By Kartik Goyal and Unni Krishnan - Mar 18, 2011
India faces pressure to step up its battle against price gains even after the steepest interest-rate increases among Asia’s major economies, as oil costs rise and consumer demand strengthens.
The Reserve Bank of India yesterday raised its inflation forecast for the second time since late January as it lifted the benchmark repurchase rate by a quarter-point to 6.75 percent, the eighth move in a year.
“The pressures to manage inflation, out of the evolving domestic and global situations, have only intensified,” Shanto Ghosh, an economist at Deloitte Touche Tohmatsu India Pvt., said in an interview from New Delhi yesterday. “The pace of further monetary tightening may see some acceleration.”
Governor Duvvuri Subbarao may boost borrowing costs by another 0.75 percentage point in 2011, HSBC Holdings Plc and DBS Group Holdings Ltd. said. India imports three-quarters of its energy needs and oil has surged 25 percent in the past 12 months, stoked by political turmoil in the Middle East and Libya that threatens supplies.
“The RBI would now appear even more concerned about the inflation outlook,” said Leif Eskesen, an economist at HSBC in Singapore. “Inflation risks clearly remain the dominant concern, especially considering the current cocktail of elevated food prices, rising international commodity prices and demand- led inflation pressures.”
Stocks Fall
The Bombay Stock Exchange’s Sensitive Index fell 0.7 percent at 10 a.m. in Mumbai, extending declines this year to 12.1 percent, the most in Asia. India’s 11-year bond yields climbed four basis points to 8.12 percent, while the rupee strengthened 0.2 percent to 45.08 per dollar.
Subbarao’s eight rate increases in the past year compare with three in China and four in South Korea. Indonesia lifted its reference rate last month for the first time this year after opting not to join counterparts in boosting rates in 2010.
India’s key wholesale-price inflation unexpectedly quickened to 8.31 percent in February, led by manufactured product costs. That prompted the Reserve Bank yesterday to predict the price gauge will reach 8 percent at the end of March, compared with 7 percent it estimated on Jan. 25.
“Risks to inflation remain clearly on the upside, reinforced by the persistence of demand-side pressures as reflected in non-food manufacturing,” the Reserve Bank said in its statement yesterday.
Consumer Demand
The central bank said non-food manufacturing inflation, which reflects the strength in consumer demand, accelerated to 6.1 percent in February from 4.8 percent in the previous month.
“The acceleration was spread across manufacturing activities, indicating that producers are able to pass on higher input prices to consumers,” the bank said.
General Motors Co.’s India unit, which had raised prices by as much as 2 percent in January, may boost them again by the end of this month, Karl Slym, head of the Detroit-based company’s local unit, said in an interview with Bloomberg News on March 4.
Videocon Industries Ltd., an Aurangabad, India-based maker of television sets, refrigerators and washing machines, will probably pass on the “relentless surge” in raw material costs to customers, Suresh M. Hegde, head of finance at the company, said in a March 15 interview.
India’s $1.3 trillion economy may expand by as much as 9.25 percent in the fiscal year starting April 1, the fastest pace since 2008, the finance ministry forecast last month.
Tax Cuts
Demand may strengthen after Finance Minister Pranab Mukherjee’s budget for the fiscal year starting April 1 proposed increasing spending by 13.4 percent to 12.6 trillion rupees ($279 billion). It also includes plans to exempt incomes below 180,000 rupees from tax, higher than the previous threshold of 160,000 rupees.
Prime Minister Manmohan Singh’s coalition is aiming to put more money in the hands of voters to help them cope with rising prices and shore up support for five state elections this year.
The central bank said the purchasing managers’ index, higher tax collections and expansion in bank credit provide evidence that India’s growth momentum is intact.
Manufacturing in India grew at the fastest pace in three months in February, according to the purchasing managers’ index released by HSBC and Markit Economics. Loans extended by lenders including ICICI Bank Ltd. gained 23.21 percent in the two weeks to Feb. 25, near the fastest pace in more than two years.
Even as inflationary pressures have “accentuated”, risks to growth are emerging, the Reserve Bank said.
Oil Concerns
“Rising global commodity prices, particularly oil, are a major contributor to both developments,” it said. “Continuing uncertainty about energy and commodity prices may vitiate the investment climate, posing a threat to the current growth trajectory.”
Oil surged in New York after the United Nations Security Council voted to ground Libyan leader Muammar Qaddafi’s air force as continuing unrest in the Middle East and North Africa renewed concerns the turmoil may spread and disrupt supply.
Regional unrest, which has cut Libya’s crude production by 1 million barrels a day and toppled the leaders of Tunisia and Egypt, has reached Saudi Arabia’s neighbors Yemen and Oman as well as Bahrain.
Crude for April delivery gained as much as $2.24 to $103.66 a barrel in electronic trading on the New York Mercantile Exchange. Prices are up 1.7 percent for the week.
“Crude prices have a deep and insidious impact on the Indian economy via chemicals, petrochemicals and transport costs,” said Saugata Bhattacharya, a Mumbai-based economist at Axis Bank Ltd. “They pressurize the economy, be it on prices or eventually on growth.”
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.
Friday, March 18, 2011
Thursday, March 17, 2011
India continues aggressive tightening
By James Lamont in New Delhi
Published: March 17 2011 07:35 | Last updated: March 17 2011 07:35
India has shrugged off fears about the effects of the earthquake in Japan and turmoil in the Middle East by continuing its aggressive campaign of raising interest rates.
The Reserve Bank of India on Thursday responded to doggedly high inflation and quickening economic growth by raising its policy rate by 25 basis points, following a similar increase in January.
The move takes the repo rate, the rate at which the central bank lends to commercial banks, to 6.75 per cent, its highest since early 2008. The reverse repo, the rate at which the central bank absorbs money from the system, was raised 25 basis points to 5.75.
The move was the eighth interest rate rise in a year, making India the most active tightener of monetary policy among the Group of 20 leading nations, as it fights the highest inflation of any major Asian economy.
Most economists had predicted the magnitude of the rate rise in the face of volatile food prices, rising energy costs and alarmingly high headline inflation of 8.3 per cent in February .
"Things are not as clear as they were a month ago," said Sonal Varma, economist at Nomura, the Japanese banking group, in Mumbai. "The RBI has to be a bit more cautious. The balancing act [between inflation and growth] is getting tougher."
Brian Jackson, chief emerging markets strategist at the Royal Bank of Canada, said other Asian countries would likely follow India’s lead and make policy moves against inflation in the coming weeks. “So far it looks like the Japanese disaster will not have a significant impact on growth in other Asian countries, nor do we expect it to have a significant disinflationary influence on the region,” he said.
The country’s leading industrialists, however, have expressed anxiety about sluggish industrial production growth. They lobbied the central bank to stay its hand in light of rising crude prices, and the effect on the global economy from the recent earthquake in Japan.
They have complained about the rising cost of capital – with prime lending rates upwards of 12.75 per cent - choking off economic growth. Rajiv Kumar, the director of the Federation of Indian Chambers of Commerce and Industry, said there was growing uncertainty in the investment environment.
“The growth of manufacturing sector is moderating. The rising cost of capital may be responsible for a slowdown in investments,” he said.
However, their calls come as economists are forecasting GDP growth to rise to as much as 9.25 per cent in the coming fiscal year, which begins next month, from 8.6 per cent this year.
India is pursuing a high growth strategy and braving the pains of high inflation. Manmohan Singh, the prime minister, said this year that more could have been done to curb inflation but warned that such measures would have jeopardised India’s quest to reach double digit economic growth.
Other policymakers, such as C. Rangarajan, chairman of the prime minister’s economic advisory panel, has insisted that India must not lose sight of its goal to bring inflation back to nearer 3.5 per cent in a country where rising consumer prices hurt a population of 1.2bn people, many of whom survive on meagre incomes.
Inflation has not fallen in recent months as quickly as expected in the world’s fastest growing large economy after China. The government had taken emergency measures to alleviate price rises in agricultural commodities – such as onions – but recent data show that price pressures are now building among non-food manufactured products.
“Inflation rose to 8.3 per cent in February and the concern is really with the increase in prices of manufactured products, which have increased by 4.94 per cent in February from 3.75 per cent in January,” said Madan Sabnavis, chief economist at Mumbai-based Care Ratings.
Economists increasingly identify a structural change in prices – particularly in agriculture – in India. They expect another two rate rises in India this year, the first as early as May.
This is because, in spite of ambitious fiscal consolidation targets laid out by the finance ministry, they still regard monetary policy as the main tool to control rising prices against a backdrop of swelling public spending.
However, with global markets in turmoil since the Japan earthquake, some economists now say widespread rate increases across Asia are now no longer a certainty.
“Over the next couple of months, we had expected China, India, Indonesia, Korea, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand to tighten monetary policy further,” said Frederic Neumann, co-head of economic research in Asia at HSBC, the banking group.
“Financial market volatility could delay these moves well into the second half, if not further,” he said.
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© Copyright The Financial Times Ltd 2011.
Published: March 17 2011 07:35 | Last updated: March 17 2011 07:35
India has shrugged off fears about the effects of the earthquake in Japan and turmoil in the Middle East by continuing its aggressive campaign of raising interest rates.
The Reserve Bank of India on Thursday responded to doggedly high inflation and quickening economic growth by raising its policy rate by 25 basis points, following a similar increase in January.
The move takes the repo rate, the rate at which the central bank lends to commercial banks, to 6.75 per cent, its highest since early 2008. The reverse repo, the rate at which the central bank absorbs money from the system, was raised 25 basis points to 5.75.
The move was the eighth interest rate rise in a year, making India the most active tightener of monetary policy among the Group of 20 leading nations, as it fights the highest inflation of any major Asian economy.
Most economists had predicted the magnitude of the rate rise in the face of volatile food prices, rising energy costs and alarmingly high headline inflation of 8.3 per cent in February .
"Things are not as clear as they were a month ago," said Sonal Varma, economist at Nomura, the Japanese banking group, in Mumbai. "The RBI has to be a bit more cautious. The balancing act [between inflation and growth] is getting tougher."
Brian Jackson, chief emerging markets strategist at the Royal Bank of Canada, said other Asian countries would likely follow India’s lead and make policy moves against inflation in the coming weeks. “So far it looks like the Japanese disaster will not have a significant impact on growth in other Asian countries, nor do we expect it to have a significant disinflationary influence on the region,” he said.
The country’s leading industrialists, however, have expressed anxiety about sluggish industrial production growth. They lobbied the central bank to stay its hand in light of rising crude prices, and the effect on the global economy from the recent earthquake in Japan.
They have complained about the rising cost of capital – with prime lending rates upwards of 12.75 per cent - choking off economic growth. Rajiv Kumar, the director of the Federation of Indian Chambers of Commerce and Industry, said there was growing uncertainty in the investment environment.
“The growth of manufacturing sector is moderating. The rising cost of capital may be responsible for a slowdown in investments,” he said.
However, their calls come as economists are forecasting GDP growth to rise to as much as 9.25 per cent in the coming fiscal year, which begins next month, from 8.6 per cent this year.
India is pursuing a high growth strategy and braving the pains of high inflation. Manmohan Singh, the prime minister, said this year that more could have been done to curb inflation but warned that such measures would have jeopardised India’s quest to reach double digit economic growth.
Other policymakers, such as C. Rangarajan, chairman of the prime minister’s economic advisory panel, has insisted that India must not lose sight of its goal to bring inflation back to nearer 3.5 per cent in a country where rising consumer prices hurt a population of 1.2bn people, many of whom survive on meagre incomes.
Inflation has not fallen in recent months as quickly as expected in the world’s fastest growing large economy after China. The government had taken emergency measures to alleviate price rises in agricultural commodities – such as onions – but recent data show that price pressures are now building among non-food manufactured products.
“Inflation rose to 8.3 per cent in February and the concern is really with the increase in prices of manufactured products, which have increased by 4.94 per cent in February from 3.75 per cent in January,” said Madan Sabnavis, chief economist at Mumbai-based Care Ratings.
Economists increasingly identify a structural change in prices – particularly in agriculture – in India. They expect another two rate rises in India this year, the first as early as May.
This is because, in spite of ambitious fiscal consolidation targets laid out by the finance ministry, they still regard monetary policy as the main tool to control rising prices against a backdrop of swelling public spending.
However, with global markets in turmoil since the Japan earthquake, some economists now say widespread rate increases across Asia are now no longer a certainty.
“Over the next couple of months, we had expected China, India, Indonesia, Korea, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand to tighten monetary policy further,” said Frederic Neumann, co-head of economic research in Asia at HSBC, the banking group.
“Financial market volatility could delay these moves well into the second half, if not further,” he said.
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Wednesday, March 16, 2011
India’s youth savour fast-food chains
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By Amy Kazmin in Mumbai
Published: March 16 2011 18:24 | Last updated: March 16 2011 18:24
Low prices and vegetarian options have won fans for McDonald’s in India
It is lunchtime and the McDonald’s at Mumbai’s Phoenix Mills – a textile factory turned upmarket shopping complex – is slowly filling up with college students, mothers and office workers.
Among them is Akshaya Batta, 30, who grabs lunch at McDonald’s or Subway, at least once a week, rather than carry a packed lunch from home, as many Indians still routinely do. “This is like a snack to fill your tummy, not to satisfy your tastes,” says the marketing executive, as he tucks into a Fillet-O-Fish, fries and a Coke. “I don’t have a desk job – I can’t move around with a tiffin [lunchbox], so whenever I’m hungry and I see a McDonald’s, I stop.”
When western fast-food chains such as McDonald’s, Domino’s Pizza and KFC initially opened their doors in India in the mid-1990s, they struggled to compete with spicy street food and the elaborate home-cooked meals Indian women regularly prepared for their families.
But more hectic schedules, rising incomes and demographic realities – about 60 per cent of Indians are under 30 years old – have created new appetites among Indian consumers.
Now, sales at western fast-food chains, and local rivals, are taking off, growing at an average of 28 per cent a year, as dining out moves from being a special occasion, to a routine part of Indians’ busier schedules.
Indians spent an estimated $1.3bn on dining out in “chain restaurants” in 2009, of which about 400m was accounted for by fast food, according to research group Euromonitor.
It is not just India’s biggest urban agglomerations, but smaller, second-tier cities where such restaurants are finding growing favour.
“Whatever a guy anywhere in the world wants, a guy in India wants that as well,” said Amit Jatia, vice-chairman of McDonald’s India – south and west. “The consumer is beginning to recognise that quick-service restaurants mean quality and value for money.”
Domino’s Pizza is growing at a blistering pace, with 364 outlets in 55 cities, all run by Domino’s Indian franchisee, Jubilant Foodworks, in New Delhi.
Jubilant, which raised $71m in an initial public offering last year, increased sales by 61 per cent from April to December, compared to the previous year, buoyed by 54 new stores opened in the period.
“The Indian market has been growing and evolving at a very fast pace,” says Hari Bhartia, Jubilant Foodworks co-chairman.
Last month, US-based Dunkin’ Donuts, owned by the private equity firms Carlyle Group, Thomas H. Lee and Bain, announced a partnership with Jubilant to bring its deep-fried products to India.
Subway is also gaining popularity in India, with 199 outlets, and Starbucks is gearing up for an Indian market launch this year.
Hardcastle Restaurants, one of two Indian partners to McDonald’s, is buying out the US hamburger chain’s stake in the 50-50 joint venture that operates the chain in southern and western India, paving the way for accelerated expansion. Hardcastle aims to open 30 McDonald’s outlets this year. “It’s getting competitive,” said Mr Jatia.
Western fast-food brands have gone through a tough learning process to cater to Indian tastes.
Traditional menus were spiced up, vegetarian options enhanced, and low price, entry-level items developed to make the restaurants more accessible in a highly price-sensitive market.
Such efforts have won the loyalties of consumers such as Sahal Amlani, 30, a store manager, who spends at least Rs50 ($1.10) on an afternoon snack at McDonald’s twice a week, and treats his wife, and one-year-old son to a McDonald’s meal, spending up to Rs300, every weekend.
“My child likes French fries so much, and even my wife has a desire to go out and have some junk food,” he says.
While fast-food chains have finally adapted their recipes to local tastes, they face other trials.
Finding suitable real estate in crowded Indian cities is difficult. “Real estate is the single biggest challenge,” said Mr Jatia.
Indian rivals also pose stiff competition. Café Coffee Day, a coffee chain based in Bangalore, has around 1,000 outlets, and a range of food offerings.
Near McDonald’s at Phoenix Mills, cheery food stalls like Dosa Hut, On a Roll, Thai Chi, do brisk business serving up Indian and Asian dishes – which for many Indians are still more appealing than spiced up versions of Western fare.
“Indian food is far safer and healthier if you eat on the street,” says Charu Gargi, 48, a film-maker, as she tucked into a south Indian lunch with friends.
“They make it fresh, and I don’t want to have so many preservatives.”
Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
By Amy Kazmin in Mumbai
Published: March 16 2011 18:24 | Last updated: March 16 2011 18:24
Low prices and vegetarian options have won fans for McDonald’s in India
It is lunchtime and the McDonald’s at Mumbai’s Phoenix Mills – a textile factory turned upmarket shopping complex – is slowly filling up with college students, mothers and office workers.
Among them is Akshaya Batta, 30, who grabs lunch at McDonald’s or Subway, at least once a week, rather than carry a packed lunch from home, as many Indians still routinely do. “This is like a snack to fill your tummy, not to satisfy your tastes,” says the marketing executive, as he tucks into a Fillet-O-Fish, fries and a Coke. “I don’t have a desk job – I can’t move around with a tiffin [lunchbox], so whenever I’m hungry and I see a McDonald’s, I stop.”
When western fast-food chains such as McDonald’s, Domino’s Pizza and KFC initially opened their doors in India in the mid-1990s, they struggled to compete with spicy street food and the elaborate home-cooked meals Indian women regularly prepared for their families.
But more hectic schedules, rising incomes and demographic realities – about 60 per cent of Indians are under 30 years old – have created new appetites among Indian consumers.
Now, sales at western fast-food chains, and local rivals, are taking off, growing at an average of 28 per cent a year, as dining out moves from being a special occasion, to a routine part of Indians’ busier schedules.
Indians spent an estimated $1.3bn on dining out in “chain restaurants” in 2009, of which about 400m was accounted for by fast food, according to research group Euromonitor.
It is not just India’s biggest urban agglomerations, but smaller, second-tier cities where such restaurants are finding growing favour.
“Whatever a guy anywhere in the world wants, a guy in India wants that as well,” said Amit Jatia, vice-chairman of McDonald’s India – south and west. “The consumer is beginning to recognise that quick-service restaurants mean quality and value for money.”
Domino’s Pizza is growing at a blistering pace, with 364 outlets in 55 cities, all run by Domino’s Indian franchisee, Jubilant Foodworks, in New Delhi.
Jubilant, which raised $71m in an initial public offering last year, increased sales by 61 per cent from April to December, compared to the previous year, buoyed by 54 new stores opened in the period.
“The Indian market has been growing and evolving at a very fast pace,” says Hari Bhartia, Jubilant Foodworks co-chairman.
Last month, US-based Dunkin’ Donuts, owned by the private equity firms Carlyle Group, Thomas H. Lee and Bain, announced a partnership with Jubilant to bring its deep-fried products to India.
Subway is also gaining popularity in India, with 199 outlets, and Starbucks is gearing up for an Indian market launch this year.
Hardcastle Restaurants, one of two Indian partners to McDonald’s, is buying out the US hamburger chain’s stake in the 50-50 joint venture that operates the chain in southern and western India, paving the way for accelerated expansion. Hardcastle aims to open 30 McDonald’s outlets this year. “It’s getting competitive,” said Mr Jatia.
Western fast-food brands have gone through a tough learning process to cater to Indian tastes.
Traditional menus were spiced up, vegetarian options enhanced, and low price, entry-level items developed to make the restaurants more accessible in a highly price-sensitive market.
Such efforts have won the loyalties of consumers such as Sahal Amlani, 30, a store manager, who spends at least Rs50 ($1.10) on an afternoon snack at McDonald’s twice a week, and treats his wife, and one-year-old son to a McDonald’s meal, spending up to Rs300, every weekend.
“My child likes French fries so much, and even my wife has a desire to go out and have some junk food,” he says.
While fast-food chains have finally adapted their recipes to local tastes, they face other trials.
Finding suitable real estate in crowded Indian cities is difficult. “Real estate is the single biggest challenge,” said Mr Jatia.
Indian rivals also pose stiff competition. Café Coffee Day, a coffee chain based in Bangalore, has around 1,000 outlets, and a range of food offerings.
Near McDonald’s at Phoenix Mills, cheery food stalls like Dosa Hut, On a Roll, Thai Chi, do brisk business serving up Indian and Asian dishes – which for many Indians are still more appealing than spiced up versions of Western fare.
“Indian food is far safer and healthier if you eat on the street,” says Charu Gargi, 48, a film-maker, as she tucked into a south Indian lunch with friends.
“They make it fresh, and I don’t want to have so many preservatives.”
Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
Tuesday, March 15, 2011
Refiners Beat Bond Market as Japan Earthquake Cuts Oil Costs: India Credit
By Rakteem Katakey and Anoop Agrawal - Mar 15, 2011
Indian refinery bonds rallied the most in at least five months after an earthquake in Japan cut crude oil prices, easing a squeeze on the industry’s profit margins from making fuels.
The yield on the 4.75 percent dollar note due January 2015 in Indian Oil Corp. has decreased 29 basis points this month to 3.40 percent, according to data compiled by Bloomberg. The decline was double the 14 basis-point drop in the average yield on Indian corporate dollar debt to 5.19 percent, HSBC Holdings Plc indexes show. Global refiners also benefited with the yield on February 2015 debt in Valero Energy Corp. (VLO), the largest U.S. refiner, dropping 2 basis points to 2.73 percent on March 14.
Indian Oil, Bharat Petroleum Corp. and Hindustan Petroleum Corp., the three biggest state refiners, are winning some relief after their earnings were eroded by a 29 percent jump in oil costs in six months and state controls on diesel and kerosene prices. Benchmark government bond yields held near this year’s lowest level yesterday as the decline in crude eased concern that inflation will accelerate in Asia’s third-biggest economy.
“The immediate effect is lower oil gives some relief to Indian Oil, helping reduce costs and cap borrowings,” K. Ravichandran, co-head of corporate ratings at ICRA Ltd., the local affiliate of Moody’s Investors Service, said by telephone from Chennai yesterday. Japan will probably need to import more oil products and that would drive up refining margins, which will also help refiners.”
Japan Capacity
The yield on India’s 7.8 percent government debt maturing in May 2020 fell 2 basis points yesterday to 7.96 percent, near the lowest since Dec. 31, as destruction caused by the magnitude 9 earthquake on March 11 and subsequent tsunami rocked equity markets and threatened to slow global economic growth.
Japan shut about 29 percent of its refining capacity after the disaster, according to Bloomberg data based on Petroleum Association of Japan figures. The closures may boost profits for India’s state-run refiners and Reliance Industries Ltd. (RIL), operator of the world’s biggest refining complex, said Ravichandran.
The yield on Reliance’s 6.21 percent dollar bond due in March 2017 has dropped 18 basis points, or 0.18 percentage point, this month to 4.73 percent, the lowest level since Feb. 11. The rate on Bharat Petroleum’s 7.73 percent rupee debt due in October 2012 lost 5 basis points to 9.60 percent. Yields on Hindustan Petroleum’s 7.7 percent local-currency debt due in April 2012 fell 4 basis points to 9.54 percent.
Refining Margins
Margins for turning Brent crude oil into products at a complex Singapore refinery have risen to a profit of $1.08 a barrel from a loss of $4.15 a barrel on March 1. Diesel’s spread over Dubai crude increased to $24.03 a barrel yesterday, the highest since Sept. 26, 2008, according to data compiled by Bloomberg.
“Refiner bonds can sustain these gains because oil isn’t going to see a surge soon, probably not for the next few months,” Jani Kurppa, a bond investor in Helsinki at EQ Asset Management Ltd., which manages $1.5 billion, said by telephone yesterday. “They have scope to extend the rally and I don’t think the situation is going to reverse for them anytime soon.”
Oil rose to a 29-month high of $106.95 in New York on March 7 as escalating violence in Libya bolstered concern that supply disruptions may spread through the Middle East. Crude dropped to $96.71 yesterday, the lowest intraday level since March 1. India imports more than 75 percent of its crude oil requirement.
“Positive demand and price momentum in this highly competitive and cyclical industry leads to higher cash flows, which are credit positives,” said Rene Hermann, a Zurich-based analyst at Independent Credit View AG. “Refiners’ bond risk premiums are now lower and hence it is more attractive to tap the credit market to refinance existing bank debt.”
Price Controls
India’s government allowed state refiners to set gasoline prices in June, while continuing to control diesel, kerosene and cooking rates to help curb inflation. Indian Oil hasn’t increased gasoline prices since Jan. 16, although crude has gained 7 percent. Lower crude cuts revenue losses for the refiners and subsidy payments for the federal government, which partly compensates them for selling fuels below cost.
“We have to see how oil prices are over a longer period of time,” Serangulam V. Narasimhan, finance director at Indian Oil, said yesterday. “The unfortunate incident in Japan means oil prices haven’t increased like they were doing. It is too early to comment on the impact.”
Rising Debt
Indian Oil had borrowings of 550 billion rupees ($12.2 billion) and debt was rising at 25 billion rupees a month because of higher oil prices and controlled fuel rates in India, Narasimhan said Feb. 10. The New Delhi-based refiner’s borrowings were 507.2 billion rupees as of Dec. 31, Narasimhan said the same day. He didn’t say how much the company’s current borrowings are.
The refiner’s $327 million of debt is due this year, according to data compiled by Bloomberg.
India’s Finance Minister Pranab Mukherjee said March 2 higher oil costs are a concern, underscoring the risk fuel subsidies will undermine efforts to curb the budget deficit. India may “struggle” to meet its goals for the next financial year because of the price-control system, Standard & Poor’s said in a March 1 statement.
The rupee has slid 1.2 percent this year against the dollar, the second-worst performance among Asia’s 10 most-traded currencies excluding the yen, according to data compiled by Bloomberg. The rupee fell 0.3 percent to 45.245 per dollar yesterday.
Bond Sales
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has dropped 9 basis points to 179 this month, according to CMA prices. Credit-default 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.
Relative yields on Indian Oil’s debt have fallen as debt sales by local companies other than banks dried up, bolstering demand for existing securities, according to Nomura Holdings Inc. The difference between the yield on the 4.75 percent note and similar-maturity U.S. swap rate has narrowed to 176 basis points from a four-month high of 226 reached in December, data compiled by Bloomberg show.
Sales of dollar-denominated bonds issued from India this year were $2.9 billion, all of which were by lenders, according to data compiled by Bloomberg. That’s down from $6.7 billion in the fourth quarter when Hindalco Industries Ltd. (HNDL) and Reliance sold debt.
Almost 50 percent of the $5 billion of debt issued from South Korea this year was from non-bank borrowers. The last time an Indian refiner borrowed dollars was in October, when Reliance Industries raised $1.5 billion, Bloomberg data show.
“Non-bank corporate dollar debt supply from India has been quite thin and that’s mainly why spreads have narrowed,” Pradeep Mohinani, Hong Kong-based managing director at Nomura, said in an interview yesterday.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Indian refinery bonds rallied the most in at least five months after an earthquake in Japan cut crude oil prices, easing a squeeze on the industry’s profit margins from making fuels.
The yield on the 4.75 percent dollar note due January 2015 in Indian Oil Corp. has decreased 29 basis points this month to 3.40 percent, according to data compiled by Bloomberg. The decline was double the 14 basis-point drop in the average yield on Indian corporate dollar debt to 5.19 percent, HSBC Holdings Plc indexes show. Global refiners also benefited with the yield on February 2015 debt in Valero Energy Corp. (VLO), the largest U.S. refiner, dropping 2 basis points to 2.73 percent on March 14.
Indian Oil, Bharat Petroleum Corp. and Hindustan Petroleum Corp., the three biggest state refiners, are winning some relief after their earnings were eroded by a 29 percent jump in oil costs in six months and state controls on diesel and kerosene prices. Benchmark government bond yields held near this year’s lowest level yesterday as the decline in crude eased concern that inflation will accelerate in Asia’s third-biggest economy.
“The immediate effect is lower oil gives some relief to Indian Oil, helping reduce costs and cap borrowings,” K. Ravichandran, co-head of corporate ratings at ICRA Ltd., the local affiliate of Moody’s Investors Service, said by telephone from Chennai yesterday. Japan will probably need to import more oil products and that would drive up refining margins, which will also help refiners.”
Japan Capacity
The yield on India’s 7.8 percent government debt maturing in May 2020 fell 2 basis points yesterday to 7.96 percent, near the lowest since Dec. 31, as destruction caused by the magnitude 9 earthquake on March 11 and subsequent tsunami rocked equity markets and threatened to slow global economic growth.
Japan shut about 29 percent of its refining capacity after the disaster, according to Bloomberg data based on Petroleum Association of Japan figures. The closures may boost profits for India’s state-run refiners and Reliance Industries Ltd. (RIL), operator of the world’s biggest refining complex, said Ravichandran.
The yield on Reliance’s 6.21 percent dollar bond due in March 2017 has dropped 18 basis points, or 0.18 percentage point, this month to 4.73 percent, the lowest level since Feb. 11. The rate on Bharat Petroleum’s 7.73 percent rupee debt due in October 2012 lost 5 basis points to 9.60 percent. Yields on Hindustan Petroleum’s 7.7 percent local-currency debt due in April 2012 fell 4 basis points to 9.54 percent.
Refining Margins
Margins for turning Brent crude oil into products at a complex Singapore refinery have risen to a profit of $1.08 a barrel from a loss of $4.15 a barrel on March 1. Diesel’s spread over Dubai crude increased to $24.03 a barrel yesterday, the highest since Sept. 26, 2008, according to data compiled by Bloomberg.
“Refiner bonds can sustain these gains because oil isn’t going to see a surge soon, probably not for the next few months,” Jani Kurppa, a bond investor in Helsinki at EQ Asset Management Ltd., which manages $1.5 billion, said by telephone yesterday. “They have scope to extend the rally and I don’t think the situation is going to reverse for them anytime soon.”
Oil rose to a 29-month high of $106.95 in New York on March 7 as escalating violence in Libya bolstered concern that supply disruptions may spread through the Middle East. Crude dropped to $96.71 yesterday, the lowest intraday level since March 1. India imports more than 75 percent of its crude oil requirement.
“Positive demand and price momentum in this highly competitive and cyclical industry leads to higher cash flows, which are credit positives,” said Rene Hermann, a Zurich-based analyst at Independent Credit View AG. “Refiners’ bond risk premiums are now lower and hence it is more attractive to tap the credit market to refinance existing bank debt.”
Price Controls
India’s government allowed state refiners to set gasoline prices in June, while continuing to control diesel, kerosene and cooking rates to help curb inflation. Indian Oil hasn’t increased gasoline prices since Jan. 16, although crude has gained 7 percent. Lower crude cuts revenue losses for the refiners and subsidy payments for the federal government, which partly compensates them for selling fuels below cost.
“We have to see how oil prices are over a longer period of time,” Serangulam V. Narasimhan, finance director at Indian Oil, said yesterday. “The unfortunate incident in Japan means oil prices haven’t increased like they were doing. It is too early to comment on the impact.”
Rising Debt
Indian Oil had borrowings of 550 billion rupees ($12.2 billion) and debt was rising at 25 billion rupees a month because of higher oil prices and controlled fuel rates in India, Narasimhan said Feb. 10. The New Delhi-based refiner’s borrowings were 507.2 billion rupees as of Dec. 31, Narasimhan said the same day. He didn’t say how much the company’s current borrowings are.
The refiner’s $327 million of debt is due this year, according to data compiled by Bloomberg.
India’s Finance Minister Pranab Mukherjee said March 2 higher oil costs are a concern, underscoring the risk fuel subsidies will undermine efforts to curb the budget deficit. India may “struggle” to meet its goals for the next financial year because of the price-control system, Standard & Poor’s said in a March 1 statement.
The rupee has slid 1.2 percent this year against the dollar, the second-worst performance among Asia’s 10 most-traded currencies excluding the yen, according to data compiled by Bloomberg. The rupee fell 0.3 percent to 45.245 per dollar yesterday.
Bond Sales
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has dropped 9 basis points to 179 this month, according to CMA prices. Credit-default 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.
Relative yields on Indian Oil’s debt have fallen as debt sales by local companies other than banks dried up, bolstering demand for existing securities, according to Nomura Holdings Inc. The difference between the yield on the 4.75 percent note and similar-maturity U.S. swap rate has narrowed to 176 basis points from a four-month high of 226 reached in December, data compiled by Bloomberg show.
Sales of dollar-denominated bonds issued from India this year were $2.9 billion, all of which were by lenders, according to data compiled by Bloomberg. That’s down from $6.7 billion in the fourth quarter when Hindalco Industries Ltd. (HNDL) and Reliance sold debt.
Almost 50 percent of the $5 billion of debt issued from South Korea this year was from non-bank borrowers. The last time an Indian refiner borrowed dollars was in October, when Reliance Industries raised $1.5 billion, Bloomberg data show.
“Non-bank corporate dollar debt supply from India has been quite thin and that’s mainly why spreads have narrowed,” Pradeep Mohinani, Hong Kong-based managing director at Nomura, said in an interview yesterday.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, March 14, 2011
Rising Indian inflation confounds forecasts
Rising Indian inflation confounds forecasts
By James Lamont in New Delhi
Published: March 14 2011 13:48 | Last updated: March 14 2011 13:48
India’s headline inflation rose in February, increasing the likelihood of the country’s central bank raising lending rates later this week and threatening to wreak havoc with optimistic government forecasts.
Figures released on Monday showed that the wholesale price index had edged up to a year-on-year rate of 8.31 per cent last month compared with 8.23 per cent in January. The data overturned many forecasts by economists who had expected inflation to fall last month.
Stubbornly high inflation, fuelled by food prices and now rising energy prices, has thwarted the best efforts of the Congress party-led government to relieve price pressures on consumers.
After missing forecasts aimed at the end of last calendar year, it has pledged to reduce inflation to below 7 per cent by the end of this month.
“It seems quite obvious now that inflation is not going to decelerate as fast as policy makers were hoping for and the 7 per cent end target is no longer within reach,” said Leif Lybecker Eskesen, chief economist for India at HSBC, the banking group.Indian inflation
“We are going to see inflation this year well-above RBI’s comfort zone.”
Rising food prices have for months been a big concern in India’s fast-growing economy. Economists and industrialists have expressed fears that food inflation is beginning to spill into more general price pressure.
In February, price pressure came from a rise in non-food manufactured products, which rose 4.9 per cent compared to 3.8 per cent in January.
Food inflation eased to 10.65 per cent in February, from 15.7 per cent the previous month. Fuel and power prices rose 11 per cent during the period.
India suffers the highest inflation of any major Asian economy. The Reserve Bank of India has raised interest rates seven times over the past year in a bid to cool rising prices while maintaining an economic growth rate of 8.5 per cent.
While some senior policymakers insist that India needs to return quickly to targets of modest inflation – nearer 3.5 per cent - others appear more comfortable that the country can live with high inflation so long as it is recording high levels of growth .
Pranab Mukherjee, the finance minister, expressed confidence on Monday that the government would still reach its inflation target for the end of the fiscal year.
Economists are not so sure. Rohini Malkani, economist for Citibank, the US banking group, in Mumbai, said high food prices and risks surrounding the supply of oil from the Middle East would lead to inflation between 7 per cent and 7.5 per cent throughout the coming fiscal year.
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
By James Lamont in New Delhi
Published: March 14 2011 13:48 | Last updated: March 14 2011 13:48
India’s headline inflation rose in February, increasing the likelihood of the country’s central bank raising lending rates later this week and threatening to wreak havoc with optimistic government forecasts.
Figures released on Monday showed that the wholesale price index had edged up to a year-on-year rate of 8.31 per cent last month compared with 8.23 per cent in January. The data overturned many forecasts by economists who had expected inflation to fall last month.
Stubbornly high inflation, fuelled by food prices and now rising energy prices, has thwarted the best efforts of the Congress party-led government to relieve price pressures on consumers.
After missing forecasts aimed at the end of last calendar year, it has pledged to reduce inflation to below 7 per cent by the end of this month.
“It seems quite obvious now that inflation is not going to decelerate as fast as policy makers were hoping for and the 7 per cent end target is no longer within reach,” said Leif Lybecker Eskesen, chief economist for India at HSBC, the banking group.Indian inflation
“We are going to see inflation this year well-above RBI’s comfort zone.”
Rising food prices have for months been a big concern in India’s fast-growing economy. Economists and industrialists have expressed fears that food inflation is beginning to spill into more general price pressure.
In February, price pressure came from a rise in non-food manufactured products, which rose 4.9 per cent compared to 3.8 per cent in January.
Food inflation eased to 10.65 per cent in February, from 15.7 per cent the previous month. Fuel and power prices rose 11 per cent during the period.
India suffers the highest inflation of any major Asian economy. The Reserve Bank of India has raised interest rates seven times over the past year in a bid to cool rising prices while maintaining an economic growth rate of 8.5 per cent.
While some senior policymakers insist that India needs to return quickly to targets of modest inflation – nearer 3.5 per cent - others appear more comfortable that the country can live with high inflation so long as it is recording high levels of growth .
Pranab Mukherjee, the finance minister, expressed confidence on Monday that the government would still reach its inflation target for the end of the fiscal year.
Economists are not so sure. Rohini Malkani, economist for Citibank, the US banking group, in Mumbai, said high food prices and risks surrounding the supply of oil from the Middle East would lead to inflation between 7 per cent and 7.5 per cent throughout the coming fiscal year.
Copyright The Financial Times Limited 2011. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2011.
Sunday, March 13, 2011
Chaudhuri May Lead India's Largest Bank as Rival ICICI Expands
By Ruth David and George Smith Alexander - Mar 13, 2011
State Bank of India, the nation’s biggest lender, is poised to name 36-year veteran Pratip Chaudhuri as chairman as competition from rivals including ICICI Bank Ltd. intensifies.
Deputy Managing Director Chaudhuri, 57, was the only person recommended to a cabinet committee tasked with selecting the head of the state-controlled bank, a finance ministry official said on March 11, declining to be identified before an official announcement. Chaudhuri didn’t return three telephone calls to his office in Mumbai.
Chaudhuri’s task of boosting shareholder returns at the 205-year-old lender may be hampered by state control that gives private-sector rivals an edge in mobile and Internet banking, said hedge fund manager Vikas Pershad. Goldman Sachs Group Inc. and Morgan Stanley are seeking licenses in the world’s second- fastest growing major economy and ICICI posted record earnings.
“Now private banks are better positioned to capture growth,” said Pershad, Chicago-based chief executive officer of Veda Investments LLC. “Over the next five years, if I think of which bank in India will perform the best in terms of return on equity and share price, I find it difficult to believe SBI will be first, second or third.”
Shares of State Bank, which accounts for almost a quarter of India’s loans, are unlikely to outperform local rivals such as Mumbai-based ICICI, India’s second-largest lender, said Pershad, who doesn’t hold the stock and says he doesn’t plan to invest in the state-run lender.
Stock Performance
State Bank has more than tripled in the past five years, compared with a 66 percent gain in ICICI, according to data compiled by Bloomberg. The stock shed 1 percent to 2,565.15 rupees in Mumbai trading on March 11, giving the lender a market capitalization of $36 billion.
Chairman Om Prakash Bhatt, who began his term as head of the Mumbai-based bank in July 2006, will retire at the end of this month. During his tenure, the bank’s loans climbed almost threefold to 7.4 trillion rupees ($164 billion) as of Dec. 31, and deposits more than doubled to 8.79 trillion rupees.
Chaudhuri, who started with State Bank in 1974, was put in charge of international banking operations in April 2009.
The new chairman of State Bank will need to attract deposits and raise capital in a banking system with tighter liquidity constraints, Brian Hunsaker, an analyst at Keefe, Bruyette & Woods Asia Ltd. in Hong Kong, said on March 12 from London. The lender will also need to expand lending while curtailing growth of bad loans, he said.
‘Immediate Challenge’
ICICI, whose loans and deposits shrank for almost two years as Chief Executive Officer Chanda Kochhar sought to curb unsecured lending and reduce the cost of funds, will also be a tougher competitor, Hunsaker said. The lender in January said profit for the quarter ended Dec. 31 rose 31 percent to a record as loans increased and provisions for bad debts declined.
The nation’s largest non-state lender plans to add 500 branches a year, Kochhar said on Jan. 28. ICICI has more than 2,500 outlets, according to its website. That’s about a fifth of the more than 12,400 branches operated by State Bank.
“There’s a limit to how much SBI can gain given its size,” Hunsaker said. “SBI’s major competitor is now going to be a force to reckon with: That could be the new chairman’s immediate challenge.”
Foreign banks may also increase operations in India, though they won’t pose a threat to State Bank until they’re allowed to expand branches or make acquisitions, Hunsaker said.
New Licenses
Morgan Stanley is awaiting approval from the Reserve Bank of India for its banking license application, the Mint newspaper reported last month, citing V.K. Bansal, chairman of the New York-based firm’s local unit. Goldman Sachs, which offers investment banking and research services in the Asian nation, has applied for a commercial banking license in India, the New York-based company said almost a year ago.
India’s central bank will issue guidelines on new banking licenses by March 31, Finance Minister Pranab Mukherjee said last month as the government seeks to expand banking services to the nation’s rural areas.
State Bank, whose operations include insurance and corporate advisory units, said profit for its banking unit climbed 14 percent to 28.3 billion rupees for the three months ended Dec. 31. The lender accounted for 17 percent of the nation’s loans and deposits, it said in a presentation on its website.
The lender should consider developing a “large overseas presence” to build foreign exchange reserves that can support acquisitions abroad by Indian companies, said Abizer Diwanji, executive director for corporate finance and head of financial services at KPMG India Pvt. in Mumbai. State Bank should seek greater market share in handling global remittances, he said.
Still, the government’s control over State Bank’s operations makes the lender less flexible and able to adapt to changes than private-sector rivals, Hunsaker and Pershad said.
“It’s not been easy to change the working of the bank, to get the elephant to dance,” Pershad said. “The real test for the bank will come now, to meaningfully expand earnings growth.”
To contact the reporters on this story: Ruth David in Mumbai at rdavid9@bloomberg.net; George Smith Alexander in Mumbai galexander11@bloomberg.net.
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
State Bank of India, the nation’s biggest lender, is poised to name 36-year veteran Pratip Chaudhuri as chairman as competition from rivals including ICICI Bank Ltd. intensifies.
Deputy Managing Director Chaudhuri, 57, was the only person recommended to a cabinet committee tasked with selecting the head of the state-controlled bank, a finance ministry official said on March 11, declining to be identified before an official announcement. Chaudhuri didn’t return three telephone calls to his office in Mumbai.
Chaudhuri’s task of boosting shareholder returns at the 205-year-old lender may be hampered by state control that gives private-sector rivals an edge in mobile and Internet banking, said hedge fund manager Vikas Pershad. Goldman Sachs Group Inc. and Morgan Stanley are seeking licenses in the world’s second- fastest growing major economy and ICICI posted record earnings.
“Now private banks are better positioned to capture growth,” said Pershad, Chicago-based chief executive officer of Veda Investments LLC. “Over the next five years, if I think of which bank in India will perform the best in terms of return on equity and share price, I find it difficult to believe SBI will be first, second or third.”
Shares of State Bank, which accounts for almost a quarter of India’s loans, are unlikely to outperform local rivals such as Mumbai-based ICICI, India’s second-largest lender, said Pershad, who doesn’t hold the stock and says he doesn’t plan to invest in the state-run lender.
Stock Performance
State Bank has more than tripled in the past five years, compared with a 66 percent gain in ICICI, according to data compiled by Bloomberg. The stock shed 1 percent to 2,565.15 rupees in Mumbai trading on March 11, giving the lender a market capitalization of $36 billion.
Chairman Om Prakash Bhatt, who began his term as head of the Mumbai-based bank in July 2006, will retire at the end of this month. During his tenure, the bank’s loans climbed almost threefold to 7.4 trillion rupees ($164 billion) as of Dec. 31, and deposits more than doubled to 8.79 trillion rupees.
Chaudhuri, who started with State Bank in 1974, was put in charge of international banking operations in April 2009.
The new chairman of State Bank will need to attract deposits and raise capital in a banking system with tighter liquidity constraints, Brian Hunsaker, an analyst at Keefe, Bruyette & Woods Asia Ltd. in Hong Kong, said on March 12 from London. The lender will also need to expand lending while curtailing growth of bad loans, he said.
‘Immediate Challenge’
ICICI, whose loans and deposits shrank for almost two years as Chief Executive Officer Chanda Kochhar sought to curb unsecured lending and reduce the cost of funds, will also be a tougher competitor, Hunsaker said. The lender in January said profit for the quarter ended Dec. 31 rose 31 percent to a record as loans increased and provisions for bad debts declined.
The nation’s largest non-state lender plans to add 500 branches a year, Kochhar said on Jan. 28. ICICI has more than 2,500 outlets, according to its website. That’s about a fifth of the more than 12,400 branches operated by State Bank.
“There’s a limit to how much SBI can gain given its size,” Hunsaker said. “SBI’s major competitor is now going to be a force to reckon with: That could be the new chairman’s immediate challenge.”
Foreign banks may also increase operations in India, though they won’t pose a threat to State Bank until they’re allowed to expand branches or make acquisitions, Hunsaker said.
New Licenses
Morgan Stanley is awaiting approval from the Reserve Bank of India for its banking license application, the Mint newspaper reported last month, citing V.K. Bansal, chairman of the New York-based firm’s local unit. Goldman Sachs, which offers investment banking and research services in the Asian nation, has applied for a commercial banking license in India, the New York-based company said almost a year ago.
India’s central bank will issue guidelines on new banking licenses by March 31, Finance Minister Pranab Mukherjee said last month as the government seeks to expand banking services to the nation’s rural areas.
State Bank, whose operations include insurance and corporate advisory units, said profit for its banking unit climbed 14 percent to 28.3 billion rupees for the three months ended Dec. 31. The lender accounted for 17 percent of the nation’s loans and deposits, it said in a presentation on its website.
The lender should consider developing a “large overseas presence” to build foreign exchange reserves that can support acquisitions abroad by Indian companies, said Abizer Diwanji, executive director for corporate finance and head of financial services at KPMG India Pvt. in Mumbai. State Bank should seek greater market share in handling global remittances, he said.
Still, the government’s control over State Bank’s operations makes the lender less flexible and able to adapt to changes than private-sector rivals, Hunsaker and Pershad said.
“It’s not been easy to change the working of the bank, to get the elephant to dance,” Pershad said. “The real test for the bank will come now, to meaningfully expand earnings growth.”
To contact the reporters on this story: Ruth David in Mumbai at rdavid9@bloomberg.net; George Smith Alexander in Mumbai galexander11@bloomberg.net.
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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