By V. Ramakrishnan and Lilian Karunungan - Dec 2, 2011 9:29 AM GMT+0530
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The cost of permits for global funds to invest in India’s bond market has risen 53 percent since August 2010 on growing demand for notes of the third-largest developing economy.
International investors agreed to pay a record fee of at least 1.15 percent for the right to invest $5 billion in sovereign securities at a Nov. 30 auction in Mumbai, according to three people familiar with the matter. That compares with 0.75 percent in August last year. Yields on Indian government 10-year notes fell 14 basis points last month, the most since February, to 8.74 percent, while China’s declined 16 basis points to 3.66 percent.
Foreigners have raised holdings of rupee-denominated debt by 25 percent to $22.2 billion in 2011 and Prime Minister Manmohan Singh raised the cap on offshore ownership by 20 percent last month to $60 billion. Inflation will slow to 7 percent by the end of March from 9.73 percent in October, according to the central bank, following the most-aggressive round of rate increases among Asia’s 10 biggest economies.
“The yields are very high in India,” Rajeev De Mello, the Singapore-based head of Asian fixed income at Schroder Investment Management Ltd. who oversees $6.5 billion, said in an interview yesterday. “Indian bonds should start becoming more attractive as inflation comes down.”
Schroder Investment bid for both government and corporate debt at the sale, he said.
Curbing Volatility
The government raised the limits on foreign ownership of sovereign and corporate debt by $5 billion each, according to a Finance Ministry statement on Nov. 17.
Global investors can now hold as much as $15 billion of federal securities and $45 billion of corporate debt. Within the $60 billion cap, the amount that each foreign entity is allowed to buy is limited by the permits, or the quota system, that India uses to curb volatility in bond and rupee trading.
The maximum amount that a single fund could bid for was 20 billion rupees ($389 million) at the auction held by the Securities & Exchange Board of India on Nov. 30. The sale was oversubscribed by about 30 percent with $6.5 billion of orders, according to a Barclays Capital client note yesterday. Six calls made to the mobile phone of N. Hariharan, a Mumbai-based spokesman for the regulator, went unanswered.
India’s government bonds snapped a three-day rally today, with the yield on the 8.79 percent securities due in November 2021 rising two basis points, or 0.02 percentage point, to 8.72 percent, according to the central bank’s trading system.
Hedging Risk
The rupee depreciated 0.2 percent to 51.5750 per dollar, paring its first weekly gain since October. Three-month non- deliverable forwards, which allow investors to bet on exchange- rate movements, were at 52.46, from 52.29 per dollar yesterday.
Policy makers allowed investors, for the first time in 2011, to buy notes maturing in less than five years at the latest auction.
“The lack of tenor restrictions means investors can take lower-duration risk and also hedge currency risk easily,” Kumar Rachapudi, a Singapore-based interest-rate strategist at Barclays Capital, said in an interview yesterday.
Global funds’ ownership of rupee-denominated notes is headed for an 11th straight quarter of increase, according to exchange data.
India’s bonds returned 4.6 percent in the past year, underperforming six other regional markets, according to 10 Asian local-currency debt markets monitored by HSBC Holdings Plc. The yield premium on Indian 10-year debt over U.S. Treasuries is 663 basis points, 34 basis points off a record- high reached on Nov. 9.
Missed Forecasts
While India’s higher yields are attractive, investors need to take into account that the inflation rate has held above 9 percent since the start of December 2010, according to Mumbai- based Development Credit Bank Ltd. The Reserve Bank of India missed its target to keep wholesale price growth within 5.5 percent in the year ended March 2011.
“Inflation will continue to weigh on the minds of investors as we have missed forecasts in the past,” Anoop Verma, a Mumbai-based fixed-income trader at Development Credit Bank, said yesterday. “To that extent, relative returns will be lower on investments in government bonds.”
India’s bond risk surged the most since October 2008 last month on concern Europe’s sovereign-debt crisis will slow the global economy and crimp demand for Asian exports.
Rate Cuts
Five-year credit-default swaps on State Bank of India, viewed as a proxy for the nation, cost 351 basis points on Nov. 30, an increase of 85 basis points from the end of October, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
India’s gross domestic product grew an annual 6.9 percent in the three months through September, the least in two years, government data on Nov. 30 showed. Exports rose 10.8 percent in October from a year earlier, the least since October 2009, according to Commerce Ministry data released yesterday.
Slowing growth will spur the Reserve Bank to start cutting borrowing costs, according to Franklin Templeton Investment Trust Management Co. The central bank has raised its benchmark repurchase rate 13 times since the start of 2010 TO 8.5 percent.
“The outlook for bonds is positive as headwinds from the European Union will hurt growth,” Kim Dong Il, the Seoul-based chief investment officer for fixed income at Franklin Templeton, said in an interview yesterday. “That will prompt the central bank to cut interest rates by up to 150 basis points next year.”
To contact the reporters on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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Saturday, December 3, 2011
Friday, December 2, 2011
Teva May Profit From Ranbaxy’s Lipitor Copy By Adi Narayan - Dec 2, 2011
Teva Pharmaceutical Industries Ltd. (TEVA), the world’s biggest maker of generic drugs, may profit on sales of versions of Pfizer Inc.’s Lipitor without being involved in the medicine’s production or marketing.
Teva will share profit from the first six months of sales under an agreement with Ranbaxy Laboratories Ltd. (RBXY) India’s biggest drugmaker didn’t disclose terms of the agreement when announcing U.S. clearance to sell generic Lipitor yesterday.
The approval means Ranbaxy convinced the Food and Drug Administration that its copies were equivalent to Pfizer’s original and shouldn’t be stopped by a dispute about plant violations in India. Teva isn’t supplying ingredients for the copies, which will be made by Ranbaxy, said Denise Bradley, a spokeswoman for Petach Tikva, Israel-based Teva. That’s prompted some analysts to speculate on the reason for the deal.
“It appears that the Teva deal was like an insurance policy for Ranbaxy in case the approval didn’t come,” said Priti Arora, a health-care analyst at Kotak Institutional Securities, in an interview. “Now that Ranbaxy got the clearance, it’s possibly free money for Teva.”
Lipitor copies may add as much as $650 million to Ranbaxy’s revenue over the next six months, according to the median estimate of five analysts surveyed by Bloomberg.
The FDA gave the Indian drugmaker, 64 percent-owned by Daiichi Sankyo Co., exclusive rights to sell its copies for 180 days, competing with the brand-named product and a Pfizer- authorized version marketed by Watson Pharmaceuticals Inc. (WPI)
“The agreement could include many services or many areas of operation and I don’t understand how you can call it free money,” said Yossi Koren, a spokesman for Teva. He declined to specify details of the agreement between the two companies.
Stock Decline
Ranbaxy fell 0.2 percent to 442.3 rupees at the 3:30 p.m. close in Mumbai, while the BSE India Sensitive Index rose 2.2 percent. The shares have fallen more than 26 percent this year, making Ranbaxy the year’s third-worst (BSETHC) performer in the BSE India Healthcare Index.
The active ingredient in Ranbaxy’s Lipitor copies is approved to be produced at two sites, one of which is a Ranbaxy plant in Toansa in northern India, Sandy Walsh, a spokeswoman for the FDA, said in an e-mail late yesterday. The other is undisclosed, she said. Ranbaxy will complete manufacturing of the drug, known as atorvastatin, at a unit in New Brunswick, New Jersey, the agency said.
Teva could earn as much as 10 cents per share if it manages to introduce an “important undisclosed product” in the fourth quarter, the company said on Nov. 2. That would enable it to meet its earnings target of $5.02 a share.
‘Mystery Product’
Teva hasn’t said that the undisclosed product is generic Lipitor. The Ranbaxy agreement “reasonably accounts” for Teva’s mystery project, Sanford C. Bernstein said in a note yesterday.
“Generic Lipitor is the ‘mystery product,’” Credit Suisse Group AG said in a report yesterday. The bank had estimated the product could generate about $100 million in pretax profit in a best-case scenario where Teva manufactures the product.
With Ranbaxy getting the approval and manufacturing it in- house, Teva’s share of profit in the fourth quarter will possibly be “some amount less than the top end of the range,” Michael Faerm and Judah C. Frommer, health-care analysts with Credit Suisse in New York, said in the report. “We expect the stock to trade up on this news.”
Teva shares rose 1.1 percent to 150.60 shekels yesterday, paring the drop so far this year to 19 percent.
To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net
To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Teva will share profit from the first six months of sales under an agreement with Ranbaxy Laboratories Ltd. (RBXY) India’s biggest drugmaker didn’t disclose terms of the agreement when announcing U.S. clearance to sell generic Lipitor yesterday.
The approval means Ranbaxy convinced the Food and Drug Administration that its copies were equivalent to Pfizer’s original and shouldn’t be stopped by a dispute about plant violations in India. Teva isn’t supplying ingredients for the copies, which will be made by Ranbaxy, said Denise Bradley, a spokeswoman for Petach Tikva, Israel-based Teva. That’s prompted some analysts to speculate on the reason for the deal.
“It appears that the Teva deal was like an insurance policy for Ranbaxy in case the approval didn’t come,” said Priti Arora, a health-care analyst at Kotak Institutional Securities, in an interview. “Now that Ranbaxy got the clearance, it’s possibly free money for Teva.”
Lipitor copies may add as much as $650 million to Ranbaxy’s revenue over the next six months, according to the median estimate of five analysts surveyed by Bloomberg.
The FDA gave the Indian drugmaker, 64 percent-owned by Daiichi Sankyo Co., exclusive rights to sell its copies for 180 days, competing with the brand-named product and a Pfizer- authorized version marketed by Watson Pharmaceuticals Inc. (WPI)
“The agreement could include many services or many areas of operation and I don’t understand how you can call it free money,” said Yossi Koren, a spokesman for Teva. He declined to specify details of the agreement between the two companies.
Stock Decline
Ranbaxy fell 0.2 percent to 442.3 rupees at the 3:30 p.m. close in Mumbai, while the BSE India Sensitive Index rose 2.2 percent. The shares have fallen more than 26 percent this year, making Ranbaxy the year’s third-worst (BSETHC) performer in the BSE India Healthcare Index.
The active ingredient in Ranbaxy’s Lipitor copies is approved to be produced at two sites, one of which is a Ranbaxy plant in Toansa in northern India, Sandy Walsh, a spokeswoman for the FDA, said in an e-mail late yesterday. The other is undisclosed, she said. Ranbaxy will complete manufacturing of the drug, known as atorvastatin, at a unit in New Brunswick, New Jersey, the agency said.
Teva could earn as much as 10 cents per share if it manages to introduce an “important undisclosed product” in the fourth quarter, the company said on Nov. 2. That would enable it to meet its earnings target of $5.02 a share.
‘Mystery Product’
Teva hasn’t said that the undisclosed product is generic Lipitor. The Ranbaxy agreement “reasonably accounts” for Teva’s mystery project, Sanford C. Bernstein said in a note yesterday.
“Generic Lipitor is the ‘mystery product,’” Credit Suisse Group AG said in a report yesterday. The bank had estimated the product could generate about $100 million in pretax profit in a best-case scenario where Teva manufactures the product.
With Ranbaxy getting the approval and manufacturing it in- house, Teva’s share of profit in the fourth quarter will possibly be “some amount less than the top end of the range,” Michael Faerm and Judah C. Frommer, health-care analysts with Credit Suisse in New York, said in the report. “We expect the stock to trade up on this news.”
Teva shares rose 1.1 percent to 150.60 shekels yesterday, paring the drop so far this year to 19 percent.
To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net
To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, December 1, 2011
Auction Demand Supports Biggest Bond Rally in Nine Months: India Credit By V. Ramakrishnan and Lilian Karunungan - Dec 1, 2011
The cost of permits for global funds to invest in India’s bond market has risen 53 percent since August 2010 on growing demand for notes of the third-largest developing economy.
International investors agreed to pay a record fee of at least 1.15 percent for the right to invest $5 billion in sovereign securities at a Nov. 30 auction in Mumbai, according to three people familiar with the matter. That compares with 0.75 percent in August last year. Yields on Indian government 10-year notes fell 14 basis points last month, the most since February, to 8.74 percent, while China’s declined 16 basis points to 3.66 percent.
Foreigners have raised holdings of rupee-denominated debt by 25 percent to $22.2 billion in 2011 and Prime Minister Manmohan Singh raised the cap on offshore ownership by 20 percent last month to $60 billion. Inflation will slow to 7 percent by the end of March from 9.73 percent in October, according to the central bank, following the most-aggressive round of rate increases among Asia’s 10 biggest economies.
“The yields are very high in India,” Rajeev De Mello, the Singapore-based head of Asian fixed income at Schroder Investment Management Ltd. who oversees $6.5 billion, said in an interview yesterday. “Indian bonds should start becoming more attractive as inflation comes down.”
Schroder Investment bid for both government and corporate debt at the sale, he said.
Curbing Volatility
The government raised the limits on foreign ownership of both sovereign and corporate debt by $5 billion each, according to a Finance Ministry statement on Nov. 17.
Global investors can now hold as much as $15 billion of federal securities and $45 billion of corporate debt. Within the $60 billion cap, the amount that each foreign entity is allowed to buy is limited by the permits, or the quota system, that India uses to curb volatility in bond and rupee trading.
The maximum amount that a single fund could bid for was 20 billion rupees ($389 million) at the auction held by the Securities & Exchange Board of India on Nov. 30. The sale was oversubscribed by about 30 percent with $6.5 billion of orders, according to a Barclays Capital client note yesterday. Six calls made to the mobile phone of N. Hariharan, a Mumbai-based spokesman for the regulator, went unanswered.
India’s 10-year government bonds rallied for a third day yesterday on speculation that the auction outcome will spur fund inflows. The yield on the 8.79 percent securities due in November 2021 fell four basis points, or 0.04 percentage point, to 8.70 percent, according to the central bank’s trading system.
Hedging Risk
The rupee advanced 1.4 percent, the most since October, to 51.47 per dollar. Three-month non-deliverable forwards, which allow investors to bet on exchange-rate movements, were at 52.38, from 53.31 per dollar on Nov. 30.
Policy makers allowed investors, for the first time in 2011, to buy notes maturing in less than five years at the latest auction.
“The lack of tenor restrictions means investors can take lower-duration risk and also hedge currency risk easily,” Kumar Rachapudi, a Singapore-based interest-rate strategist at Barclays Capital, said in an interview yesterday.
Global funds’ ownership of rupee-denominated notes is headed for an 11th straight quarter of increases, according to exchange data.
India’s bonds returned 4.6 percent in the past year, the best performance among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc. except for the 1.8 percent gain in Taiwanese securities and Thai notes that earned 3.4 percent. The yield premium on Indian 10-year debt over U.S. Treasuries is 662 basis points, 35 basis points off a record-high reached on Nov. 9.
Missed Forecasts
While India’s higher yields are attractive, investors need to take into account that the inflation rate has held above 9 percent since the start of December 2010, according to Mumbai- based Development Credit Bank Ltd. The Reserve Bank of India missed its target to keep wholesale price growth within 5.5 percent in the year ended March 2011.
“Inflation will continue to weigh on the minds of investors as we have missed forecasts in the past,” Anoop Verma, a Mumbai-based fixed-income trader at Development Credit Bank, said yesterday. “To that extent, relative returns will be lower on investments in government bonds.”
India’s bond risk surged the most since October 2008 last month on concern Europe’s sovereign-debt crisis will slow the global economy and crimp demand for Asian exports.
Rate Cuts
Five-year credit-default swaps on State Bank of India, viewed as a proxy for the nation, cost 351 basis points on Nov. 30, an increase of 85 basis points from a month earlier, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
India’s gross domestic product grew an annual 6.9 percent in the three months through September, the least in two years, government data on Nov. 30 showed. Exports rose 10.8 percent in October from a year earlier, the least since October 2009, according to Commerce Ministry data released yesterday.
Slowing growth will spur the Reserve Bank to start cutting borrowing costs, according to Franklin Templeton Investment Trust Management Co. The central bank has raised its benchmark repurchase rate 13 times since the start of 2010 TO 8.5 percent.
“The outlook for bonds is positive as headwinds from the European Union will hurt growth,” Kim Dong Il, the Seoul-based chief investment officer for fixed income at Franklin Templeton, said in an interview yesterday. “That will prompt the central bank to cut interest rates by up to 150 basis points next year.”
To contact the reporters on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
International investors agreed to pay a record fee of at least 1.15 percent for the right to invest $5 billion in sovereign securities at a Nov. 30 auction in Mumbai, according to three people familiar with the matter. That compares with 0.75 percent in August last year. Yields on Indian government 10-year notes fell 14 basis points last month, the most since February, to 8.74 percent, while China’s declined 16 basis points to 3.66 percent.
Foreigners have raised holdings of rupee-denominated debt by 25 percent to $22.2 billion in 2011 and Prime Minister Manmohan Singh raised the cap on offshore ownership by 20 percent last month to $60 billion. Inflation will slow to 7 percent by the end of March from 9.73 percent in October, according to the central bank, following the most-aggressive round of rate increases among Asia’s 10 biggest economies.
“The yields are very high in India,” Rajeev De Mello, the Singapore-based head of Asian fixed income at Schroder Investment Management Ltd. who oversees $6.5 billion, said in an interview yesterday. “Indian bonds should start becoming more attractive as inflation comes down.”
Schroder Investment bid for both government and corporate debt at the sale, he said.
Curbing Volatility
The government raised the limits on foreign ownership of both sovereign and corporate debt by $5 billion each, according to a Finance Ministry statement on Nov. 17.
Global investors can now hold as much as $15 billion of federal securities and $45 billion of corporate debt. Within the $60 billion cap, the amount that each foreign entity is allowed to buy is limited by the permits, or the quota system, that India uses to curb volatility in bond and rupee trading.
The maximum amount that a single fund could bid for was 20 billion rupees ($389 million) at the auction held by the Securities & Exchange Board of India on Nov. 30. The sale was oversubscribed by about 30 percent with $6.5 billion of orders, according to a Barclays Capital client note yesterday. Six calls made to the mobile phone of N. Hariharan, a Mumbai-based spokesman for the regulator, went unanswered.
India’s 10-year government bonds rallied for a third day yesterday on speculation that the auction outcome will spur fund inflows. The yield on the 8.79 percent securities due in November 2021 fell four basis points, or 0.04 percentage point, to 8.70 percent, according to the central bank’s trading system.
Hedging Risk
The rupee advanced 1.4 percent, the most since October, to 51.47 per dollar. Three-month non-deliverable forwards, which allow investors to bet on exchange-rate movements, were at 52.38, from 53.31 per dollar on Nov. 30.
Policy makers allowed investors, for the first time in 2011, to buy notes maturing in less than five years at the latest auction.
“The lack of tenor restrictions means investors can take lower-duration risk and also hedge currency risk easily,” Kumar Rachapudi, a Singapore-based interest-rate strategist at Barclays Capital, said in an interview yesterday.
Global funds’ ownership of rupee-denominated notes is headed for an 11th straight quarter of increases, according to exchange data.
India’s bonds returned 4.6 percent in the past year, the best performance among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc. except for the 1.8 percent gain in Taiwanese securities and Thai notes that earned 3.4 percent. The yield premium on Indian 10-year debt over U.S. Treasuries is 662 basis points, 35 basis points off a record-high reached on Nov. 9.
Missed Forecasts
While India’s higher yields are attractive, investors need to take into account that the inflation rate has held above 9 percent since the start of December 2010, according to Mumbai- based Development Credit Bank Ltd. The Reserve Bank of India missed its target to keep wholesale price growth within 5.5 percent in the year ended March 2011.
“Inflation will continue to weigh on the minds of investors as we have missed forecasts in the past,” Anoop Verma, a Mumbai-based fixed-income trader at Development Credit Bank, said yesterday. “To that extent, relative returns will be lower on investments in government bonds.”
India’s bond risk surged the most since October 2008 last month on concern Europe’s sovereign-debt crisis will slow the global economy and crimp demand for Asian exports.
Rate Cuts
Five-year credit-default swaps on State Bank of India, viewed as a proxy for the nation, cost 351 basis points on Nov. 30, an increase of 85 basis points from a month earlier, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
India’s gross domestic product grew an annual 6.9 percent in the three months through September, the least in two years, government data on Nov. 30 showed. Exports rose 10.8 percent in October from a year earlier, the least since October 2009, according to Commerce Ministry data released yesterday.
Slowing growth will spur the Reserve Bank to start cutting borrowing costs, according to Franklin Templeton Investment Trust Management Co. The central bank has raised its benchmark repurchase rate 13 times since the start of 2010 TO 8.5 percent.
“The outlook for bonds is positive as headwinds from the European Union will hurt growth,” Kim Dong Il, the Seoul-based chief investment officer for fixed income at Franklin Templeton, said in an interview yesterday. “That will prompt the central bank to cut interest rates by up to 150 basis points next year.”
To contact the reporters on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, November 30, 2011
India RBI Introduces Trading in Credit-Default Swaps, Limits Market Scope By Anurag Joshi - Nov 30, 2011
India introduced trading in credit- default swaps and set rules limiting the scope of the market, eight years after first proposing the derivatives as part of efforts to lure investors to the nation’s corporate bond market.
Local lenders and units of foreign banks will be allowed to buy CDS contracts to “hedge” assets and trading positions, the Reserve Bank of India said in a notification yesterday, adding the guidelines become effective immediately. The central bank postponed a decision in 2003, citing the need for banks to improve risk management, and held off again in 2008 as global credit markets seized up following the financial crisis.
Confining trading in the derivative contracts to lenders based in India may not help attract capital needed to build roads, ports and power plants, and policy makers need to throw open the market to overseas traders, according to Bank of America Corp. Prime Minister Manmohan Singh plans to spend $1 trillion by 2017 to upgrade the nation’s infrastructure and boost growth.
“The guidelines are restrictive in the first phase,” Jayesh Mehta, the Mumbai-based managing director of the Indian unit of Bank of America said in an interview yesterday. “The market needs to open to foreign investors for CDS to be more effective.”
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt for five years.
State Bank CDS
In privately negotiated markets overseas, the cost of protecting the debt of State Bank of India (SBIN) against non-payment has more than doubled this year on concern the government may miss its budget-deficit target.
Five-year credit-default swaps on State Bank, viewed as a proxy for the nation, costs 358 basis points on Nov. 29, compared with 161 basis points at the end of last year, according to data provider CMA, which is owned by CME Group Inc.
The RBI said it introduced default-swaps “to provide market participants a tool to transfer and manage credit risk associated with corporate bonds.”
India has been easing rules to lure investors to the debt market. The government this month raised the limit on rupee- denominated debt foreigners can purchase. The finance ministry increased the cap on government and corporate debt by $5 billion each to $15 billion and $45 billion respectively.
The Reserve Bank, which was expected to start CDS on Oct. 24, delayed the start pending setting up of infrastructure including “trade repository, documentation, publication of CDS curve for valuation and standardization of contracts,” it said on Oct. 20.
The central bank said banks shouldn’t sell CDS on corporate bonds on the issue date and these contracts can’t be used as a bank guarantee.
To contact the reporter on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Local lenders and units of foreign banks will be allowed to buy CDS contracts to “hedge” assets and trading positions, the Reserve Bank of India said in a notification yesterday, adding the guidelines become effective immediately. The central bank postponed a decision in 2003, citing the need for banks to improve risk management, and held off again in 2008 as global credit markets seized up following the financial crisis.
Confining trading in the derivative contracts to lenders based in India may not help attract capital needed to build roads, ports and power plants, and policy makers need to throw open the market to overseas traders, according to Bank of America Corp. Prime Minister Manmohan Singh plans to spend $1 trillion by 2017 to upgrade the nation’s infrastructure and boost growth.
“The guidelines are restrictive in the first phase,” Jayesh Mehta, the Mumbai-based managing director of the Indian unit of Bank of America said in an interview yesterday. “The market needs to open to foreign investors for CDS to be more effective.”
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point, or 0.01 percentage point, equals $1,000 a year on a contract protecting $10 million of debt for five years.
State Bank CDS
In privately negotiated markets overseas, the cost of protecting the debt of State Bank of India (SBIN) against non-payment has more than doubled this year on concern the government may miss its budget-deficit target.
Five-year credit-default swaps on State Bank, viewed as a proxy for the nation, costs 358 basis points on Nov. 29, compared with 161 basis points at the end of last year, according to data provider CMA, which is owned by CME Group Inc.
The RBI said it introduced default-swaps “to provide market participants a tool to transfer and manage credit risk associated with corporate bonds.”
India has been easing rules to lure investors to the debt market. The government this month raised the limit on rupee- denominated debt foreigners can purchase. The finance ministry increased the cap on government and corporate debt by $5 billion each to $15 billion and $45 billion respectively.
The Reserve Bank, which was expected to start CDS on Oct. 24, delayed the start pending setting up of infrastructure including “trade repository, documentation, publication of CDS curve for valuation and standardization of contracts,” it said on Oct. 20.
The central bank said banks shouldn’t sell CDS on corporate bonds on the issue date and these contracts can’t be used as a bank guarantee.
To contact the reporter on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, November 29, 2011
Ranbaxy Without Lipitor May Have to Rely on Indian Drug Sales By Adi Narayan - Nov 29, 2011
Ranbaxy Laboratories Ltd. (RBXY), counting on copies of Pfizer Inc.’s Lipitor to bolster U.S. sales, may have to rely more on India to improve growth because of delays resolving disputes with U.S. authorities.
Two Ranbaxy plants in India were placed under an export restriction in 2008 after the U.S. Food and Drug Administration found manufacturing failures. The decision banned sales of about 30 drugs in the U.S. and delayed approvals for new ones.
Ranbaxy, India's largest drugmaker, is one of two companies entitled to sell generic Lipitor for six months after its U.S. patents expire today. The company still needs final clearance from the FDA for its copy of the world’s best-selling drug, which may generate as much as $650 million for Ranbaxy during the period of exclusivity, according to the median estimate of five Mumbai-based analysts surveyed by Bloomberg.
“There’s a lot of uncertainty with Lipitor now and we don’t know when the approval will come,” Ranjit Kapadia, an analyst at Centrum Broking Ltd., said in an interview yesterday. “They need to do more to keep growing in India to balance the volatility of the U.S. market.”
Until the FDA gives approval, Ranbaxy will wait as rival Watson Pharmaceuticals Inc. (WPI) today starts selling its version of the drug that garnered $10.7 billion in global sales last year. Watson is producing a generic version authorized by New York- based Pfizer and doesn’t need regulatory approval.
“Everyone’s asking just one thing now: When is Ranbaxy going to get the approval for Lipitor?” Priti Arora, a pharmaceuticals analyst at Kotak Institutional Equities, said in an interview.
Project Viraat
Ranbaxy, 64 percent owned by Tokyo-based Daiichi Sankyo Co., boosted its sales force by 60 percent to 4,000 last year, as part of its Project Viraat initiative to gain market share in rural India. Local sales outpaced the industry in some segments for the first half of 2011, before slowing because of a drop in demand for antibiotics, Managing Director Arun Sawhney said in a conference call on Nov. 9.
Competition and government-enforced price controls help keep prices low and make India one of the cheapest countries for pharmaceuticals. Drug sales in the world’s second-most-populous nation have increased an average of 14 percent a year since 2005, stoked by rising incomes and surging rates of heart disease, diabetes and cancer.
The market, valued at $12 billion, is expected to more than quadruple in the next decade, McKinsey & Co. said in an October 2010 report.
Sales Expectations
Ranbaxy expected to increase domestic sales by 15 percent to 20 percent each quarter this year, former Managing Director Atul Sobti said in May 2010. Instead, domestic sales for the last three quarters have gained 9.2 percent over the same period last year, the company reported on Nov. 9.
Part of the reason is the company’s reliance on antibiotics, which constitute about 30 percent of its Indian sales. Demand for antibiotics has been slow for parts of this year, Kapadia said.
Ranbaxy reported sales in India of 14.3 billion rupees ($320 million) for the first nine months of 2011, or about 24 percent of the company’s total revenue.
Rivals Lupin Ltd. (LPC) and Sun Pharmaceutical Industries Ltd. have outpaced the industry average by introducing new drugs for chronic ailments like diabetes and heart disease that require lifelong care.
Little Attention
“All the time they were focusing on the U.S. business, they hadn’t paid much attention to India,” Kapadia said of Ranbaxy. “You can’t build a brand overnight. It’s going to take some time.”
Ranbaxy also will face Pfizer’s effort to protect its brand-name drug. Pfizer, the world’s largest drugmaker, has struck deals with health insurers to keep as much of the market as possible. UnitedHealth Group Inc. (UNH), the biggest U.S. health insurer by sales, said Nov. 19 it will charge a lower co-pay for Pfizer (PFE)’s pill than it does for generics for the next six months, taking advantage of a price reduction from the drugmaker.
Pharmacy benefit managers like Express Scripts Inc. and Medco Health Solutions Inc. are also in talks with Pfizer about such agreements. Pharmacy benefit managers act as middlemen for drugmakers, pharmacies and health-plan sponsors, negotiating prices and managing the use of drugs by patients.
“Pfizer is also being extremely aggressive in trying to retain market share,” Arora, based in Mumbai, said in a phone interview. “That’s going to make it all the more difficult for Ranbaxy.”
To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net
To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Two Ranbaxy plants in India were placed under an export restriction in 2008 after the U.S. Food and Drug Administration found manufacturing failures. The decision banned sales of about 30 drugs in the U.S. and delayed approvals for new ones.
Ranbaxy, India's largest drugmaker, is one of two companies entitled to sell generic Lipitor for six months after its U.S. patents expire today. The company still needs final clearance from the FDA for its copy of the world’s best-selling drug, which may generate as much as $650 million for Ranbaxy during the period of exclusivity, according to the median estimate of five Mumbai-based analysts surveyed by Bloomberg.
“There’s a lot of uncertainty with Lipitor now and we don’t know when the approval will come,” Ranjit Kapadia, an analyst at Centrum Broking Ltd., said in an interview yesterday. “They need to do more to keep growing in India to balance the volatility of the U.S. market.”
Until the FDA gives approval, Ranbaxy will wait as rival Watson Pharmaceuticals Inc. (WPI) today starts selling its version of the drug that garnered $10.7 billion in global sales last year. Watson is producing a generic version authorized by New York- based Pfizer and doesn’t need regulatory approval.
“Everyone’s asking just one thing now: When is Ranbaxy going to get the approval for Lipitor?” Priti Arora, a pharmaceuticals analyst at Kotak Institutional Equities, said in an interview.
Project Viraat
Ranbaxy, 64 percent owned by Tokyo-based Daiichi Sankyo Co., boosted its sales force by 60 percent to 4,000 last year, as part of its Project Viraat initiative to gain market share in rural India. Local sales outpaced the industry in some segments for the first half of 2011, before slowing because of a drop in demand for antibiotics, Managing Director Arun Sawhney said in a conference call on Nov. 9.
Competition and government-enforced price controls help keep prices low and make India one of the cheapest countries for pharmaceuticals. Drug sales in the world’s second-most-populous nation have increased an average of 14 percent a year since 2005, stoked by rising incomes and surging rates of heart disease, diabetes and cancer.
The market, valued at $12 billion, is expected to more than quadruple in the next decade, McKinsey & Co. said in an October 2010 report.
Sales Expectations
Ranbaxy expected to increase domestic sales by 15 percent to 20 percent each quarter this year, former Managing Director Atul Sobti said in May 2010. Instead, domestic sales for the last three quarters have gained 9.2 percent over the same period last year, the company reported on Nov. 9.
Part of the reason is the company’s reliance on antibiotics, which constitute about 30 percent of its Indian sales. Demand for antibiotics has been slow for parts of this year, Kapadia said.
Ranbaxy reported sales in India of 14.3 billion rupees ($320 million) for the first nine months of 2011, or about 24 percent of the company’s total revenue.
Rivals Lupin Ltd. (LPC) and Sun Pharmaceutical Industries Ltd. have outpaced the industry average by introducing new drugs for chronic ailments like diabetes and heart disease that require lifelong care.
Little Attention
“All the time they were focusing on the U.S. business, they hadn’t paid much attention to India,” Kapadia said of Ranbaxy. “You can’t build a brand overnight. It’s going to take some time.”
Ranbaxy also will face Pfizer’s effort to protect its brand-name drug. Pfizer, the world’s largest drugmaker, has struck deals with health insurers to keep as much of the market as possible. UnitedHealth Group Inc. (UNH), the biggest U.S. health insurer by sales, said Nov. 19 it will charge a lower co-pay for Pfizer (PFE)’s pill than it does for generics for the next six months, taking advantage of a price reduction from the drugmaker.
Pharmacy benefit managers like Express Scripts Inc. and Medco Health Solutions Inc. are also in talks with Pfizer about such agreements. Pharmacy benefit managers act as middlemen for drugmakers, pharmacies and health-plan sponsors, negotiating prices and managing the use of drugs by patients.
“Pfizer is also being extremely aggressive in trying to retain market share,” Arora, based in Mumbai, said in a phone interview. “That’s going to make it all the more difficult for Ranbaxy.”
To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net
To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, November 28, 2011
Swaps Signal a Subbarao Policy Reversal as Slowdown Deepens: India Credit By Kartik Goyal - Nov 28, 2011
Reserve Bank of India Governor Duvvuri Subbarao may reverse Asia’s steepest increase in interest rates in the coming year as the third-largest developing economy slows, money-market indicators show.
The fixed payment to lock in borrowing costs for a year fell to 38 basis points below the central bank’s 8.5 percent repurchase rate, showing swap traders are betting on monetary easing, data compiled by Bloomberg show. Similar spreads were 47 basis points below benchmark rates in China and 172 in Brazil, the two biggest emerging markets. India’s economy probably grew 6.8 percent last quarter, the least in two years, according to the median estimate in a Bloomberg survey.
The Reserve Bank’s seven rate increases this year have caused bond sales by Indian companies to drop 22 percent as borrowing costs climb. Downgrades in corporate debt ratings are approaching upgrades for the first time since 2009, after earnings at 40 percent of firms in the benchmark stock index missed analysts’ estimates in the past quarter.
“The RBI will be required to reverse its monetary stance to avoid a hard landing,” Vivek Rajpal, a fixed-income strategist at Nomura Holdings Inc., Japan’s biggest brokerage, said in an interview on Nov. 28. “Growth is likely to slow further due to the impact of monetary tightening and headwinds from weakening demand in advanced countries.”
International investors pulled $869 million out of India’s bonds and stocks this month as banks including Morgan Stanley and Macquarie Group Ltd. cut forecasts for the nation’s economic growth, fueling the rupee’s tumble to a record low of 52.73 per dollar on Nov. 22. Local-currency notes underperformed debt across the region this year, returning 2.9 percent, compared with the 16.1 percent earned by Indonesian securities, according to indexes compiled by HSBC Holdings Plc.
Emerging Outliers
Subbarao is the only policy maker in the biggest emerging markets who increased borrowing costs this quarter, even as Europe’s debt crisis worsened.
The governor last raised the repo rate by 25 basis points, or 0.25 percentage point, on Oct. 25, taking the total increase since March 2010 to a record 375, the steepest surge among Asia’s 10 biggest economies. Brazil’s central bank has cut its Selic rate by a total 100 basis points since August to 11.5 percent, while Bank Indonesia lowered its reference rate by 75 since Sept. 30 to 6 percent.
The probability of another increase to the repo rate when policy makers next meet in December is “relatively low,” the central bank said last month, forecasting inflation will slow to 7 percent by March from 9.73 percent in October. Gains in the benchmark wholesale-price index will start slowing from this month, Chakravarthy Rangarajan, chairman of Prime Minister Manmohan Singh’s Economic Advisory Council, said in Hyderabad, central-eastern India yesterday.
‘Peaking of Cycle’
“If we do see inflation rates coming off as we expect, we could be looking at the peaking of the cycle,” Reserve Bank Deputy Governor Subir Gokarn said on Nov. 11, referring to the monetary authority’s policy outlook. “Let me emphasize it’s a guidance, not a commitment. There are many risks to that scenario.”
Monetary easing will push the average worldwide central bank interest rate, weighted for gross domestic product, to 1.79 percent by next June from 2.16 percent in September, the largest drop in two years, according to data and projections compiled by JPMorgan Chase & Co., which tracks 31 central banks. The number of authorities loosening credit is the most since the third quarter of 2009, when 15 institutions cut rates, the data show.
‘Start Cutting Rates’
The cost of one-year swap contracts has remained below three-month rates since August. The difference widened by 11 basis points this month to 40 below the rate as economic data added to evidence the $1.7 trillion economy is slowing. The three-month swap is at 8.65 percent and the one-year contract at 8.13 percent.
“Swap spreads indicate we are at the peak of the policy- rate cycle,” said Nagaraj Kulkarni, a Mumbai-based fixed-income strategist at Standard Chartered Plc. “We expect the RBI to start cutting rates in the April-June quarter of next year.”
Ten-year government bond yields have retreated 14 basis points from a three-year high of 8.97 percent reached on Nov. 14, on speculation the RBI is close to halting rate increases. The yield on the 8.79 percent security due 2021 gained two basis points to 8.83 percent yesterday. The extra yield demanded on the Indian bonds over similar-dated U.S. debt has narrowed to 677 basis points, from a 12-year high of 697 touched on Nov. 9.
Default Swaps
The average cost for credit-default swaps insuring against non-payment on the debt of seven Indian companies has dropped 16 basis points this quarter to 425 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a nation or company fail to adhere to its debt agreements.
India’s factory output rose 1.9 percent in September from a year earlier, the smallest advance in two years, official data showed on Nov. 11. Merchandise exports grew 10.8 percent in October from a year earlier, the least since 2009, as waning demand in Europe cut orders, Commerce Secretary Rahul Khullar said on Nov. 8. The RBI last month reduced its forecast for economic growth in the year ending March 31 to 7.6 percent, from 8 percent.
As Bad as 2008
“We expect further significant deceleration in domestic demand and a slowdown in exports are likely to take GDP growth lower,” Chetan Ahya, a Hong Kong-based economist at Morgan Stanley, said yesterday. “The coming growth slowdown is going to be as deep as during the credit crisis” of 2008, he said.
New York-based Morgan Stanley cut its growth estimate for India yesterday to 7 percent from 7.2 percent for the year to March. Nomura Holdings, Japan’s biggest brokerage, lowered its forecast in October to 7.2 percent from 7.7 percent.
Increases in debt ratings for companies by Crisil Ltd., the Indian unit of Standard & Poor’s, fell to 12 for every 10 cuts, the worst ratio since the same period of 2009, data compiled by Bloomberg show. Credit downgrades may accelerate in the rest of the year to March on increased funding costs and a slowdown in demand, according to Crisil and Mumbai-based ratings provider Credit Analysis & Research Ltd.
Subbarao may delay any pause in monetary tightening as the rupee’s 14 percent tumble this year, the worst performance among Asian currencies, fuels inflation by making imports costlier, according to Dun & Bradstreet Information Services India Pvt. The rupee gained 0.6 percent to 51.965 yesterday.
‘Reignite’ Inflation
“The sharp slide in the rupee threatens to reignite inflation pressures and will make it difficult for the Reserve Bank to stop tightening,” Arun Singh, a Mumbai-based senior economist at Dun & Bradstreet, said in an interview yesterday. “The RBI has to walk a tight rope with growth slowing and inflation still holding near double digits.”
Singh predicts that the central bank will boost the repo rate by 25 basis points to 8.75 percent at the Dec. 16 policy meeting.
“The slowdown message is likely to be loud and clear when we receive the latest GDP data,” Jay Shankar, Mumbai-based chief economist at Religare Capital Markets Ltd. said in an interview yesterday. “The growth slowdown will call for a pause in the RBI’s tightening cycle even though the sharp drop in the rupee is likely to put short-term pressure on inflation.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The fixed payment to lock in borrowing costs for a year fell to 38 basis points below the central bank’s 8.5 percent repurchase rate, showing swap traders are betting on monetary easing, data compiled by Bloomberg show. Similar spreads were 47 basis points below benchmark rates in China and 172 in Brazil, the two biggest emerging markets. India’s economy probably grew 6.8 percent last quarter, the least in two years, according to the median estimate in a Bloomberg survey.
The Reserve Bank’s seven rate increases this year have caused bond sales by Indian companies to drop 22 percent as borrowing costs climb. Downgrades in corporate debt ratings are approaching upgrades for the first time since 2009, after earnings at 40 percent of firms in the benchmark stock index missed analysts’ estimates in the past quarter.
“The RBI will be required to reverse its monetary stance to avoid a hard landing,” Vivek Rajpal, a fixed-income strategist at Nomura Holdings Inc., Japan’s biggest brokerage, said in an interview on Nov. 28. “Growth is likely to slow further due to the impact of monetary tightening and headwinds from weakening demand in advanced countries.”
International investors pulled $869 million out of India’s bonds and stocks this month as banks including Morgan Stanley and Macquarie Group Ltd. cut forecasts for the nation’s economic growth, fueling the rupee’s tumble to a record low of 52.73 per dollar on Nov. 22. Local-currency notes underperformed debt across the region this year, returning 2.9 percent, compared with the 16.1 percent earned by Indonesian securities, according to indexes compiled by HSBC Holdings Plc.
Emerging Outliers
Subbarao is the only policy maker in the biggest emerging markets who increased borrowing costs this quarter, even as Europe’s debt crisis worsened.
The governor last raised the repo rate by 25 basis points, or 0.25 percentage point, on Oct. 25, taking the total increase since March 2010 to a record 375, the steepest surge among Asia’s 10 biggest economies. Brazil’s central bank has cut its Selic rate by a total 100 basis points since August to 11.5 percent, while Bank Indonesia lowered its reference rate by 75 since Sept. 30 to 6 percent.
The probability of another increase to the repo rate when policy makers next meet in December is “relatively low,” the central bank said last month, forecasting inflation will slow to 7 percent by March from 9.73 percent in October. Gains in the benchmark wholesale-price index will start slowing from this month, Chakravarthy Rangarajan, chairman of Prime Minister Manmohan Singh’s Economic Advisory Council, said in Hyderabad, central-eastern India yesterday.
‘Peaking of Cycle’
“If we do see inflation rates coming off as we expect, we could be looking at the peaking of the cycle,” Reserve Bank Deputy Governor Subir Gokarn said on Nov. 11, referring to the monetary authority’s policy outlook. “Let me emphasize it’s a guidance, not a commitment. There are many risks to that scenario.”
Monetary easing will push the average worldwide central bank interest rate, weighted for gross domestic product, to 1.79 percent by next June from 2.16 percent in September, the largest drop in two years, according to data and projections compiled by JPMorgan Chase & Co., which tracks 31 central banks. The number of authorities loosening credit is the most since the third quarter of 2009, when 15 institutions cut rates, the data show.
‘Start Cutting Rates’
The cost of one-year swap contracts has remained below three-month rates since August. The difference widened by 11 basis points this month to 40 below the rate as economic data added to evidence the $1.7 trillion economy is slowing. The three-month swap is at 8.65 percent and the one-year contract at 8.13 percent.
“Swap spreads indicate we are at the peak of the policy- rate cycle,” said Nagaraj Kulkarni, a Mumbai-based fixed-income strategist at Standard Chartered Plc. “We expect the RBI to start cutting rates in the April-June quarter of next year.”
Ten-year government bond yields have retreated 14 basis points from a three-year high of 8.97 percent reached on Nov. 14, on speculation the RBI is close to halting rate increases. The yield on the 8.79 percent security due 2021 gained two basis points to 8.83 percent yesterday. The extra yield demanded on the Indian bonds over similar-dated U.S. debt has narrowed to 677 basis points, from a 12-year high of 697 touched on Nov. 9.
Default Swaps
The average cost for credit-default swaps insuring against non-payment on the debt of seven Indian companies has dropped 16 basis points this quarter to 425 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a nation or company fail to adhere to its debt agreements.
India’s factory output rose 1.9 percent in September from a year earlier, the smallest advance in two years, official data showed on Nov. 11. Merchandise exports grew 10.8 percent in October from a year earlier, the least since 2009, as waning demand in Europe cut orders, Commerce Secretary Rahul Khullar said on Nov. 8. The RBI last month reduced its forecast for economic growth in the year ending March 31 to 7.6 percent, from 8 percent.
As Bad as 2008
“We expect further significant deceleration in domestic demand and a slowdown in exports are likely to take GDP growth lower,” Chetan Ahya, a Hong Kong-based economist at Morgan Stanley, said yesterday. “The coming growth slowdown is going to be as deep as during the credit crisis” of 2008, he said.
New York-based Morgan Stanley cut its growth estimate for India yesterday to 7 percent from 7.2 percent for the year to March. Nomura Holdings, Japan’s biggest brokerage, lowered its forecast in October to 7.2 percent from 7.7 percent.
Increases in debt ratings for companies by Crisil Ltd., the Indian unit of Standard & Poor’s, fell to 12 for every 10 cuts, the worst ratio since the same period of 2009, data compiled by Bloomberg show. Credit downgrades may accelerate in the rest of the year to March on increased funding costs and a slowdown in demand, according to Crisil and Mumbai-based ratings provider Credit Analysis & Research Ltd.
Subbarao may delay any pause in monetary tightening as the rupee’s 14 percent tumble this year, the worst performance among Asian currencies, fuels inflation by making imports costlier, according to Dun & Bradstreet Information Services India Pvt. The rupee gained 0.6 percent to 51.965 yesterday.
‘Reignite’ Inflation
“The sharp slide in the rupee threatens to reignite inflation pressures and will make it difficult for the Reserve Bank to stop tightening,” Arun Singh, a Mumbai-based senior economist at Dun & Bradstreet, said in an interview yesterday. “The RBI has to walk a tight rope with growth slowing and inflation still holding near double digits.”
Singh predicts that the central bank will boost the repo rate by 25 basis points to 8.75 percent at the Dec. 16 policy meeting.
“The slowdown message is likely to be loud and clear when we receive the latest GDP data,” Jay Shankar, Mumbai-based chief economist at Religare Capital Markets Ltd. said in an interview yesterday. “The growth slowdown will call for a pause in the RBI’s tightening cycle even though the sharp drop in the rupee is likely to put short-term pressure on inflation.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, November 27, 2011
Singh Opens Economy to Bolster Rupee as HSBC Sees 10% Slide: India Credit By Jeanette Rodrigues - Nov 27, 2011
Prime Minister Manmohan Singh is taking further steps to open up India’s economy to support the rupee as HSBC Holdings Plc and CLSA Asia-Pacific Markets predict the currency may slide another 10 percent.
Global funds may be allowed to buy company bonds without restrictions and foreign individual investors could purchase local shares, said Mumbai-based IndusInd Bank Ltd. (IIB) Regulators raised deposit rates for Indians abroad last week and allowed Wal-Mart Stores Inc. and Tesco Plc to take majority stakes in retailers. The rupee will drop to 58 per dollar from a record- low 52.73 on Nov. 22 on concern India’s current-account and budget deficits will widen, according to HSBC.
The 15 percent decline in the rupee, this year’s worst- performing Asian currency, is stoking price pressures by raising import costs and worsening a slump in sovereign bonds. Yields on the nation’s benchmark 10-year notes have risen 90 basis points in 2011 to 8.82 percent, compared with a drop of 22 basis points in China and 73 in South Korea.
“Anything that opens up the economy is positive for growth and risk assets like the rupee,” Tim Condon, the Singapore- based head of Asian research at ING Groep NV, said in an interview on Nov. 25. “But the origin of the problem is not India, so the rupee and any measures that India takes are hostage to the wider world.”
Singh was India’s first policy maker to open up the economy when he began a five-year term as finance minister in 1991. An economist by training, he cut import tariffs, allowed non-Indian companies such as Ford Motor Co. to set up manufacturing plants and removed regulations requiring government authorization for new factories. The moves were prompted by a surge in oil prices that depleted the nation’s foreign-exchange reserves.
Foreign Holdings Cap
Two decades later, Singh’s administration has raised the cap on foreign holdings of rupee-denominated debt by 20 percent to $60 billion, boosted the limit on the interest rates companies pay when borrowing abroad and removed a $100 million cap on inflows of foreign exchange via currency swaps. The measures were unveiled in November as the rupee weakened 6.8 percent, headed for the biggest monthly decline since March 1992.
“There has been very little economic reform in India since the early 1990s,” said Condon. “So the agenda is huge and implementing a part of it will be a positive.”
The government may consider scrapping the quota system it uses to restrict investment in rupee-denominated bonds issued by local companies, J. Moses Harding, an executive vice president at IndusInd Bank, said in an interview in Mumbai on Nov. 23. The Securities & Exchange Board of India assigns quotas for bond trading to reduce volatility. Curbs include minimum lock-in periods and mandatory reinvestments. Two phone calls made to N. Hariharan, a Mumbai-based SEBI spokesman, went unanswered.
Sell Dollars
The Reserve Bank of India may also sell dollars directly to oil refiners to reduce demand for foreign exchange in the currency market, Rohini Malkani, a Mumbai-based analyst at Citigroup Inc., wrote in a note to clients on Nov. 24. Three phone calls made to Malkani’s office weren’t answered.
There is also speculation that the government may allow companies to borrow more abroad after Thomas Mathew, joint secretary in charge of capital markets in the Finance Ministry, said this month that policy makers expect “upward pressure” on the $30 billion annual limit on so-called external commercial borrowings.
Sensex Drops
India’s benchmark Sensitive Index (SENSEX) of shares has slid 11 percent this month as global investors sold $452 million more local shares than they bought through Nov. 23, according to exchange data. The government may allow individual foreign investors to directly buy domestic shares, Finance Secretary R. Gopalan told reporters in New Delhi on Nov. 15 without providing a timeframe. Finance Ministry spokesman D.S. Malik declined to comment on the matter when contacted on Nov. 25.
The rupee slumped for a fourth straight week last week on concern Europe’s debt crisis will damp demand for emerging- market assets, slowing global growth and sapping revenue for India’s government as well as demand for exports. The currency fell 1.8 percent last week to 52.2550 per dollar, according to data compiled by Bloomberg.
India’s benchmark bonds fell on Nov. 25. The yield on the 8.79 percent securities due in November 2021 rose two basis points, or 0.02 percentage point, to 8.82 percent.
‘More Measures’
“There is a sense that the RBI now wants to stay ahead of developments in Europe,” Kamlakar Rao, the Mumbai-based head of currency trading at state-run Allahabad Bank, said in an interview on Nov. 25. “The central bank could announce more measures, like possibly raising the limit on overseas borrowings.”
India’s bonds have underperformed debt in the region as inflation that has held above 9 percent for 11 months crimped returns. Rupee-denominated notes have returned 2.8 percent this year, the worst performance among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc.
Global funds have cut holdings of the nation’s debt even as the yield premium on rupee notes over U.S. debt increased in November. International investors’ ownership of local bonds has fallen $205 million since the end of October to $21.8 billion, according to exchange data. The average difference in yields between India’s 10-year debt and similar-maturity U.S. Treasuries was 689 basis points this month, compared with 658 basis points in October.
‘Smooth Volatility’
While sentiment toward the rupee has improved because of the measures announced by the government, a lot will depend on how Europe’s crisis plays out, according to HDFC Bank Ltd. The currency will appreciate 5.5 percent to end the year at 49.50 per dollar, according to the median forecast of 23 strategists’ estimates compiled by Bloomberg.
“The measures taken by the RBI will only smooth the volatility, not prevent the currency from weakening,” David Bloom, the London-based global head of currency at HSBC, said in an interview in Mumbai on Nov. 24. “If you open up a parachute while jumping out of an airplane, you can land safely but it doesn’t put you back in the plane.”
Germany’s Chancellor Angela Merkel and French President Nicholas Sarkozy have confirmed their support for Italy, Italian Prime Minister Mario Monti told a Cabinet meeting on Nov. 25, according to an e-mailed statement. The leaders of the euro area’s two biggest member states agree with Monti that Italy succumbing to the region’s debt crisis would spell the end of the euro, the statement said.
Default Swaps
The cost of protecting the debt of State Bank of India against non-payment has climbed after Finance Minister Pranab Mukherjee said last month that it will be a “challenge” to narrow the budget deficit to the targeted four-year low of 4.6 percent of gross domestic product in the year ending March.
Five-year credit-default swaps on State Bank, viewed as a proxy for the nation, rose 11 basis points to 363 basis points on Nov. 25, compared with 266 at the end of October. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
India’s current-account deficit will be in focus as long as Europe’s debt crisis continues, worsening the outlook for the rupee, according to HSBC. The shortfall in the broadest measure of trade widened to $14.1 billion in the three months ended June, from $5.4 billion in the previous quarter, according to official data.
“We still have to wait and watch if the flows come in,” Ashtosh Raina, the Mumbai-based head of currency trading at HDFC Bank, said in an interview on Nov. 24. “The situation in Europe is grim and the way things go there will dictate how matters change for us.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Global funds may be allowed to buy company bonds without restrictions and foreign individual investors could purchase local shares, said Mumbai-based IndusInd Bank Ltd. (IIB) Regulators raised deposit rates for Indians abroad last week and allowed Wal-Mart Stores Inc. and Tesco Plc to take majority stakes in retailers. The rupee will drop to 58 per dollar from a record- low 52.73 on Nov. 22 on concern India’s current-account and budget deficits will widen, according to HSBC.
The 15 percent decline in the rupee, this year’s worst- performing Asian currency, is stoking price pressures by raising import costs and worsening a slump in sovereign bonds. Yields on the nation’s benchmark 10-year notes have risen 90 basis points in 2011 to 8.82 percent, compared with a drop of 22 basis points in China and 73 in South Korea.
“Anything that opens up the economy is positive for growth and risk assets like the rupee,” Tim Condon, the Singapore- based head of Asian research at ING Groep NV, said in an interview on Nov. 25. “But the origin of the problem is not India, so the rupee and any measures that India takes are hostage to the wider world.”
Singh was India’s first policy maker to open up the economy when he began a five-year term as finance minister in 1991. An economist by training, he cut import tariffs, allowed non-Indian companies such as Ford Motor Co. to set up manufacturing plants and removed regulations requiring government authorization for new factories. The moves were prompted by a surge in oil prices that depleted the nation’s foreign-exchange reserves.
Foreign Holdings Cap
Two decades later, Singh’s administration has raised the cap on foreign holdings of rupee-denominated debt by 20 percent to $60 billion, boosted the limit on the interest rates companies pay when borrowing abroad and removed a $100 million cap on inflows of foreign exchange via currency swaps. The measures were unveiled in November as the rupee weakened 6.8 percent, headed for the biggest monthly decline since March 1992.
“There has been very little economic reform in India since the early 1990s,” said Condon. “So the agenda is huge and implementing a part of it will be a positive.”
The government may consider scrapping the quota system it uses to restrict investment in rupee-denominated bonds issued by local companies, J. Moses Harding, an executive vice president at IndusInd Bank, said in an interview in Mumbai on Nov. 23. The Securities & Exchange Board of India assigns quotas for bond trading to reduce volatility. Curbs include minimum lock-in periods and mandatory reinvestments. Two phone calls made to N. Hariharan, a Mumbai-based SEBI spokesman, went unanswered.
Sell Dollars
The Reserve Bank of India may also sell dollars directly to oil refiners to reduce demand for foreign exchange in the currency market, Rohini Malkani, a Mumbai-based analyst at Citigroup Inc., wrote in a note to clients on Nov. 24. Three phone calls made to Malkani’s office weren’t answered.
There is also speculation that the government may allow companies to borrow more abroad after Thomas Mathew, joint secretary in charge of capital markets in the Finance Ministry, said this month that policy makers expect “upward pressure” on the $30 billion annual limit on so-called external commercial borrowings.
Sensex Drops
India’s benchmark Sensitive Index (SENSEX) of shares has slid 11 percent this month as global investors sold $452 million more local shares than they bought through Nov. 23, according to exchange data. The government may allow individual foreign investors to directly buy domestic shares, Finance Secretary R. Gopalan told reporters in New Delhi on Nov. 15 without providing a timeframe. Finance Ministry spokesman D.S. Malik declined to comment on the matter when contacted on Nov. 25.
The rupee slumped for a fourth straight week last week on concern Europe’s debt crisis will damp demand for emerging- market assets, slowing global growth and sapping revenue for India’s government as well as demand for exports. The currency fell 1.8 percent last week to 52.2550 per dollar, according to data compiled by Bloomberg.
India’s benchmark bonds fell on Nov. 25. The yield on the 8.79 percent securities due in November 2021 rose two basis points, or 0.02 percentage point, to 8.82 percent.
‘More Measures’
“There is a sense that the RBI now wants to stay ahead of developments in Europe,” Kamlakar Rao, the Mumbai-based head of currency trading at state-run Allahabad Bank, said in an interview on Nov. 25. “The central bank could announce more measures, like possibly raising the limit on overseas borrowings.”
India’s bonds have underperformed debt in the region as inflation that has held above 9 percent for 11 months crimped returns. Rupee-denominated notes have returned 2.8 percent this year, the worst performance among 10 Asian local-currency debt markets monitored by HSBC Holdings Plc.
Global funds have cut holdings of the nation’s debt even as the yield premium on rupee notes over U.S. debt increased in November. International investors’ ownership of local bonds has fallen $205 million since the end of October to $21.8 billion, according to exchange data. The average difference in yields between India’s 10-year debt and similar-maturity U.S. Treasuries was 689 basis points this month, compared with 658 basis points in October.
‘Smooth Volatility’
While sentiment toward the rupee has improved because of the measures announced by the government, a lot will depend on how Europe’s crisis plays out, according to HDFC Bank Ltd. The currency will appreciate 5.5 percent to end the year at 49.50 per dollar, according to the median forecast of 23 strategists’ estimates compiled by Bloomberg.
“The measures taken by the RBI will only smooth the volatility, not prevent the currency from weakening,” David Bloom, the London-based global head of currency at HSBC, said in an interview in Mumbai on Nov. 24. “If you open up a parachute while jumping out of an airplane, you can land safely but it doesn’t put you back in the plane.”
Germany’s Chancellor Angela Merkel and French President Nicholas Sarkozy have confirmed their support for Italy, Italian Prime Minister Mario Monti told a Cabinet meeting on Nov. 25, according to an e-mailed statement. The leaders of the euro area’s two biggest member states agree with Monti that Italy succumbing to the region’s debt crisis would spell the end of the euro, the statement said.
Default Swaps
The cost of protecting the debt of State Bank of India against non-payment has climbed after Finance Minister Pranab Mukherjee said last month that it will be a “challenge” to narrow the budget deficit to the targeted four-year low of 4.6 percent of gross domestic product in the year ending March.
Five-year credit-default swaps on State Bank, viewed as a proxy for the nation, rose 11 basis points to 363 basis points on Nov. 25, compared with 266 at the end of October. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
India’s current-account deficit will be in focus as long as Europe’s debt crisis continues, worsening the outlook for the rupee, according to HSBC. The shortfall in the broadest measure of trade widened to $14.1 billion in the three months ended June, from $5.4 billion in the previous quarter, according to official data.
“We still have to wait and watch if the flows come in,” Ashtosh Raina, the Mumbai-based head of currency trading at HDFC Bank, said in an interview on Nov. 24. “The situation in Europe is grim and the way things go there will dictate how matters change for us.”
To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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