By Unni Krishnan - Aug 7, 2011
India will achieve “appreciable” growth this year and the nation’s financial markets can weather “negative sentiments” spreading across the world, Finance Minister Pranab Mukherjee said.
“Our growth story is intact and the fundamentals are strong,” Mukherjee told businessmen in New Delhi yesterday. “Our markets have the capacity to withstand the negative sentiments affecting the external world.”
Indian stocks tumbled, the rupee fell and bonds climbed Aug. 5 on concern the U.S. economy is stalling and Europe’s debt crisis is worsening. After the markets closed, Standard & Poor’s cut the U.S.’s AAA rating for the first time. Mukherjee said India’s challenge is to tame inflation, contrasting with nations from Japan to Switzerland which are trying to support expansion.
“We witnessed some recovery already and this is testimony to our capacity for resilience,” Mukherjee said, referring to the Indian stock, currency and bond markets.
The Bombay Stock Exchange Sensitive Index, or Sensex, lost 387.31, or 2.2 percent, to 17,305.87, the lowest since June 11, 2010, in Mumbai on Aug. 5, after declining as much as 4 percent earlier in the day.
The rupee weakened 0.4 percent to 44.74 per dollar on Aug. 5. It fell to 44.85 earlier, the weakest level since June 29. The yield on the 7.8 percent bond due April 2021 slid 9 basis points, or 0.9 percentage point, to 8.31 percent.
Investment Rate
Mukherjee cited an increase in savings and investment rates “reminiscent of the high-growth East Asian economies” and the young working-age population of India, where over half the people are in their twenties, as factors that will spur growth.
“While the momentum in consumption has been sustained as the economy has recovered from the slowdown in 2008-09, the recovery in private investment growth has been held back,” Mukherjee said. “It is a matter of concern and we must together do what is required to improve business sentiments to restore the investment growth seen in the years before the global crisis.”
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 Reserve Bank of India said in a report on July 25.
The central bank last month maintained its growth forecast of 8 percent for the current fiscal year ending March 31. The economy expanded 8.5 percent the previous year.
Repeat Performance
Mukherjee yesterday said India may be able to repeat last year’s growth performance.
By contrast, U.S. gross domestic product data last month showed a 1.3 percent growth pace in the second quarter, after a near stall in the first three months of 2011.
S&P lowered the U.S. rating by one level to AA+, saying policy makers have shown insufficient commitment to reduce the budget deficit. The U.S. Treasury Department said there is “no justifiable rationale” for the move, adding the rating company made a $2 trillion mistake in its calculations.
The S&P decision went further than Moody’s Investors Service and Fitch Ratings, which affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended a debt-ceiling impasse that pushed the country to the edge of default. Moody’s and Fitch both said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.
Top Rankings
S&P currently gives 18 sovereign entities its top ranking, including Australia, Hong Kong and the Isle of Man, according to a July report. The U.K. which is estimated to have debt-to-GDP this year of 80 percent, 6 percentage points higher than the U.S., also has the top credit grade. In contrast with the U.S., its net public debt is forecast to decline either before or by 2015, according to S&P.
New Zealand is the only country other than the U.S. that has a AA+ rating from S&P and an Aaa grade from Moody’s. Belgium has an equivalent AA+ grade from S&P, Moody’s and Fitch.
Meanwhile, nations in Europe and Asia are taking steps to prop up growth.
European Central Bank President Jean-Claude Trichet Aug. 4 left rates unchanged and signaled the ECB has resumed bond purchases and will offer banks more cash to stop the region’s debt crisis from engulfing Italy and Spain.
Currency Woes
Japan last week followed Switzerland in seeking to stem appreciating exchange rates that threatened to damage export competitiveness, selling the yen and pledging to inject funds into the economy.
Switzerland Aug. 3 unexpectedly cut borrowing costs and vowed to boost the supply of the franc in money markets to curb a surge in the “massively overvalued” currency.
“There is a crisis,” Mukherjee said. “I am not unnecessarily worried. There is no need to press the panic button.”
He said the changes India started in 1991 to open the economy to foreign investors and cut bureaucracy are “irreversible” and reiterated the government’s plan to narrow its budget deficit to a four-year low of 4.6 percent of gross domestic in the year through March.
The minister said yesterday India’s “major challenge in the short term is inflation, which has implications of sustaining our growth momentum.”
India’s benchmark wholesale-price inflation accelerated to 9.44 percent in June. India’s central bank has raised its repurchase rate 11 times since the start of 2010 and last increased it by 50 basis points on July 26 to 8 percent.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Saturday, August 6, 2011
Friday, August 5, 2011
Subbarao Says India’s Current Inflation Is ‘Far Above the Threshold Level’
By Anoop Agrawal and Kartik Goyal - Aug 5, 2011
India’s inflation rate is “far above the threshold level” and policy makers need to slow economic growth to curb price gains, central bank Governor Duvvuri Subbarao said.
“In the short term you may have to sacrifice growth to generate an environment of rapid growth and steady inflation in the medium term,” Subbarao said in Mumbai yesterday. “Some data show that 5 percent inflation is the threshold level, so at 9.4 percent we are far above the threshold level.”
India’s stance contrasts with Europe, Japan and Switzerland, which are either adding cash into their economies or seeking to stem appreciating exchange rates to support expansion. Price gains in India are the highest among the BRICS nations that include Brazil, Russia, China and South Africa.
“The Reserve Bank of India has to hike rates further given the inflation situation,” said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. “Considering the rate increases so far and the growing global uncertainties, it would be hard to continue tightening aggressively though.”
Rakshit expects India’s central bank to increase borrowing costs by half a percentage point by the end of December.
India’s 10-year bonds rose, driving yields down this week by the most since June, as investors sought the relative safety of government debt on increasing signs the global recovery is faltering.
Yields Fall
The yield on the 7.8 percent bonds due April 2021 declined 13 basis points this week, or 0.13 percentage point, to 8.33 percent as of 9:52 a.m. in Mumbai, according to the central bank’s trading system. The rate was the lowest since July 25. The yield fell 8 basis points today.
Asian stocks fell the most since March, extending a global rout, and the region’s bonds gained, while commodities dropped for an eighth day amid concern of slowing global economic growth.
The MSCI Asia Pacific Index tumbled 3.8 percent at 12:41 p.m. in Tokyo, set for its largest weekly decline since October 2008. The Bombay Stock Exchange Sensitive Index declined 2.4 percent, the lowest level in almost 14 months and the rupee weakened 0.5 percent to 44.76 against the dollar today.
The Reserve Bank of India has raised its repurchase rate 11 times since the start of 2010 and last increased it by 50 basis points on July 26 to 8 percent to damp rising living costs.
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.
Growth Outlook
Indian policy makers need to worry about the economic cost only if the expansion dips below 8 percent, Montek Singh Ahluwalia, the deputy chairman of India’s Planning Commission, said in a July 19 interview in New Delhi.
The central bank last week maintained its growth forecast of 8 percent for the current fiscal year ending March 31, even after citing dangers from Europe’s debt crisis to the outlook for exports. The economy expanded 8.5 percent the previous year.
European Central Bank President Jean-Claude Trichet yesterday said the ECB has resumed bond purchases and will offer banks more cash to stop the region’s debt crisis from engulfing Italy and Spain and hurting the economy. The ECB kept its benchmark rate at 1.5 percent. European officials are trying to put a firewall around Italy and Spain on concern they will have to follow Greece, Ireland and Portugal in seeking bailouts.
Japan yesterday followed Switzerland in seeking to stem appreciating exchange rates that threatened to damage export competitiveness, selling the yen and pledging to inject 10 trillion yen ($126 billion) in funds into the economy.
Deepening Concern
The moves also reflect deepening concern of a U.S. return to recession that might force the Federal Reserve into another round of asset purchases. U.S. gross domestic product expanded at an annual rate of 1.3 percent last quarter, from a near-stall of 0.4 percent in January to March.
Switzerland Aug. 3 unexpectedly cut interest rates and pledged to boost the supply of the franc in money markets to stem a surge in the “massively overvalued” currency.
In India, the government’s priority is to reduce inflation to “an acceptable level” of 5 percent to 6 percent because the poor are the “hardest hit” by higher living costs, Planning Commission’s Ahluwalia said last month.
India’s parliament has been debating rising prices this week and the opposition stepped up their offensive against Prime Minister Manmohan Singh’s coalition for failing to control inflation, which erodes spending power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day.
Meanwhile, India’s central bank yesterday reconstituted its Technical Advisory Committee on Monetary Policy by adding Rakesh Mohan, a former deputy governor at the Reserve Bank and currently a professor at Yale University, and Ashima Goyal, a professor at the Mumbai-based Indira Gandhi Institute of Development Research, according to a statement.
The committee, which meets at least once a quarter, has been expanded to strengthen the “consultative process in monetary policy,” the statement showed.
To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Anoop Agrawal in Mumbai at aagrawal@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 inflation rate is “far above the threshold level” and policy makers need to slow economic growth to curb price gains, central bank Governor Duvvuri Subbarao said.
“In the short term you may have to sacrifice growth to generate an environment of rapid growth and steady inflation in the medium term,” Subbarao said in Mumbai yesterday. “Some data show that 5 percent inflation is the threshold level, so at 9.4 percent we are far above the threshold level.”
India’s stance contrasts with Europe, Japan and Switzerland, which are either adding cash into their economies or seeking to stem appreciating exchange rates to support expansion. Price gains in India are the highest among the BRICS nations that include Brazil, Russia, China and South Africa.
“The Reserve Bank of India has to hike rates further given the inflation situation,” said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. “Considering the rate increases so far and the growing global uncertainties, it would be hard to continue tightening aggressively though.”
Rakshit expects India’s central bank to increase borrowing costs by half a percentage point by the end of December.
India’s 10-year bonds rose, driving yields down this week by the most since June, as investors sought the relative safety of government debt on increasing signs the global recovery is faltering.
Yields Fall
The yield on the 7.8 percent bonds due April 2021 declined 13 basis points this week, or 0.13 percentage point, to 8.33 percent as of 9:52 a.m. in Mumbai, according to the central bank’s trading system. The rate was the lowest since July 25. The yield fell 8 basis points today.
Asian stocks fell the most since March, extending a global rout, and the region’s bonds gained, while commodities dropped for an eighth day amid concern of slowing global economic growth.
The MSCI Asia Pacific Index tumbled 3.8 percent at 12:41 p.m. in Tokyo, set for its largest weekly decline since October 2008. The Bombay Stock Exchange Sensitive Index declined 2.4 percent, the lowest level in almost 14 months and the rupee weakened 0.5 percent to 44.76 against the dollar today.
The Reserve Bank of India has raised its repurchase rate 11 times since the start of 2010 and last increased it by 50 basis points on July 26 to 8 percent to damp rising living costs.
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.
Growth Outlook
Indian policy makers need to worry about the economic cost only if the expansion dips below 8 percent, Montek Singh Ahluwalia, the deputy chairman of India’s Planning Commission, said in a July 19 interview in New Delhi.
The central bank last week maintained its growth forecast of 8 percent for the current fiscal year ending March 31, even after citing dangers from Europe’s debt crisis to the outlook for exports. The economy expanded 8.5 percent the previous year.
European Central Bank President Jean-Claude Trichet yesterday said the ECB has resumed bond purchases and will offer banks more cash to stop the region’s debt crisis from engulfing Italy and Spain and hurting the economy. The ECB kept its benchmark rate at 1.5 percent. European officials are trying to put a firewall around Italy and Spain on concern they will have to follow Greece, Ireland and Portugal in seeking bailouts.
Japan yesterday followed Switzerland in seeking to stem appreciating exchange rates that threatened to damage export competitiveness, selling the yen and pledging to inject 10 trillion yen ($126 billion) in funds into the economy.
Deepening Concern
The moves also reflect deepening concern of a U.S. return to recession that might force the Federal Reserve into another round of asset purchases. U.S. gross domestic product expanded at an annual rate of 1.3 percent last quarter, from a near-stall of 0.4 percent in January to March.
Switzerland Aug. 3 unexpectedly cut interest rates and pledged to boost the supply of the franc in money markets to stem a surge in the “massively overvalued” currency.
In India, the government’s priority is to reduce inflation to “an acceptable level” of 5 percent to 6 percent because the poor are the “hardest hit” by higher living costs, Planning Commission’s Ahluwalia said last month.
India’s parliament has been debating rising prices this week and the opposition stepped up their offensive against Prime Minister Manmohan Singh’s coalition for failing to control inflation, which erodes spending power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day.
Meanwhile, India’s central bank yesterday reconstituted its Technical Advisory Committee on Monetary Policy by adding Rakesh Mohan, a former deputy governor at the Reserve Bank and currently a professor at Yale University, and Ashima Goyal, a professor at the Mumbai-based Indira Gandhi Institute of Development Research, according to a statement.
The committee, which meets at least once a quarter, has been expanded to strengthen the “consultative process in monetary policy,” the statement showed.
To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Anoop Agrawal in Mumbai at aagrawal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, August 3, 2011
GTL Creditor Said to Delay Seizure of Stake Amid Debt Revamp
By George Smith Alexander and Anto Antony - Aug 4, 2011
A lender to India’s GTL Ltd. (GTS) agreed to delay a plan to seize shares pledged by the company’s owners as collateral while creditors try to revamp its $1.1 billion debt, said two people with direct knowledge of the talks.
State-run lenders to GTL, a maker of telecommunication equipment, persuaded Syndicate Bank not to exercise its rights to the shares, the people said, declining to be identified because the discussions are private. Controlling shareholders of GTL have pledged more than 20 percent of the company as collateral for a loan from the Bangalore-based Bank, they said.
GTL’s lenders moved to take control of the Mumbai-based company after owners failed to pledge more shares following an 83 percent decline in the stock price in two months. The company on July 27 said ICICI Bank Ltd. (ICICIBC) had taken over a 29 percent stake. GTL has hired SBI Capital Markets Ltd. to restructure the debt, the company said in a June 27 statement.
“The bankers’ consortium will work with the borrower to chart out a way in which the loans can be recovered,” K R Kamath, chairman of Punjab National Bank, India’s second-largest state-run lender and a creditor to GTL, said in an interview yesterday.
The company, controlled by Manoj Tirodkar, had its credit rating lowered to junk by Credit Analysis & Research Ltd. on June 29. The credit assessor cut the rating five levels to BB+ from A, according to the statement.
GTL spokesman Vikas Arora declined to comment on the debt revamp process. Ravi Chatterjee, executive director at Syndicate Bank couldn’t be reached at his office in Bangalore and didn’t respond to an e-mail.
‘Extraordinary Fall’
ICICI Bank lent 6 billion rupees ($135 million) to GTL, said another person who declined to be identified because they weren’t authorized to speak to the media. GTL rose 1.7 percent to 70.65 rupees at 10:06 a.m. in Mumbai, valuing ICICI’s stake in the company at 2 billion rupees. The shares are the worst performing stock in the BSE200 index this year.
IFCI Ltd. (IFCI), a state-owned lender, sold 200,000 shares of unit GTL Infrastructure Ltd. (GTLI), pledged by GTL, after the company’s shares plunged 56 percent since June 16. IFCI seized ownership of 18 percent of GTL Infrastructure, according to a filing by GTL on July 21.
GTL and GTL Infrastructure, which has about 100 billion rupees of debt, on June 21 asked the market regulator to investigate the “extraordinary fall” in its stock price, according to a statement.
Sell Assets
“A strategic investor would be the most sensible for GTL Infrastructure,” said G.V. Giri, an analyst with IIFL Capital Ltd. “The buyer can add value by bringing in more customers.”
GTL Infrastructure rose 1.6 percent to 14.43 rupees in Mumbai, its biggest gain since July 29.
GTL has over 20 creditors including Standard Chartered Plc (STAN), which invested $300 million in the company’s bonds, said the people. Standard Chartered’s Indian unit took an additional $53 million charge in the three months ended June 30 because of “an India bond exposure,” the bank said in a statement today, without elaborating.
Arijit De, a spokesman for Standard Chartered in Mumbai, declined to comment on the bank’s “exposures to any specific counterparty.”
GTL may sell property and other assets to pay its debt, the people said. Global Holding Corp. owns 52 percent stake in GTL. GTL on July 19 said that 51.92 percent of the shares in the company held by Global Holding have been pledged as collateral to lenders.
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 editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net Sam Nagarajan at samnagarajan@bloomberg.net;
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
A lender to India’s GTL Ltd. (GTS) agreed to delay a plan to seize shares pledged by the company’s owners as collateral while creditors try to revamp its $1.1 billion debt, said two people with direct knowledge of the talks.
State-run lenders to GTL, a maker of telecommunication equipment, persuaded Syndicate Bank not to exercise its rights to the shares, the people said, declining to be identified because the discussions are private. Controlling shareholders of GTL have pledged more than 20 percent of the company as collateral for a loan from the Bangalore-based Bank, they said.
GTL’s lenders moved to take control of the Mumbai-based company after owners failed to pledge more shares following an 83 percent decline in the stock price in two months. The company on July 27 said ICICI Bank Ltd. (ICICIBC) had taken over a 29 percent stake. GTL has hired SBI Capital Markets Ltd. to restructure the debt, the company said in a June 27 statement.
“The bankers’ consortium will work with the borrower to chart out a way in which the loans can be recovered,” K R Kamath, chairman of Punjab National Bank, India’s second-largest state-run lender and a creditor to GTL, said in an interview yesterday.
The company, controlled by Manoj Tirodkar, had its credit rating lowered to junk by Credit Analysis & Research Ltd. on June 29. The credit assessor cut the rating five levels to BB+ from A, according to the statement.
GTL spokesman Vikas Arora declined to comment on the debt revamp process. Ravi Chatterjee, executive director at Syndicate Bank couldn’t be reached at his office in Bangalore and didn’t respond to an e-mail.
‘Extraordinary Fall’
ICICI Bank lent 6 billion rupees ($135 million) to GTL, said another person who declined to be identified because they weren’t authorized to speak to the media. GTL rose 1.7 percent to 70.65 rupees at 10:06 a.m. in Mumbai, valuing ICICI’s stake in the company at 2 billion rupees. The shares are the worst performing stock in the BSE200 index this year.
IFCI Ltd. (IFCI), a state-owned lender, sold 200,000 shares of unit GTL Infrastructure Ltd. (GTLI), pledged by GTL, after the company’s shares plunged 56 percent since June 16. IFCI seized ownership of 18 percent of GTL Infrastructure, according to a filing by GTL on July 21.
GTL and GTL Infrastructure, which has about 100 billion rupees of debt, on June 21 asked the market regulator to investigate the “extraordinary fall” in its stock price, according to a statement.
Sell Assets
“A strategic investor would be the most sensible for GTL Infrastructure,” said G.V. Giri, an analyst with IIFL Capital Ltd. “The buyer can add value by bringing in more customers.”
GTL Infrastructure rose 1.6 percent to 14.43 rupees in Mumbai, its biggest gain since July 29.
GTL has over 20 creditors including Standard Chartered Plc (STAN), which invested $300 million in the company’s bonds, said the people. Standard Chartered’s Indian unit took an additional $53 million charge in the three months ended June 30 because of “an India bond exposure,” the bank said in a statement today, without elaborating.
Arijit De, a spokesman for Standard Chartered in Mumbai, declined to comment on the bank’s “exposures to any specific counterparty.”
GTL may sell property and other assets to pay its debt, the people said. Global Holding Corp. owns 52 percent stake in GTL. GTL on July 19 said that 51.92 percent of the shares in the company held by Global Holding have been pledged as collateral to lenders.
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 editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net Sam Nagarajan at samnagarajan@bloomberg.net;
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, August 2, 2011
India Said to Give State Oil Refiners $3.4 Billion First-Quarter Subsidy
By Rakteem Katakey and Anto Antony - Aug 3, 2011
Indian Oil Corp., the nation’s biggest refiner, and state-run rivals will get 150 billion rupees ($3.4 billion) as compensation for selling fuels below cost, two people with knowledge of the matter said.
The payment for the three months ended June 30 is about half of the 290 billion rupees sought by the oil ministry, the people said, asking not to be identified before an official announcement.
Compensation from the government and discounts on crude oil by state explorers help the refiners to cut losses and reduce their debt burden. Indian Oil, Hindustan Petroleum Corp. and Bharat Petroleum Corp. sell diesel and cooking fuels below the cost of production to help curb inflation in the world’s second- fastest growing major economy.
Indian Oil is scheduled to report first-quarter earnings on Aug. 10. Bharat Petroleum and Hindustan Petroleum are scheduled on Aug. 12, according to stock exchange filings.
Discounts given by Oil & Natural Gas Corp., the nation’s biggest energy exploration company, more than doubled to 120.5 billion rupees in the first quarter, the company said July 28.
P.K. Goyal, finance director at Indian Oil, S. Roy Choudhury, chairman of Hindustan Petroleum, and R.K. Singh, Chairman of Bharat Petroleum, didn’t answer two calls each to their mobile phones seeking comment.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; David Merritt at dmerritt1@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Indian Oil Corp., the nation’s biggest refiner, and state-run rivals will get 150 billion rupees ($3.4 billion) as compensation for selling fuels below cost, two people with knowledge of the matter said.
The payment for the three months ended June 30 is about half of the 290 billion rupees sought by the oil ministry, the people said, asking not to be identified before an official announcement.
Compensation from the government and discounts on crude oil by state explorers help the refiners to cut losses and reduce their debt burden. Indian Oil, Hindustan Petroleum Corp. and Bharat Petroleum Corp. sell diesel and cooking fuels below the cost of production to help curb inflation in the world’s second- fastest growing major economy.
Indian Oil is scheduled to report first-quarter earnings on Aug. 10. Bharat Petroleum and Hindustan Petroleum are scheduled on Aug. 12, according to stock exchange filings.
Discounts given by Oil & Natural Gas Corp., the nation’s biggest energy exploration company, more than doubled to 120.5 billion rupees in the first quarter, the company said July 28.
P.K. Goyal, finance director at Indian Oil, S. Roy Choudhury, chairman of Hindustan Petroleum, and R.K. Singh, Chairman of Bharat Petroleum, didn’t answer two calls each to their mobile phones seeking comment.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; David Merritt at dmerritt1@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, August 1, 2011
Gold May Advance to Near Record as Slower Factory Growth Increases Demand
By Glenys Sim - Aug 2, 2011
Gold advanced toward a record as concern that global economic growth may be slowing overshadowed a U.S. debt deal reached in time to avert a default, spurring demand for wealth protection.
Immediate-delivery gold, which reached an all-time high of $1,632.80 an ounce on July 29, gained 0.3 percent to $1,623.65 at 1:16 p.m. in Singapore after losing 0.6 percent yesterday. Holdings in exchange-traded products rose to 2,153.574 metric tons yesterday, the highest level ever, Bloomberg data show.
Manufacturing indexes from the U.S. to Europe and China declined in July, raising concern that the global recovery is losing momentum. Still, spot gold dropped for the first time in three days yesterday after the House of Representatives passed the measure to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more. The plan goes to the Senate for a final vote today.
“Increasing the debt ceiling is not going to make the debt go away, while the debt problems in Europe aren’t going to be resolved overnight, and we’re seeing all these getting reflected in the weaker economic numbers,” said Zhang Yingying, an analyst at Galaxy Futures Co., a brokerage that’s 16.7 percent owned by the Royal Bank of Scotland Group Plc.
Gold for December delivery in New York rose 0.3 percent to $1,626 an ounce, after futures reached a record $1,637.50 on July 29. Spot silver gained 1 percent to $39.6825 an ounce.
The Institute for Supply Management said yesterday that its manufacturing index dropped to 50.9 last month from 55.3 in June, expanding by the slowest pace in two years. In China, the Purchasing Managers’ Index was at 50.7 compared with 50.9 in June, while a manufacturing gauge in the euro region dropped to 50.4 from 52, reports yesterday showed.
Slowing Growth
“There are concerns that the U.S. government spending cuts could be a drag on the economy at a time where growth is already slowing,” Tobias Merath, head of global commodity research at Credit Suisse AG wrote in a note today.
While the immediate economic impact from the spending cut is likely to be small, it will add to a reduction in growth next year of 1.5 percentage points coming from the expiration of past stimulus programs, according to economists at JPMorgan Chase & Co. and Deutsche Bank Securities.
Job-creation efforts have already been hampered by slowing growth. Employers in the U.S. added 18,000 jobs in June, the fewest in nine months, compared with a forecast of an increase of 105,000 in a Bloomberg News survey. The Labor Department may say on Aug. 5 that nonfarm payrolls climbed 85,000 in July, a separate survey showed.
The Bank of Korea bought 25 tons of gold over a one-month period from June to July, lifting its gold reserve to 39.4 tons, the central bank said in an e-mailed statement yesterday. It declined to comment on the price of purchases and future plans for additional purchases.
Cash platinum was little changed at $1,790.50 an ounce while palladium rose 0.4 percent to $832.25 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Gold advanced toward a record as concern that global economic growth may be slowing overshadowed a U.S. debt deal reached in time to avert a default, spurring demand for wealth protection.
Immediate-delivery gold, which reached an all-time high of $1,632.80 an ounce on July 29, gained 0.3 percent to $1,623.65 at 1:16 p.m. in Singapore after losing 0.6 percent yesterday. Holdings in exchange-traded products rose to 2,153.574 metric tons yesterday, the highest level ever, Bloomberg data show.
Manufacturing indexes from the U.S. to Europe and China declined in July, raising concern that the global recovery is losing momentum. Still, spot gold dropped for the first time in three days yesterday after the House of Representatives passed the measure to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more. The plan goes to the Senate for a final vote today.
“Increasing the debt ceiling is not going to make the debt go away, while the debt problems in Europe aren’t going to be resolved overnight, and we’re seeing all these getting reflected in the weaker economic numbers,” said Zhang Yingying, an analyst at Galaxy Futures Co., a brokerage that’s 16.7 percent owned by the Royal Bank of Scotland Group Plc.
Gold for December delivery in New York rose 0.3 percent to $1,626 an ounce, after futures reached a record $1,637.50 on July 29. Spot silver gained 1 percent to $39.6825 an ounce.
The Institute for Supply Management said yesterday that its manufacturing index dropped to 50.9 last month from 55.3 in June, expanding by the slowest pace in two years. In China, the Purchasing Managers’ Index was at 50.7 compared with 50.9 in June, while a manufacturing gauge in the euro region dropped to 50.4 from 52, reports yesterday showed.
Slowing Growth
“There are concerns that the U.S. government spending cuts could be a drag on the economy at a time where growth is already slowing,” Tobias Merath, head of global commodity research at Credit Suisse AG wrote in a note today.
While the immediate economic impact from the spending cut is likely to be small, it will add to a reduction in growth next year of 1.5 percentage points coming from the expiration of past stimulus programs, according to economists at JPMorgan Chase & Co. and Deutsche Bank Securities.
Job-creation efforts have already been hampered by slowing growth. Employers in the U.S. added 18,000 jobs in June, the fewest in nine months, compared with a forecast of an increase of 105,000 in a Bloomberg News survey. The Labor Department may say on Aug. 5 that nonfarm payrolls climbed 85,000 in July, a separate survey showed.
The Bank of Korea bought 25 tons of gold over a one-month period from June to July, lifting its gold reserve to 39.4 tons, the central bank said in an e-mailed statement yesterday. It declined to comment on the price of purchases and future plans for additional purchases.
Cash platinum was little changed at $1,790.50 an ounce while palladium rose 0.4 percent to $832.25 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, July 31, 2011
Global Funds Buy Most Bonds in Six Months on Rate Outlook: India Credit
By Lilian Karunungan and Jeanette Rodrigues - Aug 1, 2011
International investors are boosting Indian debt holdings by the most since May as economists say the central bank is nearing the end of its rate increases.
Global funds bought $592 million more rupee bonds than they sold last month through July 28, raising ownership to a $21.3 billion, according to exchange data. Goldman Sachs Group Inc., which correctly forecast the Reserve Bank of India would lift borrowing costs by 150 basis points in 2010, said policy makers are done with raising rates this year after a 50-basis point increase to 8 percent last week. Nomura Holdings Inc., BNP Paribas SA and HSBC Holdings Plc predict one more rate addition.
Benchmark rates as low as zero percent in advanced economies have spurred foreign investors to raise holdings, with the rupee’s 1.5 percent advance in 2011 adding to the allure of the nation’s assets. The 8.43 percent yield on India’s 10-year notes is the highest among Asia’s biggest economies and almost three times the rate on similar-maturity U.S. Treasuries.
“Yields are at the higher end of the spectrum in terms of the rate cycle,” Gordon Rodrigues, a Hong Kong-based investment director at HSBC Global Asset Management who helps oversees $23 billion of Asian fixed-income assets, said in an interview on July 28. “And people are positive on the currency in the medium term.”
HSBC Global Asset bought rupee debt this year, he said.
‘Little Need’
The Reserve Bank has “little need” to raise borrowing costs further as Asia’s third-biggest economy slows and inflation softens by September, Goldman Sachs analysts Tushar Poddar and Vishal Vaibhaw wrote in a report after policy makers boosted the repurchase rate for a fifth time this year on July 26. Vaibhaw reiterated that stance when contacted on July 29.
Gross domestic product rose 7.8 percent in the three months ended March, the least in five quarters, according to official data. Food prices, which have a weighting of about 14 percent in the inflation basket, climbed 7.33 percent in the week ended July 16, compared with an increase of 7.58 percent in the previous five-day period, official data showed last week.
Wholesale prices, which the Reserve Bank uses to track inflation, rose 9.44 percent in June from a year earlier after having climbed 9.06 percent the previous month, according to official data. Price increases will soften to 7 percent by March 2012, according to the central bank.
Rupee Gains
“The Reserve Bank has hiked rates quite significantly, so inflation is not really much of a concern,” Zsolt Papp, Zurich- based head of fixed-income strategy at Union Bancaire Privee that oversees more than $1 billion in emerging-market fixed- income assets, said in a phone interview on July 28. Investors, including the Switzerland-based bank, have also been buying India’s bonds on “the expectation that in the long run, the rupee will appreciate,” he said.
The rupee advanced 1.2 percent in July, the biggest monthly gain since March, as the difference in yields between India’s 10-year government notes and similar-maturity U.S. Treasuries widened to the highest level this year. The currency advanced 0.2 percent to 44.1030 per dollar as of 10:24 a.m. in Mumbai today, according to data compiled by Bloomberg.
The yield spread was 562 basis points, compared with 461 on Dec. 31, 2010. The rate on India’s 7.8 percent notes due April 2021 dropped three basis points, or 0.03 percentage point, to 8.43 percent, according to the central bank’s trading system. Indian sovereign debt gained 2 percent this year, beating the 0.5 percent advance in Chinese bonds, according to an index compiled by Bank of America-Merrill Lynch.
Ownership Cap
Government caps on ownership of India’s bonds are a damper for foreign investors, according to Pictet Asset Management SA, a unit of Switzerland’s largest privately held bank for the wealthy that oversees $17.9 billion of emerging-market debt. Data on the website of Indonesia’s finance ministry show global funds hold $29.2 billion of rupiah debt, 37 percent more than their ownership of rupee notes comprising both government and corporate debt.
Indian Finance Minister Pranab Mukherjee doubled the limit on foreign holdings of corporate debt to $40 billion and left the cap on government notes unchanged at $10 billion while presenting the federal government’s budget on Feb. 28.
“India’s policy makers shouldn’t put more restraints on foreigners investing in rupee bonds,” Wee-Ming Ting, the Singapore-based head of Asian fixed-income at Pictet Asset Management, said in an interview on July 28. “Policy makers want to control the amount of inflows and they view bond buying as speculative inflows.”
Budget Deficit
Investors need to factor in the probability that India may not be able to meet its target of trimming the budget deficit to a four-year low of 4.6 percent in the 12 months ending March, according to Mumbai-based Yes Bank Ltd.
“Our view is that the budget deficit will be 5.5 percent,” Nirav Dalal, the head of debt capital markets at Yes Bank, said on July 29. “Any indication that the target will not be achieved may trigger losses.”
The cost of insuring the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, against default, increased five basis points in July to 192 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
“There is a sense that inflation will come under control and there are also worries on the growth front, which will be positive for bonds,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings Inc., said in an interview on July 28. “I think the rush of money will continue because of the yield differential.”
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
International investors are boosting Indian debt holdings by the most since May as economists say the central bank is nearing the end of its rate increases.
Global funds bought $592 million more rupee bonds than they sold last month through July 28, raising ownership to a $21.3 billion, according to exchange data. Goldman Sachs Group Inc., which correctly forecast the Reserve Bank of India would lift borrowing costs by 150 basis points in 2010, said policy makers are done with raising rates this year after a 50-basis point increase to 8 percent last week. Nomura Holdings Inc., BNP Paribas SA and HSBC Holdings Plc predict one more rate addition.
Benchmark rates as low as zero percent in advanced economies have spurred foreign investors to raise holdings, with the rupee’s 1.5 percent advance in 2011 adding to the allure of the nation’s assets. The 8.43 percent yield on India’s 10-year notes is the highest among Asia’s biggest economies and almost three times the rate on similar-maturity U.S. Treasuries.
“Yields are at the higher end of the spectrum in terms of the rate cycle,” Gordon Rodrigues, a Hong Kong-based investment director at HSBC Global Asset Management who helps oversees $23 billion of Asian fixed-income assets, said in an interview on July 28. “And people are positive on the currency in the medium term.”
HSBC Global Asset bought rupee debt this year, he said.
‘Little Need’
The Reserve Bank has “little need” to raise borrowing costs further as Asia’s third-biggest economy slows and inflation softens by September, Goldman Sachs analysts Tushar Poddar and Vishal Vaibhaw wrote in a report after policy makers boosted the repurchase rate for a fifth time this year on July 26. Vaibhaw reiterated that stance when contacted on July 29.
Gross domestic product rose 7.8 percent in the three months ended March, the least in five quarters, according to official data. Food prices, which have a weighting of about 14 percent in the inflation basket, climbed 7.33 percent in the week ended July 16, compared with an increase of 7.58 percent in the previous five-day period, official data showed last week.
Wholesale prices, which the Reserve Bank uses to track inflation, rose 9.44 percent in June from a year earlier after having climbed 9.06 percent the previous month, according to official data. Price increases will soften to 7 percent by March 2012, according to the central bank.
Rupee Gains
“The Reserve Bank has hiked rates quite significantly, so inflation is not really much of a concern,” Zsolt Papp, Zurich- based head of fixed-income strategy at Union Bancaire Privee that oversees more than $1 billion in emerging-market fixed- income assets, said in a phone interview on July 28. Investors, including the Switzerland-based bank, have also been buying India’s bonds on “the expectation that in the long run, the rupee will appreciate,” he said.
The rupee advanced 1.2 percent in July, the biggest monthly gain since March, as the difference in yields between India’s 10-year government notes and similar-maturity U.S. Treasuries widened to the highest level this year. The currency advanced 0.2 percent to 44.1030 per dollar as of 10:24 a.m. in Mumbai today, according to data compiled by Bloomberg.
The yield spread was 562 basis points, compared with 461 on Dec. 31, 2010. The rate on India’s 7.8 percent notes due April 2021 dropped three basis points, or 0.03 percentage point, to 8.43 percent, according to the central bank’s trading system. Indian sovereign debt gained 2 percent this year, beating the 0.5 percent advance in Chinese bonds, according to an index compiled by Bank of America-Merrill Lynch.
Ownership Cap
Government caps on ownership of India’s bonds are a damper for foreign investors, according to Pictet Asset Management SA, a unit of Switzerland’s largest privately held bank for the wealthy that oversees $17.9 billion of emerging-market debt. Data on the website of Indonesia’s finance ministry show global funds hold $29.2 billion of rupiah debt, 37 percent more than their ownership of rupee notes comprising both government and corporate debt.
Indian Finance Minister Pranab Mukherjee doubled the limit on foreign holdings of corporate debt to $40 billion and left the cap on government notes unchanged at $10 billion while presenting the federal government’s budget on Feb. 28.
“India’s policy makers shouldn’t put more restraints on foreigners investing in rupee bonds,” Wee-Ming Ting, the Singapore-based head of Asian fixed-income at Pictet Asset Management, said in an interview on July 28. “Policy makers want to control the amount of inflows and they view bond buying as speculative inflows.”
Budget Deficit
Investors need to factor in the probability that India may not be able to meet its target of trimming the budget deficit to a four-year low of 4.6 percent in the 12 months ending March, according to Mumbai-based Yes Bank Ltd.
“Our view is that the budget deficit will be 5.5 percent,” Nirav Dalal, the head of debt capital markets at Yes Bank, said on July 29. “Any indication that the target will not be achieved may trigger losses.”
The cost of insuring the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, against default, increased five basis points in July to 192 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
“There is a sense that inflation will come under control and there are also worries on the growth front, which will be positive for bonds,” Vivek Rajpal, a Mumbai-based fixed-income strategist at Nomura Holdings Inc., said in an interview on July 28. “I think the rush of money will continue because of the yield differential.”
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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