-income securities and prompt the central bank to cut rates from March or April.”
Murthy predicts the the 10-year bond yield will fall to 8 percent by the end of March. Yields have already retreated 67 basis points from a three-year high of 9 percent reached last month. Investors demand extra yield of 646 basis points to hold India’s 10-year notes instead of similar-dated U.S. Treasuries. The rupee fell 0.3 percent to 52.88 per dollar yesterday.
Election Pledge
Credit-default swaps on State Bank rose 44 basis points this month, according to data from CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. State Bank is viewed as a proxy for India by investors as the nation doesn’t have dollar-denominated debt.
The Food Security Bill will fulfill an election pledge by Singh’s Congress party in 2009 that it will supply 25 kilograms of rice or wheat at below-market rates to poor families each month should the party be voted back into power.
Every Indian falling within the so-called priority category will get 7 kilograms (15.4 pounds) of rice or wheat or millet a month, according to Food Minister Thomas. Rice may be sold at 3 rupees per kilogram, wheat at 2 rupees and millet at 1 rupee. That compares with market prices of 24 rupees a kilogram for rice in New Delhi and 15 rupees a kilogram for wheat, according to data provided by the Food Ministry.
“Once implemented, the food bill will add to the expenditure burden and thus to the fiscal deficit as revenue generation remains under pressure in the current low-growth scenario,” Anubhuti Sahay, a Mumbai-based economist at Standard Chartered, said in an interview yesterday.
To contact the reporters on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The cost to protect the debt of State Bank of India, seen as a proxy for the nation, against non-payment rose 234 basis points in 2011 to 395 basis points, the most in three years, according to data provider CMA. Credit-default swaps on China’s government bonds increased 78 to 146, while those for Russia climbed 124 to 270 and Brazil’s added 53 to 164.
Indian Prime Minister Manmohan Singh is tapping public finances to boost assistance as the economy of the nation, where the World Bank says more than 75 percent of the people live on less than $2 a day, slows. Nomura Holdings Inc. and Standard Chartered Plc predict Finance Minister Pranab Mukherjee will raise his borrowing target for a second time in the fiscal year ending on March 31.
“The passage of the food security bill may further pressure the government’s finances and push its borrowings higher,” A. Balasubramanian, the Mumbai-based chief executive officer of Birla Sun Life Asset Management Co. who oversees the equivalent of $12.1 billion in assets, said in an interview yesterday. “Given the persistent fiscal problems, the continuous supply of government debt will remain a negative factor for the market.”
India’s cabinet approved the Food Security Bill to grant the nation’s poor the right to buy food grains at discount rates, Information and Broadcasting Minister Ambika Soni told reporters in New Delhi on Dec. 18. The bill, aimed at meeting a pledge by the ruling Congress party to spread the benefits of economic growth, will need the consent of the parliament to become law.
Wooing Voters
Prime Minister Singh is betting on the legislation, the drafting of which was overseen by Congress party President Sonia Gandhi, to woo voters before elections in five states in the first half of next year. The government needs to boost food subsidies by 320 billion rupees ($6 billion) to 950 billion rupees a year to implement the policy, which will provide grains to 64 percent of India’s 1.2 billion-strong population, about 768 million people, Food Minister K.V. Thomas told reporters last week.
“The government’s eyes are on state elections next year and the upcoming federal election and hence we will see such populist measures,” Amol Agrawal, a Mumbai-based economist at STCI Primary Dealer Ltd., said in an interview yesterday. “Such measures may be good for the poor but will have negative implications for fiscal health.”
Rising Yields
The rising subsidy burden will force the government to increase its borrowings, maintaining “upward pressure” on sovereign bond yields, Agrawal predicts.
Ten-year government bond yields in India climbed 40 basis points, or 0.40 percentage point, this year, the most after Vietnam among Asian local-currency debt markets, as inflation accelerated and an economic slowdown threatened to crimp government revenue and stymie efforts to narrow the budget shortfall. Yields fell five basis points to 8.33 percent in Mumbai yesterday, according to the central bank’s trading system.
Finance Minister Mukherjee plans to cut the government’s deficit to a four-year low of 4.6 percent of gross domestic product by March 31, according to budget estimates.
Factory output in Asia’s third-largest economy fell 5.1 percent in October from a year earlier, the first contraction since June 2009, as the highest borrowing costs in three years damped demand for goods, government data showed this month. The $1.7 trillion economy expanded 6.9 percent in the three months ended September from a year earlier, the slowest pace since 2009, according to government data.
‘Downward Trajectory’
“Given that we are on a downward growth trajectory, the timing is not appropriate for coming up with policies like the food subsidy bill that add to the fiscal burden when revenues falter,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings, said in an interview yesterday.
Japan’s biggest brokerage predicts India’s government will borrow 300 billion rupees more than already planned in the year through March. Standard Chartered estimates the increase may be at least 400 billion rupees. The Finance Ministry last increased its annual debt-sale target by 13 percent in September to a record 4.7 trillion rupees ($88.5 billion).
Lower Tax Collections
India’s Finance Ministry said in a Dec. 9 report that lower tax collections in a slowing economy and delayed plans to sell stakes in state-owned companies mean it may miss its goal to narrow the budget gap. The economy may expand 7.25 percent to 7.75 percent this fiscal year, less than the 9 percent growth estimated in February, the report showed. Nomura’s Rajpal predicts the budget deficit will widen to 5.5 percent of GDP from 4.7 percent the previous year.
Reserve Bank of India Governor Duvvuri Subbarao has raised the benchmark repurchase rate by 375 basis points since March 2010 to curb inflation. Subbarao left the repo rate unchanged at a three-year high of 8.5 percent on Dec. 16, halting the fastest round of rate increases on record in the country.
DSP Blackrock Investment Managers and Credit Suisse Group AG predict that the Reserve Bank will cut rates in the first half of 2012 as inflation slows, joining central banks from Brazil to China in easing monetary policy. Brazil’s central bank has cut the Selic rate by a total 150 basis points since August to 11 percent, while the People’s Bank of China decreased the reserve ratio for banks by 50 basis points from Dec. 5, the first reduction since 2008.
Improving Bond Returns
Indian bonds are outperforming debt of the largest emerging markets this month as the central bank predicts inflation to slow to 7 percent by March from 9.11 percent in November.
Rupee-denominated notes have returned 2.22 percent in December, JPMorgan & Chase Co. data show. Local-currency securities lost 0.1 percent in Brazil and earned 1.1 percent in China and 0.04 percent in Russia.
“The outlook for bonds will improve over the next six months,” Ganti N. Murthy, the Mumbai-based head of investments at Peerless Mutual Fund, said in an interview yesterday. “Falling inflation may increase returns on fixed-income securities and prompt the central bank to cut rates from March or April.”
Murthy predicts the the 10-year bond yield will fall to 8 percent by the end of March. Yields have already retreated 67 basis points from a three-year high of 9 percent reached last month. Investors demand extra yield of 646 basis points to hold India’s 10-year notes instead of similar-dated U.S. Treasuries. The rupee fell 0.3 percent to 52.88 per dollar yesterday.
Election Pledge
Credit-default swaps on State Bank rose 44 basis points this month, according to data from CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. State Bank is viewed as a proxy for India by investors as the nation doesn’t have dollar-denominated debt.
The Food Security Bill will fulfill an election pledge by Singh’s Congress party in 2009 that it will supply 25 kilograms of rice or wheat at below-market rates to poor families each month should the party be voted back into power.
Every Indian falling within the so-called priority category will get 7 kilograms (15.4 pounds) of rice or wheat or millet a month, according to Food Minister Thomas. Rice may be sold at 3 rupees per kilogram, wheat at 2 rupees and millet at 1 rupee. That compares with market prices of 24 rupees a kilogram for rice in New Delhi and 15 rupees a kilogram for wheat, according to data provided by the Food Ministry.
“Once implemented, the food bill will add to the expenditure burden and thus to the fiscal deficit as revenue generation remains under pressure in the current low-growth scenario,” Anubhuti Sahay, a Mumbai-based economist at Standard Chartered, said in an interview yesterday.
To contact the reporters on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, December 18, 2011
India Inflation, Infrastructure Problems Persist By Kartik Goyal - Dec 18, 2011
Truck driver Sujan Singh should be delivering cars to Mumbai from Maruti Suzuki India Ltd. (MSIL)’s plant near New Delhi. Instead, he’s sitting at a roadside cafe by one of India’s busiest highways, waiting for the traffic to ease.
“I’ll start again in the evening and travel through the night as you face huge congestion during the daytime,” he said, enjoying the warmth of a burning pile of trash in the New Delhi winter air. “Most of the highways are just single lanes and the roads are so uneven and bad that that it causes accidents.”
India’s failure to upgrade its 4.2 million kilometers (2.6 million miles) of roads, close a 10 percent power deficit and ease congestion at ports is hobbling the central bank’s efforts to beat inflation. Even after raising interest rates by a record 375 basis points in 1 1/2 years, wholesale prices have risen more than 9 percent for 12 straight months. The bank says supply bottlenecks that push up costs must be tackled.
The country of 1.2 billion people is paying for two decades of neglect. While China 20 years ago went on a multitrillion dollar spending spree for roads, railways, ports and power stations, its South Asian neighbor concentrated on services. Now, as China reins in prices and expands industry inland to restrain wages, India’s near record-low rupee and price gains are damping consumer spending and choking off company earnings.
“India has allowed a large number of cars without creating enough roads; a large number of industries without enough power to run them,” said Sunil Sikka, president of Havells India Ltd., the nation’s second-largest electrical components maker by value. “It’s like trying to wear shoes without socks -- very, very irritating and difficult.”
Cars and Soap
Sikka said Havells has to pay higher packaging costs to protect lamps and switchgears from India’s bumpy roads, where average speeds are 20 kilometers per hour (12 mph). Businesses from Maruti to soap and food maker Hindustan Unilever Ltd. (HUVR) also suffer, said Jagannadham Thunuguntla, chief strategist at SMC Wealth Management Services Ltd. in New Delhi.
“All companies where there is movement of goods and services and distribution are getting hit,” said Thunuguntla. “It adds to their costs and affects productivity.”
Maruti, Godrej Consumer Products Ltd., and Hero MotoCorp Ltd., maker of almost half the motorcycles sold in India, are among hundreds of manufacturers that make their own electricity.
“From the beginning we took the decision to use our own power as the power supplied by the government wasn’t reliable,” said R.C. Bhargava, chairman of Maruti, a unit of Hamamatsu, Japan-based Suzuki Motor Corp., which has made vehicles in India since 1983. “Doing business in India is much costlier.”
Share Discount
The transport delays and power shortages make shares of Indian companies less valuable than those of rivals abroad, said Sadanand Shetty, a Mumbai-based senior fund manager at Taurus Asset Management Co., which manages about $1.3 billion.
“They have to pay a huge cost,” said Shetty. “Indian company shares trade at a discount to competitors overseas.”
Maruti’s estimated price-to-earnings ratio for this fiscal year, a measure of how expensive a stock is within an industry, is 15, compared with 7 for SAIC Motor Corp., China’s biggest automaker, according to data compiled by Bloomberg.
The additional expenses in India add to inflation, limiting the country’s tools to cope with a worsening global economic outlook. The rupee, down 15 percent so far this year, is heading for its second-worst year against the dollar since 1991, when Prime Minister Manmohan Singh, then finance chief, began a shift toward free-market policies.
Higher Inflation
India’s inflation is the highest among the so-called BRIC nations, which include Brazil, Russia and China, with its benchmark gauge rising 9.1 percent in November from a year before. By comparison, China’s rate eased to a 14-month low of 4.2 percent, giving its policy makers more room to support growth as Europe’s debt crisis curbs exports. Russia’s pace was 6.8 percent and Brazil’s 6.6 percent.
The prime minister said in a Dec. 14 interview in New Delhi that “if the international situation doesn’t stand in our way, we will bring down inflation,” predicting it will come down to “no more than 5 or 6 percent.” While international commodity prices have pushed up costs in India, record food production should help ease pressures, he said.
The International Monetary Fund sees India’s consumer-price inflation still outpacing China’s rate by almost 2 percentage points by 2015.
Lasting Disadvantage
“Even if the global economic slowdown provides some relief from inflation in the short term, India will continue to be at a disadvantage until it fixes its problems with power, roads and other infrastructure,” said Arun Singh, a Mumbai-based senior economist at Dun & Bradstreet Information Services India Pvt.
China in 2009 spent an estimated $539 billion on infrastructure, amounting to 10.8 percent of its gross domestic product, compared with $99 billion, or 7.5 percent of GDP, for India, according to Morgan Stanley.
“Look at China, they first put in place all the necessary roads, electricity, power,” said Ravi Sud, chief financial officer of Hero MotoCorp. “That’s the reason they now have faster growth, with manageable levels of inflation. We, on the other hand, are still struggling to take off.”
Singh has pledged to tackle the problem with policies that call for $1 trillion in infrastructure spending between 2012 and 2017.
‘Huge Plans’
“India has huge plans,” said Rajat Nag, managing director-general of the Asian Development Bank. “It’s a question of implementing them. It needs to accelerate the pace of approvals, take care of environmental clearances and issues related to land acquisition. Bottlenecks are a huge drag on the economy.”
Targets to lay more highways and generate more electricity have been repeatedly missed. In the year through March 2011, the National Highways Authority of India built 1,780 kilometers of motorways, about 30 percent less than its target. In the same period, the nation added 9,585 megawatts of power, 34 percent less than forecast.
“The delays have been due to problems in land acquisition, environmental clearances and in some cases poor performance of contractors,” said Manoj Singh, an adviser at the nation’s Planning Commission in New Delhi. “It would be unrealistic to think of matching the U.S. or China in terms of infrastructure. It would take many decades.”
Fitch Ratings changed its outlook for Indian infrastructure projects to negative for 2012, from stable this year, in a report released Dec. 15, citing risks to the credit quality of power projects, airports and toll roads.
Service Gain
India may still reap some reward from the development of industries that don’t rely so heavily on transport networks. Its aggregate share in global commercial services trade will exceed China’s in the next five to six years, driven by information technology, which accounts for about 60 percent of India’s services exports, according to Morgan Stanley.
The country may also get some respite from inflation as a global economic slowdown curbs demand for goods. Exports rose 10.8 percent in October from a year earlier, the least in two years, the Commerce Ministry said Dec. 1. Factory output that month shrank 5.1 percent from a year earlier, the first drop since June 2009, the Central Statistical Office said.
That’s pushed the yield on India’s 10-year government bond close to the level of the one-year note, showing that some investors are betting growth in the country will slow. The Reserve Bank of India in October cut its economic growth forecast to 7.6 percent for the year through March, from 8 percent previously. RBI Governor Duvvuri Subbarao has said his comfort zone for inflation is 4 percent to 6 percent.
Retail Reversal
Prime Minister Singh’s efforts to restrain prices took a blow earlier this month when the government reversed a decision to allow overseas retailers like Wal-Mart Stores Inc. to open supermarkets, after failing to get support from political allies.
Singh and Commerce Minister Anand Sharma have said allowing the investment would create 10 million jobs, and help rein in inflation by reducing the 40 percent of fruit and vegetables that rot before they get to market.
The prime minister vowed in last week’s interview to revive the plan after regional elections next year.
India aims to award projects for 7,300 kilometers of new roads and expressways this fiscal year, and spend 550 billion rupees ($10.4 billion) widening existing thoroughfares, according to the highways authority.
With 3.7 million new vehicles hitting India’s streets last year, that’s little consolation for truck driver Singh.
Getting Worse
“I’ve been driving for 20 years and every year the traffic gets worse,” he said, as other drivers sat at the cafe eating dal and chapattis and waiting for the jam to disperse.
While India has the second-largest road and rail networks in the world, even on highways -- which account for 2 percent of all roads -- average speeds are 35 kph, compared with 80 kph in the U.S., according to JC Bamford Excavators Ltd.
JC Bamford, which sells its yellow diggers in 150 countries, says it takes at least nine days to move equipment 2,900 kilometers from New Delhi to Trivandrum in South India, said Vipin Sondhi, the local unit’s chief executive officer. The equivalent journey in the U.S. would take four days.
Once exporters finally get their goods to port, there are more delays. The average time taken by ships to unload and load at Indian ports is nearly 96 hours, almost 10 times longer than in Hong Kong, a government estimate showed last year.
“Roads are like the arteries,” said Rupa Rege Nitsure, a Mumbai-based economist at the state-owned Bank of Baroda. “If your arteries are clogged, your life is at risk.”
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
“I’ll start again in the evening and travel through the night as you face huge congestion during the daytime,” he said, enjoying the warmth of a burning pile of trash in the New Delhi winter air. “Most of the highways are just single lanes and the roads are so uneven and bad that that it causes accidents.”
India’s failure to upgrade its 4.2 million kilometers (2.6 million miles) of roads, close a 10 percent power deficit and ease congestion at ports is hobbling the central bank’s efforts to beat inflation. Even after raising interest rates by a record 375 basis points in 1 1/2 years, wholesale prices have risen more than 9 percent for 12 straight months. The bank says supply bottlenecks that push up costs must be tackled.
The country of 1.2 billion people is paying for two decades of neglect. While China 20 years ago went on a multitrillion dollar spending spree for roads, railways, ports and power stations, its South Asian neighbor concentrated on services. Now, as China reins in prices and expands industry inland to restrain wages, India’s near record-low rupee and price gains are damping consumer spending and choking off company earnings.
“India has allowed a large number of cars without creating enough roads; a large number of industries without enough power to run them,” said Sunil Sikka, president of Havells India Ltd., the nation’s second-largest electrical components maker by value. “It’s like trying to wear shoes without socks -- very, very irritating and difficult.”
Cars and Soap
Sikka said Havells has to pay higher packaging costs to protect lamps and switchgears from India’s bumpy roads, where average speeds are 20 kilometers per hour (12 mph). Businesses from Maruti to soap and food maker Hindustan Unilever Ltd. (HUVR) also suffer, said Jagannadham Thunuguntla, chief strategist at SMC Wealth Management Services Ltd. in New Delhi.
“All companies where there is movement of goods and services and distribution are getting hit,” said Thunuguntla. “It adds to their costs and affects productivity.”
Maruti, Godrej Consumer Products Ltd., and Hero MotoCorp Ltd., maker of almost half the motorcycles sold in India, are among hundreds of manufacturers that make their own electricity.
“From the beginning we took the decision to use our own power as the power supplied by the government wasn’t reliable,” said R.C. Bhargava, chairman of Maruti, a unit of Hamamatsu, Japan-based Suzuki Motor Corp., which has made vehicles in India since 1983. “Doing business in India is much costlier.”
Share Discount
The transport delays and power shortages make shares of Indian companies less valuable than those of rivals abroad, said Sadanand Shetty, a Mumbai-based senior fund manager at Taurus Asset Management Co., which manages about $1.3 billion.
“They have to pay a huge cost,” said Shetty. “Indian company shares trade at a discount to competitors overseas.”
Maruti’s estimated price-to-earnings ratio for this fiscal year, a measure of how expensive a stock is within an industry, is 15, compared with 7 for SAIC Motor Corp., China’s biggest automaker, according to data compiled by Bloomberg.
The additional expenses in India add to inflation, limiting the country’s tools to cope with a worsening global economic outlook. The rupee, down 15 percent so far this year, is heading for its second-worst year against the dollar since 1991, when Prime Minister Manmohan Singh, then finance chief, began a shift toward free-market policies.
Higher Inflation
India’s inflation is the highest among the so-called BRIC nations, which include Brazil, Russia and China, with its benchmark gauge rising 9.1 percent in November from a year before. By comparison, China’s rate eased to a 14-month low of 4.2 percent, giving its policy makers more room to support growth as Europe’s debt crisis curbs exports. Russia’s pace was 6.8 percent and Brazil’s 6.6 percent.
The prime minister said in a Dec. 14 interview in New Delhi that “if the international situation doesn’t stand in our way, we will bring down inflation,” predicting it will come down to “no more than 5 or 6 percent.” While international commodity prices have pushed up costs in India, record food production should help ease pressures, he said.
The International Monetary Fund sees India’s consumer-price inflation still outpacing China’s rate by almost 2 percentage points by 2015.
Lasting Disadvantage
“Even if the global economic slowdown provides some relief from inflation in the short term, India will continue to be at a disadvantage until it fixes its problems with power, roads and other infrastructure,” said Arun Singh, a Mumbai-based senior economist at Dun & Bradstreet Information Services India Pvt.
China in 2009 spent an estimated $539 billion on infrastructure, amounting to 10.8 percent of its gross domestic product, compared with $99 billion, or 7.5 percent of GDP, for India, according to Morgan Stanley.
“Look at China, they first put in place all the necessary roads, electricity, power,” said Ravi Sud, chief financial officer of Hero MotoCorp. “That’s the reason they now have faster growth, with manageable levels of inflation. We, on the other hand, are still struggling to take off.”
Singh has pledged to tackle the problem with policies that call for $1 trillion in infrastructure spending between 2012 and 2017.
‘Huge Plans’
“India has huge plans,” said Rajat Nag, managing director-general of the Asian Development Bank. “It’s a question of implementing them. It needs to accelerate the pace of approvals, take care of environmental clearances and issues related to land acquisition. Bottlenecks are a huge drag on the economy.”
Targets to lay more highways and generate more electricity have been repeatedly missed. In the year through March 2011, the National Highways Authority of India built 1,780 kilometers of motorways, about 30 percent less than its target. In the same period, the nation added 9,585 megawatts of power, 34 percent less than forecast.
“The delays have been due to problems in land acquisition, environmental clearances and in some cases poor performance of contractors,” said Manoj Singh, an adviser at the nation’s Planning Commission in New Delhi. “It would be unrealistic to think of matching the U.S. or China in terms of infrastructure. It would take many decades.”
Fitch Ratings changed its outlook for Indian infrastructure projects to negative for 2012, from stable this year, in a report released Dec. 15, citing risks to the credit quality of power projects, airports and toll roads.
Service Gain
India may still reap some reward from the development of industries that don’t rely so heavily on transport networks. Its aggregate share in global commercial services trade will exceed China’s in the next five to six years, driven by information technology, which accounts for about 60 percent of India’s services exports, according to Morgan Stanley.
The country may also get some respite from inflation as a global economic slowdown curbs demand for goods. Exports rose 10.8 percent in October from a year earlier, the least in two years, the Commerce Ministry said Dec. 1. Factory output that month shrank 5.1 percent from a year earlier, the first drop since June 2009, the Central Statistical Office said.
That’s pushed the yield on India’s 10-year government bond close to the level of the one-year note, showing that some investors are betting growth in the country will slow. The Reserve Bank of India in October cut its economic growth forecast to 7.6 percent for the year through March, from 8 percent previously. RBI Governor Duvvuri Subbarao has said his comfort zone for inflation is 4 percent to 6 percent.
Retail Reversal
Prime Minister Singh’s efforts to restrain prices took a blow earlier this month when the government reversed a decision to allow overseas retailers like Wal-Mart Stores Inc. to open supermarkets, after failing to get support from political allies.
Singh and Commerce Minister Anand Sharma have said allowing the investment would create 10 million jobs, and help rein in inflation by reducing the 40 percent of fruit and vegetables that rot before they get to market.
The prime minister vowed in last week’s interview to revive the plan after regional elections next year.
India aims to award projects for 7,300 kilometers of new roads and expressways this fiscal year, and spend 550 billion rupees ($10.4 billion) widening existing thoroughfares, according to the highways authority.
With 3.7 million new vehicles hitting India’s streets last year, that’s little consolation for truck driver Singh.
Getting Worse
“I’ve been driving for 20 years and every year the traffic gets worse,” he said, as other drivers sat at the cafe eating dal and chapattis and waiting for the jam to disperse.
While India has the second-largest road and rail networks in the world, even on highways -- which account for 2 percent of all roads -- average speeds are 35 kph, compared with 80 kph in the U.S., according to JC Bamford Excavators Ltd.
JC Bamford, which sells its yellow diggers in 150 countries, says it takes at least nine days to move equipment 2,900 kilometers from New Delhi to Trivandrum in South India, said Vipin Sondhi, the local unit’s chief executive officer. The equivalent journey in the U.S. would take four days.
Once exporters finally get their goods to port, there are more delays. The average time taken by ships to unload and load at Indian ports is nearly 96 hours, almost 10 times longer than in Hong Kong, a government estimate showed last year.
“Roads are like the arteries,” said Rupa Rege Nitsure, a Mumbai-based economist at the state-owned Bank of Baroda. “If your arteries are clogged, your life is at risk.”
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Saturday, December 17, 2011
Subbarao Leaves Benchmark Repo Rate Unchanged to Support Economic Growth
By Kartik Goyal - Dec 16, 2011 6:41 PM GMT+0530
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Enlarge image India Pauses Rate Rises as Growth Risks Halt Tightening
The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion. Photographer: Kainaz Amaria/Bloomberg
Reserve Bank of India Monetary Policy, Currencies
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Dec. 16 (Bloomberg) -- Ashok Bhundia, a fixed-income strategist at Bank of America Merrill Lynch in Hong Kong, talks about Reserve Bank of India monetary policy, and investment strategy for global currencies. India’s inflation slowed to the lowest level in a year, boosting the central bank’s scope to support growth by pausing its record interest-rate increases. Bhundia speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
India’s central bank refrained from raising interest rates for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. Ten-year bonds gained the most in six months.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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Enlarge image India Pauses Rate Rises as Growth Risks Halt Tightening
The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion. Photographer: Kainaz Amaria/Bloomberg
Reserve Bank of India Monetary Policy, Currencies
Play Video
Dec. 16 (Bloomberg) -- Ashok Bhundia, a fixed-income strategist at Bank of America Merrill Lynch in Hong Kong, talks about Reserve Bank of India monetary policy, and investment strategy for global currencies. India’s inflation slowed to the lowest level in a year, boosting the central bank’s scope to support growth by pausing its record interest-rate increases. Bhundia speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
India’s central bank refrained from raising interest rates for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. Ten-year bonds gained the most in six months.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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Friday, December 16, 2011
India Leaves Benchmark Rate Unchanged as Record Increases Threaten Growth By Kartik Goyal - Dec 16, 2011
India’s central bank refrained from raising interest rates for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. Ten-year bonds gained the most in six months.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, December 15, 2011
India Profit Forecasts Cut Most Since ’09 as Sensex Sinking Most in World By Rajhkumar K Shaaw - Dec 15, 2011
Indian stocks are ending 2011 with the biggest decline among the world’s largest equity markets, and analysts say the worst is yet to come.
Earnings forecasts (SENSEX) for BSE India Sensitive Index companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd. (MSIL), the country’s biggest carmaker, and Tata Steel Ltd. (TATA), the largest producer of the alloy, by at least 29 percent, the data show.
While Prime Minister Manmohan Singh said in a Dec. 14 interview with Bloomberg News that he expects economic growth in India to accelerate to an annual pace of 9 percent, analysts are slashing their forecasts for companies as seven interest-rate increases this year drive up financing costs and a 17 percent plunge in the rupee boosts import prices. Bank of America Corp., CLSA Asia-Pacific Markets and UTI Asset Management Co. say the downgrades will extend into the 2013 fiscal year and deepen declines in the Sensex, which has slumped 23 percent this year, the most among benchmark measures in the 10 largest markets.
“Till now, the concern was that inflation and interest rates are going to hurt earnings growth,” said Swati Kulkarni, who helps oversee $12 billion at Mumbai-based UTI Asset, India’s fifth-largest money-management company. “Now the rupee is causing the biggest damage to earnings. We may see more earnings downgrades in the next two-to-three months.” Kulkarni’s UTI MNC (UTIUGSC) fund has beaten 97 percent of its peers this year, data compiled by Bloomberg show.
BRIC Declines
The Sensex may sink to 14,500 in the next six months, according to a Dec. 5 Bank of America report. That’s 8.4 percent lower than its close of 15,836.47 yesterday. The gauge’s drop this year has outpaced the Standard & Poor’s 500 Index’s 3 percent loss and, in dollar terms, is more than the declines for measures in any of the so-called BRIC countries that include Brazil, Russia and China.
“I am sure investors are wise enough to distinguish between short-term aberrations and long-term prospects,” Prime Minister Singh said in the interview in New Delhi two days ago. “There are short-term issues sometimes over which we don’t have any control.”
With inflation above 9 percent for the past 12 months, the Reserve Bank of India increased its benchmark interest rate 375 basis points in 13 moves since March 2010. That’s slowed the expansion in India’s $1.7 trillion economy, Asia’s third- largest, to 6.9 percent in the three months to September, the least in more than two years. Industrial production fell 5.1 percent in October from a year earlier, the first decline since 2009, according to statistics office data on Dec. 12.
‘Biggest Threat’
“A slowdown in economic growth, a weak rupee and global factors are the biggest threat to earnings growth,” UTI’s Kulkarni said. “The question is how much is priced” into stock markets, she said.
While net income at the Sensex’s 30 companies climbed a combined 7 percent in the three months through September, the least in five quarters, 40 percent of the gauge’s companies including New Delhi-based Bharti Airtel Ltd. (BHARTI), the nation’s largest mobile-phone operator, and Mumbai-based Tata Consultancy Services Ltd. (TCS), the biggest software services exporter, reported profit that missed analysts’ estimates, data compiled by Bloomberg show.
Lower Target
Bank of America predicts Sensex companies may earn 1,200 rupees per share for the year ending March 2013, 21 percent lower than the 1,510 rupees estimated in April, according to the report from Bank of America analysts led by Jyotivardhan Jaipuria, the lender’s Mumbai-based head of India research.
The bank’s latest target is 9.2 percent lower than the 1,322 rupee forecast of analysts compiled by Bloomberg.
“For the next six months, we will see most of the downgrades happening,” Jaipuria said in a Dec. 1 interview.
The slide in the Sensex means the gauge trades at 2.7 times corporate net worth, near the lowest level since July 2009. While that’s higher than the MSCI BRIC Index, which trades at 1.4 times, cheaper valuations are luring Franklin Templeton Investments’ Mark Mobius, who is buying consumer banks that benefit from increasing wealth in India as well as utilities, because of electricity shortages.
“Valuations are good in India,” Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said in a telephone interview on Dec. 9. “We can get great opportunities right now.”
More Expensive
Indian stocks remain 39 percent more expensive than companies in the MSCI Emerging Markets Index, compared with an average premium of 12 percent since 1996, according to price- earnings ratios based on trailing profits compiled by MSCI Inc. and Bloomberg.
International investors withdrew $787.1 million from local shares last month, the most since August, data from the market regulator show. Foreign funds have pulled out $321.5 million from domestic stocks this year compared with a record inflow of $29.4 billion in 2010, as Europe’s worsening debt crisis prompted investors to flee from assets perceived as risky. The European Union is the Asian nation’s biggest trading partner, according to India’s Commerce Ministry.
“There is a long-term appetite for Indian equities but in the near term, with the global crisis dominating, investor appetite for risk is not high,” Nick Cringle, co-chief investment officer at Royal Bank of Scotland Group Plc’s wealth management division, said in a Nov. 23 interview in Mumbai. The Sensex trades at 13.7 times estimated profit and equities will become attractive when valuations fall to 11-to-12 times, according to Cringle.
Risk Appetite
Kotak Institutional Equities, the Mumbai-based brokerage controlled by billionaire Uday Kotak, has pared its earnings growth forecast for Sensex companies for the year ending in March to 14.4 percent from 19 percent, Sanjeev Prasad, co-head of institutional equities at Kotak, said in an interview with Bloomberg UTV on Nov. 23.
CLSA lowered its target for Sensex companies’ earnings per share for 2013 by 3 percent to 1,269 rupees, analysts led by Mahesh Nandurkar wrote in a Dec. 8 report. CLSA cut its 12-month Sensex target to 17,000 from 18,200 citing lower earnings and “political logjam,” according to the report.
Prime Minister Singh decided on Dec. 7 to shelve plans to allow overseas investment in some domestic retailers, bowing to opposition lawmakers and adding to government initiatives that haven’t been completed, such as the planned sale of stakes in state-run companies to help narrow the budget deficit. Singh expects to push through the reform of the retail industry next year, he said on Dec. 14.
‘Uncertainty and Confusion’
Policy decisions in India are fraught with “uncertainty and confusion,” John Flannery, chief executive officer for General Electric Co.’s local unit, said in an interview in New Delhi on Dec. 7.
“Any near-term positive newsflow appears unlikely on the ‘reforms’ front,” CLSA’s Nandurkar and his team wrote in their report. An economic “slowdown is visible,” they said.
The rupee’s slump is also driving up financing costs and providing little relief to the trade deficit, which widened by $19.6 billion in October, the most in at least 17 years, according to government data.
Rising Costs
Tata Steel reported an 89 percent drop in group profit in the quarter ended Sept. 30. The Mumbai-based company’s costs to service its foreign currency bonds may rise by 1.5 billion rupees because of currency depreciation, Chief Financial Officer Koushik Chatterjee told reporters on Nov. 10.
New Delhi-based Maruti Suzuki, India’s biggest passenger car maker, is “selectively” hedging its foreign-exchange risk as the rupee plunges, Chief Financial Officer Ajay Seth said in a Nov. 21 interview. Maruti’s imports are about twice the size of the company’s exports, he said. Maruti Suzuki and Tata Steel’s shares have slumped more than 30 percent this year.
“A lot of analysts tend to keep the forex loss as a one- off,” Bank of America’s Jaipuria said. “It would be probably worse if we took the forex loss into account. Earnings will come down.”
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Earnings forecasts (SENSEX) for BSE India Sensitive Index companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd. (MSIL), the country’s biggest carmaker, and Tata Steel Ltd. (TATA), the largest producer of the alloy, by at least 29 percent, the data show.
While Prime Minister Manmohan Singh said in a Dec. 14 interview with Bloomberg News that he expects economic growth in India to accelerate to an annual pace of 9 percent, analysts are slashing their forecasts for companies as seven interest-rate increases this year drive up financing costs and a 17 percent plunge in the rupee boosts import prices. Bank of America Corp., CLSA Asia-Pacific Markets and UTI Asset Management Co. say the downgrades will extend into the 2013 fiscal year and deepen declines in the Sensex, which has slumped 23 percent this year, the most among benchmark measures in the 10 largest markets.
“Till now, the concern was that inflation and interest rates are going to hurt earnings growth,” said Swati Kulkarni, who helps oversee $12 billion at Mumbai-based UTI Asset, India’s fifth-largest money-management company. “Now the rupee is causing the biggest damage to earnings. We may see more earnings downgrades in the next two-to-three months.” Kulkarni’s UTI MNC (UTIUGSC) fund has beaten 97 percent of its peers this year, data compiled by Bloomberg show.
BRIC Declines
The Sensex may sink to 14,500 in the next six months, according to a Dec. 5 Bank of America report. That’s 8.4 percent lower than its close of 15,836.47 yesterday. The gauge’s drop this year has outpaced the Standard & Poor’s 500 Index’s 3 percent loss and, in dollar terms, is more than the declines for measures in any of the so-called BRIC countries that include Brazil, Russia and China.
“I am sure investors are wise enough to distinguish between short-term aberrations and long-term prospects,” Prime Minister Singh said in the interview in New Delhi two days ago. “There are short-term issues sometimes over which we don’t have any control.”
With inflation above 9 percent for the past 12 months, the Reserve Bank of India increased its benchmark interest rate 375 basis points in 13 moves since March 2010. That’s slowed the expansion in India’s $1.7 trillion economy, Asia’s third- largest, to 6.9 percent in the three months to September, the least in more than two years. Industrial production fell 5.1 percent in October from a year earlier, the first decline since 2009, according to statistics office data on Dec. 12.
‘Biggest Threat’
“A slowdown in economic growth, a weak rupee and global factors are the biggest threat to earnings growth,” UTI’s Kulkarni said. “The question is how much is priced” into stock markets, she said.
While net income at the Sensex’s 30 companies climbed a combined 7 percent in the three months through September, the least in five quarters, 40 percent of the gauge’s companies including New Delhi-based Bharti Airtel Ltd. (BHARTI), the nation’s largest mobile-phone operator, and Mumbai-based Tata Consultancy Services Ltd. (TCS), the biggest software services exporter, reported profit that missed analysts’ estimates, data compiled by Bloomberg show.
Lower Target
Bank of America predicts Sensex companies may earn 1,200 rupees per share for the year ending March 2013, 21 percent lower than the 1,510 rupees estimated in April, according to the report from Bank of America analysts led by Jyotivardhan Jaipuria, the lender’s Mumbai-based head of India research.
The bank’s latest target is 9.2 percent lower than the 1,322 rupee forecast of analysts compiled by Bloomberg.
“For the next six months, we will see most of the downgrades happening,” Jaipuria said in a Dec. 1 interview.
The slide in the Sensex means the gauge trades at 2.7 times corporate net worth, near the lowest level since July 2009. While that’s higher than the MSCI BRIC Index, which trades at 1.4 times, cheaper valuations are luring Franklin Templeton Investments’ Mark Mobius, who is buying consumer banks that benefit from increasing wealth in India as well as utilities, because of electricity shortages.
“Valuations are good in India,” Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said in a telephone interview on Dec. 9. “We can get great opportunities right now.”
More Expensive
Indian stocks remain 39 percent more expensive than companies in the MSCI Emerging Markets Index, compared with an average premium of 12 percent since 1996, according to price- earnings ratios based on trailing profits compiled by MSCI Inc. and Bloomberg.
International investors withdrew $787.1 million from local shares last month, the most since August, data from the market regulator show. Foreign funds have pulled out $321.5 million from domestic stocks this year compared with a record inflow of $29.4 billion in 2010, as Europe’s worsening debt crisis prompted investors to flee from assets perceived as risky. The European Union is the Asian nation’s biggest trading partner, according to India’s Commerce Ministry.
“There is a long-term appetite for Indian equities but in the near term, with the global crisis dominating, investor appetite for risk is not high,” Nick Cringle, co-chief investment officer at Royal Bank of Scotland Group Plc’s wealth management division, said in a Nov. 23 interview in Mumbai. The Sensex trades at 13.7 times estimated profit and equities will become attractive when valuations fall to 11-to-12 times, according to Cringle.
Risk Appetite
Kotak Institutional Equities, the Mumbai-based brokerage controlled by billionaire Uday Kotak, has pared its earnings growth forecast for Sensex companies for the year ending in March to 14.4 percent from 19 percent, Sanjeev Prasad, co-head of institutional equities at Kotak, said in an interview with Bloomberg UTV on Nov. 23.
CLSA lowered its target for Sensex companies’ earnings per share for 2013 by 3 percent to 1,269 rupees, analysts led by Mahesh Nandurkar wrote in a Dec. 8 report. CLSA cut its 12-month Sensex target to 17,000 from 18,200 citing lower earnings and “political logjam,” according to the report.
Prime Minister Singh decided on Dec. 7 to shelve plans to allow overseas investment in some domestic retailers, bowing to opposition lawmakers and adding to government initiatives that haven’t been completed, such as the planned sale of stakes in state-run companies to help narrow the budget deficit. Singh expects to push through the reform of the retail industry next year, he said on Dec. 14.
‘Uncertainty and Confusion’
Policy decisions in India are fraught with “uncertainty and confusion,” John Flannery, chief executive officer for General Electric Co.’s local unit, said in an interview in New Delhi on Dec. 7.
“Any near-term positive newsflow appears unlikely on the ‘reforms’ front,” CLSA’s Nandurkar and his team wrote in their report. An economic “slowdown is visible,” they said.
The rupee’s slump is also driving up financing costs and providing little relief to the trade deficit, which widened by $19.6 billion in October, the most in at least 17 years, according to government data.
Rising Costs
Tata Steel reported an 89 percent drop in group profit in the quarter ended Sept. 30. The Mumbai-based company’s costs to service its foreign currency bonds may rise by 1.5 billion rupees because of currency depreciation, Chief Financial Officer Koushik Chatterjee told reporters on Nov. 10.
New Delhi-based Maruti Suzuki, India’s biggest passenger car maker, is “selectively” hedging its foreign-exchange risk as the rupee plunges, Chief Financial Officer Ajay Seth said in a Nov. 21 interview. Maruti’s imports are about twice the size of the company’s exports, he said. Maruti Suzuki and Tata Steel’s shares have slumped more than 30 percent this year.
“A lot of analysts tend to keep the forex loss as a one- off,” Bank of America’s Jaipuria said. “It would be probably worse if we took the forex loss into account. Earnings will come down.”
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, December 14, 2011
No Surrender on India Retail Initiative: Singh By Unni Krishnan and Matthew Winkler - Dec 14, 2011
India’s Prime Minister Manmohan Singh pledged to overcome opposition to opening the country’s retail industry to companies like Wal-Mart Stores Inc. (WMT), saying his two-decade reform agenda is the best way of reviving the slowest economic growth in two years.
In an interview in his office at Parliament House in New Delhi, Singh said he’ll succeed in letting foreign companies buy majority stakes in Indian retailers after contesting regional elections early next year and as slower inflation bolsters support for his administration. He said he underestimated the opposition that derailed the plan a week ago and sent the benchmark stock index to its biggest three-day drop since July 2009.
“There was inadequate preparation and some partners in the coalition developed cold feet,” Singh said in the interview yesterday covering subjects from his legacy to the losses suffered by Kingfisher Airlines Ltd. “But I can assure you, India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment.”
Singh is facing one of the most challenging periods since taking office in 2004 after opposition from coalition allies prompted his Dec. 7 decision to delay indefinitely the retail- opening measure. At stake for Singh, 79, is preserving an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies.
The policy setback is a symptom of a functioning democracy, Singh said. Still, a democratic system of government remains “the most credible,” he said.
‘Only Path’
“There may be zigzags along the way, but the path is the one I set,” said Singh, the only Indian to have served as governor of the Reserve Bank of India, finance minister and prime minister and the nation’s first head of government to come from a religious minority. “It is the only path to reduce the chronic poverty millions still live under.”
He predicted that gross domestic product will increase 7.5 percent in the fiscal year that ends March 31, while inflation will cool to between 6 percent and 7 percent. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said.
Shoppers Stop Ltd. (SHOP), India’s second-largest retailer by market value, gained 1 percent to 310.6 rupees, ending five straight days of losses after Singh’s comments yesterday.
Rupee, Stocks
The rupee briefly pared losses, before weakening to a record low of 53.715 per dollar in Mumbai. India’s currency has tumbled 17 percent so far this year, the worst performance among 10 major Asian currencies tracked by Bloomberg, hurt by India’s parliamentary gridlock, elevated inflation, widening budget gap and the weakest economic growth in two years. The benchmark Sensitive Index (SENSEX) of stocks has fallen 23 percent in 2011.
“This is his last innings and he has everything to gain,” said B.G. Verghese, an analyst with the Centre for Policy Research in New Delhi, using a term from cricket, India’s most popular sport. “The economic indicators are such that he realizes that he better do something or there will be trouble.”
Verghese, who served as an aide to former Prime Minister Indira Gandhi and has written books on Indian development policy, predicted the government will invigorate its legislative record by passing an anti-corruption bill. Policy makers may follow up with efforts to reduce regulation in the financial industry and the revival of the foreign retailers’ measure, he said.
Political Patchwork
As prime minister, Singh has had to hold together a coalition government in a nation of 1.2 billion people where political backing in some areas is aligned with social castes. More than half a century after independence from Britain, debates still occur over carving out new states to acknowledge ethnic and social differences.
The Congress party-led United Progressive Alliance has 263 seats in the lower house of parliament, 9 short of a majority. Two allies, the All India Trinamool Congress party that’s centered in West Bengal, and the Dravida Munnetra Kazhagam based in southern Tamil Nadu state, have 18 members each.
Both of those allies opposed the policy to allow foreign direct investment in retailing, a measure that Singh and Commerce Minister Anand Sharma said would create 10 million jobs, and help rein in inflation by reducing the 40 percent of fruit and vegetables that rot before they can be sold due to a lack of cold-storage facilities.
“Reforms were not sold the way they ought to have been,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and former International Monetary Fund economist. “The narrative that was built up around the change in policy on FDI into retail was that it would end up benefiting some big multinational companies,” rather than improving the nation’s distribution system and keeping prices down, he said.
Kingfisher (KAIR) Aid
Turning to Kingfisher Airlines, the Indian carrier seeking cash after losses, Singh predicted that banks will support its turnaround efforts. Kingfisher has pledged assets ranging from its brand to office furniture for bank loans of as much as 64.2 billion rupees ($1.2 billion).
“In the case of Kingfisher, where government banks have given loans, if they take corrective measures I am sure things should work out,” Singh said. “The Indian banking system has a stake in their well-being. With a government nod things will turn around.”
The prime minister said some of his administration’s unpopularity at home stems from high inflation. Wholesale prices, India’s benchmark gauge, rose 9.1 percent in November from a year before, the government reported yesterday. India’s inflation is the highest among the BRIC nations, which include Brazil, Russia and China.
Inflation Pressures
While international commodity prices have pushed up costs in India, record food production should help to ease inflation pressures, said Singh. Interest rates should be about two percentage points more than inflation over the long run to encourage savings, he said.
The Reserve Bank of India has raised interest rates 13 times since the start of last year, to 8.5 percent. Governor Duvvuri Subbarao has blamed fiscal deficits for contributing to inflation. Singh yesterday indicated he agreed.
“We have taken steps on the monetary policy side but we haven’t been as successful in the fiscal side,” Singh said. “You should understand fiscal policy is an acutely political weapon.”
ICICI Securities Primary Dealership Ltd., a unit of the nation’s second-biggest lender, sees the gap widening to 5.5 percent of GDP, compared with the 4.6 percent target.
2004 Appointment
Without making a harder push to get his economic agenda approved, Singh may risk clouding his legacy, after his initial appointment by Congress party President Sonia Gandhi in 2004 won accolades from overseas investors.
The government has failed to enact key economic legislation, including an overhaul of the tax code, since the end of last year. The past three sessions of parliament have been disrupted by opposition protests in the aftermath of a former telecommunications minister, bureaucrats and businessmen being accused of conspiring to benefit from a 2008 sale of mobile- phone licenses.
“The government should have done more -- it is very frustrating as an investor,” said Walter Rossini, a Milan-based fund manager who oversees 200 million euros in Indian equities at Aletti Gestielle SGR SpA. Rossini has switched to an underweight on the country’s shares from overweight in the last year, compared with benchmarks he uses to gauge performance.
Welfare System
Singh has had more success in strengthening India’s welfare system than deepening market deregulation since he took office as prime minister. The government has expanded programs to provide jobs and subsidized food for the nation’s poor, in a country where more than three quarters of the population lives on less than $2 a day.
“He played a very important role in setting India on a high growth path, and that will be his legacy,” said Prasad, who serves on an advisory committee to India’s finance minister. “The lack of an independent political base certainly constrained his ability to push forward reforms aggressively. That in addition to his modest and demure personality made it very difficult for him to be as effective as prime minister.”
Engineer of Change
A Sikh born in what is now Pakistan, Singh studied economics at both Oxford and Cambridge universities. He built his reputation as an engineer of change during his time as finance minister in the government of Congress party Prime Minister Narasimha Rao. With a surge in oil prices depleting India’s foreign exchange reserves, he began removing barriers to investment in what had until then been an economy dominated by state enterprises.
In his first two months as finance minister, Singh devalued the rupee, dismantled government monopolies, cut import tariffs and taxes and let foreign companies take 51 percent stakes in sectors including automobiles and pharmaceuticals. The measures helped growth accelerate to 7.6 percent from 2.1 percent during his tenure, and the economy has quadrupled in size.
“The world has seen India’s potential,” Singh said. “India should remain a functioning democracy which is integrated with the evolving global economy, that recognizes globalization brings many advantages, that makes a success of globalization.”
To contact the reporters on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
In an interview in his office at Parliament House in New Delhi, Singh said he’ll succeed in letting foreign companies buy majority stakes in Indian retailers after contesting regional elections early next year and as slower inflation bolsters support for his administration. He said he underestimated the opposition that derailed the plan a week ago and sent the benchmark stock index to its biggest three-day drop since July 2009.
“There was inadequate preparation and some partners in the coalition developed cold feet,” Singh said in the interview yesterday covering subjects from his legacy to the losses suffered by Kingfisher Airlines Ltd. “But I can assure you, India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment.”
Singh is facing one of the most challenging periods since taking office in 2004 after opposition from coalition allies prompted his Dec. 7 decision to delay indefinitely the retail- opening measure. At stake for Singh, 79, is preserving an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies.
The policy setback is a symptom of a functioning democracy, Singh said. Still, a democratic system of government remains “the most credible,” he said.
‘Only Path’
“There may be zigzags along the way, but the path is the one I set,” said Singh, the only Indian to have served as governor of the Reserve Bank of India, finance minister and prime minister and the nation’s first head of government to come from a religious minority. “It is the only path to reduce the chronic poverty millions still live under.”
He predicted that gross domestic product will increase 7.5 percent in the fiscal year that ends March 31, while inflation will cool to between 6 percent and 7 percent. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said.
Shoppers Stop Ltd. (SHOP), India’s second-largest retailer by market value, gained 1 percent to 310.6 rupees, ending five straight days of losses after Singh’s comments yesterday.
Rupee, Stocks
The rupee briefly pared losses, before weakening to a record low of 53.715 per dollar in Mumbai. India’s currency has tumbled 17 percent so far this year, the worst performance among 10 major Asian currencies tracked by Bloomberg, hurt by India’s parliamentary gridlock, elevated inflation, widening budget gap and the weakest economic growth in two years. The benchmark Sensitive Index (SENSEX) of stocks has fallen 23 percent in 2011.
“This is his last innings and he has everything to gain,” said B.G. Verghese, an analyst with the Centre for Policy Research in New Delhi, using a term from cricket, India’s most popular sport. “The economic indicators are such that he realizes that he better do something or there will be trouble.”
Verghese, who served as an aide to former Prime Minister Indira Gandhi and has written books on Indian development policy, predicted the government will invigorate its legislative record by passing an anti-corruption bill. Policy makers may follow up with efforts to reduce regulation in the financial industry and the revival of the foreign retailers’ measure, he said.
Political Patchwork
As prime minister, Singh has had to hold together a coalition government in a nation of 1.2 billion people where political backing in some areas is aligned with social castes. More than half a century after independence from Britain, debates still occur over carving out new states to acknowledge ethnic and social differences.
The Congress party-led United Progressive Alliance has 263 seats in the lower house of parliament, 9 short of a majority. Two allies, the All India Trinamool Congress party that’s centered in West Bengal, and the Dravida Munnetra Kazhagam based in southern Tamil Nadu state, have 18 members each.
Both of those allies opposed the policy to allow foreign direct investment in retailing, a measure that Singh and Commerce Minister Anand Sharma said would create 10 million jobs, and help rein in inflation by reducing the 40 percent of fruit and vegetables that rot before they can be sold due to a lack of cold-storage facilities.
“Reforms were not sold the way they ought to have been,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and former International Monetary Fund economist. “The narrative that was built up around the change in policy on FDI into retail was that it would end up benefiting some big multinational companies,” rather than improving the nation’s distribution system and keeping prices down, he said.
Kingfisher (KAIR) Aid
Turning to Kingfisher Airlines, the Indian carrier seeking cash after losses, Singh predicted that banks will support its turnaround efforts. Kingfisher has pledged assets ranging from its brand to office furniture for bank loans of as much as 64.2 billion rupees ($1.2 billion).
“In the case of Kingfisher, where government banks have given loans, if they take corrective measures I am sure things should work out,” Singh said. “The Indian banking system has a stake in their well-being. With a government nod things will turn around.”
The prime minister said some of his administration’s unpopularity at home stems from high inflation. Wholesale prices, India’s benchmark gauge, rose 9.1 percent in November from a year before, the government reported yesterday. India’s inflation is the highest among the BRIC nations, which include Brazil, Russia and China.
Inflation Pressures
While international commodity prices have pushed up costs in India, record food production should help to ease inflation pressures, said Singh. Interest rates should be about two percentage points more than inflation over the long run to encourage savings, he said.
The Reserve Bank of India has raised interest rates 13 times since the start of last year, to 8.5 percent. Governor Duvvuri Subbarao has blamed fiscal deficits for contributing to inflation. Singh yesterday indicated he agreed.
“We have taken steps on the monetary policy side but we haven’t been as successful in the fiscal side,” Singh said. “You should understand fiscal policy is an acutely political weapon.”
ICICI Securities Primary Dealership Ltd., a unit of the nation’s second-biggest lender, sees the gap widening to 5.5 percent of GDP, compared with the 4.6 percent target.
2004 Appointment
Without making a harder push to get his economic agenda approved, Singh may risk clouding his legacy, after his initial appointment by Congress party President Sonia Gandhi in 2004 won accolades from overseas investors.
The government has failed to enact key economic legislation, including an overhaul of the tax code, since the end of last year. The past three sessions of parliament have been disrupted by opposition protests in the aftermath of a former telecommunications minister, bureaucrats and businessmen being accused of conspiring to benefit from a 2008 sale of mobile- phone licenses.
“The government should have done more -- it is very frustrating as an investor,” said Walter Rossini, a Milan-based fund manager who oversees 200 million euros in Indian equities at Aletti Gestielle SGR SpA. Rossini has switched to an underweight on the country’s shares from overweight in the last year, compared with benchmarks he uses to gauge performance.
Welfare System
Singh has had more success in strengthening India’s welfare system than deepening market deregulation since he took office as prime minister. The government has expanded programs to provide jobs and subsidized food for the nation’s poor, in a country where more than three quarters of the population lives on less than $2 a day.
“He played a very important role in setting India on a high growth path, and that will be his legacy,” said Prasad, who serves on an advisory committee to India’s finance minister. “The lack of an independent political base certainly constrained his ability to push forward reforms aggressively. That in addition to his modest and demure personality made it very difficult for him to be as effective as prime minister.”
Engineer of Change
A Sikh born in what is now Pakistan, Singh studied economics at both Oxford and Cambridge universities. He built his reputation as an engineer of change during his time as finance minister in the government of Congress party Prime Minister Narasimha Rao. With a surge in oil prices depleting India’s foreign exchange reserves, he began removing barriers to investment in what had until then been an economy dominated by state enterprises.
In his first two months as finance minister, Singh devalued the rupee, dismantled government monopolies, cut import tariffs and taxes and let foreign companies take 51 percent stakes in sectors including automobiles and pharmaceuticals. The measures helped growth accelerate to 7.6 percent from 2.1 percent during his tenure, and the economy has quadrupled in size.
“The world has seen India’s potential,” Singh said. “India should remain a functioning democracy which is integrated with the evolving global economy, that recognizes globalization brings many advantages, that makes a success of globalization.”
To contact the reporters on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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