Both a stock split and bonus are tax-neutral but have different capital gains tax implications on sale.
Generally, investments in equities are made for the potential capital gain. Despite this investment in equities is being considered risker than fixed income instruments. However, apart from capital gains, equity instruments can confer other benefits to investors such as bonuses, stock splits and share buybacks. Let us examine the significance of these for investors and the tax consequences of each such corporate action.
Bonus shares are nothing but shares issued free of cost to the shareholders of a company, by capitalising a part of its reserves. Following a bonus issue, though the number of total shares increase, the proportional ownership of shareholders does not change.
Also, the share price should fall in proportion to the bonus issue, thereby making no difference to the personal wealth of the holder. However, more often than not, handing out of bonus is perceived to be a positive sign. It means the company is able to service its larger equity. Considering the strong signal given out by the company, a consequent demand push for the shares causes the price to move up.
Since no money is paid to acquire bonus shares, these have to be valued at nil cost while making calculations for capital gains. The originally acquired shares will continue to be valued at the price paid at the time of acquisition. Since the market price of the original shares fall on account of the bonus, there may arise an opportunity to book a notional loss on the original shares.
STOCK SPLITS
Stock splits are a relatively new phenomenon in the Indian context. Recently, companies such as ONGC, Infosys, and HDFC, among others, have announced a stock split. It is important that investors understand why companies may split their shares and how this is different from a bonus issue. In a stock split, the capital of the company remains the same, whereas in a bonus issue the capital increases and the reserves decrease. However, in both actions, the net worth of the company remains unaffected.
A typical example is a two-for-one stock split. Say, a company announces a two-for-one stock split in a month. That means a month from that date, the company’s shares will start trading at half the price from the previous day. Consequently, you will own twice the number of shares that you originally owned and the company, in turn, will have twice the number of shares outstanding. Consider the adjoining table where the price of 100 shares costs Rs 3000. After the stock split, while the number of shares increases to 200, the price also comes down to Rs 1500 .
The question that arises is if there is no difference to the wealth of the investor, then why does a company announce a stock split? Well, the primary reason is to infuse additional liquidity into the shares, by making these more affordable. The shares only appear to be cheaper; it makes no difference whether you buy one share for Rs 3,000 or two for Rs 1,500 each.
As far as the tax implications for stock splits are concerned, there aren’t any. A stock split, like a bonus issue, is tax-neutral. However, when the shares are sold, the capital gains tax implications are different that what is applicable for bonus issues. Here, the original cost of the shares also has to be reduced. For instance, in the above example, if the cost of 100 shares at Rs 150 per share was Rs 1,50,000, the cost of 200 shares after the split would be reduced to Rs 75 per share, thereby keeping the total cost constant at Rs 1,50,000.
SHARE BUYBACKS
These are a comparatively new phenomenon. Reliance, Siemens and Infosys are some examples of companies which have done so. A buyback is essentially a financial tool in the hands of the company, that affords flexibility in the capital structure. A buyback allows the company to sustain a higher debt-equity ratio. It is also a tool to defend against possible takeovers. Generally, companies do this when they perceive their own shares to be undervalued or when they have surplus cash for which there is no ready capital investment need.
Stock buybacks also prevent dilution of earnings.
In other words, a buyback program enhances the earnings per share. Conversely, it can prevent an earnings per share (EPS) dilution that may be caused by exercises of stock option grants and so on.
A buyback also serves as a substitute for dividend payments. This brings us to the issue of tax implications of a buyback. An important consideration is whether the amount paid on buyback is dividend or consideration for transfer of shares. If considered a dividend, the same will not be taxable in the hands of the investors. Also, to what extent, if at all, can the amount paid on buyback be taken as dividend? Is the entire amount paid dividend or is it only the premium paid over the face value?
According to a Supreme Court judgement, (Anarkali Sarabhai v CIT, 1997, 90Taxman509 ), the principle that redemption of shares by the company which issued the shares (in this case, preference shares) is tantamount to sale of shares by the shareholders to the company.
The Finance Act, 1999, reiterated this stand. Now, if a company purchases its own shares, the difference between the money received by the shareholder and the cost of acquisition will be deemed as capital gains.
Further, this will not be treated as dividend, since the definition of dividend does not include payments made by the company on purchase of its own shares.
Saturday, June 4, 2011
Correction in markets is an opportunity for investors
The annual results season of the financial year 2011 has come to an end, and the markets are weak due to profit booking by domestic as well as foreign investors . The correction in the markets is an opportunity for investors to take fresh positions. On the other hand, you should analyse your portfolio and make the necessary adjustments based on the results.
Here are some strategies you can adopt in the current market conditions:
For short-term investors
The objective of a shortterm investor is to take advantage of market volatility and make money through trading. Since the markets are quite volatile, there are ample opportunities for short-term investors.
However, it is important to stay cautious and make a thorough analysis before taking positions. You should also maintain a tight stoploss level to cut losses in case a position turns negative .
For medium-term investors
The objective of mediumterm investors is to make money in the equity markets over a period of around 12 months. Usually, mediumterm investors base their decisions on positive developments in a particular stock or sector.
Mediumterm investors do not get too many rallies or correction phases during their investment tenure. Therefore, it is important for them to identify the right entry and exit levels.
These investors should also maintain a tight stoploss level for their positions in order to cut down losses if an investment does not fructify.
For long-term investors
Long-term investors look at taking advantage of capital gains as a result of business growth. The usual strategy of long-term investors is 'buy and forget' their investments. In fact, some investors do not even track their stocks for long. It is important for long-term investors to do a through analysis about the company before making an investment and keep track of the performances of their stocks.
Long-term investors have sufficient time to accumulate stocks at regular intervals during market correction phases. You should take the necessary steps to make the required adjustments to your portfolio based on the macroeconomic conditions and annual results. Longterm investors who cannot track the markets and related developments regularly would be better off investing in equity-based mutual funds.
Here are some tips for investors:
Invest risk capital only: Investments in the stock markets are risky by nature. Therefore, it is important for investors to invest their risk capital only in the markets .
Realistic expectations:
It is important to have a realistic returns expectation from investments in equity or equity-based instruments. Investors looking for very high returns often invest in high-risk options and often end up losing their hard-earned money.
Analysis:
It's always advisable to spend some time on understanding the markets and on making an analysis of the stocks you plan to buy. Reading reviews increases your understanding of the overall situation and helps in taking the right decisions.
Diversify:
You should diversify your equity portfolio by investing in stocks of different sectors with a good outlook. Investors should always evaluate the investments at regular intervals and keep shuffling the portfolio based on market conditions.
Balance portfolio:
You should balance your overall portfolio carefully based on your risk appetite. It is important to strike a balance between various classes of investments such as insurance, debt instruments and equity instruments. Investors should never get carried away by market waves and allocate a higher percentage of their total portfolio to equitybased instruments. Any decision to change the allocation should be taken after weighing the pros and cons carefully.
Here are some strategies you can adopt in the current market conditions:
For short-term investors
The objective of a shortterm investor is to take advantage of market volatility and make money through trading. Since the markets are quite volatile, there are ample opportunities for short-term investors.
However, it is important to stay cautious and make a thorough analysis before taking positions. You should also maintain a tight stoploss level to cut losses in case a position turns negative .
For medium-term investors
The objective of mediumterm investors is to make money in the equity markets over a period of around 12 months. Usually, mediumterm investors base their decisions on positive developments in a particular stock or sector.
Mediumterm investors do not get too many rallies or correction phases during their investment tenure. Therefore, it is important for them to identify the right entry and exit levels.
These investors should also maintain a tight stoploss level for their positions in order to cut down losses if an investment does not fructify.
For long-term investors
Long-term investors look at taking advantage of capital gains as a result of business growth. The usual strategy of long-term investors is 'buy and forget' their investments. In fact, some investors do not even track their stocks for long. It is important for long-term investors to do a through analysis about the company before making an investment and keep track of the performances of their stocks.
Long-term investors have sufficient time to accumulate stocks at regular intervals during market correction phases. You should take the necessary steps to make the required adjustments to your portfolio based on the macroeconomic conditions and annual results. Longterm investors who cannot track the markets and related developments regularly would be better off investing in equity-based mutual funds.
Here are some tips for investors:
Invest risk capital only: Investments in the stock markets are risky by nature. Therefore, it is important for investors to invest their risk capital only in the markets .
Realistic expectations:
It is important to have a realistic returns expectation from investments in equity or equity-based instruments. Investors looking for very high returns often invest in high-risk options and often end up losing their hard-earned money.
Analysis:
It's always advisable to spend some time on understanding the markets and on making an analysis of the stocks you plan to buy. Reading reviews increases your understanding of the overall situation and helps in taking the right decisions.
Diversify:
You should diversify your equity portfolio by investing in stocks of different sectors with a good outlook. Investors should always evaluate the investments at regular intervals and keep shuffling the portfolio based on market conditions.
Balance portfolio:
You should balance your overall portfolio carefully based on your risk appetite. It is important to strike a balance between various classes of investments such as insurance, debt instruments and equity instruments. Investors should never get carried away by market waves and allocate a higher percentage of their total portfolio to equitybased instruments. Any decision to change the allocation should be taken after weighing the pros and cons carefully.
Stock valuations look attractive to long-term investors who can bear volatility
As the annual results of most of the companies have already been announced and factored in, the markets will look at the onset of the monsoons and global economic factors for directions. The Met Department has predicted a normal monsoon, but on the global economic front there are indeed many minefields . How well the global central banks navigate through these minefields will determine the direction of the domestic stocks markets in the near future.
Negative news all around
Apart from South America, no other continent seems to be free from critical macroeconomic imbalances. The global factors clouding over the stock markets are the US economy's grow derailing, political crisis in the MENA region, calibrated slowdown in India and China, decline in GDP in flood-hit Australia, and the crisis of defaults in the Euro region.
The Euro zone is facing rating downgrades for its member countries. The one that is occupying the maximum mind-space of analysts is Greece. There is intense debate among analysts on Greece defaulting on its debts. The question that is now asked around is not 'if ' Greece will default on its debt but 'when' it will default. Credit rating agencies have downgraded Greece's bond ratings deeper last Wednesday. With Greece's debt outstanding touching USD 450 billion, it brought back memories of Lehman Brothers' collapse. Lehman Brothers' outstanding when they went bankrupt was to the tune of USD 600 billion.
European central bankers have a very difficult job on their hands. It they let Greece default it could trigger a chain reaction. All European banks that have lent to Greece will start defaulting, and this could end in another 2008-like situation . On the other hand, if they continue to bail out Greece, it could trigger protests in richer Euro nations due to wrongful use of taxpayers' money.
Domestic issues
The domestic markets also have to face a wall of worries . Inflation is showing no signs of decline. Rate hikes have impacted growth but not inflation. Corporate results show that growth is going to slowdown in the current year and earnings would be not matching up to last year's which were pretty good.
Companies are struggling with high input costs and rising interest rates. The investment sentiment had been severely dampened with the Reserve Bank of India (RBI) hiking interest rates by almost 400 basis percentage points. This has pulled down economic growth to the slowest pace in the last five quarters at 7.8 percent in the fourth quarter of the financial year 2011.
However, investors must understand that the decline in GDP numbers is actually a good thing. It's RBI's aim to cool the economy down to bring down inflation. So, a positive way of looking at these numbers would be to say the RBI's monetary policy measures are taking effect. Consequently, India along with other emerging economies, is somewhere in the middle or racing towards the end of the monetary tightening cycle.
On the other hand, if you look at the US, it will only begin to 'tighten' by letting the second phase of the quantitative easing (QE2) end in June, and then slowly start the rate hike cycle.
So, there is some glimmer of hope that economic macros could limp back to normal in a year's time for economies such as India. Further, the stock valuations here look very attractive to long-term investors who can bear some volatility along the way. These factors contribute to emerging markets outperforming other markets relatively in the near to intermediate terms. However, till the macroeconomic factors in other parts of the globe play out, it will still be uncertain times for the stock markets here.
Negative news all around
Apart from South America, no other continent seems to be free from critical macroeconomic imbalances. The global factors clouding over the stock markets are the US economy's grow derailing, political crisis in the MENA region, calibrated slowdown in India and China, decline in GDP in flood-hit Australia, and the crisis of defaults in the Euro region.
The Euro zone is facing rating downgrades for its member countries. The one that is occupying the maximum mind-space of analysts is Greece. There is intense debate among analysts on Greece defaulting on its debts. The question that is now asked around is not 'if ' Greece will default on its debt but 'when' it will default. Credit rating agencies have downgraded Greece's bond ratings deeper last Wednesday. With Greece's debt outstanding touching USD 450 billion, it brought back memories of Lehman Brothers' collapse. Lehman Brothers' outstanding when they went bankrupt was to the tune of USD 600 billion.
European central bankers have a very difficult job on their hands. It they let Greece default it could trigger a chain reaction. All European banks that have lent to Greece will start defaulting, and this could end in another 2008-like situation . On the other hand, if they continue to bail out Greece, it could trigger protests in richer Euro nations due to wrongful use of taxpayers' money.
Domestic issues
The domestic markets also have to face a wall of worries . Inflation is showing no signs of decline. Rate hikes have impacted growth but not inflation. Corporate results show that growth is going to slowdown in the current year and earnings would be not matching up to last year's which were pretty good.
Companies are struggling with high input costs and rising interest rates. The investment sentiment had been severely dampened with the Reserve Bank of India (RBI) hiking interest rates by almost 400 basis percentage points. This has pulled down economic growth to the slowest pace in the last five quarters at 7.8 percent in the fourth quarter of the financial year 2011.
However, investors must understand that the decline in GDP numbers is actually a good thing. It's RBI's aim to cool the economy down to bring down inflation. So, a positive way of looking at these numbers would be to say the RBI's monetary policy measures are taking effect. Consequently, India along with other emerging economies, is somewhere in the middle or racing towards the end of the monetary tightening cycle.
On the other hand, if you look at the US, it will only begin to 'tighten' by letting the second phase of the quantitative easing (QE2) end in June, and then slowly start the rate hike cycle.
So, there is some glimmer of hope that economic macros could limp back to normal in a year's time for economies such as India. Further, the stock valuations here look very attractive to long-term investors who can bear some volatility along the way. These factors contribute to emerging markets outperforming other markets relatively in the near to intermediate terms. However, till the macroeconomic factors in other parts of the globe play out, it will still be uncertain times for the stock markets here.
Friday, June 3, 2011
IDR redemption allowed only if liquidity is low: SEBI
SEBI has introduced a new condition for redeeming Indian Depository Receipt (IDR) into underlying equity shares.
The only IDR listed on NSE and BSE is that of Standard Chartered Bank. For every equity share of StanChart, 10 IDRs were issued. Standard Chartered red herring prospectus has stated that IDRs could not be redeemed into underlying shares before the expiry of one-year period from the date of issue of the IDRs.
Fungibility issues
The SEBI regulations and the RBI circular state that automatic fungibility of IDRs is not permitted. Therefore, fungibility of IDRs into the underlying shares would be permitted only after the expiry of one year period from the date of issue of IDRs and subsequent to obtaining RBI approval on a case-by-case basis.
Further, two-way fungibility, i.e., the ability to purchase existing shares on the London Stock Exchange and/or the Hong Kong Stock Exchange and deposit them into the IDR programme is not currently permitted. The RBI circular, also said that Indian residents were required to comply with FEMA at the time of redemption/ conversion of IDRs into underlying shares.
In the absence of two-way fungibility, SEBI said that allowing redemption freely could result in reduction of number of IDRs listed, thereby impacting its liquidity in the domestic market. Hence in consultation with RBI, SEBI decided that after the completion of one year from the date of issuance of IDRs, redemption of the IDRs shall be permitted only if the IDRs are infrequently traded on the stock exchange(s) in India.
Change in terms
“The arbitrage opportunity of converting the IDR into underlying and selling the same is effectively debarred,” said Mr Arun Kejriwal Founder, KRIS Research. “This amounts to a change in the terms of the issue of the IDR at the eleventh hour and coming from the regulator, this is a body blow to investors and not in the interest of future IDR offerings in this country. Probably Standard Chartered IDR would remain the one and the only IDR ever listed on Indian bourses,” he added.
Interestingly, the FII holding in Standard Chartered IDR has nearly doubled from 38 per cent on the day of listing to nearly 70 per cent in March. Retail participation has been flat through the last one year close to eight per cent.
IDRs shall be deemed to be “infrequently traded” if the annualised trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is less than five percent of the listed IDRs, said SEBI.
On Trigger
SEBI further said that the issuer company shall test the frequency of trading of IDRs on a half yearly basis ending on June and December of every year. When the IDRs are considered “infrequently traded” on the above basis, it shall be the trigger event for redemption, said SEBI
The issuer company is expected to make an announcement in an English and Hindi language newspapers with wide circulation about the trigger of the redemption event, time period for submission of application and the approach for processing the applications as well as notify the stock exchanges. Such announcement shall be made within seven days of closure of the half year ending on which the liquidity criteria is tested.
IDR holders may then submit their application to the domestic depository for redemption of IDRs within a period of 30 days from the date of public announcement and redemption of IDRs shall be completed within a period of thirty days from the date of receipt of application for redemption.
After redemption, the domestic depository shall notify the revised shareholding pattern of the issuer company to the concerned stock exchanges within seven days of completion of redemption.
SEBI has directed all stock exchanges, depositories, merchant bankers, registrar to issues and custodians to comply with the circular with immediate effect.
The only IDR listed on NSE and BSE is that of Standard Chartered Bank. For every equity share of StanChart, 10 IDRs were issued. Standard Chartered red herring prospectus has stated that IDRs could not be redeemed into underlying shares before the expiry of one-year period from the date of issue of the IDRs.
Fungibility issues
The SEBI regulations and the RBI circular state that automatic fungibility of IDRs is not permitted. Therefore, fungibility of IDRs into the underlying shares would be permitted only after the expiry of one year period from the date of issue of IDRs and subsequent to obtaining RBI approval on a case-by-case basis.
Further, two-way fungibility, i.e., the ability to purchase existing shares on the London Stock Exchange and/or the Hong Kong Stock Exchange and deposit them into the IDR programme is not currently permitted. The RBI circular, also said that Indian residents were required to comply with FEMA at the time of redemption/ conversion of IDRs into underlying shares.
In the absence of two-way fungibility, SEBI said that allowing redemption freely could result in reduction of number of IDRs listed, thereby impacting its liquidity in the domestic market. Hence in consultation with RBI, SEBI decided that after the completion of one year from the date of issuance of IDRs, redemption of the IDRs shall be permitted only if the IDRs are infrequently traded on the stock exchange(s) in India.
Change in terms
“The arbitrage opportunity of converting the IDR into underlying and selling the same is effectively debarred,” said Mr Arun Kejriwal Founder, KRIS Research. “This amounts to a change in the terms of the issue of the IDR at the eleventh hour and coming from the regulator, this is a body blow to investors and not in the interest of future IDR offerings in this country. Probably Standard Chartered IDR would remain the one and the only IDR ever listed on Indian bourses,” he added.
Interestingly, the FII holding in Standard Chartered IDR has nearly doubled from 38 per cent on the day of listing to nearly 70 per cent in March. Retail participation has been flat through the last one year close to eight per cent.
IDRs shall be deemed to be “infrequently traded” if the annualised trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is less than five percent of the listed IDRs, said SEBI.
On Trigger
SEBI further said that the issuer company shall test the frequency of trading of IDRs on a half yearly basis ending on June and December of every year. When the IDRs are considered “infrequently traded” on the above basis, it shall be the trigger event for redemption, said SEBI
The issuer company is expected to make an announcement in an English and Hindi language newspapers with wide circulation about the trigger of the redemption event, time period for submission of application and the approach for processing the applications as well as notify the stock exchanges. Such announcement shall be made within seven days of closure of the half year ending on which the liquidity criteria is tested.
IDR holders may then submit their application to the domestic depository for redemption of IDRs within a period of 30 days from the date of public announcement and redemption of IDRs shall be completed within a period of thirty days from the date of receipt of application for redemption.
After redemption, the domestic depository shall notify the revised shareholding pattern of the issuer company to the concerned stock exchanges within seven days of completion of redemption.
SEBI has directed all stock exchanges, depositories, merchant bankers, registrar to issues and custodians to comply with the circular with immediate effect.
Sebi road map for illiquid IDR redemption
In its attempts to make Indian Depository Receipts (IDRs) more investor- friendly, the Securities and Exchange Board of India (Sebi) has put in place a framework that will allow such investors to redeem the instrument if it becomes illiquid. Till now, the norms were silent on the recourse available to investors if there was no trading in IDRs of any particular entity.
IDRs are shares issued by foreign companies and are listed on the Indian exchanges. It basically gives Indian investors an opportunity to own a share of a foreign company. Currently, Standard Chartered Plc, which is listed on London Stock Exchange and Hong Kong Stock Exchange, is the only entity that listed its IDR in India. The global banking major came out with its IDR issue in May 2010 and was listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in June 2010.
Investors, however, can redeem IDRs only after one year of its issuance and if it is not frequently traded on the stock exchanges. “After the completion of one year from the date of issuance of IDRs, redemption of IDRs shall be permitted only if IDRs are infrequently traded on the stock exchange(s) in India,” said the Sebi circular.
According to Sebi norms, IDRs will be termed “infrequently traded” if the annualised trading turnover during the six calendar months immediately preceding the month of redemption is less than five per cent of the listed IDRs. The issuer company will have to check the frequency of trading on a half yearly basis ending on June and December of every year.
The circular further explains that the IDR holder can ask the domestic depository to redeem shares and transfer the money to his account. Since the underlying shares of an IDR are listed on overseas exchanges, the transaction will be subject to the laws related to foreign exchange.
“A holder of IDRs may transfer IDRs or may ask the Domestic Depository to redeem these IDRs, subject to the provisions of the Foreign Exchange Management Act, 1999 and other laws for the time being in force,” it says.
The recourse assumes significance also because of the fact that the IDRs are not fungible into the underlying equity shares of the issuing company. A circular dated July 22, 2009, issued by the Reserve Bank of India (RBI) clearly says that “automatic fungibility of IDRs is not permitted”.
If IDRs are found to be “infrequently traded”, then the issuer company will have to make a public announcement and investors will have to submit their application within 30 days. The redemption process will have to be completed within 30 days of the receipt of the application.
IDRs are shares issued by foreign companies and are listed on the Indian exchanges. It basically gives Indian investors an opportunity to own a share of a foreign company. Currently, Standard Chartered Plc, which is listed on London Stock Exchange and Hong Kong Stock Exchange, is the only entity that listed its IDR in India. The global banking major came out with its IDR issue in May 2010 and was listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in June 2010.
Investors, however, can redeem IDRs only after one year of its issuance and if it is not frequently traded on the stock exchanges. “After the completion of one year from the date of issuance of IDRs, redemption of IDRs shall be permitted only if IDRs are infrequently traded on the stock exchange(s) in India,” said the Sebi circular.
According to Sebi norms, IDRs will be termed “infrequently traded” if the annualised trading turnover during the six calendar months immediately preceding the month of redemption is less than five per cent of the listed IDRs. The issuer company will have to check the frequency of trading on a half yearly basis ending on June and December of every year.
The circular further explains that the IDR holder can ask the domestic depository to redeem shares and transfer the money to his account. Since the underlying shares of an IDR are listed on overseas exchanges, the transaction will be subject to the laws related to foreign exchange.
“A holder of IDRs may transfer IDRs or may ask the Domestic Depository to redeem these IDRs, subject to the provisions of the Foreign Exchange Management Act, 1999 and other laws for the time being in force,” it says.
The recourse assumes significance also because of the fact that the IDRs are not fungible into the underlying equity shares of the issuing company. A circular dated July 22, 2009, issued by the Reserve Bank of India (RBI) clearly says that “automatic fungibility of IDRs is not permitted”.
If IDRs are found to be “infrequently traded”, then the issuer company will have to make a public announcement and investors will have to submit their application within 30 days. The redemption process will have to be completed within 30 days of the receipt of the application.
Banks, MFIs reach debt recast deal
MFI promoters agree to pledge 100% shareholding; banks refuse to give fresh loans to the sector.
The promoters of microfinance institutions (MFIs) have agreed to pledge their entire shareholding with banks that have given them loans. This will be done as part of a debt restructuring programme.
The banks were earlier demanding personal guarantees, to which the promoters objected. The impasse was broken at a recent meeting between banks and MFIs.
Since the debt restructuring will now go through, about Rs 6,400 crore loans have been prevented from becoming non-performing assets (NPAs).
The Reserve Bank of India (RBI), which had allowed banks to recast loans of the troubled MFI sector without classifying them as NPAs, had given June 6 as the deadline for finalising the debt restructuring package.
“We have decided to waive the personal guarantee clause. MFIs now have to pledge 100 per cent promoters’ shares to banks,” a senior official of the Corporate Debt Restructuring (CDR) cell told Business Standard.
Banks, however, refused to give fresh loans to MFIs which the latter had sought for working capital needs.
The CDR cell admitted loans worth Rs 6,473 crore involving five microfinance institutions. A repayment period of six years is proposed, excluding a one-year moratorium. The rate of interest on restructured loans is 12 per cent.
Five MFIs — Asmitha Microfin, Future Financial Services, Share Microfin, Spandana Sphoorty Financial and Trident Microfin — which opted for the restructuring, had agreed, said senior bankers and top officials of these companies.
“We have agreed to pledge our shareholding. I’m more or less certain that the debt restructuring will happen now. It is a positive thing because if we are able to run our businesses profitably, we have the option of pre-paying the debt and getting our shares released. Our personal wealth is not at risk,” said a top official of a Hyderabad-based MFI.
Analysts say the deal suits MFIs because if their business is not running profitably, it will not be easy for banks to sell their shares.
“If personal guarantee was given, banks could have sold properties and assets of the promoters to recover their dues,” said an analyst with a domestic brokerage.
“There will be no fresh lending as of now. Bankers told us that it was difficult to convince their credit committees at this point in time to increase exposure to the sector,” said a top official of Spandana Sphoorty Financial.
But MFI officials are hopeful that bank loans will be available for business outside Andhra Pradesh. The Andhra Pradesh government recently banned weekly collections, which hit collection of dues by MFIs.
With MFIs agreeing to the new terms, the CDR cell is expected to send a letter of approval to the microfinance companies by Monday.
“We have not got the letter of approval yet. We are hoping to get it by Monday as that is the last day for approving the package. Once the letter of approval comes, it will take 90-120 days to implement the programme,” said an official of a microfinance company.
The promoters of microfinance institutions (MFIs) have agreed to pledge their entire shareholding with banks that have given them loans. This will be done as part of a debt restructuring programme.
The banks were earlier demanding personal guarantees, to which the promoters objected. The impasse was broken at a recent meeting between banks and MFIs.
Since the debt restructuring will now go through, about Rs 6,400 crore loans have been prevented from becoming non-performing assets (NPAs).
The Reserve Bank of India (RBI), which had allowed banks to recast loans of the troubled MFI sector without classifying them as NPAs, had given June 6 as the deadline for finalising the debt restructuring package.
“We have decided to waive the personal guarantee clause. MFIs now have to pledge 100 per cent promoters’ shares to banks,” a senior official of the Corporate Debt Restructuring (CDR) cell told Business Standard.
Banks, however, refused to give fresh loans to MFIs which the latter had sought for working capital needs.
The CDR cell admitted loans worth Rs 6,473 crore involving five microfinance institutions. A repayment period of six years is proposed, excluding a one-year moratorium. The rate of interest on restructured loans is 12 per cent.
Five MFIs — Asmitha Microfin, Future Financial Services, Share Microfin, Spandana Sphoorty Financial and Trident Microfin — which opted for the restructuring, had agreed, said senior bankers and top officials of these companies.
“We have agreed to pledge our shareholding. I’m more or less certain that the debt restructuring will happen now. It is a positive thing because if we are able to run our businesses profitably, we have the option of pre-paying the debt and getting our shares released. Our personal wealth is not at risk,” said a top official of a Hyderabad-based MFI.
Analysts say the deal suits MFIs because if their business is not running profitably, it will not be easy for banks to sell their shares.
“If personal guarantee was given, banks could have sold properties and assets of the promoters to recover their dues,” said an analyst with a domestic brokerage.
“There will be no fresh lending as of now. Bankers told us that it was difficult to convince their credit committees at this point in time to increase exposure to the sector,” said a top official of Spandana Sphoorty Financial.
But MFI officials are hopeful that bank loans will be available for business outside Andhra Pradesh. The Andhra Pradesh government recently banned weekly collections, which hit collection of dues by MFIs.
With MFIs agreeing to the new terms, the CDR cell is expected to send a letter of approval to the microfinance companies by Monday.
“We have not got the letter of approval yet. We are hoping to get it by Monday as that is the last day for approving the package. Once the letter of approval comes, it will take 90-120 days to implement the programme,” said an official of a microfinance company.
Bearish sensex closes at 18,376 as Reliance Industries disappoints
BANGALORE: The BSE Sensex fell for the second day on Friday amid muted world markets, weighed down by energy major Reliance Industries, which disappointed investors at its shareholders' meeting by not giving enough information on key issues.
The benchmark 30-share BSE index closed down 0.6%, or 117.7 points, at 18,376.48, with 22 components in the red. The index rose nearly 1% earlier. It is up 0.6% for the week. The outlook for the market next week is cautious as a government panel may decide on raising fuel prices on June 9, traders said. "The market will continue to trade in a narrow range in the next week," Mital said. "Fuel price decision will be one of the hindrances next week."
A panel of Indian ministers may meet on June 9 to discuss raising prices of diesel, kerosene and cooking gas, an oil ministry source said last week. The benchmark BSE index is down 10.4% so far this year on foreign fund outflows, with $1.16 billion being pulled out in May alone, as investors worried rising inflation and high interest rates would hamper growth in Asia's third-largest economy.
Reliance Communications rebounded 3.8% to close at Rs 93.35, after falling 4.3% in the previous session. A unit of Reliance Comm and three group officials are among those charged by the CBI in a huge telecoms licensing probe, but a local court after market hours on Thursday rejected a plea by an individual petitioner to include the company's chairman, Anil Ambani, as an accused in the case. India's top lender State Bank of India ended 0.9% lower at Rs 2,312.50. Citigroup cut its target price on the stock and lowered its fiscal 2012 earnings estimates, citing moderation in loan growth and margins. Smaller rival ICICI dipped 0.1%, after losing 3.3% in the previous session.
The benchmark 30-share BSE index closed down 0.6%, or 117.7 points, at 18,376.48, with 22 components in the red. The index rose nearly 1% earlier. It is up 0.6% for the week. The outlook for the market next week is cautious as a government panel may decide on raising fuel prices on June 9, traders said. "The market will continue to trade in a narrow range in the next week," Mital said. "Fuel price decision will be one of the hindrances next week."
A panel of Indian ministers may meet on June 9 to discuss raising prices of diesel, kerosene and cooking gas, an oil ministry source said last week. The benchmark BSE index is down 10.4% so far this year on foreign fund outflows, with $1.16 billion being pulled out in May alone, as investors worried rising inflation and high interest rates would hamper growth in Asia's third-largest economy.
Reliance Communications rebounded 3.8% to close at Rs 93.35, after falling 4.3% in the previous session. A unit of Reliance Comm and three group officials are among those charged by the CBI in a huge telecoms licensing probe, but a local court after market hours on Thursday rejected a plea by an individual petitioner to include the company's chairman, Anil Ambani, as an accused in the case. India's top lender State Bank of India ended 0.9% lower at Rs 2,312.50. Citigroup cut its target price on the stock and lowered its fiscal 2012 earnings estimates, citing moderation in loan growth and margins. Smaller rival ICICI dipped 0.1%, after losing 3.3% in the previous session.
Emerging markets ready to lead IMF: China researcher
BEIJING: Emerging market officials are capable of leading the International Monetary Fund (IMF), a Chinese government researcher said on Friday in an opinion piece that chided the IMF for its "outdated" order dominated by the US and Europe.
Yuan Zengting, a researcher at the Chinese Academy of Social Sciences, a government think-tank, said the fund needs to change "in a real sense" to give emerging market countries more say, and that the current selection process for a new IMF chief is a way to start.
"There are candidates from emerging markets and developing countries who are competent enough to lead the IMF as a managing director, although they do not have history to prove their ability in balancing interests," Yuan wrote.
His remarks were published in the People's Daily, China's Communist Party mouthpiece. Although they may not directly reflect the views of China's leaders, they lay bare some of the elements of official thinking.
They also highlight the tussle for power at the IMF after its leader suddenly left. Emerging powers want more say in the fund to reflect their growing economic clout, while some European officials say the new head should be one of their own.
Yuan did not name any candidates whom he thought was appropriate.
As of Friday, there were two confirmed nominations for the IMF leadership: French Finance Minister Christine Lagarde and Mexico Central Bank Governor Agustin Carstens.
Lagarde is scheduled to visit China next week to lobby for support for her IMF candidacy, although it is still unclear which Chinese officials she will meet.
China, for its part, has not officially endorsed any candidate, but Beijing has said repeatedly that it wants "democratic consultation" over who should head the IMF, and would like to see more emerging market officials helping to run the fund.
Yuan reiterated that point on Friday. "The IMF has made little progress in reforming the ways it distributes decision-making powers," Yuan said.
"It still demonstrates an order dictated by the United States and Europe. This increasingly out-dated fashion does not satisfy the demands of emerging powers."
China's Central Bank Governor Zhou Xiaochuan said last month that the IMF's future leadership should reflect the growing stature of emerging economies.
Although the French government has said that China supports Lagarde's candidacy, China has not confirmed that.
Publicly, China has joined forces with other emerging economies, including Brazil, Russia, India and South Africa to decry the IMF's long-running practise of having a European chief.
The IMF was thrown into a crisis last month after its former boss, Dominique Strauss-Kahn, quit following charges that he tried to rape a hotel maid. Strauss-Kahn has denied those charges.
Yuan Zengting, a researcher at the Chinese Academy of Social Sciences, a government think-tank, said the fund needs to change "in a real sense" to give emerging market countries more say, and that the current selection process for a new IMF chief is a way to start.
"There are candidates from emerging markets and developing countries who are competent enough to lead the IMF as a managing director, although they do not have history to prove their ability in balancing interests," Yuan wrote.
His remarks were published in the People's Daily, China's Communist Party mouthpiece. Although they may not directly reflect the views of China's leaders, they lay bare some of the elements of official thinking.
They also highlight the tussle for power at the IMF after its leader suddenly left. Emerging powers want more say in the fund to reflect their growing economic clout, while some European officials say the new head should be one of their own.
Yuan did not name any candidates whom he thought was appropriate.
As of Friday, there were two confirmed nominations for the IMF leadership: French Finance Minister Christine Lagarde and Mexico Central Bank Governor Agustin Carstens.
Lagarde is scheduled to visit China next week to lobby for support for her IMF candidacy, although it is still unclear which Chinese officials she will meet.
China, for its part, has not officially endorsed any candidate, but Beijing has said repeatedly that it wants "democratic consultation" over who should head the IMF, and would like to see more emerging market officials helping to run the fund.
Yuan reiterated that point on Friday. "The IMF has made little progress in reforming the ways it distributes decision-making powers," Yuan said.
"It still demonstrates an order dictated by the United States and Europe. This increasingly out-dated fashion does not satisfy the demands of emerging powers."
China's Central Bank Governor Zhou Xiaochuan said last month that the IMF's future leadership should reflect the growing stature of emerging economies.
Although the French government has said that China supports Lagarde's candidacy, China has not confirmed that.
Publicly, China has joined forces with other emerging economies, including Brazil, Russia, India and South Africa to decry the IMF's long-running practise of having a European chief.
The IMF was thrown into a crisis last month after its former boss, Dominique Strauss-Kahn, quit following charges that he tried to rape a hotel maid. Strauss-Kahn has denied those charges.
India Inc's profits trip on rising costs
With higher interest rates, inflation and firm commodity prices putting brakes on growth, the net profit of sensex companies grew by a measly 2.9% year-on-year (y-o-y) in the January-March quarter to about Rs 38,600 crore.
Incidentally, net profits grew by a healthy 23% on an average during the first nine months of FY11. Despite the slowdown in the last quarter of the fiscal, India Inc is estimated to have grown its profits by about 21% in the last fiscal.
"Cost escalation and rate hikes affected the bottomline of companies. Cost pressures would continue for another two quarters," said Kishor P Ostwal, MD, CNI Research, an equities research provider. However, the markets have already factored in the decline in earnings, he said.
"The slowdown (in growth) is now reflected in earnings," said Ajay Parmar, head, institutional research, Emkay Global Financial Services. EBITDA margins declined for most of the sectors in January-March. Earnings before interest tax depreciation and amortisation (EBITDA) for sensex firms grew only by about 11% to around Rs 77,000 crore during the quarter, the lowest rise barring the crisis period, data compiled by domestic brokerage firm Motilal Oswal Securities showed.
Earnings growth revived only in FY11 after a "growth holiday" between FY08 and FY10. "The disappointing feature of earnings was the underperformance of several heavyweights across sectors," an analyst at Motilal Oswal said. Private sector finance companies, pharma and FMCG were the only sectors that reported strong earnings. "The macro-economic backdrop remains challenging," observers said. The earnings per share (EPS) growth of sensex companies, which remained flat between FY08 and FY10, was downgraded 4% to Rs 1,203 for FY12 by Motilal Oswal. It grew 21.4% to Rs. 1,013 in FY11.
While market observers estimated a 22% growth in earnings for FY12, they brought it down to 18% following a spate of rate hikes by RBI to tame inflation. "Earnings could fall by 5-7%," Emkay`s Parmar said. Though some expect earnings growth to slip to below 15%, a normal monsoon could ease inflationary pressures and push it to around 18%, observers said.
Public sector banks and telecoms saw the sharpest fall in profit margins. While EBITDA margins declined 2.4% y-o-y to 22% during the January-March quarter for sensex companies, profit margins fell 2.6% to 11%. Though net sales grew 22.4% y-o-y, it was below estimates.
The 30 companies that comprise sensex saw a greater decline in EBITDA and net profit on a quarter-on-quarter basis. EBITDA grew a mere 0.9% q-o-q while net profits declined 4%.
The performance in the last quarter of FY11 is in sharp contrast to the same period the previous year. India Inc ended FY10 with a bang, recording the highest-ever earnings growth in more than three years for the January-March quarter.
Incidentally, net profits grew by a healthy 23% on an average during the first nine months of FY11. Despite the slowdown in the last quarter of the fiscal, India Inc is estimated to have grown its profits by about 21% in the last fiscal.
"Cost escalation and rate hikes affected the bottomline of companies. Cost pressures would continue for another two quarters," said Kishor P Ostwal, MD, CNI Research, an equities research provider. However, the markets have already factored in the decline in earnings, he said.
"The slowdown (in growth) is now reflected in earnings," said Ajay Parmar, head, institutional research, Emkay Global Financial Services. EBITDA margins declined for most of the sectors in January-March. Earnings before interest tax depreciation and amortisation (EBITDA) for sensex firms grew only by about 11% to around Rs 77,000 crore during the quarter, the lowest rise barring the crisis period, data compiled by domestic brokerage firm Motilal Oswal Securities showed.
Earnings growth revived only in FY11 after a "growth holiday" between FY08 and FY10. "The disappointing feature of earnings was the underperformance of several heavyweights across sectors," an analyst at Motilal Oswal said. Private sector finance companies, pharma and FMCG were the only sectors that reported strong earnings. "The macro-economic backdrop remains challenging," observers said. The earnings per share (EPS) growth of sensex companies, which remained flat between FY08 and FY10, was downgraded 4% to Rs 1,203 for FY12 by Motilal Oswal. It grew 21.4% to Rs. 1,013 in FY11.
While market observers estimated a 22% growth in earnings for FY12, they brought it down to 18% following a spate of rate hikes by RBI to tame inflation. "Earnings could fall by 5-7%," Emkay`s Parmar said. Though some expect earnings growth to slip to below 15%, a normal monsoon could ease inflationary pressures and push it to around 18%, observers said.
Public sector banks and telecoms saw the sharpest fall in profit margins. While EBITDA margins declined 2.4% y-o-y to 22% during the January-March quarter for sensex companies, profit margins fell 2.6% to 11%. Though net sales grew 22.4% y-o-y, it was below estimates.
The 30 companies that comprise sensex saw a greater decline in EBITDA and net profit on a quarter-on-quarter basis. EBITDA grew a mere 0.9% q-o-q while net profits declined 4%.
The performance in the last quarter of FY11 is in sharp contrast to the same period the previous year. India Inc ended FY10 with a bang, recording the highest-ever earnings growth in more than three years for the January-March quarter.
Mukesh fails to enthuse investors
MUMBAI: Even after promises by Reliance Industries (RIL) chairman Mukesh Ambani at its 37th AGM to dole out chocolates and ice-creams to shareholders next year, RIL shares slipped as investors failed to get clarity on the falling production from the Krishna Godavari (KG) basin. Shares of India's most valued firm, after opening on a positive note, lost momentum and fell by 1.65% to Rs 936 as Ambani was unable to clarify shareholders' doubts on un-deployed surplus cash and details of new businesses.
Ambani assured his shareholders that RIL will be a debt-free company by March 31 next year, using cash earned from selling its stake in oil and gas fields to UK's BP Plc. He also said that RIL would consolidate its global leadership position in its core businesses of plastic, refining and petrochemicals, and focus on consumer facing business like retail and broadband foray.
Although the RIL chairman was silent on specific details for the future course of action of RIL's entry into financial services and telecom, he said a partnership-led transformation would be on the top of the agenda going forward. All he would say was that it was conceptualizing a foray into broadband wireless services.
"With a cash balance of Rs 42,393 crore, our company is in a very strong position financially. Reliance will be completely debt free, net of cash balances within this year," Ambani told shareholders here on Friday in what is seen as one of the most eagerly awaited AGMs in corporate India.
The company plans to invest aggressively in retail business by launching cash-and-carry, or wholesale outlets, he said. "We are positioning Reliance Retail to be an undisputed leader in organized retailing. We plan to create similar value in the retail business as we have been doing historically in the core businesses." Ambani, however, ruled out the possibility of getting into the banking space or listing any of the RIL subsidiaries, when asked specifically by shareholders.
Like every year, there was the usual sprinkling of humour, advice and adulation for the billionaire businessman. While some wanted the RIL chairman's wife, Neeta Ambani, to be brought on the board, some others wanted him to support Baba Ramdev in his crusade against corruption. There were still others who expected a dividend on his father's birthday and also wanted him to meet shareholders the way his father used to. Ambani assured he would meet a few on Monday. Ambani was accompanied by his mother, Kokilaben, his wife Neeta Ambani and his children Isha, Akash and Anant.
Some were disappointed as well. "Mukeshbhai's speech sounded like a general statement and had nothing new to offer. Most of it is already in the public domain. I wanted to know the details about RIL's financial services and broadband foray," said a disappointed shareholder, owning 120 RIL shares.
Ambani assured his shareholders that RIL will be a debt-free company by March 31 next year, using cash earned from selling its stake in oil and gas fields to UK's BP Plc. He also said that RIL would consolidate its global leadership position in its core businesses of plastic, refining and petrochemicals, and focus on consumer facing business like retail and broadband foray.
Although the RIL chairman was silent on specific details for the future course of action of RIL's entry into financial services and telecom, he said a partnership-led transformation would be on the top of the agenda going forward. All he would say was that it was conceptualizing a foray into broadband wireless services.
"With a cash balance of Rs 42,393 crore, our company is in a very strong position financially. Reliance will be completely debt free, net of cash balances within this year," Ambani told shareholders here on Friday in what is seen as one of the most eagerly awaited AGMs in corporate India.
The company plans to invest aggressively in retail business by launching cash-and-carry, or wholesale outlets, he said. "We are positioning Reliance Retail to be an undisputed leader in organized retailing. We plan to create similar value in the retail business as we have been doing historically in the core businesses." Ambani, however, ruled out the possibility of getting into the banking space or listing any of the RIL subsidiaries, when asked specifically by shareholders.
Like every year, there was the usual sprinkling of humour, advice and adulation for the billionaire businessman. While some wanted the RIL chairman's wife, Neeta Ambani, to be brought on the board, some others wanted him to support Baba Ramdev in his crusade against corruption. There were still others who expected a dividend on his father's birthday and also wanted him to meet shareholders the way his father used to. Ambani assured he would meet a few on Monday. Ambani was accompanied by his mother, Kokilaben, his wife Neeta Ambani and his children Isha, Akash and Anant.
Some were disappointed as well. "Mukeshbhai's speech sounded like a general statement and had nothing new to offer. Most of it is already in the public domain. I wanted to know the details about RIL's financial services and broadband foray," said a disappointed shareholder, owning 120 RIL shares.
Thursday, June 2, 2011
Markets trade firm
The markets are trading firm after a quiet opening with the Sensex gaining 136 points at 18,632 and the Nifty crossed the resistance level of 5,600 briefly but is currently trading at 5,593 up 42 points.
__________________
(Updated at 0938)
The markets have opened in the positive with the Sensex gaining 60 points at 18,554 and the Nifty has added 15 points to start at 5,565. However, the broader markets had a slow start with the smallcap index opening at 8,248, up 0.4% and the midcap index starting at 6,918 with a 0.6%. The BSE benchmark index, Sensexwhich is up 0.7% is outperforming the broader markets in the opening trades.
All the sectoral indices started in the green. Realty and Consumer Durables, up 1% each are indices leading the gains closely followed by Capital Goods and Power. However, yesterday's top index gainer FMCG started flat.
Overnight the US markets closed flat after a volatile day of trading as investors were reluctant to make bets a day before a critical labor market report that could magnify fears the economy is slowing.The three major U.S. stock indices have been trending downward and investors worry about more losses if economic figures disappoint.The Dow Jones industrial average fell 0.34% to 12,248. The Standard & Poor's 500 Index dipped 0.12 % to 1,313 and the Nasdaq Composite rose 0.15% to close at 2,773. Also, the dollar fell to a one-month low against a basket of currencies after ratings agency Moody's warned of a downgrade.
In the light of these developments, the Asian stocks bounced though the gains were modest. Japan's Nikkei index was down 0.3% with political uncertainty weighing on sentiment, though cheap valuations and options-related short covering may provide some support. The major gainers among the Asian indices are Shanghai Composite up 0.5% followed by Taiwan Weighted which added 0.2%.
The top gainers in the opening trades among the Sensex stocks are Reliance Communication which surged 7% followed by Reliance Infrastructure, L&T, Jaiprakash Associates, DLF, Mahindra & Mahindra and Maruti Suzuki which added between 1-4%
Only two scrips namely Tata Power and Hindustan Unilever losing 0.2-0.3% were the only losers in the Sensex stocks.
The market breadth is positive. Of the total 1475 stocks trade on the BSE, 1111 stocks have advanced while only 313 declined.
__________________
(Updated at 0938)
The markets have opened in the positive with the Sensex gaining 60 points at 18,554 and the Nifty has added 15 points to start at 5,565. However, the broader markets had a slow start with the smallcap index opening at 8,248, up 0.4% and the midcap index starting at 6,918 with a 0.6%. The BSE benchmark index, Sensexwhich is up 0.7% is outperforming the broader markets in the opening trades.
All the sectoral indices started in the green. Realty and Consumer Durables, up 1% each are indices leading the gains closely followed by Capital Goods and Power. However, yesterday's top index gainer FMCG started flat.
Overnight the US markets closed flat after a volatile day of trading as investors were reluctant to make bets a day before a critical labor market report that could magnify fears the economy is slowing.The three major U.S. stock indices have been trending downward and investors worry about more losses if economic figures disappoint.The Dow Jones industrial average fell 0.34% to 12,248. The Standard & Poor's 500 Index dipped 0.12 % to 1,313 and the Nasdaq Composite rose 0.15% to close at 2,773. Also, the dollar fell to a one-month low against a basket of currencies after ratings agency Moody's warned of a downgrade.
In the light of these developments, the Asian stocks bounced though the gains were modest. Japan's Nikkei index was down 0.3% with political uncertainty weighing on sentiment, though cheap valuations and options-related short covering may provide some support. The major gainers among the Asian indices are Shanghai Composite up 0.5% followed by Taiwan Weighted which added 0.2%.
The top gainers in the opening trades among the Sensex stocks are Reliance Communication which surged 7% followed by Reliance Infrastructure, L&T, Jaiprakash Associates, DLF, Mahindra & Mahindra and Maruti Suzuki which added between 1-4%
Only two scrips namely Tata Power and Hindustan Unilever losing 0.2-0.3% were the only losers in the Sensex stocks.
The market breadth is positive. Of the total 1475 stocks trade on the BSE, 1111 stocks have advanced while only 313 declined.
Trichet seeks single EU finance ministry
Jean-Claude Trichet, president of the European Central Bank, has called on the European Union to take bolder steps towards controlling fiscal and economic policies, suggesting a long-term goal of establishing a European ministry of finance.
In a speech outlining his vision for the future of European economic and monetary union after the eurozone crisis, he called for medium-term measures that would allow EU members to veto national economic policy decisions if they endangered eurozone stability.
“There is no crisis of the euro,” Mr Trichet declared in his capacity as chief guardian of the stability of the common European currency. While he avoided any detailed reference to negotiations for a new rescue package for Greece, he called for a drastic change in the system of economic governance in the eurozone, going beyond “the dialectics of surveillance, recommendations and sanctions”.
He said “strengthening rules to prevent unsound policies” was an “urgent priority”. The ECB had already called for a “quantum leap” in economic governance, and urged the European Parliament to reinforce the draft secondary legislation that is under negotiation with the Commission and the Council.
Speaking in Aachen, Germany, Mr Trichet called for a European Union that would be “a confederation of sovereign states of an entirely new type”.
“In this union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” he said.
Such a ministry would not necessarily have a large budget. But it would exert surveillance of “both fiscal policies and competitiveness policies”, and have a veto right over specific spending decisions. It would also enforce regulation of the union’s “integrated financial sector”.
Mr Trichet admitted a common ministry of finance would require “a very important change of the [EU] treaty, and will have consequences in all the union’s responsibilities”.
His ideas, if implemented, would represent a huge step towards integration of national budgetary policies – thinking that goes well beyond the consensus in most states, including Germany, France and the UK.
However, he singled out potential allies as having “their own views on this question”. They included Wolfgang Schäuble, German finance minister, José Manuel Barroso, president of the European Commission, and Jean-Claude Juncker,Luxembourgprime minister and chairman of the Eurogroup that co-ordinates eurozone policies.
In the medium term, he foresaw a two-stage process to help countries in difficulty, and prevent “crises spreading in a way that could harm other countries”. The first step would provide financial assistance “in the context of a strong adjustment programme”, as the eurozone members are doing for Greece, Ireland and Portugal.
The second step would be for “the European authorities . . . to take decisions themselves applicable in the economy concerned”.
In a speech outlining his vision for the future of European economic and monetary union after the eurozone crisis, he called for medium-term measures that would allow EU members to veto national economic policy decisions if they endangered eurozone stability.
“There is no crisis of the euro,” Mr Trichet declared in his capacity as chief guardian of the stability of the common European currency. While he avoided any detailed reference to negotiations for a new rescue package for Greece, he called for a drastic change in the system of economic governance in the eurozone, going beyond “the dialectics of surveillance, recommendations and sanctions”.
He said “strengthening rules to prevent unsound policies” was an “urgent priority”. The ECB had already called for a “quantum leap” in economic governance, and urged the European Parliament to reinforce the draft secondary legislation that is under negotiation with the Commission and the Council.
Speaking in Aachen, Germany, Mr Trichet called for a European Union that would be “a confederation of sovereign states of an entirely new type”.
“In this union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” he said.
Such a ministry would not necessarily have a large budget. But it would exert surveillance of “both fiscal policies and competitiveness policies”, and have a veto right over specific spending decisions. It would also enforce regulation of the union’s “integrated financial sector”.
Mr Trichet admitted a common ministry of finance would require “a very important change of the [EU] treaty, and will have consequences in all the union’s responsibilities”.
His ideas, if implemented, would represent a huge step towards integration of national budgetary policies – thinking that goes well beyond the consensus in most states, including Germany, France and the UK.
However, he singled out potential allies as having “their own views on this question”. They included Wolfgang Schäuble, German finance minister, José Manuel Barroso, president of the European Commission, and Jean-Claude Juncker,Luxembourgprime minister and chairman of the Eurogroup that co-ordinates eurozone policies.
In the medium term, he foresaw a two-stage process to help countries in difficulty, and prevent “crises spreading in a way that could harm other countries”. The first step would provide financial assistance “in the context of a strong adjustment programme”, as the eurozone members are doing for Greece, Ireland and Portugal.
The second step would be for “the European authorities . . . to take decisions themselves applicable in the economy concerned”.
FinMin to go ahead with DMO despite RBI protests
Reservations expressed by the Reserve Bank of India (RBI) notwithstanding, North Block, the finance ministry headquarters, is going ahead with its plans to set up a full-fledged Debt Management Office (DMO) to manage the government debt. The finance ministry has prepared a draft legislation on setting up a separate DMO and the Bill is likely to be tabled in the Winter Session of Parliament.
“The government will move towards a full-fledged DMO. The draft legislation has been prepared. Maybe the RBI governor has some genuine concerns which are being addressed in the design and structure of DMO. Now it will go to other stakeholders within the government,” said a finance ministry official.
Finance Minister Pranab Mukherjee has also been briefed on the draft legislation, but he is yet to see it formally. Once comments from all stakeholders are received, including RBI, the Bill will be sent to the law ministry. After it is vetted, it will go to the Cabinet for approval to be tabled in Parliament. Simultaneously, the finance ministry will start preparatory action on setting up DMO. The ministry is seeking cooperation from RBI, as it feels DMO can become successful only in close coordination with the central bank. “DMO has to learn from RBI’s experience. So, the central bank will have to do handholding,” the official said.
THE TWO POINTS OF VIEW
FINMIN
With RBI managing both monetary policy and govt debt, there is a conflict of interest
The move will reduce cost of debt, facilitate debt consolidation, and increasing transparency
There are many countries in the world where public debt office is managed by the govt
RBI
RBI has the expertise to manage market volatility; an independent debt agency can't to do so
Advantages of shifting debt management function out of the central bank are overstated
India is different from other countries given the large size of the govt borrowing programme
RBI Governor D Subbarao is against shifting DMO to the finance ministry because of manpower issues. The finance ministry has assured that all 21 public debt offices of RBI will continue to function as they are doing today, but they will function at the behest of DMO.
RBI’s another concern is that when the idea of DMO was conceived, the government’s fiscal situation was under stress and any office within the finance ministry may succumb to these pressures.
The finance ministry’s argument in favour of DMO is that the government is on the path of fiscal consolidation now. “With the setting up of DMO in the finance ministry, the dilemma of RBI between managing monetary policy and debt operations of the government will be eliminated. At present, there is a conflict of interest,” the official added.
Last month Subbarao, who was earlier finance secretary in the government, had said only the central bank had the requisite expertise to manage market volatility, and an independent debt agency, driven by narrow objectives, will not be able to do so.
The finance ministry, on the other hand, wants to separate RBI’s role as the decider of interest rates in the market and at the same time being the banker to the government. At present, the government’s debt is managed by the central bank.
The finance minister, in his Budget speech in February, had proposed to introduce the Public Debt Management Agency of India Bill during 2011-12.
A middle office for debt management purpose is already functioning in the finance ministry as a transition to to the full-fledged office. One of its many functions is to formulate annual debt issuance strategy and periodic calendars of borrowing.
“The government will move towards a full-fledged DMO. The draft legislation has been prepared. Maybe the RBI governor has some genuine concerns which are being addressed in the design and structure of DMO. Now it will go to other stakeholders within the government,” said a finance ministry official.
Finance Minister Pranab Mukherjee has also been briefed on the draft legislation, but he is yet to see it formally. Once comments from all stakeholders are received, including RBI, the Bill will be sent to the law ministry. After it is vetted, it will go to the Cabinet for approval to be tabled in Parliament. Simultaneously, the finance ministry will start preparatory action on setting up DMO. The ministry is seeking cooperation from RBI, as it feels DMO can become successful only in close coordination with the central bank. “DMO has to learn from RBI’s experience. So, the central bank will have to do handholding,” the official said.
THE TWO POINTS OF VIEW
FINMIN
With RBI managing both monetary policy and govt debt, there is a conflict of interest
The move will reduce cost of debt, facilitate debt consolidation, and increasing transparency
There are many countries in the world where public debt office is managed by the govt
RBI
RBI has the expertise to manage market volatility; an independent debt agency can't to do so
Advantages of shifting debt management function out of the central bank are overstated
India is different from other countries given the large size of the govt borrowing programme
RBI Governor D Subbarao is against shifting DMO to the finance ministry because of manpower issues. The finance ministry has assured that all 21 public debt offices of RBI will continue to function as they are doing today, but they will function at the behest of DMO.
RBI’s another concern is that when the idea of DMO was conceived, the government’s fiscal situation was under stress and any office within the finance ministry may succumb to these pressures.
The finance ministry’s argument in favour of DMO is that the government is on the path of fiscal consolidation now. “With the setting up of DMO in the finance ministry, the dilemma of RBI between managing monetary policy and debt operations of the government will be eliminated. At present, there is a conflict of interest,” the official added.
Last month Subbarao, who was earlier finance secretary in the government, had said only the central bank had the requisite expertise to manage market volatility, and an independent debt agency, driven by narrow objectives, will not be able to do so.
The finance ministry, on the other hand, wants to separate RBI’s role as the decider of interest rates in the market and at the same time being the banker to the government. At present, the government’s debt is managed by the central bank.
The finance minister, in his Budget speech in February, had proposed to introduce the Public Debt Management Agency of India Bill during 2011-12.
A middle office for debt management purpose is already functioning in the finance ministry as a transition to to the full-fledged office. One of its many functions is to formulate annual debt issuance strategy and periodic calendars of borrowing.
Nifty likely to move in 5250-5800 band in June
Nifty June Future opened week at 5497 levels and after making initial low at 5441 levels, Nifty June future showed good strength and made high at 5594 levels on Wednesday. A long build-up was seen from Monday to Wednesday.
On Thursday, Nifty June future opened with gap down note and closed in red at 5558.45 levels with 32 points loss and 1.83% increase in OI. Clearly, short build up was seen on Thursday. Nifty PCR (V) stood at 1.29 levels, which shows that activity on put side was more aggressive.
On Thursday, maximum OI also has been seen on 5800/5700 and 5600 calls. Long unwinding was seen in 5600 and 5400 Calls with 1.07% and 1.77% decrease in OI, respectively. A short build-up was seen in 5500 call with 0.10% increase in OI. On the put side, maximum OI has been seen on 5400/5000 and 5500 puts. A long build-up was seen in 5600/5500 and 5400 puts with 7.18%, 23.53% and 9.72% increase in open interest respectively.
Most equity markets from the US , Europe and Asia are showing profit-booking at higher levels, which shows that sentiment may remain soft in our market.
Overall scenario shows that Nifty may trade within 5250-5800 range during the June month. On the other hand, if Nifty June future manages to maintain above 5625 levels, expect a rally till 5750-5800, else Nifty June future likely to trade within 5625-5325 or 5625-5250 range for the next few days.
A long build-up was seen in Fortis stock while a short build-up was seen in the Sesa Goa stock. As per sector performance, FMCG, consumer durables and oil & gas sectors have been major out performers on Thursday and banking, metal, realty and auto sectors have been major outperformers.
On Thursday, Fortis June future showed short covering and closed above its resistance at 165 levels. Stock may reach 172-175 in coming trading days. On the other hand, Sesa Goa June future showed short-build-up from resistance in 290-295 zones and closed at 281.4 levels. Sesa Goa may decline to 278-276
levels in coming trading days.
On Thursday, Nifty June future opened with gap down note and closed in red at 5558.45 levels with 32 points loss and 1.83% increase in OI. Clearly, short build up was seen on Thursday. Nifty PCR (V) stood at 1.29 levels, which shows that activity on put side was more aggressive.
On Thursday, maximum OI also has been seen on 5800/5700 and 5600 calls. Long unwinding was seen in 5600 and 5400 Calls with 1.07% and 1.77% decrease in OI, respectively. A short build-up was seen in 5500 call with 0.10% increase in OI. On the put side, maximum OI has been seen on 5400/5000 and 5500 puts. A long build-up was seen in 5600/5500 and 5400 puts with 7.18%, 23.53% and 9.72% increase in open interest respectively.
Most equity markets from the US , Europe and Asia are showing profit-booking at higher levels, which shows that sentiment may remain soft in our market.
Overall scenario shows that Nifty may trade within 5250-5800 range during the June month. On the other hand, if Nifty June future manages to maintain above 5625 levels, expect a rally till 5750-5800, else Nifty June future likely to trade within 5625-5325 or 5625-5250 range for the next few days.
A long build-up was seen in Fortis stock while a short build-up was seen in the Sesa Goa stock. As per sector performance, FMCG, consumer durables and oil & gas sectors have been major out performers on Thursday and banking, metal, realty and auto sectors have been major outperformers.
On Thursday, Fortis June future showed short covering and closed above its resistance at 165 levels. Stock may reach 172-175 in coming trading days. On the other hand, Sesa Goa June future showed short-build-up from resistance in 290-295 zones and closed at 281.4 levels. Sesa Goa may decline to 278-276
levels in coming trading days.
Sebi allows stock exchanges to offer incentives to brokers for raising volumes in illiquid derivatives
MUMBAI: Capital market regulator Sebi has allowed stock exchanges to offer incentives to brokers for generating volumes in illiquid securities in equity derivatives segment. Exchanges can reward brokers dealing in derivatives of scrips where average trading volume for the past 60 trading days is less than 0.1% of market capitalisation of the underlying stock.
"The liquidity enhancement scheme will give the exchanges flexibility to launch appropriate schemes suiting their business objectives. This move will develop derivative markets in India, both in terms of depth and breadth," said Madhu Kannan, managing director & chief executive, Bombay Stock Exchange (BSE).
The regulator has asked exchanges to keep liquidity enhancement schemes (LES) transparent and measurable. According to Sebi, exchanges can reward brokers or traders by giving trading fee discounts, adjustment in fees while trading in other market segments, cash payments and also offers shares of the exchange on meeting specific targets.
Low volumes in stock futures and options segment -- especially among stocks that do not fall in any index groups -- have been a cause of concern for both the exchanges. According to market participants, over 85% of overall derivative trading volumes work around index options. Apart from the top-20 index stocks, liquidity is hard to come by in single stock futures. The exchanges have allowed derivatives trading 223 stocks currently.
The National Stock Exchange ( NSE )) has been logging an average monthly F&O turnover of 1.17 lakh crore over the past one year. The BSE lists a monthly turnover of over 4 crore in derivative segment.
"The regulator is trying to prop up derivatives trading by allowing market-making in the segment. We should see an increase in volumes of illiquid F&O scrips if exchanges offer sufficient incentives to market makers or brokers," said Bharat Shah, institutional sales head, Ventura Securities .
The exchanges have been asked to discontinue LES facility once the average trading volume top 1% of market capitalisation (of the underlying shares), or six months from the introduction of the scheme, whichever is earlier. LES can be discontinued at any time with an advance notice of 15 days, the Sebi order said.
"The liquidity enhancement scheme will give the exchanges flexibility to launch appropriate schemes suiting their business objectives. This move will develop derivative markets in India, both in terms of depth and breadth," said Madhu Kannan, managing director & chief executive, Bombay Stock Exchange (BSE).
The regulator has asked exchanges to keep liquidity enhancement schemes (LES) transparent and measurable. According to Sebi, exchanges can reward brokers or traders by giving trading fee discounts, adjustment in fees while trading in other market segments, cash payments and also offers shares of the exchange on meeting specific targets.
Low volumes in stock futures and options segment -- especially among stocks that do not fall in any index groups -- have been a cause of concern for both the exchanges. According to market participants, over 85% of overall derivative trading volumes work around index options. Apart from the top-20 index stocks, liquidity is hard to come by in single stock futures. The exchanges have allowed derivatives trading 223 stocks currently.
The National Stock Exchange ( NSE )) has been logging an average monthly F&O turnover of 1.17 lakh crore over the past one year. The BSE lists a monthly turnover of over 4 crore in derivative segment.
"The regulator is trying to prop up derivatives trading by allowing market-making in the segment. We should see an increase in volumes of illiquid F&O scrips if exchanges offer sufficient incentives to market makers or brokers," said Bharat Shah, institutional sales head, Ventura Securities .
The exchanges have been asked to discontinue LES facility once the average trading volume top 1% of market capitalisation (of the underlying shares), or six months from the introduction of the scheme, whichever is earlier. LES can be discontinued at any time with an advance notice of 15 days, the Sebi order said.
CCI to look at food price spike
NEW DELHI: The recent spurt in prices of food articles, particularly onions, has come to the notice of fair play watchdog Competition Commission of India (CCI) that is now undertaking an exercise to look into competition issues into the agriculture sector with a focus on tracking down any "distortions and imperfections" in the distribution channel of commodities that could have led to escalation of prices at the retail level.
Apart from the agri sector, CCI will also conduct an in-depth analysis of the steel and paper sectors to identify any anomalies and anti-competitive practices. "To ensure fair and healthy competition in the Indian economy, the CCI is initiating a series of market studies to analyse and monitor the competitive dynamics in various industries. In the initial phase, we have taken up agriculture, steel and paper," outgoing chairman Dhanendra Kumar said.
The agri study, 'Market Structures for Agricultural Commodities in India', has been commissioned to the Institute for Social and Economic Change (ISEC). "The purpose of the study is to capture the supply-side dynamics for select agricultural commodities, including onion," CCI said. Also, the study will analyse the structure, degree and nature of market competition at each stage of the supply chain as well as functioning of the 'mandis'.
Crucial aspects like process of price discovery will be based on direct field investigations and identification of competition and efficiency bottlenecks. The spurt in food inflation in recent months had brought into focus the critical issues of price volatility in agricultural commodities, agricultural market structures and market efficiency, CCI said.
"The recent spikes in some instances could not be explained fully by the fundamentals of demand-supply and that underscored the need to study the agri-market structures in the country and pin down the real causes of price volatility in agricultural commodities."
Kumar said that the objective of the watchdog is to see that farmers got the best price for their produce and the end-consumer paid appropriately. "There should be no imperfections or price fixation in the distribution channel." A preliminary report is expected in the next 45 days. CCI had conducted similar studies in the past on sectors like cement, pharma and civil aviation. The study on steel and papers sectors had been commissioned to Crisil.
Apart from the agri sector, CCI will also conduct an in-depth analysis of the steel and paper sectors to identify any anomalies and anti-competitive practices. "To ensure fair and healthy competition in the Indian economy, the CCI is initiating a series of market studies to analyse and monitor the competitive dynamics in various industries. In the initial phase, we have taken up agriculture, steel and paper," outgoing chairman Dhanendra Kumar said.
The agri study, 'Market Structures for Agricultural Commodities in India', has been commissioned to the Institute for Social and Economic Change (ISEC). "The purpose of the study is to capture the supply-side dynamics for select agricultural commodities, including onion," CCI said. Also, the study will analyse the structure, degree and nature of market competition at each stage of the supply chain as well as functioning of the 'mandis'.
Crucial aspects like process of price discovery will be based on direct field investigations and identification of competition and efficiency bottlenecks. The spurt in food inflation in recent months had brought into focus the critical issues of price volatility in agricultural commodities, agricultural market structures and market efficiency, CCI said.
"The recent spikes in some instances could not be explained fully by the fundamentals of demand-supply and that underscored the need to study the agri-market structures in the country and pin down the real causes of price volatility in agricultural commodities."
Kumar said that the objective of the watchdog is to see that farmers got the best price for their produce and the end-consumer paid appropriately. "There should be no imperfections or price fixation in the distribution channel." A preliminary report is expected in the next 45 days. CCI had conducted similar studies in the past on sectors like cement, pharma and civil aviation. The study on steel and papers sectors had been commissioned to Crisil.
Big Bazaar to greet shoppers with new look
MUMBAI: The country's largest hypermarket chain Big Bazaar, part of the Kishore Biyani promoted Future Group, is undergoing an overhaul. Big Bazaar, popular for its deals and discounts, will now be seen in a new avatar, as it looks to enhance customer experience in the wake of growing competition.
These stores, six of which have opened in cities like Chennai, Hyderabad and Delhi, are in the pilot stage currently but will eventually become a pan-India model, said an official from the group. The new model of Big Bazaar stores will have an upgraded sense of space, furniture, fixture along with an increased focus on fresh farm produce, fruits and vegetables, bakery products and live kitchen. These changes are also being made to Food Bazaar, the food retail outlet from the Future Group.
"The Big Bazaar brand is a decade old and in this time our consumers have undergone changes. The next version of the brand is going to cater to the new aspirations of the Indian consumer. We are assessing how far this is going to work with our customer base. We will analyze every catchment area before determining the profile of each of the stores going forward," said Damodar Mall, president, integrated food strategy, Future Group. This is an attempt to make the brand more inclusive and attract a wider spectrum of customers, Mall added.
"Big Bazaar being the first modern retailer needs to reinvent itself as the newer players like Tata's Star Bazaar or Aditya Birla's More have learned from the experiences of the first mover. But the store has a certain positioning which caters to the middle end of the market which will not change as it is the biggest revenue generator for the retailer," said Arvind Singhal, chairman, Technopak Advisors, a retail consultancy.
Besides having a fuller range in the food category, another big focus area for Big Bazaar will be to expand its line of international brands that it stocks currently in its stores. At present, typically 10-15% of food products are from imported international brands but now the retailer is looking to take it up to as much as 30%. Mall said the retailer was talking to a number of importers to strengthen its international line of products at Big Bazaar.
The Future group recently launched a gourmet food retail concept, Foodhall, to cater to the high-end of the consumer chain. Mall said segmentation is the way ahead for the retailer and Foodhall will target the mature consumer with its mix of products.
Big Bazaar currently has around 150 stores while there are 35 stand alone Food Bazaar stores across the country.
These stores, six of which have opened in cities like Chennai, Hyderabad and Delhi, are in the pilot stage currently but will eventually become a pan-India model, said an official from the group. The new model of Big Bazaar stores will have an upgraded sense of space, furniture, fixture along with an increased focus on fresh farm produce, fruits and vegetables, bakery products and live kitchen. These changes are also being made to Food Bazaar, the food retail outlet from the Future Group.
"The Big Bazaar brand is a decade old and in this time our consumers have undergone changes. The next version of the brand is going to cater to the new aspirations of the Indian consumer. We are assessing how far this is going to work with our customer base. We will analyze every catchment area before determining the profile of each of the stores going forward," said Damodar Mall, president, integrated food strategy, Future Group. This is an attempt to make the brand more inclusive and attract a wider spectrum of customers, Mall added.
"Big Bazaar being the first modern retailer needs to reinvent itself as the newer players like Tata's Star Bazaar or Aditya Birla's More have learned from the experiences of the first mover. But the store has a certain positioning which caters to the middle end of the market which will not change as it is the biggest revenue generator for the retailer," said Arvind Singhal, chairman, Technopak Advisors, a retail consultancy.
Besides having a fuller range in the food category, another big focus area for Big Bazaar will be to expand its line of international brands that it stocks currently in its stores. At present, typically 10-15% of food products are from imported international brands but now the retailer is looking to take it up to as much as 30%. Mall said the retailer was talking to a number of importers to strengthen its international line of products at Big Bazaar.
The Future group recently launched a gourmet food retail concept, Foodhall, to cater to the high-end of the consumer chain. Mall said segmentation is the way ahead for the retailer and Foodhall will target the mature consumer with its mix of products.
Big Bazaar currently has around 150 stores while there are 35 stand alone Food Bazaar stores across the country.
Wednesday, June 1, 2011
Indian groups favour foreign bond markets
A growing number of Indian companies and their affiliates are turning to the overseas bond markets to secure cheap funding at a time when high interest rates at home have made domestic fundraising less appealing.
In the past few weeks lender ICICI, miner Vedanta and Tata Motors’ Jaguar Land Rover car unit have raised more than $4bn in the overseas bond markets.
Bharti Airtel, India’s largest mobile phone operator by subscribers, has asked banks to co-ordinate an overseas bond of up to $1bn. Essar Steel is also believed to be eyeing the bond market as are a number of Indian lenders.
The companies have been encouraged to look overseas after Indian interest rates have risen nine times in the space of a year as Delhi seeks to curb high inflation.
According to figures from Dealogic, the data provider, $5.4bn has already been raised in the overseas sub-investment grade bond market by non-financial Indian companies so far this year, compared with $7.1bn for the whole of 2010.
“The foreign currency markets have started becoming more attractive given the significant rate hikes over the last year,” said Prakash Subramanian, managing director and regional head for capital markets in South Asia. “The foreign currency requirements by Indian corporates have increased and most of the leading Indian banks have been raising foreign currency funds in their offshore centres to cater to this demand.”
Last week Vedanta raised a bigger-than-expected $1.65bn following very strong demand from investors. The bond issue, one of the largest by a non-financial Indian company, was marketed through the US’s private “144a” market, which allows companies to place securities with a wide pool of professional investors or “qualified institutional buyers”. Rule 144a placings offer access to a more liquid market without all the constraints of a publicly marketed transaction.
Amit Sheopuri, co-head of Asia debt origination at Citigroup in Hong Kong, said he expected Indian issuers to be active in the dollar, yen and euro bond markets (the so-called “G3”) in 2011. He said financial institutions were looking to build their offshore balance sheets and businesses.
Indian companies, however, are likely to be selective about their bond issues given the regulatory and tax regimes associated with repatriating money back into the country.
“Subject to the local funding environment, we could see an increase in Indian corporates tapping the offshore G3 markets – both for their offshore and onshore requirements – given the liquidity and pricing efficiencies in the bond markets,” Mr Sheopuri said.
On a global basis India’s overseas corporate bond issuance is still relatively small. Global volumes have reached $499.3bn this year, up from $403.9bn for the same period last year. Asia, excluding Japan and Australia, totals $106.9bn in the year to date, up from the $90.6bn over the same period last year.
Vedanta’s high-yield offering was priced at 6.75 per cent for the five-year, $750m tranche, and at 8.25 per cent for the 10-year, $900m tranche. The issue was co-ordinated by Barclays Capital, Citi, Credit Suisse, Royal Bank of Scotland and Standard Chartered.
The offering will partly finance Vedanta’s acquisition of Cairn Energy’s Indian unit, a $9.6bn deal that is awaiting final approval from the Indian government.
In the past few weeks lender ICICI, miner Vedanta and Tata Motors’ Jaguar Land Rover car unit have raised more than $4bn in the overseas bond markets.
Bharti Airtel, India’s largest mobile phone operator by subscribers, has asked banks to co-ordinate an overseas bond of up to $1bn. Essar Steel is also believed to be eyeing the bond market as are a number of Indian lenders.
The companies have been encouraged to look overseas after Indian interest rates have risen nine times in the space of a year as Delhi seeks to curb high inflation.
According to figures from Dealogic, the data provider, $5.4bn has already been raised in the overseas sub-investment grade bond market by non-financial Indian companies so far this year, compared with $7.1bn for the whole of 2010.
“The foreign currency markets have started becoming more attractive given the significant rate hikes over the last year,” said Prakash Subramanian, managing director and regional head for capital markets in South Asia. “The foreign currency requirements by Indian corporates have increased and most of the leading Indian banks have been raising foreign currency funds in their offshore centres to cater to this demand.”
Last week Vedanta raised a bigger-than-expected $1.65bn following very strong demand from investors. The bond issue, one of the largest by a non-financial Indian company, was marketed through the US’s private “144a” market, which allows companies to place securities with a wide pool of professional investors or “qualified institutional buyers”. Rule 144a placings offer access to a more liquid market without all the constraints of a publicly marketed transaction.
Amit Sheopuri, co-head of Asia debt origination at Citigroup in Hong Kong, said he expected Indian issuers to be active in the dollar, yen and euro bond markets (the so-called “G3”) in 2011. He said financial institutions were looking to build their offshore balance sheets and businesses.
Indian companies, however, are likely to be selective about their bond issues given the regulatory and tax regimes associated with repatriating money back into the country.
“Subject to the local funding environment, we could see an increase in Indian corporates tapping the offshore G3 markets – both for their offshore and onshore requirements – given the liquidity and pricing efficiencies in the bond markets,” Mr Sheopuri said.
On a global basis India’s overseas corporate bond issuance is still relatively small. Global volumes have reached $499.3bn this year, up from $403.9bn for the same period last year. Asia, excluding Japan and Australia, totals $106.9bn in the year to date, up from the $90.6bn over the same period last year.
Vedanta’s high-yield offering was priced at 6.75 per cent for the five-year, $750m tranche, and at 8.25 per cent for the 10-year, $900m tranche. The issue was co-ordinated by Barclays Capital, Citi, Credit Suisse, Royal Bank of Scotland and Standard Chartered.
The offering will partly finance Vedanta’s acquisition of Cairn Energy’s Indian unit, a $9.6bn deal that is awaiting final approval from the Indian government.
Play safe with commercial property
High returns are a lure for investment in office space, but both loan-to-value and tenures are lower.
Property consultants say sluggish volumes in the residential sector and hardening interest rates have come as a boon for retail investors in office properties.
Today, in Mumbai, investors can own smaller units of space, of 500 to 1,000 sq ft, in Grade A buildings (those centrally air-conditioned and with standard amenities), in contrast to a few years earlier, when only larger units were available, says Ramesh Nair, managing director, West India, Jones Lang LaSalle (JLL), an international property consultant.
"If you look at Lower Parel (in south-central Mumbai), you can own office space for Rs 1.5 crore, which was not possible a couple of years ago,” says Nair. While residential prices are upwards of Rs 20,000 a sq ft, office values are at Rs 15,000 a sq ft in Lower Parel.
Rental yields have also shot up from 9-10 per cent to 12-15 per cent in the past couple of months, due to increase in interest rates and borrowing costs. Rental yield is the amount of money an owner receives in rent over the course of a year and expressed as a percentage of the amount of money invested in the property.
"If you prefer higher yield and low upside, investment in office properties is a better bet,” says Prakrut Mehta, national director, office and industrial agency, Knight Frank India.
Besides, the advantages of small units are that it is easier to find tenants and the premises can be used for business by their owners if they happen to be of a entrepreneurial bent.
According to JLL, the demand for office space in India will be around 200 million sq ft over the next five years. Post the global financial crisis, the prices across most markets dropped 35-40 per cent and have bottomed out in most markets, offering investors a good opportunity to buy into commercial real estate.
Nair says there is an almost 50 per cent jump in absorption of office space in the past two years.
RISK FACTORS
But retail investors should not forget that the office market was hit hard during the property slowdown of 2008-2009 and the last one to recover from the lull, as companies and financial institutions deferred leasing transactions
“It is a high risk, high return investment segment. Investors should bear this factor in mind,” says Mehta of Knight Frank.
High vacancy levels are also one of the risks associated with investing in office properties.
According to JLL estimates, vacancy levels in office properties across the country have risen from two to three per cent to 18-19 per cent due to increased supply over the years.
“Investors need to study the demand and supply dynamics in a particular location where they are investing. If they do not engage in sufficient research, they may end up buying into micro markets which have or will have high vacancies,” Nair adds.
There is also a restriction on bank funding. Banks lend only up to 60 per cent of the loan to value ratio to buy commercial properties, subject to the borrower’s adequate net worth and established ability to repay. Again, the loans are given subject to a maximum of seven years.
"Your equity contribution is higher and tenure is fixed. You have to tackle these two issues,” says Mehta.
Investors also need to check developer credentials, potential for infrastructure development and quality of project management before deciding.
Property consultants say sluggish volumes in the residential sector and hardening interest rates have come as a boon for retail investors in office properties.
Today, in Mumbai, investors can own smaller units of space, of 500 to 1,000 sq ft, in Grade A buildings (those centrally air-conditioned and with standard amenities), in contrast to a few years earlier, when only larger units were available, says Ramesh Nair, managing director, West India, Jones Lang LaSalle (JLL), an international property consultant.
"If you look at Lower Parel (in south-central Mumbai), you can own office space for Rs 1.5 crore, which was not possible a couple of years ago,” says Nair. While residential prices are upwards of Rs 20,000 a sq ft, office values are at Rs 15,000 a sq ft in Lower Parel.
Rental yields have also shot up from 9-10 per cent to 12-15 per cent in the past couple of months, due to increase in interest rates and borrowing costs. Rental yield is the amount of money an owner receives in rent over the course of a year and expressed as a percentage of the amount of money invested in the property.
"If you prefer higher yield and low upside, investment in office properties is a better bet,” says Prakrut Mehta, national director, office and industrial agency, Knight Frank India.
Besides, the advantages of small units are that it is easier to find tenants and the premises can be used for business by their owners if they happen to be of a entrepreneurial bent.
According to JLL, the demand for office space in India will be around 200 million sq ft over the next five years. Post the global financial crisis, the prices across most markets dropped 35-40 per cent and have bottomed out in most markets, offering investors a good opportunity to buy into commercial real estate.
Nair says there is an almost 50 per cent jump in absorption of office space in the past two years.
RISK FACTORS
But retail investors should not forget that the office market was hit hard during the property slowdown of 2008-2009 and the last one to recover from the lull, as companies and financial institutions deferred leasing transactions
“It is a high risk, high return investment segment. Investors should bear this factor in mind,” says Mehta of Knight Frank.
High vacancy levels are also one of the risks associated with investing in office properties.
According to JLL estimates, vacancy levels in office properties across the country have risen from two to three per cent to 18-19 per cent due to increased supply over the years.
“Investors need to study the demand and supply dynamics in a particular location where they are investing. If they do not engage in sufficient research, they may end up buying into micro markets which have or will have high vacancies,” Nair adds.
There is also a restriction on bank funding. Banks lend only up to 60 per cent of the loan to value ratio to buy commercial properties, subject to the borrower’s adequate net worth and established ability to repay. Again, the loans are given subject to a maximum of seven years.
"Your equity contribution is higher and tenure is fixed. You have to tackle these two issues,” says Mehta.
Investors also need to check developer credentials, potential for infrastructure development and quality of project management before deciding.
Global cues drag markets
The markets opened in the red in line with the Asian markets due to the global sell off triggered by the US markets.As suggested by the SGX Nifty, the CNX Nifty started down 62 points at 5,529 and the Sensex lost 202 points to start at 18,404.However, the broader markets have started better with the smallcap index down 0.6% outperforming the Sensex which shed 1% while the midcap index lost 0.9% in the opening trades.
Among the sectoral indices, only FMCG index which gained nearly 0.3% is the only index which started in the positive. Meanwhile, rate sensitives, Realty and Bankex, down 1.5% each are leading the losses. The movers in the FMCG space are Hindustan Unilever up 1%, Dabur India and ITC gaining 0.5% and 0.2% respectively.
In the US markets, the Standard & Poor's 500 index, like other major Wall Street indices, fell more than 2%, its biggest drop since August 11. Growth in the U.S. manufacturing sector slowed sharply in May, with the Institute for Supply Management's index of national factory activity falling to its lowest level since September 2009. The sudden spill in U.S. stocks sent investors scurrying to the liquidity of the U.S. government bond market and sent the benchmark 10-year yield below 3 percent.
Taking cues from developments overnight, the Asian markets too started in the negative. The top losers among the indices aare Hang Seng and Nikkei losing 1.5% each.Political uncertainty also loomed over Tokyo, with a former prime minister joining the swelling ranks of ruling party rebels trying to oust Prime Minister Naoto Kan, raising the risk that a no-confidence vote will pass in parliament on Thursday forcing him to quit.
Among individual stocks, Cipla is the top gainer in the opening trades, gaining nearly 2% followed by Hero Honda, Bharti Airtel and ONGC gaining between 0.4-1%
The losers among the Sensex-30 stocks in the starting trades are ICICI Bank, Tata Motors and DLF down 2% each followed by Maruti Suzuki, Mahindra & Mahindra, Jaiprakash Associates, Tata Steel and L&T which lost 1% each.
The market breadth is negative.Of the total 1720 stocks traded on the BSE, 1101 stocks declined while 556 advanced.
Among the sectoral indices, only FMCG index which gained nearly 0.3% is the only index which started in the positive. Meanwhile, rate sensitives, Realty and Bankex, down 1.5% each are leading the losses. The movers in the FMCG space are Hindustan Unilever up 1%, Dabur India and ITC gaining 0.5% and 0.2% respectively.
In the US markets, the Standard & Poor's 500 index, like other major Wall Street indices, fell more than 2%, its biggest drop since August 11. Growth in the U.S. manufacturing sector slowed sharply in May, with the Institute for Supply Management's index of national factory activity falling to its lowest level since September 2009. The sudden spill in U.S. stocks sent investors scurrying to the liquidity of the U.S. government bond market and sent the benchmark 10-year yield below 3 percent.
Taking cues from developments overnight, the Asian markets too started in the negative. The top losers among the indices aare Hang Seng and Nikkei losing 1.5% each.Political uncertainty also loomed over Tokyo, with a former prime minister joining the swelling ranks of ruling party rebels trying to oust Prime Minister Naoto Kan, raising the risk that a no-confidence vote will pass in parliament on Thursday forcing him to quit.
Among individual stocks, Cipla is the top gainer in the opening trades, gaining nearly 2% followed by Hero Honda, Bharti Airtel and ONGC gaining between 0.4-1%
The losers among the Sensex-30 stocks in the starting trades are ICICI Bank, Tata Motors and DLF down 2% each followed by Maruti Suzuki, Mahindra & Mahindra, Jaiprakash Associates, Tata Steel and L&T which lost 1% each.
The market breadth is negative.Of the total 1720 stocks traded on the BSE, 1101 stocks declined while 556 advanced.
A breakout below 5350 can trigger a fall to 5200 levels
Nifty closed at 5592 with a gain of 32 points and the June future was quoting at a discount of three points. After closing the May expiry down by 6.5%, Nifty has been trading higher. It has moved up 3.3% in the past four days. Nifty has a strong resistance at 5640 (50-day SMA) and 5750 (200-day SMA).
The rise in the markets is broad-based, with all the sectors and stocks performing after expiry in the past four trading sessions. Banking, real estate and pharma sectors have outperformed while auto, capital goods and IT services have underperformed compared to Nifty. India VIX has also corrected to 16.7 from 20 levels.
The futures added nearly 12% in Nifty open interest (OI), while there is a gradual increase in puts OI from 5400 to 5200 levels, while calls OI has been in line with the market. In the Nifty June series, the highest call OI is at 5800 strike with 6.5 million shares and the highest put OI is at 5400 strike with 6.9.million shares.
Given the current 21 trading sessions to expiry, with the Nifty up by 3.3% in the first four days, IVs being very low, we would recommend buying options instead of selling options at the current IV. As the markets have bounced back from 5350 levels twice in the past three months, a breakout below 5350 will trigger a fall to 5200 levels. We recommend a long put of 5400 strike price to hedge your portfolio by paying a premium of 37.
Buy Tata Motors for a bull-call spread strategy at 1100 CE at 32 and sell 1150 CE at 16. The stock has corrected after results, it has strong multiple supports at 1050 levels, we would recommend a bull spread strategy by buying 1100 CE at 30 and selling 1150 CE at 15. The maximum holding period for the strategy will be 10 trading sessions.
The rise in the markets is broad-based, with all the sectors and stocks performing after expiry in the past four trading sessions. Banking, real estate and pharma sectors have outperformed while auto, capital goods and IT services have underperformed compared to Nifty. India VIX has also corrected to 16.7 from 20 levels.
The futures added nearly 12% in Nifty open interest (OI), while there is a gradual increase in puts OI from 5400 to 5200 levels, while calls OI has been in line with the market. In the Nifty June series, the highest call OI is at 5800 strike with 6.5 million shares and the highest put OI is at 5400 strike with 6.9.million shares.
Given the current 21 trading sessions to expiry, with the Nifty up by 3.3% in the first four days, IVs being very low, we would recommend buying options instead of selling options at the current IV. As the markets have bounced back from 5350 levels twice in the past three months, a breakout below 5350 will trigger a fall to 5200 levels. We recommend a long put of 5400 strike price to hedge your portfolio by paying a premium of 37.
Buy Tata Motors for a bull-call spread strategy at 1100 CE at 32 and sell 1150 CE at 16. The stock has corrected after results, it has strong multiple supports at 1050 levels, we would recommend a bull spread strategy by buying 1100 CE at 30 and selling 1150 CE at 15. The maximum holding period for the strategy will be 10 trading sessions.
Pension liabilities force JP Morgan to cut price targets of PSU banks by 10%
MUMBAI: JP Morgan cut price targets for state-run banks by as much as 10% as their pension liabilities may be many times what the market has currently factored in. It downgraded Bank of India to underweight from neutral.
"Optimistic wage inflation and mortality assumptions raise the risk of future provisions, and enhanced funding of plans threaten NIMs," analysts including Seshadri Sen at JPMorgan wrote in a report. "Pensions are putting pressure on PSU banks' poor cost-efficiencies and hampering competitiveness. Cheap valuations discount this only partially - prospects of negative surprises.''
Many analysts and investors are turning negative on banks mainly due to rising interest rates that could lead to higher bad loans. For state-run banks, the pension liabilities could be bigger. State Bank of India shocked the market with a 99% drop in earnings in the fourth quarter of last fiscal, partly due to such provisions. The BSE Bankex has fallen nearly 7% since January while the benchmark Sensex fell 10% during the same period.
"We think the current assumptions ignore the impact of the bi-decadal wage increases from collective bargaining, probably because it's not a certainty" said Sen. The agreement with the unions expires in Sep 2012, and another lumpy provision is likely in FY14. PSU banks and unions renegotiate wages every five years - wages expanded by 18% during the previous settlement for 2007-12. The report also says, with non-pension benefits (post-retiral medical, for one) adding to the pressures, the recent pension changes have blunted the cost efficiencies. "We estimate pension liabilities to expand at 20% against the discount unwind of 8%, with the risk of periodic capital shocks."
The provisions will be uneven, and we estimate that obligations will have to rise by 20% per annum for the next five years to adjust to realistic assumptions. Also, the provisions for state-owned lenders have risen consistently for the past seven quarters as they are migrating to a more stringent computer-based system of identifying bad loans and have set aside more money for restructured loans. PSU banks are more at risk because of their comparatively high exposure to small agriculture loans below 50 lakh which can register as NPAs if not repaid for more than 90 days.
"Optimistic wage inflation and mortality assumptions raise the risk of future provisions, and enhanced funding of plans threaten NIMs," analysts including Seshadri Sen at JPMorgan wrote in a report. "Pensions are putting pressure on PSU banks' poor cost-efficiencies and hampering competitiveness. Cheap valuations discount this only partially - prospects of negative surprises.''
Many analysts and investors are turning negative on banks mainly due to rising interest rates that could lead to higher bad loans. For state-run banks, the pension liabilities could be bigger. State Bank of India shocked the market with a 99% drop in earnings in the fourth quarter of last fiscal, partly due to such provisions. The BSE Bankex has fallen nearly 7% since January while the benchmark Sensex fell 10% during the same period.
"We think the current assumptions ignore the impact of the bi-decadal wage increases from collective bargaining, probably because it's not a certainty" said Sen. The agreement with the unions expires in Sep 2012, and another lumpy provision is likely in FY14. PSU banks and unions renegotiate wages every five years - wages expanded by 18% during the previous settlement for 2007-12. The report also says, with non-pension benefits (post-retiral medical, for one) adding to the pressures, the recent pension changes have blunted the cost efficiencies. "We estimate pension liabilities to expand at 20% against the discount unwind of 8%, with the risk of periodic capital shocks."
The provisions will be uneven, and we estimate that obligations will have to rise by 20% per annum for the next five years to adjust to realistic assumptions. Also, the provisions for state-owned lenders have risen consistently for the past seven quarters as they are migrating to a more stringent computer-based system of identifying bad loans and have set aside more money for restructured loans. PSU banks are more at risk because of their comparatively high exposure to small agriculture loans below 50 lakh which can register as NPAs if not repaid for more than 90 days.
States to get funds for road upgrade
NEW DELHI: The Centre and state governments have agreed on a new funding model for national highways that are built and maintained by state government agencies. The new scheme involves development of road on a BOT (build-operate-transfer ) basis instead of the earlier system of cash contracts. Under the new model, viability gap funding (VGF) will be provided by the Centre for stretches that are financially unviable.
As per the policy, government can give up to 40% of the project cost in the form of VGF for all national highway projects undertaken on BOT mode, a senior highways ministry official said. The model has been worked out after some state governments such as Madhya Pradesh , Rajasthan and Punjab claimed that they could also implement the highway development programme on the model adopted by NHAI. They had suggested that the projects could be tendered via the BOT route and for that, the VGF amount should come from the Centre.
"The state governments will tender the projects and supervise the work, though they have to follow all central government norms," the official said. Two projects totalling about 200 km with an investment of Rs 1,376 crore, will be implemented by the M government . Four other projects in Rajasthan and one in Punjab have also got in-principle clearance.
As per the policy, government can give up to 40% of the project cost in the form of VGF for all national highway projects undertaken on BOT mode, a senior highways ministry official said. The model has been worked out after some state governments such as Madhya Pradesh , Rajasthan and Punjab claimed that they could also implement the highway development programme on the model adopted by NHAI. They had suggested that the projects could be tendered via the BOT route and for that, the VGF amount should come from the Centre.
"The state governments will tender the projects and supervise the work, though they have to follow all central government norms," the official said. Two projects totalling about 200 km with an investment of Rs 1,376 crore, will be implemented by the M government . Four other projects in Rajasthan and one in Punjab have also got in-principle clearance.
Tuesday, May 31, 2011
Indian growth slows for fifth quarter
By Amy Kazmin in New Delhi
Published: May 31 2011 09:58 | Last updated: May 31 2011 09:58
India’s economic growth slowed for the fifth consecutive quarter as rising interest rates and paralysis in the scandal-plagued government curbed company investment.
The economy grew more slowly than expected – 7.8 per cent in the fourth quarter of the April to March financial year – and at its slowest pace for five quarters.
For the full 2010-11 financial year, India’s growth was 8.5 per cent, just below the 8.6 per cent government prediction, but up from the 8 per cent annual growth it had registered to March 2010.
Investment growth for the year was a 0.4 per cent, evidence that companies are feeling the pinch from steadily rising interest rates – as the government battles to control persistently high inflation – as well as numerous bottlenecks delaying projects.
For much of the past six months, the Congress-led government had been distracted by the telecoms spectrum scandal and concerns about approaching state assembly elections, while policymaking, and project approvals, had almost halted.
Sonal Verma, India economist for Nomura, said: “Interest rates have been going up, so that is perhaps deterring companies from taking big decisions, but I think it is more policy blockages. Government decision-making has been very slow.”
She said investment could pick up in the second half of the year, if the Congress-led government began to send out the right policy-making signals, but she predicted that the next two quarters would continue to see growth slowing, as stubborn inflation pinched consumer pockets.
“We are starting the year out with clear signs of a slowdown in domestic demand, with inflation going higher,” she said. “That is going to mean the next couple of quarters are going to continue to see a slowdown. Hopefully, the policy paralysis will end and that could have some positive impact.”
However, Montek Singh Ahluwalia, deputy chairman of the planning commission, said he believed India’s economy would still grow between 8 and 8.5 per cent during the current financial year.
He attributed the fourth-quarter slowdown to a statistical “base effect” as the same period last year had registered particularly strong growth of 9.4 per cent.
However, he acknowledged “industry will have to grow much faster,” if growth targets are to be achieved.
From January to March, India’s farm output grew by a robust 7.5 per cent, compared to a meagre 1.1 per cent during the same period last year.
However, manufacturing growth slowed sharply to 5.5 per cent, down from 15.2 per cent last year, while mining grew just 1.7 per cent, compared to 8.7 per cent during the fourth quarter of last year. Companies have complained that problems acquiring land, and environmental clearances, have impeded expansion.
Mr Ahluwalia said that fostering a rebound in investment “should be our main objective” in the coming year.
He said: “If you get a rebound in investment, you can see an acceleration in manufacturing growth. I certainly hope in investment you will see that happening.”
He also said he expected inflation would gradually moderate over the current financial year.
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© Copyright The Financial Times Ltd 2011.
Published: May 31 2011 09:58 | Last updated: May 31 2011 09:58
India’s economic growth slowed for the fifth consecutive quarter as rising interest rates and paralysis in the scandal-plagued government curbed company investment.
The economy grew more slowly than expected – 7.8 per cent in the fourth quarter of the April to March financial year – and at its slowest pace for five quarters.
For the full 2010-11 financial year, India’s growth was 8.5 per cent, just below the 8.6 per cent government prediction, but up from the 8 per cent annual growth it had registered to March 2010.
Investment growth for the year was a 0.4 per cent, evidence that companies are feeling the pinch from steadily rising interest rates – as the government battles to control persistently high inflation – as well as numerous bottlenecks delaying projects.
For much of the past six months, the Congress-led government had been distracted by the telecoms spectrum scandal and concerns about approaching state assembly elections, while policymaking, and project approvals, had almost halted.
Sonal Verma, India economist for Nomura, said: “Interest rates have been going up, so that is perhaps deterring companies from taking big decisions, but I think it is more policy blockages. Government decision-making has been very slow.”
She said investment could pick up in the second half of the year, if the Congress-led government began to send out the right policy-making signals, but she predicted that the next two quarters would continue to see growth slowing, as stubborn inflation pinched consumer pockets.
“We are starting the year out with clear signs of a slowdown in domestic demand, with inflation going higher,” she said. “That is going to mean the next couple of quarters are going to continue to see a slowdown. Hopefully, the policy paralysis will end and that could have some positive impact.”
However, Montek Singh Ahluwalia, deputy chairman of the planning commission, said he believed India’s economy would still grow between 8 and 8.5 per cent during the current financial year.
He attributed the fourth-quarter slowdown to a statistical “base effect” as the same period last year had registered particularly strong growth of 9.4 per cent.
However, he acknowledged “industry will have to grow much faster,” if growth targets are to be achieved.
From January to March, India’s farm output grew by a robust 7.5 per cent, compared to a meagre 1.1 per cent during the same period last year.
However, manufacturing growth slowed sharply to 5.5 per cent, down from 15.2 per cent last year, while mining grew just 1.7 per cent, compared to 8.7 per cent during the fourth quarter of last year. Companies have complained that problems acquiring land, and environmental clearances, have impeded expansion.
Mr Ahluwalia said that fostering a rebound in investment “should be our main objective” in the coming year.
He said: “If you get a rebound in investment, you can see an acceleration in manufacturing growth. I certainly hope in investment you will see that happening.”
He also said he expected inflation would gradually moderate over the current financial 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.
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Monday, May 30, 2011
RTL and Reliance Broadcast form India venture
RTL has unveiled an alliance with Anil Ambani’s Reliance Broadcast Network as the pan-European broadcaster dips its toe into Asia at a time when growth in its core markets is flagging.
The European group, which said in March that it was looking to secure a deal with a local partner in India, said the two had agreed to form a new joint venture company that would initially produce two English language channels.
One would be a reality channel, the other an action channel. It would aim to launch other thematic channels in India over time. The move will help Reliance Broadcast, which already has a joint venture with CBS Studios operating three English language channels, expand its portfolio of international content and compete with Rupert Murdoch’s Star India and Zee Entertainment.
Reliance Broadcast owns India’s largest FM radio network and recently launched BIG Magic, an entertainment channel aimed at India’s Hindi population. It also owns an outdoor advertising and live entertainment business.
RTL’s first-quarter results earlier this month, meanwhile, underlined the challenge facing western European free-to-air broadcasters at a time when the outlook for TV advertising remains uncertain. RTL reported a 21 per cent fall in operating profits to €181m ($258m) on sales down 1.7 per cent at €1.2bn.
India is set to overtake the US as one of the largest direct-to-home satellite markets by 2012 and is predicted to overtake China as the largest pay-TV advertising market in Asia by 2017 with $5.6bn in net revenues. However, margins across the Indian pay-TV market are among the lowest of any emerging market because of rising costs, competition and reliance on legacy analogue networks.
Shares in RCom, Mr Ambani’s telecoms group, have been under pressure in the past year amid investor concerns over its debts.
The European group, which said in March that it was looking to secure a deal with a local partner in India, said the two had agreed to form a new joint venture company that would initially produce two English language channels.
One would be a reality channel, the other an action channel. It would aim to launch other thematic channels in India over time. The move will help Reliance Broadcast, which already has a joint venture with CBS Studios operating three English language channels, expand its portfolio of international content and compete with Rupert Murdoch’s Star India and Zee Entertainment.
Reliance Broadcast owns India’s largest FM radio network and recently launched BIG Magic, an entertainment channel aimed at India’s Hindi population. It also owns an outdoor advertising and live entertainment business.
RTL’s first-quarter results earlier this month, meanwhile, underlined the challenge facing western European free-to-air broadcasters at a time when the outlook for TV advertising remains uncertain. RTL reported a 21 per cent fall in operating profits to €181m ($258m) on sales down 1.7 per cent at €1.2bn.
India is set to overtake the US as one of the largest direct-to-home satellite markets by 2012 and is predicted to overtake China as the largest pay-TV advertising market in Asia by 2017 with $5.6bn in net revenues. However, margins across the Indian pay-TV market are among the lowest of any emerging market because of rising costs, competition and reliance on legacy analogue networks.
Shares in RCom, Mr Ambani’s telecoms group, have been under pressure in the past year amid investor concerns over its debts.
Basketball aims for slam dunk in India
The National Basketball Association is targeting India with an aggressive marketing push as it seeks to replicate its success in China, which has become the league’s largest foreign market.
The NBA will announce a partnership with Times Group, India’s largest media company, on Tuesday for a new section on the Times of India website that will feature news about the league for 12m readers per month.
The collaboration comes as the NBA Finals begin on Tueseday night with a marquee matchup between the Dallas Mavericks and the Miami Heat, led by superstar Lebron James. Indian journalists from the Times Group will travel to the US for the games and file reports back for fans in their home country.
The NBA Finals will also be broadcast live in India on Ten Sports, part of the league’s inaugural sale of television rights to the country of 1.15bn people.
Making basketball appeal to a global audience has become a priority for the NBA. The game, invented in Massachusetts in 1891, has become an Olympic sport and inspired leagues around the world, but remains most popular in the US, where the NBA generates about $4bn in annual revenues.
International income makes up 10 per cent of the NBA’s revenues, thanks in large part to its 20-year push in China, where it has become a cultural fixture, and a lucrative business, with sales of jerseys, broadcast rights and the development of sports arenas.
“There’s a market similarity if you take a fan in Shanghai, a fan in Barcelona and a fan in New York in terms of how they love the game,” said Heidi Ueberroth, president of the NBA’s international operations.
The league also seeks to emphasise its multinational roster, with 86 non-US players from 40 different countries, including several playing in the Finals. “They’re impact players and all-star players,” said Ms Ueberroth.
While basketball’s popularity in China was aided by the success of Yao Ming, the 7ft 6ins (2.29 metres) player for the Houston Rockets, no Indian national has played in the NBA.
Moreover, India is notoriously mad about cricket. “You have to have a grassroots component, it can’t just be marketing,” said David Rogers, executive director of Columbia Business School’s Center on Global Brand Leadership.
The NBA has sent superstars such as the Orlando Magic’s Dwight Howard to India to train the national team and work with teams from the Mahindra NBA Challenge, a community league the NBA help set up in Indian cities. It has also sent “basketball in a box” kits to 500 schools, in the hope of cultivating a new generation of fans, despite the intense heat which limits schools’ participation.
The NBA will announce a partnership with Times Group, India’s largest media company, on Tuesday for a new section on the Times of India website that will feature news about the league for 12m readers per month.
The collaboration comes as the NBA Finals begin on Tueseday night with a marquee matchup between the Dallas Mavericks and the Miami Heat, led by superstar Lebron James. Indian journalists from the Times Group will travel to the US for the games and file reports back for fans in their home country.
The NBA Finals will also be broadcast live in India on Ten Sports, part of the league’s inaugural sale of television rights to the country of 1.15bn people.
Making basketball appeal to a global audience has become a priority for the NBA. The game, invented in Massachusetts in 1891, has become an Olympic sport and inspired leagues around the world, but remains most popular in the US, where the NBA generates about $4bn in annual revenues.
International income makes up 10 per cent of the NBA’s revenues, thanks in large part to its 20-year push in China, where it has become a cultural fixture, and a lucrative business, with sales of jerseys, broadcast rights and the development of sports arenas.
“There’s a market similarity if you take a fan in Shanghai, a fan in Barcelona and a fan in New York in terms of how they love the game,” said Heidi Ueberroth, president of the NBA’s international operations.
The league also seeks to emphasise its multinational roster, with 86 non-US players from 40 different countries, including several playing in the Finals. “They’re impact players and all-star players,” said Ms Ueberroth.
While basketball’s popularity in China was aided by the success of Yao Ming, the 7ft 6ins (2.29 metres) player for the Houston Rockets, no Indian national has played in the NBA.
Moreover, India is notoriously mad about cricket. “You have to have a grassroots component, it can’t just be marketing,” said David Rogers, executive director of Columbia Business School’s Center on Global Brand Leadership.
The NBA has sent superstars such as the Orlando Magic’s Dwight Howard to India to train the national team and work with teams from the Mahindra NBA Challenge, a community league the NBA help set up in Indian cities. It has also sent “basketball in a box” kits to 500 schools, in the hope of cultivating a new generation of fans, despite the intense heat which limits schools’ participation.
LIC to offer UIDs to 40 mn policyholders this year
To issue biometric cards to 50 million people every year for the next four years.
Unique Identification Authority of India’s (UIDAI) plan to offer a unique identification number (UID) to every resident Indian is slated to get a fillip, with the country’s largest life insurer — Life Insurance Corporation of India (LIC) — saying it is ready to offer unique identification cards to its policyholders.
About a year ago, LIC had signed an agreement with UIDAI to share its database of over 200 million policyholders with the government agency and issue biometric cards to these policyholders. LIC was the first institutional partner in the Aadhaar project, a national project aimed at building a secure, reliable and centralised repository of data.
However, till recently, the progress was slow, since the insurer was scouting for technology partners to make the biometric cards. Till date, LIC has issued 30,000 cards to policyholders on a pilot basis. “We have roped in CMC as the technology partner for the project. The national roll-out will happen very soon now,” said LIC Managing Director A K Dasgupta.
Senior LIC officials said the insurer planned to issue biometric cards to 50 million people every year for the next four years. The insurer has set a target of issuing 40 million cards this year, the cost for which is estimated at Rs 200 crore, or Rs 50 per card.
LIC also expects to expand its business through the Aadhaar project, especially in rural areas. “Through this project, LIC would be able to tap a greater number of people in rural areas. Since this card will act as a proof of identity, it would be much easier for us to fulfil the know-your-customer requirements. We will also be able to revisit our policyholders through this process. This would allow us to upgrade our existing records and expand business further,” Dasgupta said. LIC aims to become the largest issuer of Aadhaar cards in the coming years, since its clients outnumber members of other government agencies like Employees’ Provident Fund Organisation, which has 42 million employees as its members.
LIC would initially issue biometric Aadhaar cards to its own policyholders and then gradually, expand the issuance to individuals who don’t hold LIC policies. “Besides existing policyholders, we would also issue cards to their family and friends. This gives us an opportunity to expand our policyholder base,” said a senior LIC official.
The unique identification project was conceived by the Planning Commission as an initiative to provide identification to resident Indians. This would provide a basis for efficient delivery of welfare services. Nandan Nilekani, co-founder of Infosys Technologies, heads the project.
UIDAI is currently reported to be issuing 100,000 cards a day. The first Aadhaar card was issued in September 2010 to a tribal woman, Ranjna Sadashiv Sonwane, from Tembhali village in Nandurbar, Maharashtra.
Unique Identification Authority of India’s (UIDAI) plan to offer a unique identification number (UID) to every resident Indian is slated to get a fillip, with the country’s largest life insurer — Life Insurance Corporation of India (LIC) — saying it is ready to offer unique identification cards to its policyholders.
About a year ago, LIC had signed an agreement with UIDAI to share its database of over 200 million policyholders with the government agency and issue biometric cards to these policyholders. LIC was the first institutional partner in the Aadhaar project, a national project aimed at building a secure, reliable and centralised repository of data.
However, till recently, the progress was slow, since the insurer was scouting for technology partners to make the biometric cards. Till date, LIC has issued 30,000 cards to policyholders on a pilot basis. “We have roped in CMC as the technology partner for the project. The national roll-out will happen very soon now,” said LIC Managing Director A K Dasgupta.
Senior LIC officials said the insurer planned to issue biometric cards to 50 million people every year for the next four years. The insurer has set a target of issuing 40 million cards this year, the cost for which is estimated at Rs 200 crore, or Rs 50 per card.
LIC also expects to expand its business through the Aadhaar project, especially in rural areas. “Through this project, LIC would be able to tap a greater number of people in rural areas. Since this card will act as a proof of identity, it would be much easier for us to fulfil the know-your-customer requirements. We will also be able to revisit our policyholders through this process. This would allow us to upgrade our existing records and expand business further,” Dasgupta said. LIC aims to become the largest issuer of Aadhaar cards in the coming years, since its clients outnumber members of other government agencies like Employees’ Provident Fund Organisation, which has 42 million employees as its members.
LIC would initially issue biometric Aadhaar cards to its own policyholders and then gradually, expand the issuance to individuals who don’t hold LIC policies. “Besides existing policyholders, we would also issue cards to their family and friends. This gives us an opportunity to expand our policyholder base,” said a senior LIC official.
The unique identification project was conceived by the Planning Commission as an initiative to provide identification to resident Indians. This would provide a basis for efficient delivery of welfare services. Nandan Nilekani, co-founder of Infosys Technologies, heads the project.
UIDAI is currently reported to be issuing 100,000 cards a day. The first Aadhaar card was issued in September 2010 to a tribal woman, Ranjna Sadashiv Sonwane, from Tembhali village in Nandurbar, Maharashtra.
Markets open higher, RCom and ONGC slip
Markets edged higher in opening trades tracking positive cues from Asia and gains in banking shares. The S&P CNX Nifty was up 23 points, at 18,322 and the Sensex advanced 90 points, at 18,326.
Among individual stocks RCom (Reliance Communication) and ONGC (Oil & Natural Gas Corporation) declined after they reported a sharp drop in quarterly profit. RCom fell 1.2% to Rs 87 after annual net profit slumped 71% to four year low, at Rs 1,346 crore on account of larger than expcted depreciation, higher tax outgo and interest costs of Rs 2,200 crore. ONGC declined 2% to Rs 272 after fourth quarter net profit fell 26% at Rs 2,791 crore due to rise inthe subsidy burden which offset profits from higher oil & gas prices.
Analysts expect markets to remain volatile ahead of the fourth quarter GDP data.According to the Reuters poll March quarter growth is seen around 8.2% y-o-y unchanged from the previous quarter.
Going forward markets may remain in absence of any fresh cues. Technical Analyst Devangshu Datta said, “The short term trend has consolidated slightly, but the intermediate and long term trend appears to be down.”Datta said the Nifty is holding above support of 5,400 and is testing resistance above 5,500.
Across Asia markets were trading higher on Tuesday Morning. Japan’s Nikkei Stock Average was up 1.2% after industrial production bounced back in April, up 1% after the output fell 15.3% in March. Hong Kong's Hang Seng extended gains spurred by financial, commodity and power utility shares. China’s Shanghai Composite was also up 0.2%.
BSE Realty shares were on the firm ground, the index was up 1.3%. Top gainers were Orbit Corporation, up 2.7%, Anant Raj Industries advanced 2.4% and Ackruti City gained 2.1%.
BSE Oil & Gas shares were laggard in trade, down 0.1% dragged by ONGC, down 2% and Cairn India, down 0.2%.
From the broader markets, the midcap and the smallcap indices were up 0.6% each.
Top gainers on the Sensex were DLF, up 2%, Wipro advanced 1.5% and HDFC added 1.2%. Among the losere were Mahindra & Mahindra, down 1.4%, Hindalco fell 0.7% and Cipla slipped 0.5%.
Market breadth was positive, 1020 stocks advanced for 420 stocks which declined.
Among individual stocks RCom (Reliance Communication) and ONGC (Oil & Natural Gas Corporation) declined after they reported a sharp drop in quarterly profit. RCom fell 1.2% to Rs 87 after annual net profit slumped 71% to four year low, at Rs 1,346 crore on account of larger than expcted depreciation, higher tax outgo and interest costs of Rs 2,200 crore. ONGC declined 2% to Rs 272 after fourth quarter net profit fell 26% at Rs 2,791 crore due to rise inthe subsidy burden which offset profits from higher oil & gas prices.
Analysts expect markets to remain volatile ahead of the fourth quarter GDP data.According to the Reuters poll March quarter growth is seen around 8.2% y-o-y unchanged from the previous quarter.
Going forward markets may remain in absence of any fresh cues. Technical Analyst Devangshu Datta said, “The short term trend has consolidated slightly, but the intermediate and long term trend appears to be down.”Datta said the Nifty is holding above support of 5,400 and is testing resistance above 5,500.
Across Asia markets were trading higher on Tuesday Morning. Japan’s Nikkei Stock Average was up 1.2% after industrial production bounced back in April, up 1% after the output fell 15.3% in March. Hong Kong's Hang Seng extended gains spurred by financial, commodity and power utility shares. China’s Shanghai Composite was also up 0.2%.
BSE Realty shares were on the firm ground, the index was up 1.3%. Top gainers were Orbit Corporation, up 2.7%, Anant Raj Industries advanced 2.4% and Ackruti City gained 2.1%.
BSE Oil & Gas shares were laggard in trade, down 0.1% dragged by ONGC, down 2% and Cairn India, down 0.2%.
From the broader markets, the midcap and the smallcap indices were up 0.6% each.
Top gainers on the Sensex were DLF, up 2%, Wipro advanced 1.5% and HDFC added 1.2%. Among the losere were Mahindra & Mahindra, down 1.4%, Hindalco fell 0.7% and Cipla slipped 0.5%.
Market breadth was positive, 1020 stocks advanced for 420 stocks which declined.
Reliance Communications to live with high debt for a few quarters more; stock down
Reliance Communications' fourth quarter earnings, announced after market hours on Monday, will fail to offer solace to investors who have seen the stock beaten down on the bourses over the past two years amid intensifying tariff war and high debt. Its debt stood at more than Rs 32,000 crore at the end of March. What offers some comfort to investors is the Rs 8,700-crore loan facility that R-Comm signed with China Development Bank. The company completed drawing down of Rs 6,000 crore towards refinancing of 3G spectrum fees on Friday.
Refinancing short-term rupee borrowings will result in substantial interest costs savings of almost 500 crore per year. Besides, its debt maturity profile has increased up to 10 years. Following the announcement on Friday, the stock, which had fallen nearly 16% over the past one month, rose about 6% to 85.
The company plans to raise the balance Rs 2,700 crore over the next few months and utilise the money to import telecom equipments. R-Comm reported 71% quarter-on-quarter jump in revenue in January-March to Rs 7,876 crore, after posting fall in revenues over the past few quarters. However, net profit fell 65% sequentially to 167 crore during the quarter due to lower earnings across segments including wireless, global and broadband.
Its wireless business continues to report fall in average revenue per user (ARPU) and minutes of usage (MoU) despite growing customer base. During the quarter, the company reported 21% sequential rise in net customer addition in wireless business. However, MoU fell 4% sequentially to 241 per minute per subscriber. ARPU dropped 3.6% to 107 during the period. According to latest data from telecom regulator Trai, R-Comm had the least number of active subscribers in the quarter compared with peers. High debt burden and interest cost are concerns for the coming quarters.
At 9:33 am, shares of Reliance Communications were trading 1.37 per cent down at Rs 86.30 on the Bombay Stock Exchange .
Refinancing short-term rupee borrowings will result in substantial interest costs savings of almost 500 crore per year. Besides, its debt maturity profile has increased up to 10 years. Following the announcement on Friday, the stock, which had fallen nearly 16% over the past one month, rose about 6% to 85.
The company plans to raise the balance Rs 2,700 crore over the next few months and utilise the money to import telecom equipments. R-Comm reported 71% quarter-on-quarter jump in revenue in January-March to Rs 7,876 crore, after posting fall in revenues over the past few quarters. However, net profit fell 65% sequentially to 167 crore during the quarter due to lower earnings across segments including wireless, global and broadband.
Its wireless business continues to report fall in average revenue per user (ARPU) and minutes of usage (MoU) despite growing customer base. During the quarter, the company reported 21% sequential rise in net customer addition in wireless business. However, MoU fell 4% sequentially to 241 per minute per subscriber. ARPU dropped 3.6% to 107 during the period. According to latest data from telecom regulator Trai, R-Comm had the least number of active subscribers in the quarter compared with peers. High debt burden and interest cost are concerns for the coming quarters.
At 9:33 am, shares of Reliance Communications were trading 1.37 per cent down at Rs 86.30 on the Bombay Stock Exchange .
ONGC: Subsidy burden takes a toll; stock down
Government-owned ONGC reported more than 60% sequential decline in net profit in January-March as it gave away about two-third of its oil revenues to subsidise losses of retailers amid soaring crude prices, reviving memories of fiscal 2008-09 when global crude peaked pushing up subsidies on fuel.
At 9:40 am, shares of ONGC were trading 1.31 per cent down at Rs 274.75 on the Bombay Stock Exchange .
The huge sequential fall in earnings stands in sharp contrast to private sector explorers such as Cairn India, which reported 22% growth in net profit helped by higher prices even though production fell.
ONGC's share in subsidy at Rs 12,135 crore in the fourth quarter was almost equal to the total of past three quarters. This took the total subsidy toll to Rs 24,892 crore for fiscal 2010-11, more than double than previous year.
In January-March, although ONGC earned an average oil price of $108.90 per barrel, it ended up with just $38.75 in hand as the government took away the rest. What remained was nearly 25% below the year-ago period causing a 26% fall in net profit.
State-run fuel retailers sell products such as diesel and cooking gas to end-customers at subsidised rates. The subsidy burden arising from selling the products below market price is shared between retailers, upstream companies, and the government.
The company reported net profit of Rs 2,791 crore in the last quarter driven by higher profits on natural gas, whose prices were revised in fiscal 2010-11, and increasing share of production from joint ventures. As there is no subsidy burden on production from joint ventures, the 60% incremental volumes helped.
Although oil prices have jumped more than five times since 2004-05, ONGC's average profit growth has been a mere 6.5% per annum. The average annual growth in its market capitalisation was just about 4.5%. Every year, the government has taken away a chunk of its profits to pay for losses made by oil marketing companies.
The subsidy sharing mechanism and its value-destructing impact will keep weighing on investor sentiment. The government is expected to divest its stake further in the company in early July.
This could induce the government to introduce some reforms for a better price. Investors, who are otherwise living off the annual dividend payouts, may look forward to a run-up in prices if the follow-on offer materialises.
At 9:40 am, shares of ONGC were trading 1.31 per cent down at Rs 274.75 on the Bombay Stock Exchange .
The huge sequential fall in earnings stands in sharp contrast to private sector explorers such as Cairn India, which reported 22% growth in net profit helped by higher prices even though production fell.
ONGC's share in subsidy at Rs 12,135 crore in the fourth quarter was almost equal to the total of past three quarters. This took the total subsidy toll to Rs 24,892 crore for fiscal 2010-11, more than double than previous year.
In January-March, although ONGC earned an average oil price of $108.90 per barrel, it ended up with just $38.75 in hand as the government took away the rest. What remained was nearly 25% below the year-ago period causing a 26% fall in net profit.
State-run fuel retailers sell products such as diesel and cooking gas to end-customers at subsidised rates. The subsidy burden arising from selling the products below market price is shared between retailers, upstream companies, and the government.
The company reported net profit of Rs 2,791 crore in the last quarter driven by higher profits on natural gas, whose prices were revised in fiscal 2010-11, and increasing share of production from joint ventures. As there is no subsidy burden on production from joint ventures, the 60% incremental volumes helped.
Although oil prices have jumped more than five times since 2004-05, ONGC's average profit growth has been a mere 6.5% per annum. The average annual growth in its market capitalisation was just about 4.5%. Every year, the government has taken away a chunk of its profits to pay for losses made by oil marketing companies.
The subsidy sharing mechanism and its value-destructing impact will keep weighing on investor sentiment. The government is expected to divest its stake further in the company in early July.
This could induce the government to introduce some reforms for a better price. Investors, who are otherwise living off the annual dividend payouts, may look forward to a run-up in prices if the follow-on offer materialises.
Sunday, May 29, 2011
Equities edge lower weighed by inflation worries
Indian equities markets edged lower this week as traders were cautious in the wake of high inflation and an expected rate hike by the central bank. The fall could have been more, had it not been for an uptrend on the last two days of this trading week. The 30-scrip sensitive index (Sensex) of the
Bombay Stock Exchange (BSE) closed the week marginally lower at 18,266.1 points, down 0.33 % or 59.99 points, compared to its previous weekly close of 18,326.09 points.
At the National Stock Exchange, the 50-scrip S&P CNX Nifty too closed lower at 5,476.1 points, down 0.18 % compared to the previous Friday close of 5,486.35 points.
Broader market indices closed lower as well, with the BSE midcap index closing 0.39 % down and the BSE smallcap index losing 0.92 %.
Latest data for food inflation showed that the index had risen to 8.55 % for the week ended May 14, the highest level in four weeks.
Inflation based on wholesale prices also continued to reign high and was recorded at 8.66 % in April. The persistent high inflation could lead to another round of hike by the Reserve Bank of India.
On a weekly basis, among the top gainers on the 30-scrip Sensex were: Cipla, up 4 % at Rs.318.25; Tata Steel, up 3.7 % at Rs.585.35; Hero Honda, up 3.5 % at Rs.1,857.50 and Hindalco, up 3.5 % at Rs.197.50.
Major Sensex losers included: BHEL, down 6.5 % at Rs.1,936; Tata Motors, down 5.7 % at Rs.1,088.65; SBI, down 3.4 % at Rs.2,234.50, and TCS, down 2.4 % at Rs.1,141.45.
Asian stocks fell, with some indices registering losses on a weekly basis, not seen in the last two years. Concerns over China's growth slowing down and the European debt crisis were the major reasons for the fall.
The Japanese Nikkei average ended the week 0.89 % lower at 9,521.94 points, while the Shanghai composite index of the Chinese stock exchanges fell 5.2 % at 2,709.95 points.
The Hang Seng of the Hong Kong stock exchange closed 0.35 % lower at 23,118.07 points.
The European stock markets too ended the week in the red, although the losses were cut by a rally on Friday.
Among the European markets, the German DAX closed 1.42 % lower at 7,163.47 points while the French CAC 40 ended 1 % lower at 3,950.98 points. However, Britain's FTSE too moved down 0.16 % at 5,938.87 points.
US markets too closed in the red.
Wall Street closed the week on a weak note with the Dow Jones Industrial Average ending 0.56 % lower at 12,441.58 points, while the S&P 500 moved down 0.16 % at 1,331.1 points.
The technology-heavy Nasdaq ended 0.23 % down at 2,796.86 points.
Bombay Stock Exchange (BSE) closed the week marginally lower at 18,266.1 points, down 0.33 % or 59.99 points, compared to its previous weekly close of 18,326.09 points.
At the National Stock Exchange, the 50-scrip S&P CNX Nifty too closed lower at 5,476.1 points, down 0.18 % compared to the previous Friday close of 5,486.35 points.
Broader market indices closed lower as well, with the BSE midcap index closing 0.39 % down and the BSE smallcap index losing 0.92 %.
Latest data for food inflation showed that the index had risen to 8.55 % for the week ended May 14, the highest level in four weeks.
Inflation based on wholesale prices also continued to reign high and was recorded at 8.66 % in April. The persistent high inflation could lead to another round of hike by the Reserve Bank of India.
On a weekly basis, among the top gainers on the 30-scrip Sensex were: Cipla, up 4 % at Rs.318.25; Tata Steel, up 3.7 % at Rs.585.35; Hero Honda, up 3.5 % at Rs.1,857.50 and Hindalco, up 3.5 % at Rs.197.50.
Major Sensex losers included: BHEL, down 6.5 % at Rs.1,936; Tata Motors, down 5.7 % at Rs.1,088.65; SBI, down 3.4 % at Rs.2,234.50, and TCS, down 2.4 % at Rs.1,141.45.
Asian stocks fell, with some indices registering losses on a weekly basis, not seen in the last two years. Concerns over China's growth slowing down and the European debt crisis were the major reasons for the fall.
The Japanese Nikkei average ended the week 0.89 % lower at 9,521.94 points, while the Shanghai composite index of the Chinese stock exchanges fell 5.2 % at 2,709.95 points.
The Hang Seng of the Hong Kong stock exchange closed 0.35 % lower at 23,118.07 points.
The European stock markets too ended the week in the red, although the losses were cut by a rally on Friday.
Among the European markets, the German DAX closed 1.42 % lower at 7,163.47 points while the French CAC 40 ended 1 % lower at 3,950.98 points. However, Britain's FTSE too moved down 0.16 % at 5,938.87 points.
US markets too closed in the red.
Wall Street closed the week on a weak note with the Dow Jones Industrial Average ending 0.56 % lower at 12,441.58 points, while the S&P 500 moved down 0.16 % at 1,331.1 points.
The technology-heavy Nasdaq ended 0.23 % down at 2,796.86 points.
Asian Currencies Advance as Growth, Interest-Rate Outlook Support Inflows
Asian currencies strengthened, led by the Malaysian ringgit, on speculation the region’s economic growth will attract funds, and policy makers will raise interest rates further to cool inflation.
The Bloomberg-JPMorgan Asia Dollar Index rose for a third day before a report this week that analysts predict will show Malaysia’s exports increased by the most in nine months from a year earlier in April. All 16 economists surveyed by Bloomberg expect the Bank of Thailand to lift borrowing costs on June 1. The Philippines gross domestic product gained 4.9 percent in the first quarter from a year earlier, compared with 6.1 percent in the previous three months, data showed today.
“We can get some stable growth momentum from here, which is supportive of fund inflows,” said Nik M. Khairul, a treasury dealer at Asian Finance Bank Bhd. in Kuala Lumpur. “As for rates, the market could see another round of increases this year.”
The ringgit advanced 0.6 percent to 3.0160 per dollar as of 11:30 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. Taiwan’s dollar climbed 0.4 percent to NT$28.779, Indonesia’s rupiah gained 0.3 percent to 8,548 and South Korea’s won strengthened 0.2 percent to 1,080.25.
Shipments from Malaysia rose 10.7 percent from a year earlier, the most since July 2010, according to the median forecast in a Bloomberg survey before a trade ministry report on June 3. Bank Negara Malaysia raised its policy rate by a quarter of a percentage point to 3 percent on May 5, saying the economy was expected to “remain firmly on a steady growth path.”
Exporters Convert Income
Asia’s developing economies will expand 8.4 percent this year, outpacing growth of 2.8 percent in the U.S. and 1.6 percent in the euro area, according to International Monetary Fund forecasts published last month.
The Taiwan dollar reached a two-week high and the won touched the strongest level in three weeks on speculation exporters were repatriating income to take advantage of favorable exchange rates. U.S. Treasury Department assistant secretary for international finance Charles Collyns said South Korea should let the won appreciate, the Korea Economic Daily reported.
“Exporters are selling dollars to translate their income at the end of the month, pushing up the won,” said Seo Jeong Hun, a currency analyst at Korea Exchange Bank in Seoul. “The comments from the U.S. Treasury official are giving more room for the won to rise.”
Thai Inflation
Thailand’s baht gained to a one-week high before a report on June 1 that will show consumer prices increased by 4.3 percent in May from a year earlier, the most since September 2008, according to economists surveyed by Bloomberg. The currency rose 0.2 percent to 30.32 per dollar.
“Inflation remains on an uptrend in Asia due in part to solid growth,” said Hideki Hayashi, a global economist at Mizuho Securities Co. in Tokyo. “For Thailand, speculation of rate hikes will grow toward the policy meeting and that will put appreciation pressure on the baht this week.”
China’s yuan advanced 0.12 percent to 6.4837 per dollar and touched 6.4834 earlier, the strongest level since 1993. The currency’s reference rate was fixed today at 6.4856 per dollar, the highest level since July 2005.
Elsewhere, the Philippine peso rose 0.2 percent to 43.278 per dollar, according to prices from Tullett Prebon Plc. The Singapore dollar strengthened 0.3 percent to S$1.2337 and India’s rupee gained 0.1 percent to 45.1225.
The Bloomberg-JPMorgan Asia Dollar Index rose for a third day before a report this week that analysts predict will show Malaysia’s exports increased by the most in nine months from a year earlier in April. All 16 economists surveyed by Bloomberg expect the Bank of Thailand to lift borrowing costs on June 1. The Philippines gross domestic product gained 4.9 percent in the first quarter from a year earlier, compared with 6.1 percent in the previous three months, data showed today.
“We can get some stable growth momentum from here, which is supportive of fund inflows,” said Nik M. Khairul, a treasury dealer at Asian Finance Bank Bhd. in Kuala Lumpur. “As for rates, the market could see another round of increases this year.”
The ringgit advanced 0.6 percent to 3.0160 per dollar as of 11:30 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. Taiwan’s dollar climbed 0.4 percent to NT$28.779, Indonesia’s rupiah gained 0.3 percent to 8,548 and South Korea’s won strengthened 0.2 percent to 1,080.25.
Shipments from Malaysia rose 10.7 percent from a year earlier, the most since July 2010, according to the median forecast in a Bloomberg survey before a trade ministry report on June 3. Bank Negara Malaysia raised its policy rate by a quarter of a percentage point to 3 percent on May 5, saying the economy was expected to “remain firmly on a steady growth path.”
Exporters Convert Income
Asia’s developing economies will expand 8.4 percent this year, outpacing growth of 2.8 percent in the U.S. and 1.6 percent in the euro area, according to International Monetary Fund forecasts published last month.
The Taiwan dollar reached a two-week high and the won touched the strongest level in three weeks on speculation exporters were repatriating income to take advantage of favorable exchange rates. U.S. Treasury Department assistant secretary for international finance Charles Collyns said South Korea should let the won appreciate, the Korea Economic Daily reported.
“Exporters are selling dollars to translate their income at the end of the month, pushing up the won,” said Seo Jeong Hun, a currency analyst at Korea Exchange Bank in Seoul. “The comments from the U.S. Treasury official are giving more room for the won to rise.”
Thai Inflation
Thailand’s baht gained to a one-week high before a report on June 1 that will show consumer prices increased by 4.3 percent in May from a year earlier, the most since September 2008, according to economists surveyed by Bloomberg. The currency rose 0.2 percent to 30.32 per dollar.
“Inflation remains on an uptrend in Asia due in part to solid growth,” said Hideki Hayashi, a global economist at Mizuho Securities Co. in Tokyo. “For Thailand, speculation of rate hikes will grow toward the policy meeting and that will put appreciation pressure on the baht this week.”
China’s yuan advanced 0.12 percent to 6.4837 per dollar and touched 6.4834 earlier, the strongest level since 1993. The currency’s reference rate was fixed today at 6.4856 per dollar, the highest level since July 2005.
Elsewhere, the Philippine peso rose 0.2 percent to 43.278 per dollar, according to prices from Tullett Prebon Plc. The Singapore dollar strengthened 0.3 percent to S$1.2337 and India’s rupee gained 0.1 percent to 45.1225.
Air India to spin off key units, shift 18,000 staff
Air India (AI) plans to separate — operationally and financially — its ground handling and engineering units into two separate subsidiaries and transfer 18,000 employees to them from the mothership.
The ‘spinning off’, as it is called in corporate parlance, will mean AI will no longer be paying the expenses of running the two strategic business units or SBUs, as they will be called.
And since both are existing businesses that already generate money, their income will be used to meet expenses such as salaries.
The airline’s long-pending proposal to create these SBUs is yet to get the government’s nod, but once that comes, there will be a saving of almost Rs1,500 crore every year in salaries alone, or 50% of the national carrier’s annual salary bill of Rs3,000 crore.
Sources familiar with the development said AI plans to shift 7,465 employees to the engineering unit and another 10,481 to the ground handling unit. This will take Rs931 crore and Rs600 crore in salary payments, respectively, off the Air India’s books.
The formation of the SBUs will need approval from the Union Cabinet. “We are pushing and want it to happen soon,” one source said.
As per a turnaround plan of AI, which has been vetted by Deloitte Touche & Tohmatsu, the auditing firm and consultant, the airline is expecting a significant reduction in staff expenses in this financial year because of the proposed spinoff.
“The staff number is expected to increase thereafter, in line with increase in volume of operations. The wage rates are also expected to increase 4% every year based on provisions of the agreement,” Deloitte said.
Deloitte has also said that Air India’s staff cost per available seat km or ASKM (a measure of an airline’s passenger carrying capacity; its calculation is seats available x kilometres flown) is projected to decrease gradually from Rs 0.92/ASKM in 2010-11 to Rs0.32 in 2014-15.
“This would imply that Air India’s cost structure would be significantly lower than those of Kingfisher Airlines and Jet Airways over the next 5 years,” Deloitte said.
Meanwhile, Air India is also scouting a global partner for its engineering subsidiary. It already has a ground handling joint venture with Singapore Airport Terminal Services, Air India SATS Airport Services (AISATS).
Its earlier plan to shift staff to AISATS did not fructify because the subsidiary refused to take staff on existing terms and conditions but preferred to hire on contract.
AISATS operates in the Hyderabad, Bangalore and New Delhi airports. Ground handling at all other airports will be handled by the new subsidiary. It will offer services to Air India that will be 50% cheaper compared with what it will charge other airlines.
The engineering unit will also look at getting third-party business from the Rs 2,000 crore Indian maintenance repair and overhaul sector, which is expected to see fast growth in the coming years as more people fly and more planes are used.
The current engineering division only services Air India planes.
The ‘spinning off’, as it is called in corporate parlance, will mean AI will no longer be paying the expenses of running the two strategic business units or SBUs, as they will be called.
And since both are existing businesses that already generate money, their income will be used to meet expenses such as salaries.
The airline’s long-pending proposal to create these SBUs is yet to get the government’s nod, but once that comes, there will be a saving of almost Rs1,500 crore every year in salaries alone, or 50% of the national carrier’s annual salary bill of Rs3,000 crore.
Sources familiar with the development said AI plans to shift 7,465 employees to the engineering unit and another 10,481 to the ground handling unit. This will take Rs931 crore and Rs600 crore in salary payments, respectively, off the Air India’s books.
The formation of the SBUs will need approval from the Union Cabinet. “We are pushing and want it to happen soon,” one source said.
As per a turnaround plan of AI, which has been vetted by Deloitte Touche & Tohmatsu, the auditing firm and consultant, the airline is expecting a significant reduction in staff expenses in this financial year because of the proposed spinoff.
“The staff number is expected to increase thereafter, in line with increase in volume of operations. The wage rates are also expected to increase 4% every year based on provisions of the agreement,” Deloitte said.
Deloitte has also said that Air India’s staff cost per available seat km or ASKM (a measure of an airline’s passenger carrying capacity; its calculation is seats available x kilometres flown) is projected to decrease gradually from Rs 0.92/ASKM in 2010-11 to Rs0.32 in 2014-15.
“This would imply that Air India’s cost structure would be significantly lower than those of Kingfisher Airlines and Jet Airways over the next 5 years,” Deloitte said.
Meanwhile, Air India is also scouting a global partner for its engineering subsidiary. It already has a ground handling joint venture with Singapore Airport Terminal Services, Air India SATS Airport Services (AISATS).
Its earlier plan to shift staff to AISATS did not fructify because the subsidiary refused to take staff on existing terms and conditions but preferred to hire on contract.
AISATS operates in the Hyderabad, Bangalore and New Delhi airports. Ground handling at all other airports will be handled by the new subsidiary. It will offer services to Air India that will be 50% cheaper compared with what it will charge other airlines.
The engineering unit will also look at getting third-party business from the Rs 2,000 crore Indian maintenance repair and overhaul sector, which is expected to see fast growth in the coming years as more people fly and more planes are used.
The current engineering division only services Air India planes.
Cairn India investors in a fix over royalty sharing
Now, it is the turn of investors of Cairn India, ONGC and Vedanta Resources to wait with bated breath. The final decision in the long-running Cairn Energy-Vedanta Resources stake sale deal is expected to be taken shortly by the Cabinet Committee on Economic Affairs.
Sources told Business Line that Cairn India board which met on May 25 was unanimous that the company will not share the royalty burden of the Rajasthan oilfields. However, the Group of Ministers (GoM) that went into the Cairn -Vedanta deal wants the two companies to bear the royalty burden, if the deal is to be cleared.
Such a condition could well sound the death knell for the deal in its present form given both Cairn and Vedanta's oft-repeated opposition to royalty-sharing, which they say will erode the former's profits and valuation sharply. Thus, industry watchers say, if Cairn agrees to shoulder the royalty, then the Vedanta offer may also need to be re-valued.
ONGC, as the licensee of the Rajasthan block, bears the entire royalty burden. According to provisional calculations, the total royalty burden over the project life (the current PSC is valid till 2020) is Rs 18,000 crore. Of this, ONGC has to bear Cairn's share of approximately Rs 12,600 core.
If the royalty is made cost recoverable then ONGC's net cash flow and its net present value (NPV) in the project become positive. However, projections indicate that, over the life of the project, this would mean a reduction in the Government's share of profit petroleum (in NPV terms) by Rs 5,032 crore, while that of Cairn and ONGC would reduce by Rs 6,272 crore, and Rs 2,688 crore respectively. Nevertheless, ONGC would still benefit since it would recover royalty paid to the State on behalf of Cairn as well as itself amounting to Rs 13,995 crore in NPV terms, over the project life.
On the other hand, such an eventuality will likely see the Cairn India stock taking a knock on the bourses. Whichever way the dice turns, given the stakes involved, the dispute may be headed for litigation.
Also, Cairn India has been paying cess under protest, at the rate of Rs 2,650 a tonne of crude oil.
Cess has to be borne by the producer, which in this case is Cairn India. However, according to Cairn's interpretation, the Rajasthan PSC is ambiguous about who will be paying it.
At a crude oil price of $70 a barrel, the company was projected to pay Rs 9,202 crore towards its share of cess and Rs 3,944 crore towards ONGC's share.
Sources told Business Line that Cairn India board which met on May 25 was unanimous that the company will not share the royalty burden of the Rajasthan oilfields. However, the Group of Ministers (GoM) that went into the Cairn -Vedanta deal wants the two companies to bear the royalty burden, if the deal is to be cleared.
Such a condition could well sound the death knell for the deal in its present form given both Cairn and Vedanta's oft-repeated opposition to royalty-sharing, which they say will erode the former's profits and valuation sharply. Thus, industry watchers say, if Cairn agrees to shoulder the royalty, then the Vedanta offer may also need to be re-valued.
ONGC, as the licensee of the Rajasthan block, bears the entire royalty burden. According to provisional calculations, the total royalty burden over the project life (the current PSC is valid till 2020) is Rs 18,000 crore. Of this, ONGC has to bear Cairn's share of approximately Rs 12,600 core.
If the royalty is made cost recoverable then ONGC's net cash flow and its net present value (NPV) in the project become positive. However, projections indicate that, over the life of the project, this would mean a reduction in the Government's share of profit petroleum (in NPV terms) by Rs 5,032 crore, while that of Cairn and ONGC would reduce by Rs 6,272 crore, and Rs 2,688 crore respectively. Nevertheless, ONGC would still benefit since it would recover royalty paid to the State on behalf of Cairn as well as itself amounting to Rs 13,995 crore in NPV terms, over the project life.
On the other hand, such an eventuality will likely see the Cairn India stock taking a knock on the bourses. Whichever way the dice turns, given the stakes involved, the dispute may be headed for litigation.
Also, Cairn India has been paying cess under protest, at the rate of Rs 2,650 a tonne of crude oil.
Cess has to be borne by the producer, which in this case is Cairn India. However, according to Cairn's interpretation, the Rajasthan PSC is ambiguous about who will be paying it.
At a crude oil price of $70 a barrel, the company was projected to pay Rs 9,202 crore towards its share of cess and Rs 3,944 crore towards ONGC's share.
Market likely to see a dip
Dalal Street key indices may drift downwards this week.
The outlook for first quarter earnings, inflation and interest rate is bearish. The second quarter outlook is still uncertain. If monsoon cannot cool the frayed nerves, the bulls have to hibernate for most part of the second quarter too.
June derivatives in the beginning stand loaded with shorts, perilously close to the highest such burden. According to market insiders, long positions are increasingly being closed.
Participation of investors – local and global – continues to be negligible. Uncertainty and higher risk perception have deterred them from taking a call. Traders and punters also appear uneasy in view of rising financing cost.
Globally, analysts and strategists have turned cautious about Indian equities. Current consensus seems to suggest that a 10 per cent correction in the Indian benchmark index is in the offing. Market researchers and economists do not show overt enthusiasm.
In March at an IMF conference economist Mr Joseph Stiglitz had said: “Most people around the world feel that QE2 has led toward a flood of liquidity, which has not helped the country that needs liquidity, which is the United States, but rather has caused enormous disturbances in other parts of the world — booming emerging markets, which are not in need of additional liquidity.”
That was a reality then. Now, the situation has changed for emerging markets.
India, like a few others, has been forced to usher in a quantitative tightening phase to mop up excess liquidity from the banking system. Worries over inflation have caused growth prospects to dim somewhat.
In developed economies, credit growth is still dragging along at extremely low levels. And even though loan growth in China has fallen since the beginning of the year, credit growth appears to remain strong in some other emerging markets.
According to Morgan Stanley researchers, credit growth is now creating more confusion. Investors are already uncertain about the growth outlook. For India, credit growth is perceived to be still relatively strong, though moderated from its peak.
The outlook for first quarter earnings, inflation and interest rate is bearish. The second quarter outlook is still uncertain. If monsoon cannot cool the frayed nerves, the bulls have to hibernate for most part of the second quarter too.
June derivatives in the beginning stand loaded with shorts, perilously close to the highest such burden. According to market insiders, long positions are increasingly being closed.
Participation of investors – local and global – continues to be negligible. Uncertainty and higher risk perception have deterred them from taking a call. Traders and punters also appear uneasy in view of rising financing cost.
Globally, analysts and strategists have turned cautious about Indian equities. Current consensus seems to suggest that a 10 per cent correction in the Indian benchmark index is in the offing. Market researchers and economists do not show overt enthusiasm.
In March at an IMF conference economist Mr Joseph Stiglitz had said: “Most people around the world feel that QE2 has led toward a flood of liquidity, which has not helped the country that needs liquidity, which is the United States, but rather has caused enormous disturbances in other parts of the world — booming emerging markets, which are not in need of additional liquidity.”
That was a reality then. Now, the situation has changed for emerging markets.
India, like a few others, has been forced to usher in a quantitative tightening phase to mop up excess liquidity from the banking system. Worries over inflation have caused growth prospects to dim somewhat.
In developed economies, credit growth is still dragging along at extremely low levels. And even though loan growth in China has fallen since the beginning of the year, credit growth appears to remain strong in some other emerging markets.
According to Morgan Stanley researchers, credit growth is now creating more confusion. Investors are already uncertain about the growth outlook. For India, credit growth is perceived to be still relatively strong, though moderated from its peak.
Markets open higher, banking shares firm
Markets opened in the green supported by gains in heavyweight Reliance Industries, ICICI Bank and HDFC Bank. The S&P CNX Nifty was up 32 points, at 5,509 and the benchmark Sensex advanced 110 points, at 18,378.
Analysts said that pullback rally which began last Thursday may last only for a short time and markets may take cues from fourth quarter GDP data, and diesel and cooking gas price hike expected this week. If the government reports a higher GDP, it may cause Reserve Bank of India to continue its tightening cycle which will again weigh on the markets.
Sanjeev Zarbade, Vice-president (Private Client Group Research) from Kotak Securities said, “Markets may remain range-bound and move sideways in the absence of any major trigger.” Additionally commodities have seen some unwinding of speculative positions, which is resulting in softer prices. Zarbade added, “If this trend continues, then it will be a positive for the Indian economy and will help contain inflation. It might also attract FII flows given valuations have turned reasonable.”
Across Asia markets were trading mixed. Japanese stocks started the week lower, with strength in the yen and foreign selling weighing on the markets heavily. The Nikkei Stock Average fell 0.7% in early Monday trading but regained some of the lost ground later to trade flat with a negative bias at 9,517, down 0.05%. Shanghai Composite and Hang Seng were up 0.3% each.
Back in India among individual stocks, Unitech was down 0.2% at Rs 33 after fourth quarter net profit fell 19% to Rs 568 crore due to cost pressures. Mahindra & Mahindra was up 1.2% ahead of the fourth quarter results.
BSE Realty and Bankex were the top sectoral gainers, up 0.9% reach. From the realty pack, Sobha Developers gained 2%, DLF advanced 1.9% and Ackruti City surged 1.8%.
From the banking sector, ICICI Bank and Axis Bank up 1.2% and HDFC Bank gained 0.9%.
BSE Power index was the laggard in trade, up 0.3%. Lanco Infra declined 6.1%, Reliance Infra fell 0.7% and NHPFC was down 0.6%.
Among the heavyweights ICICI Bank (up 1.2%), HDFC (up 1.3%) and Reliance Industries (Up 0.5%) contributed 40 points to the Sensex. Only four components on the Sensex were trading in the red, Reliance Infra fell 0.7%, ITC was off 0.4%, Bharti Airtel declined 0.3% and Tata Steel fell 0.2%.
Market breadth was positive 1103 stocks advanced for 439 stocks which declined.
Analysts said that pullback rally which began last Thursday may last only for a short time and markets may take cues from fourth quarter GDP data, and diesel and cooking gas price hike expected this week. If the government reports a higher GDP, it may cause Reserve Bank of India to continue its tightening cycle which will again weigh on the markets.
Sanjeev Zarbade, Vice-president (Private Client Group Research) from Kotak Securities said, “Markets may remain range-bound and move sideways in the absence of any major trigger.” Additionally commodities have seen some unwinding of speculative positions, which is resulting in softer prices. Zarbade added, “If this trend continues, then it will be a positive for the Indian economy and will help contain inflation. It might also attract FII flows given valuations have turned reasonable.”
Across Asia markets were trading mixed. Japanese stocks started the week lower, with strength in the yen and foreign selling weighing on the markets heavily. The Nikkei Stock Average fell 0.7% in early Monday trading but regained some of the lost ground later to trade flat with a negative bias at 9,517, down 0.05%. Shanghai Composite and Hang Seng were up 0.3% each.
Back in India among individual stocks, Unitech was down 0.2% at Rs 33 after fourth quarter net profit fell 19% to Rs 568 crore due to cost pressures. Mahindra & Mahindra was up 1.2% ahead of the fourth quarter results.
BSE Realty and Bankex were the top sectoral gainers, up 0.9% reach. From the realty pack, Sobha Developers gained 2%, DLF advanced 1.9% and Ackruti City surged 1.8%.
From the banking sector, ICICI Bank and Axis Bank up 1.2% and HDFC Bank gained 0.9%.
BSE Power index was the laggard in trade, up 0.3%. Lanco Infra declined 6.1%, Reliance Infra fell 0.7% and NHPFC was down 0.6%.
Among the heavyweights ICICI Bank (up 1.2%), HDFC (up 1.3%) and Reliance Industries (Up 0.5%) contributed 40 points to the Sensex. Only four components on the Sensex were trading in the red, Reliance Infra fell 0.7%, ITC was off 0.4%, Bharti Airtel declined 0.3% and Tata Steel fell 0.2%.
Market breadth was positive 1103 stocks advanced for 439 stocks which declined.
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