By Ruth David - Jul 29, 2011
ICICI Bank Ltd. (ICICIBC), India’s second- largest lender, said first-quarter profit rose 30 percent after credit expanded at the fastest pace in almost four years and bad loans declined.
Net income increased to 13.3 billion rupees ($301 million), or 11.51 rupees a share, in the three months ended June 30, from 10.3 billion rupees, or 9.16 rupees, a year earlier, the Mumbai- based bank said in a statement to exchanges. That compares with the 13.7 billion rupee median of 28 estimates compiled by Bloomberg.
Chief Executive Officer Chanda Kochhar has delivered earnings growth for six straight quarters after the steepest increase in interest rates among major Asian economies failed to deter Indian companies from borrowing. ICICI’s reluctance to match the central bank’s move and raise its deposit rates also helped the lender boost profit.
The bank’s net interest income is “higher” than estimates, said Abhijit Majumder, an analyst at Prabhudas Lilladher Pvt. in Mumbai. “ICICI didn’t get into offering high deposit rates when other banks were doing so.”
ICICI Bank rose 1.9 percent to 1,036.75 rupees at the 3:30 p.m. close in Mumbai, making it the second-best performing stock in the MSCI India/Financials Index.
Credit Forecast
Kochhar today cut her forecast for credit growth three days after India’s central bank surprised all 22 economists surveyed by Bloomberg News with a half-point increase in the repurchase rate. She expects lending to expand 18 percent in the year to March 31, from her previous forecast of 20 percent
Provisions at ICICI increased 17 percent to 4.5 billion rupees, compared with 3.83 billion rupees in the March quarter. Non-performing loans dropped to 0.9 percent of total loans from 1.6 percent in the June quarter the previous year, the bank said.
“Provisions have moved up on a quarterly basis, after seven quarters of declines, which is a concern,” said Brian Hunsaker, an analyst at Keefe, Bruyette & Woods in Hong Kong. “There’s still a lot of downside risk to loan growth for Indian banks over the next year. Even the 18 percent estimate looks optimistic.”
India’s outstanding bank loans climbed 20 percent as of June 24 from a year earlier, according to data compiled by the central bank. Governor Duvvuri Subbarao on July 26 cut the projection for bank credit growth to 18 percent from 19 percent for the year ending in March 2012.
Treasury Income
Interest income rose 31 percent to 76 billion rupees in the quarter. The period’s figures include the full cost of operating expenses for its Bank of Rajasthan Ltd. acquisition, Kochhar said. The numbers also reflected the impact of an 11 percent salary increase to employees, Kochhar told reporters on a conference call.
ICICI Bank’s total outstanding loans increased 20 percent to 2.2 trillion rupees at the end of June. Deposits grew 18 percent to 668 billion rupees, the bank said in a statement.
ICICI Bank’s income from fees for distribution of mutual funds and investments rose 12 percent to 15.8 billion rupees, according to the statement. Treasury income, or income from trading in bonds and currencies, posted a loss of 250 million rupees, compared with a profit of 1 billion rupees in 2010.
To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Friday, July 29, 2011
Thursday, July 28, 2011
Indian Market Regulator Eases Takeover Regulations to Counter M&A Slump
By George Smith Alexander and Anto Antony - Jul 28, 2011
India’s market regulator eased takeover rules, seeking to lure investors after mergers and acquisitions in the South Asian nation slumped.
The new rules will help investors raise their holdings in companies to as much as 25 percent, without having to offer to buy additional shares from the public, the Securities and Exchange Board of India’s Chairman U.K. Sinha told reporters in Mumbai yesterday. The previous cap was 15 percent. Investors who breach the new limit will have to buy an additional 26 percent stake, Sinha said.
The regulations will help companies attract investors amid a fall in the stock market, said Arindam Ghosh, a partner at law firm Khaitan & Co. The value of acquisitions in India has dropped 37 percent this year to $27.5 billion, data compiled by Bloomberg show. Foreigners account for 63 percent of this spending, the data show.
“This would certainly assist companies in attracting strategic, financial investors,” said Mumbai-based Ghosh. Buyers “can now invest up to 25 percent, without being subject to the rigors of going through an open offer.”
The market regulator, known as SEBI, rejected a proposal from its panel that would have required acquirers to buy all shares of the target company.
“The concern before the SEBI board was that we should not do something that is likely to benefit certain set of acquirers who may be from outside the country,” Sinha said yesterday.
‘Game Changers’
In Japan, the trigger for an open offer is 33.3 percent, while in Hong Kong it is 30 percent and in Singapore 29.99 percent. In all three, breaching the limit requires an acquirer to make an offer for the entire company.
“The impact of the revisions is not as forceful as originally expected,” Jagannadham Thunuguntla, equity strategist at SMC Global Securities Ltd., wrote in a note to clients yesterday. “Having said that, these revisions will still prove to be game-changers.”
SEBI abolished the practice of paying a so-called non- compete fee to owners of target companies. India had allowed payments of up to 25 percent over the open offer price in order to prevent founders from competing.
“The main objective was to make the rules more minority friendly,” said Manisha Girotra, chief executive officer of UBS AG’s Indian unit in Mumbai. “The no-compete fees can be negotiated. It will be now built into the price. Everyone will get the benefit.”
The regulator also made it mandatory for the board of the target company to recommend or reject any takeover offer. Sinha didn’t say when the new rules would come into effect.
“This would make the deal making environment better,” said Ranu Vohra, chief executive officer at Avendus Capital Pvt. in Mumbai. “It would increase the seriousness and relevance of companies making open offers.”
To contact the reporters on this story: George Smith Alexander in Mumbai galexander11@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
India’s market regulator eased takeover rules, seeking to lure investors after mergers and acquisitions in the South Asian nation slumped.
The new rules will help investors raise their holdings in companies to as much as 25 percent, without having to offer to buy additional shares from the public, the Securities and Exchange Board of India’s Chairman U.K. Sinha told reporters in Mumbai yesterday. The previous cap was 15 percent. Investors who breach the new limit will have to buy an additional 26 percent stake, Sinha said.
The regulations will help companies attract investors amid a fall in the stock market, said Arindam Ghosh, a partner at law firm Khaitan & Co. The value of acquisitions in India has dropped 37 percent this year to $27.5 billion, data compiled by Bloomberg show. Foreigners account for 63 percent of this spending, the data show.
“This would certainly assist companies in attracting strategic, financial investors,” said Mumbai-based Ghosh. Buyers “can now invest up to 25 percent, without being subject to the rigors of going through an open offer.”
The market regulator, known as SEBI, rejected a proposal from its panel that would have required acquirers to buy all shares of the target company.
“The concern before the SEBI board was that we should not do something that is likely to benefit certain set of acquirers who may be from outside the country,” Sinha said yesterday.
‘Game Changers’
In Japan, the trigger for an open offer is 33.3 percent, while in Hong Kong it is 30 percent and in Singapore 29.99 percent. In all three, breaching the limit requires an acquirer to make an offer for the entire company.
“The impact of the revisions is not as forceful as originally expected,” Jagannadham Thunuguntla, equity strategist at SMC Global Securities Ltd., wrote in a note to clients yesterday. “Having said that, these revisions will still prove to be game-changers.”
SEBI abolished the practice of paying a so-called non- compete fee to owners of target companies. India had allowed payments of up to 25 percent over the open offer price in order to prevent founders from competing.
“The main objective was to make the rules more minority friendly,” said Manisha Girotra, chief executive officer of UBS AG’s Indian unit in Mumbai. “The no-compete fees can be negotiated. It will be now built into the price. Everyone will get the benefit.”
The regulator also made it mandatory for the board of the target company to recommend or reject any takeover offer. Sinha didn’t say when the new rules would come into effect.
“This would make the deal making environment better,” said Ranu Vohra, chief executive officer at Avendus Capital Pvt. in Mumbai. “It would increase the seriousness and relevance of companies making open offers.”
To contact the reporters on this story: George Smith Alexander in Mumbai galexander11@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, July 27, 2011
Ford Plans to Spend $906 Million on Car Factory in India’s Gujarat State
By Siddharth Philip - Jul 28, 2011
Ford Motor Co. (F), the second-largest U.S. automaker, will spend 40 billion rupees ($906 million) on a second car factory in India to cut shipment time to the northern part of the country and access ports on the nation’s west coast.
The company will build the plant with an initial capacity to make 240,000 cars and 270,000 engines annually in the western state of Gujarat, Ford said in an e-mailed statement today. The factory will start production in 2014, it said. The company has a plant near Chennai in the southern state of Tamil Nadu.
Ford is following General Motors Co. (GM) and Tata Motors Ltd. in building a factory in Gujarat. The plant will allow the company to ship cars faster to the north of the country, Joe Hinrichs, president for Ford Asia Pacific and Africa, said in a conference call. Presently it takes about 10 days to transport cars from Tamil Nadu to the northern state of Punjab, he said.
“It’s a very good strategic move by Ford,” said Deepesh Rathore, the India head of IHS Automotive. “Gujarat’s location on the western coast will give Ford access to the European market as well as access to northern India.”
The plant will employ 5,000 people, Dearborn, Michigan- based Ford said. The Tamil Nadu plant has about 5,000 workers.
Ford sold 95,395 passenger cars in India in the year ended March 31, giving it a 4.8 percent market share, according to data from the Society of Indian Automobile Manufacturers.
Earlier this month, Ford introduced a new variant of its Fiesta sedan, the first of eight models the company intends to introduce in the country by 2015.
“This new factory will allow us to balance our manufacturing footprint in India,” said Hinrichs. “This plant is critically important for Ford. The ride up won’t be a straight line but we’re bullish about India.”
Tata Motors Ltd. (TTMT) last year opened a factory in Gujarat to build its Nano small car.
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net.
To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Ford Motor Co. (F), the second-largest U.S. automaker, will spend 40 billion rupees ($906 million) on a second car factory in India to cut shipment time to the northern part of the country and access ports on the nation’s west coast.
The company will build the plant with an initial capacity to make 240,000 cars and 270,000 engines annually in the western state of Gujarat, Ford said in an e-mailed statement today. The factory will start production in 2014, it said. The company has a plant near Chennai in the southern state of Tamil Nadu.
Ford is following General Motors Co. (GM) and Tata Motors Ltd. in building a factory in Gujarat. The plant will allow the company to ship cars faster to the north of the country, Joe Hinrichs, president for Ford Asia Pacific and Africa, said in a conference call. Presently it takes about 10 days to transport cars from Tamil Nadu to the northern state of Punjab, he said.
“It’s a very good strategic move by Ford,” said Deepesh Rathore, the India head of IHS Automotive. “Gujarat’s location on the western coast will give Ford access to the European market as well as access to northern India.”
The plant will employ 5,000 people, Dearborn, Michigan- based Ford said. The Tamil Nadu plant has about 5,000 workers.
Ford sold 95,395 passenger cars in India in the year ended March 31, giving it a 4.8 percent market share, according to data from the Society of Indian Automobile Manufacturers.
Earlier this month, Ford introduced a new variant of its Fiesta sedan, the first of eight models the company intends to introduce in the country by 2015.
“This new factory will allow us to balance our manufacturing footprint in India,” said Hinrichs. “This plant is critically important for Ford. The ride up won’t be a straight line but we’re bullish about India.”
Tata Motors Ltd. (TTMT) last year opened a factory in Gujarat to build its Nano small car.
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net.
To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, July 26, 2011
India Signals Tougher Inflation Resolve to Avert ‘Hard Landing’ of Economy
By Kartik Goyal - Jul 27, 2011
The Reserve Bank of India signaled it’s prepared to accept a slower expansion to pull down an inflation rate that risks causing a crash in the pace of growth in Asia’s third-largest economy if left unchecked.
The RBI yesterday surprised all 22 economists surveyed by Bloomberg News with a half-point boost in the repurchase rate to 8 percent. The bank said in a statement that stronger action was needed in the absence of government steps to damp demand or efforts to address the nation’s supply bottlenecks.
Governor Duvvuri Subbarao was forced to escalate what was already the steepest increase in borrowing costs among major Asian economies, after household expectations for inflation exceeded 12 percent, above the 9.44 percent current pace. The bank will add another half point to the benchmark rate by the end of 2011, the median of 11 estimates in a Bloomberg survey yesterday showed.
“Policy makers now have accepted that demand is the underlying driver of inflation and needs to be brought down to cool inflation and avoid a hard landing,” said Jahangir Aziz, an economist at JPMorgan Chase & Co., who previously worked at India’s finance ministry and the International Monetary Fund. “Capacity constraints are much tighter and demand pressures much higher than they had thought.”
Stocks, Bonds
The benchmark Bombay Stock Exchange Sensitive Index slid 1.9 percent in Mumbai yesterday, the day’s worst performance in Asia and the biggest drop in five weeks. It was unchanged as of 10:36 a.m. local time. The rupee advanced 0.6 percent to 43.92 per dollar and the yield on the 7.8 percent government bonds due April 2021 rose 3 basis points, or 0.03 percentage point, to 8.47 percent. It reached 8.48 percent earlier, the highest since September 2008.
While keeping its growth forecast for the fiscal year through March at 8 percent, the RBI said that “in the absence of appropriate actions for addressing supply bottlenecks, especially in food and infrastructure, questions about the ability of the economy to sustain the current growth rate without significant inflationary pressures come to the fore.”
Subbarao, 61, acted as the central bank elevated its inflation forecast for the year through March by 1 percentage point, to 7 percent.
After what could be Subbarao’s final rate decision, the central bank blamed the government for contributing to inflation, with its “large fiscal deficit” stoking price pressures. The RBI July 25 also cited a high share of production capacity in use, risk of a “wage-price spiral” and “stickiness” in food costs fanning price gains.
Subbarao’s Term
The Bank of Thailand, which also raised interest rates this month, said rising food and fuel prices remain the “key risk” to economic growth, according to the minutes of its July 13 meeting released today.
Subbarao’s term concludes before the next scheduled rate announcement on Sept. 16. A former top bureaucrat in the Ministry of Finance, Subbarao took office in September 2008. Prime Minister Manmohan Singh’s government hasn’t publicly indicated whether it intends to reappoint him.
While growth has shown signs of moderation, “there is no evidence of a sharp or broad-based slowdown as yet,” the central bank said in its policy statement yesterday.
Industry Concern
An increase in borrowing costs alone may not help in containing inflation because it is driven by higher global commodity prices, B. Muthuraman, president of the Confederation of Indian Industry, said in a statement dated yesterday. The emphasis should be on easing bottlenecks, speeding up reforms and increasing investments in the economy, he said.
“The 50 basis-point hike in policy rates will seriously slow down the growth rate of industry, which is already suffering from an increase in the cost of funds,” said Muthuraman, who is also vice chairman of Tata Steel Ltd., India’s biggest producer of the alloy. “While it is important to control the threat caused by persistently high inflation, we cannot risk a collapse in growth which will affect employment creation.”
Maruti Suzuki India Ltd. (MSIL), maker of almost half the cars sold in India, yesterday reported first-quarter profit increase of 18 percent that beat analyst estimates because of higher sales and a jump in unspecified other income.
“The challenge for the government and the RBI is to ensure demand is constrained in the short term,” Subbarao said at a press conference yesterday. He said “fiscal consolidation” is critical to managing inflation.
Tax Cuts
Singh’s government last month cut the customs duty and excise levy on fuels to curb prices, undermining efforts to narrow the budget shortfall. It was forced to raise diesel costs for the first time in a year to reduce losses at state-owned refiners such as Indian Oil Corp. The tax cuts will cost the government 490 billion rupees ($11 billion), Oil Minister S. Jaipal Reddy estimated.
Finance Minister Pranab Mukherjee aims to trim the budget gap to a four-year low of 4.6 percent of gross domestic product in the year ending March 31.
Prices are also climbing as a lack of investment by companies curb capacities. Corporate investment in the second half of the fiscal year ended March 31 dropped 43 percent compared with the first six months of the year, the RBI said in a report on July 25.
Investment Prospects
“There are no signs of improvement in investment during 2011-12 as yet,” according to the report.
Manufactured-products inflation quickened to 7.43 percent in June, according to calculations by Bloomberg News based on data from the commerce ministry.
Retailers such as Bentonville, Arkansas-based Wal-Mart Stores Inc., Paris-based Carrefour SA and Cheshunt, England- based Tesco Plc have been lobbying for a chance to sell food products to India’s 1.2 billion people, arguing they will lower prices and provide the scale that can improve local food networks.
Food inflation has averaged 12.6 percent in the past year as about 40 percent of India’s fruit and vegetables rot before they can be sold because of a lack of cold-storage facilities and poor transport infrastructure.
A panel of Indian bureaucrats this month recommended allowing foreign companies to own up to 51 percent in multi- brand retail stores, according to a finance ministry official with direct knowledge of the matter.
“The economy’s ability to grow rapidly for any length of time without provoking inflation is dependent on implementing policies, with corresponding resource allocations, which will allow the supply of various products and services to keep pace with demand,” the central bank said yesterday.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The Reserve Bank of India signaled it’s prepared to accept a slower expansion to pull down an inflation rate that risks causing a crash in the pace of growth in Asia’s third-largest economy if left unchecked.
The RBI yesterday surprised all 22 economists surveyed by Bloomberg News with a half-point boost in the repurchase rate to 8 percent. The bank said in a statement that stronger action was needed in the absence of government steps to damp demand or efforts to address the nation’s supply bottlenecks.
Governor Duvvuri Subbarao was forced to escalate what was already the steepest increase in borrowing costs among major Asian economies, after household expectations for inflation exceeded 12 percent, above the 9.44 percent current pace. The bank will add another half point to the benchmark rate by the end of 2011, the median of 11 estimates in a Bloomberg survey yesterday showed.
“Policy makers now have accepted that demand is the underlying driver of inflation and needs to be brought down to cool inflation and avoid a hard landing,” said Jahangir Aziz, an economist at JPMorgan Chase & Co., who previously worked at India’s finance ministry and the International Monetary Fund. “Capacity constraints are much tighter and demand pressures much higher than they had thought.”
Stocks, Bonds
The benchmark Bombay Stock Exchange Sensitive Index slid 1.9 percent in Mumbai yesterday, the day’s worst performance in Asia and the biggest drop in five weeks. It was unchanged as of 10:36 a.m. local time. The rupee advanced 0.6 percent to 43.92 per dollar and the yield on the 7.8 percent government bonds due April 2021 rose 3 basis points, or 0.03 percentage point, to 8.47 percent. It reached 8.48 percent earlier, the highest since September 2008.
While keeping its growth forecast for the fiscal year through March at 8 percent, the RBI said that “in the absence of appropriate actions for addressing supply bottlenecks, especially in food and infrastructure, questions about the ability of the economy to sustain the current growth rate without significant inflationary pressures come to the fore.”
Subbarao, 61, acted as the central bank elevated its inflation forecast for the year through March by 1 percentage point, to 7 percent.
After what could be Subbarao’s final rate decision, the central bank blamed the government for contributing to inflation, with its “large fiscal deficit” stoking price pressures. The RBI July 25 also cited a high share of production capacity in use, risk of a “wage-price spiral” and “stickiness” in food costs fanning price gains.
Subbarao’s Term
The Bank of Thailand, which also raised interest rates this month, said rising food and fuel prices remain the “key risk” to economic growth, according to the minutes of its July 13 meeting released today.
Subbarao’s term concludes before the next scheduled rate announcement on Sept. 16. A former top bureaucrat in the Ministry of Finance, Subbarao took office in September 2008. Prime Minister Manmohan Singh’s government hasn’t publicly indicated whether it intends to reappoint him.
While growth has shown signs of moderation, “there is no evidence of a sharp or broad-based slowdown as yet,” the central bank said in its policy statement yesterday.
Industry Concern
An increase in borrowing costs alone may not help in containing inflation because it is driven by higher global commodity prices, B. Muthuraman, president of the Confederation of Indian Industry, said in a statement dated yesterday. The emphasis should be on easing bottlenecks, speeding up reforms and increasing investments in the economy, he said.
“The 50 basis-point hike in policy rates will seriously slow down the growth rate of industry, which is already suffering from an increase in the cost of funds,” said Muthuraman, who is also vice chairman of Tata Steel Ltd., India’s biggest producer of the alloy. “While it is important to control the threat caused by persistently high inflation, we cannot risk a collapse in growth which will affect employment creation.”
Maruti Suzuki India Ltd. (MSIL), maker of almost half the cars sold in India, yesterday reported first-quarter profit increase of 18 percent that beat analyst estimates because of higher sales and a jump in unspecified other income.
“The challenge for the government and the RBI is to ensure demand is constrained in the short term,” Subbarao said at a press conference yesterday. He said “fiscal consolidation” is critical to managing inflation.
Tax Cuts
Singh’s government last month cut the customs duty and excise levy on fuels to curb prices, undermining efforts to narrow the budget shortfall. It was forced to raise diesel costs for the first time in a year to reduce losses at state-owned refiners such as Indian Oil Corp. The tax cuts will cost the government 490 billion rupees ($11 billion), Oil Minister S. Jaipal Reddy estimated.
Finance Minister Pranab Mukherjee aims to trim the budget gap to a four-year low of 4.6 percent of gross domestic product in the year ending March 31.
Prices are also climbing as a lack of investment by companies curb capacities. Corporate investment in the second half of the fiscal year ended March 31 dropped 43 percent compared with the first six months of the year, the RBI said in a report on July 25.
Investment Prospects
“There are no signs of improvement in investment during 2011-12 as yet,” according to the report.
Manufactured-products inflation quickened to 7.43 percent in June, according to calculations by Bloomberg News based on data from the commerce ministry.
Retailers such as Bentonville, Arkansas-based Wal-Mart Stores Inc., Paris-based Carrefour SA and Cheshunt, England- based Tesco Plc have been lobbying for a chance to sell food products to India’s 1.2 billion people, arguing they will lower prices and provide the scale that can improve local food networks.
Food inflation has averaged 12.6 percent in the past year as about 40 percent of India’s fruit and vegetables rot before they can be sold because of a lack of cold-storage facilities and poor transport infrastructure.
A panel of Indian bureaucrats this month recommended allowing foreign companies to own up to 51 percent in multi- brand retail stores, according to a finance ministry official with direct knowledge of the matter.
“The economy’s ability to grow rapidly for any length of time without provoking inflation is dependent on implementing policies, with corresponding resource allocations, which will allow the supply of various products and services to keep pace with demand,” the central bank said yesterday.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, July 25, 2011
India’s Central Bank Signals Higher Rates for ‘Unfinished’ Inflation Task
By Kartik Goyal - Jul 25, 2011
India’s central bank said curbing inflation remains an “unfinished task” even as economic growth slows, signaling it may raise interest rates today.
“The policy exigency at this juncture warrants continuation of anti-inflationary stance,” the Reserve Bank of India said in a report yesterday before its policy meeting in Mumbai. The RBI cited a high share of production capacity in use, risk of a “wage-price spiral” and “stickiness” in food costs adding to price pressures.
The report followed signs of a clash between economists and bond traders over whether the RBI would keep increasing borrowing costs after today’s projected move of a quarter point in the benchmark rate. Swap traders last week bet that Governor Duvvuri Subbarao was approaching the end of India’s fastest credit tightening since 1974.
“The hawkishness of the RBI’s comments suggests that it’s nowhere near changing its stance,” said Dipankar Mitra, an economist at Motilal Oswal Securities Ltd. in Mumbai. “As long as inflation is uncomfortably high, it won’t give the central bank room to look anywhere else.”
The RBI is scheduled to release its monetary-policy announcement at 11 a.m. today. Subbarao, who raised borrowing costs 10 times since mid-March 2010, may boost the repurchase rate to 7.75 percent from 7.5 percent, according to 20 of 22 economists in a Bloomberg survey, with the remaining two predicting no change.
Bond Yields
The yield on the 7.8 percent government bonds due April 2021 fell 3 basis points, or 0.03 percentage point, to 8.29 percent in Mumbai yesterday, on speculation the central bank will slow the pace of rate increases as debt uncertainties in the U.S. threaten the global recovery.
Yesterday’s RBI report cited risks to world growth, including from the European debt crisis, and pointed to business surveys that have shown evidence of a moderation in the economy. At the same time, the RBI said “it is important to break” the dynamics sustaining inflation pressures.
Motilal’s Mitra expects the inflation rate to stay above 9 percent until October after Prime Minister Manmohan Singh’s government increased diesel costs in June for the first time in a year to cut subsidies and narrow losses at state-run refiners including Indian Oil Corp.
BRICS Inflation
Price gains in India are the highest among the so-called BRICS nations. India’s benchmark wholesale-price Inflation accelerated to 9.44 percent in June. By comparison, consumer prices rose 6.7 percent in Brazil, 9.4 percent in Russia, 6.4 percent in China and 5 percent in South Africa.
“Inflation pressures are still rising,” Abheek Barua, New Delhi-based chief economist at HDFC Bank Ltd., said before the report. “A rate hike is almost certain.”
India will take several months to reduce inflation to “an acceptable level” of 5 percent to 6 percent and the rate increases haven’t hurt the economy, Montek Singh Ahluwalia, the deputy chairman of India’s Planning Commission, said in a July 19 interview in New Delhi.
The RBI said it will need to maintain a tight stance until “there is credible evidence of inflation trending close to a level within the Reserve Bank’s comfort zone,” without specifying a level. It said “high inflation” may persist between July and September.
Rural Wages
Higher rural wages have both increased the input cost of agricultural goods and boosted demand for them, keeping food inflation elevated even as it has slowed, according to the RBI. A “near normal monsoon” may not ease food inflation, it said.
The central bank also warns that the government may overshoot the budget-deficit target, causing monetary policy effectiveness to “weaken.”
Inflation may average 8.6 percent in the fiscal year through March 31, according to a survey compiled by the central bank of forecasts from agencies including the International Monetary Fund and the Asian Development Bank, the report showed. The survey in May projected inflation of 7.5 percent.
Economists downgraded their projections for economic growth. According to the RBI survey, gross domestic product is seen rising 7.9 percent in the current financial year, compared with the previous estimate of 8.2 percent.
Industrial production in India grew 5.6 percent in May, the weakest pace in nine months. GDP in the South Asian nation will increase 8.2 percent this year and 7.8 percent in 2012 compared with more than 9 percent each year in China, according to the International Monetary Fund.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
India’s central bank said curbing inflation remains an “unfinished task” even as economic growth slows, signaling it may raise interest rates today.
“The policy exigency at this juncture warrants continuation of anti-inflationary stance,” the Reserve Bank of India said in a report yesterday before its policy meeting in Mumbai. The RBI cited a high share of production capacity in use, risk of a “wage-price spiral” and “stickiness” in food costs adding to price pressures.
The report followed signs of a clash between economists and bond traders over whether the RBI would keep increasing borrowing costs after today’s projected move of a quarter point in the benchmark rate. Swap traders last week bet that Governor Duvvuri Subbarao was approaching the end of India’s fastest credit tightening since 1974.
“The hawkishness of the RBI’s comments suggests that it’s nowhere near changing its stance,” said Dipankar Mitra, an economist at Motilal Oswal Securities Ltd. in Mumbai. “As long as inflation is uncomfortably high, it won’t give the central bank room to look anywhere else.”
The RBI is scheduled to release its monetary-policy announcement at 11 a.m. today. Subbarao, who raised borrowing costs 10 times since mid-March 2010, may boost the repurchase rate to 7.75 percent from 7.5 percent, according to 20 of 22 economists in a Bloomberg survey, with the remaining two predicting no change.
Bond Yields
The yield on the 7.8 percent government bonds due April 2021 fell 3 basis points, or 0.03 percentage point, to 8.29 percent in Mumbai yesterday, on speculation the central bank will slow the pace of rate increases as debt uncertainties in the U.S. threaten the global recovery.
Yesterday’s RBI report cited risks to world growth, including from the European debt crisis, and pointed to business surveys that have shown evidence of a moderation in the economy. At the same time, the RBI said “it is important to break” the dynamics sustaining inflation pressures.
Motilal’s Mitra expects the inflation rate to stay above 9 percent until October after Prime Minister Manmohan Singh’s government increased diesel costs in June for the first time in a year to cut subsidies and narrow losses at state-run refiners including Indian Oil Corp.
BRICS Inflation
Price gains in India are the highest among the so-called BRICS nations. India’s benchmark wholesale-price Inflation accelerated to 9.44 percent in June. By comparison, consumer prices rose 6.7 percent in Brazil, 9.4 percent in Russia, 6.4 percent in China and 5 percent in South Africa.
“Inflation pressures are still rising,” Abheek Barua, New Delhi-based chief economist at HDFC Bank Ltd., said before the report. “A rate hike is almost certain.”
India will take several months to reduce inflation to “an acceptable level” of 5 percent to 6 percent and the rate increases haven’t hurt the economy, Montek Singh Ahluwalia, the deputy chairman of India’s Planning Commission, said in a July 19 interview in New Delhi.
The RBI said it will need to maintain a tight stance until “there is credible evidence of inflation trending close to a level within the Reserve Bank’s comfort zone,” without specifying a level. It said “high inflation” may persist between July and September.
Rural Wages
Higher rural wages have both increased the input cost of agricultural goods and boosted demand for them, keeping food inflation elevated even as it has slowed, according to the RBI. A “near normal monsoon” may not ease food inflation, it said.
The central bank also warns that the government may overshoot the budget-deficit target, causing monetary policy effectiveness to “weaken.”
Inflation may average 8.6 percent in the fiscal year through March 31, according to a survey compiled by the central bank of forecasts from agencies including the International Monetary Fund and the Asian Development Bank, the report showed. The survey in May projected inflation of 7.5 percent.
Economists downgraded their projections for economic growth. According to the RBI survey, gross domestic product is seen rising 7.9 percent in the current financial year, compared with the previous estimate of 8.2 percent.
Industrial production in India grew 5.6 percent in May, the weakest pace in nine months. GDP in the South Asian nation will increase 8.2 percent this year and 7.8 percent in 2012 compared with more than 9 percent each year in China, according to the International Monetary Fund.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, July 24, 2011
Wal-Mart May Open India Retail Stores as Panel Said to Advise Easing Laws
By Malavika Sharma - Jul 25, 2011
Wal-Mart Stores Inc. and Carrefour SA may gain access to the retail market of the world’s second most-populous country after an Indian government panel was said to have recommended easing restrictions on the industry.
Overseas companies could be allowed to own as much as 51 percent of stores that sell more than one brand if they invest a minimum of $100 million, a panel of bureaucrats in New Delhi recommended on July 22, according to a finance ministry official. The cabinet will make a decision after consultations are held, said the person, who had direct knowledge of the matter and declined to be identified before an announcement.
“It would get in new players to the market -- you’d have more efficiencies coming in,” Abhishek Ranganathan, a Mumbai- based analyst at MF Global Sify Securities Pvt., said by phone. “What something like a Wal-Mart or a Carrefour can actually bring to the table in terms of knowledge, back-end systems and supply-chain efficiencies can help Indian retailers they choose to partner with.”
India currently allows overseas companies 51 percent ownership in retail shops selling only one brand and 100 percent in wholesale stores. The world’s two biggest retailers Wal-Mart and Carrefour, who already operate wholesale outlets in India, seek to sell in a market that Business Monitor International estimates will be worth $396 billion this year and may double to $785 billion in 2015.
Rotting Fruit
“We’ll see a lot of new retailers coming in,” Kishore Biyani, managing director at India’s largest listed store owner Pantaloon Retail Ltd., said in a July 22 interview with Bloomberg-UTV. “It looks like a positive step. The industry needs money and the industry needs to grow.”
Pantaloon gained as much as 8 percent, the biggest intraday gain in two months, to 359.80 rupees on Mumbai’s stock exchange before trading at 344.70 rupees as of 9:29 a.m. local time.
Wal-Mart may open hundreds of retail shops in the country if the rules are changed, Raj Jain, chief executive officer of its India venture, said last year.
Allowing foreign direct investment in multi brand retailing would bring money and technology that would improve supply networks and cut waste, Jain said in May. About 40 percent of India’s fruit and vegetables rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to the government.
Modernizing Distribution
Wal-Mart, the world’s biggest listed company by sales, buys produce from about 1,200 farmers in the northern Indian state of Punjab and helps them improve yields, Jain said.
“Carrefour can contribute to modernize distribution in India, to develop partnerships with local producers and make the supply chain more efficient,” Florence Baranes-Cohen, Carrefour spokeswoman, said in an e-mailed statement on July 21. “We’re following closely the potential evolution of legislation in India.”
Arti Singh, senior vice-president for corporate affairs for Wal-Mart’s India operations in New Delhi, declined to comment before seeing an official notice.
“Allowing foreign investment in retail is a priority area for this government, said Suhas Naik, chief operating officer at IL&FS Portfolio Management Services, which manages about $100 million in assets. ‘‘High inflation will provide the right background for the policy to be implemented without much opposition.’’
Metro, Tesco
The nation’s benchmark wholesale price inflation rose 9.44 percent in June, and has stayed above 8 percent since December 2009. Food-price inflation averaged 10.67 percent since the beginning of the year.
Relaxing the rules on foreign direct investment in retailing ‘‘would enable the global retailers to invest in technology and bring efficiencies to the market," said Natalie Berg, co-global research director at Planet Retail in London.
Bharti Walmart Pvt., a venture with billionaire Sunil Mittal’s Bharti Enterprises Pvt., runs seven wholesale stores and plans to add as many as 12 by 2012. Paris-based Carrefour, the world’s second largest retailer, set up its first Indian wholesale store in December.
Metro AG, Germany’s largest retail company, operates six wholesale stores in India, according to the company’s website. British retailer Tesco Plc signed an agreement with Trent Ltd., the retail arm of India’s Tata Group, in 2008 to set up cash- and-carry stores.
Rapid Growth
‘‘The market is new and highly under-penetrated,” Ranganathan said. “There is huge scope, the pie is large and growing rapidly.”
India’s 1.2 billion population, second in size only to China’s, is expected to grow to 1.4 billion in 2026, according to the Census of India 2001. A growing middle class, expanding economy and increasingly brand-conscious population will help boost retail sales 35 percent over the next three years, A.T. Kearney said in a report last year.
India can sustain economic growth rates of as much as 9.5 percent without stoking inflation, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said July 11. Prime Minister Manmohan Singh’s government aims to accelerate India’s economic expansion to as much 10 percent and sustain that pace for more than two decades to cut poverty.
Wal-Mart has “intensive plans” to expand in India, Asia chief Scott Price said March 30. Its annual sales in India amounted to less than $1 billion, compared with $8 billion in Japan and $7.5 billion in China, Price said.
Reliance Retail Ltd., a subsidiary of Reliance Industries Ltd., plans to double clothing retail stores to 100 by the end of the year, chief executive officer Arun Sirdeshmukh said July 4. The unit of India’s largest company by market value also plans to open wholesale stores, billionaire Chairman Mukesh Ambani said June 3.
“The biggest challenge is going to be retail space -- that’s what I think is going to command the choice of a partner” for overseas retailers, Ranganathan said. “You are not fighting for the consumer’s wallet yet. You’re fighting for retail space more than anything else.”
To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wal-Mart Stores Inc. and Carrefour SA may gain access to the retail market of the world’s second most-populous country after an Indian government panel was said to have recommended easing restrictions on the industry.
Overseas companies could be allowed to own as much as 51 percent of stores that sell more than one brand if they invest a minimum of $100 million, a panel of bureaucrats in New Delhi recommended on July 22, according to a finance ministry official. The cabinet will make a decision after consultations are held, said the person, who had direct knowledge of the matter and declined to be identified before an announcement.
“It would get in new players to the market -- you’d have more efficiencies coming in,” Abhishek Ranganathan, a Mumbai- based analyst at MF Global Sify Securities Pvt., said by phone. “What something like a Wal-Mart or a Carrefour can actually bring to the table in terms of knowledge, back-end systems and supply-chain efficiencies can help Indian retailers they choose to partner with.”
India currently allows overseas companies 51 percent ownership in retail shops selling only one brand and 100 percent in wholesale stores. The world’s two biggest retailers Wal-Mart and Carrefour, who already operate wholesale outlets in India, seek to sell in a market that Business Monitor International estimates will be worth $396 billion this year and may double to $785 billion in 2015.
Rotting Fruit
“We’ll see a lot of new retailers coming in,” Kishore Biyani, managing director at India’s largest listed store owner Pantaloon Retail Ltd., said in a July 22 interview with Bloomberg-UTV. “It looks like a positive step. The industry needs money and the industry needs to grow.”
Pantaloon gained as much as 8 percent, the biggest intraday gain in two months, to 359.80 rupees on Mumbai’s stock exchange before trading at 344.70 rupees as of 9:29 a.m. local time.
Wal-Mart may open hundreds of retail shops in the country if the rules are changed, Raj Jain, chief executive officer of its India venture, said last year.
Allowing foreign direct investment in multi brand retailing would bring money and technology that would improve supply networks and cut waste, Jain said in May. About 40 percent of India’s fruit and vegetables rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to the government.
Modernizing Distribution
Wal-Mart, the world’s biggest listed company by sales, buys produce from about 1,200 farmers in the northern Indian state of Punjab and helps them improve yields, Jain said.
“Carrefour can contribute to modernize distribution in India, to develop partnerships with local producers and make the supply chain more efficient,” Florence Baranes-Cohen, Carrefour spokeswoman, said in an e-mailed statement on July 21. “We’re following closely the potential evolution of legislation in India.”
Arti Singh, senior vice-president for corporate affairs for Wal-Mart’s India operations in New Delhi, declined to comment before seeing an official notice.
“Allowing foreign investment in retail is a priority area for this government, said Suhas Naik, chief operating officer at IL&FS Portfolio Management Services, which manages about $100 million in assets. ‘‘High inflation will provide the right background for the policy to be implemented without much opposition.’’
Metro, Tesco
The nation’s benchmark wholesale price inflation rose 9.44 percent in June, and has stayed above 8 percent since December 2009. Food-price inflation averaged 10.67 percent since the beginning of the year.
Relaxing the rules on foreign direct investment in retailing ‘‘would enable the global retailers to invest in technology and bring efficiencies to the market," said Natalie Berg, co-global research director at Planet Retail in London.
Bharti Walmart Pvt., a venture with billionaire Sunil Mittal’s Bharti Enterprises Pvt., runs seven wholesale stores and plans to add as many as 12 by 2012. Paris-based Carrefour, the world’s second largest retailer, set up its first Indian wholesale store in December.
Metro AG, Germany’s largest retail company, operates six wholesale stores in India, according to the company’s website. British retailer Tesco Plc signed an agreement with Trent Ltd., the retail arm of India’s Tata Group, in 2008 to set up cash- and-carry stores.
Rapid Growth
‘‘The market is new and highly under-penetrated,” Ranganathan said. “There is huge scope, the pie is large and growing rapidly.”
India’s 1.2 billion population, second in size only to China’s, is expected to grow to 1.4 billion in 2026, according to the Census of India 2001. A growing middle class, expanding economy and increasingly brand-conscious population will help boost retail sales 35 percent over the next three years, A.T. Kearney said in a report last year.
India can sustain economic growth rates of as much as 9.5 percent without stoking inflation, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said July 11. Prime Minister Manmohan Singh’s government aims to accelerate India’s economic expansion to as much 10 percent and sustain that pace for more than two decades to cut poverty.
Wal-Mart has “intensive plans” to expand in India, Asia chief Scott Price said March 30. Its annual sales in India amounted to less than $1 billion, compared with $8 billion in Japan and $7.5 billion in China, Price said.
Reliance Retail Ltd., a subsidiary of Reliance Industries Ltd., plans to double clothing retail stores to 100 by the end of the year, chief executive officer Arun Sirdeshmukh said July 4. The unit of India’s largest company by market value also plans to open wholesale stores, billionaire Chairman Mukesh Ambani said June 3.
“The biggest challenge is going to be retail space -- that’s what I think is going to command the choice of a partner” for overseas retailers, Ranganathan said. “You are not fighting for the consumer’s wallet yet. You’re fighting for retail space more than anything else.”
To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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