By Kartik Goyal - Dec 16, 2011 6:41 PM GMT+0530
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Enlarge image India Pauses Rate Rises as Growth Risks Halt Tightening
The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion. Photographer: Kainaz Amaria/Bloomberg
Reserve Bank of India Monetary Policy, Currencies
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Dec. 16 (Bloomberg) -- Ashok Bhundia, a fixed-income strategist at Bank of America Merrill Lynch in Hong Kong, talks about Reserve Bank of India monetary policy, and investment strategy for global currencies. India’s inflation slowed to the lowest level in a year, boosting the central bank’s scope to support growth by pausing its record interest-rate increases. Bhundia speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
India’s central bank refrained from raising interest rates for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. Ten-year bonds gained the most in six months.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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Saturday, December 17, 2011
Friday, December 16, 2011
India Leaves Benchmark Rate Unchanged as Record Increases Threaten Growth By Kartik Goyal - Dec 16, 2011
India’s central bank refrained from raising interest rates for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. Ten-year bonds gained the most in six months.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai today. The decision matched all 14 estimates in a Bloomberg News survey.
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded today from a record low, helping cut import costs and giving the central bank scope to spur expansion.
“It’s prudent to pause as growth is slowing substantially amid global uncertainties and inflation is on a downward path,” said Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc. “The RBI will have to wait for a quarter or so before cutting rates as inflation is still high.”
The yield on the 8.79 percent bonds due November 2021 fell 11 basis points, or 0.11 percentage point, to 8.38 percent at the close in Mumbai. The BSE India Sensitive Index, which has lost a fifth of its value in 2011, declined 2.2 percent.
Rupee’s Rebound
India’s rupee, which has weakened about 15 percent this year, surged 1.7 percent to 52.7450 per dollar, the biggest gain since May 2010. The jump followed the central bank’s move to curb rupee-forwards trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar.
“The need to improve business sentiments and recover the growth momentum in the remaining months of the current fiscal necessitated a review of the monetary policy stance,” Finance Minister Pranab Mukherjee said in an e-mailed statement today.
Besides industrial production shrinking, growth prospects were set back by the government’s decision on Dec. 7 to put on hold plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets. The move followed political protests, and sent the stock index to its biggest three-day drop since July 2009.
“Growth is clearly decelerating,” the central bank said in today’s statement. “This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.”
Even so, the central bank said inflation risks “remain high” and the “rupee remains under stress.”
BRIC Inflation
India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November. It’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
While the “projected trajectory” for inflation remains, “from this point on, monetary policy actions are likely to reverse the cycle, responding to risks to growth,” the central bank said.
Subbarao told reporters in Mumbai today that he won’t speculate when the central bank would start cutting rates, saying a “rate cut is an event some way ahead.”
The Reserve Bank paused its monetary tightening after industrial production fell 5.1 percent in October from a year earlier and the economy expanded 6.9 percent last quarter, the weakest pace in more than two years. The central bank has raised its repurchase rate by 375 basis points in 13 moves since mid- March 2010, the fastest round of increases since the central bank was established in 1935.
Tightening Complete
“With slowing growth momentum amidst moderating inflation and heightened uncertainty in the global environment, the current phase of rate tightening is complete,” Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd., said before the report. “The retail FDI reversal is very disappointing and what India needs is a fresh batch of reforms to boost the economy.”
Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said he expects to succeed in his push to open the nation’s retail market to foreign companies after regional elections conclude by March. He said the slide in the rupee won’t diminish investor confidence in India and the economy will return to a long-term growth pace of 9 percent.
Singh, halfway through his second term, said India’s gross domestic product will expand 7.5 percent in the year ending March 31 and inflation will cool to between 6 percent and 7 percent.
Earnings Estimate
Still, analysts are cutting their earnings estimates for companies in Asia’s third-largest economy.
Earnings forecasts for Sensitive Index (SENSEX) companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees ($22) per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd., the country’s biggest carmaker, and Tata Steel Ltd., the largest producer of the alloy, by at least 29 percent, the data show.
The Reserve Bank’s decision to keep borrowing costs unchanged may also have been prompted by a cash squeeze in commercial lenders.
Cash availability with Indian lenders dropped after the central bank bought rupees to stem the decline in the currency and companies borrowed money to fund imports, Mahendra Jajoo, the Mumbai-based head of fixed-income investments at Pramerica Asset Managers, a unit of Newark, New Jersey-based Prudential Financial Inc., said before the report.
Cash Crunch
In an indication of cash shortages, lenders borrowed 924.7 billion rupees on average a day in November from the Reserve Bank, almost twice the amount sought in October, according to data compiled by Bloomberg. They borrowed 867.6 billion rupees on average a day this month. Overnight rates surged to 9.15 percent today, the highest level in three years.
The central bank resumed open-market purchases of sovereign debt last month for the first time since January to boost the amount of cash in the banking system. The monetary authority has purchased 243 billion rupees of government debt in auctions over the past month, central bank data show.
“We hope the RBI will now shift its focus to encouraging growth,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said before the release. “The industrial slowdown is taking very serious dimensions and there is an urgent need to improve sentiment.”
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, December 15, 2011
India Profit Forecasts Cut Most Since ’09 as Sensex Sinking Most in World By Rajhkumar K Shaaw - Dec 15, 2011
Indian stocks are ending 2011 with the biggest decline among the world’s largest equity markets, and analysts say the worst is yet to come.
Earnings forecasts (SENSEX) for BSE India Sensitive Index companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd. (MSIL), the country’s biggest carmaker, and Tata Steel Ltd. (TATA), the largest producer of the alloy, by at least 29 percent, the data show.
While Prime Minister Manmohan Singh said in a Dec. 14 interview with Bloomberg News that he expects economic growth in India to accelerate to an annual pace of 9 percent, analysts are slashing their forecasts for companies as seven interest-rate increases this year drive up financing costs and a 17 percent plunge in the rupee boosts import prices. Bank of America Corp., CLSA Asia-Pacific Markets and UTI Asset Management Co. say the downgrades will extend into the 2013 fiscal year and deepen declines in the Sensex, which has slumped 23 percent this year, the most among benchmark measures in the 10 largest markets.
“Till now, the concern was that inflation and interest rates are going to hurt earnings growth,” said Swati Kulkarni, who helps oversee $12 billion at Mumbai-based UTI Asset, India’s fifth-largest money-management company. “Now the rupee is causing the biggest damage to earnings. We may see more earnings downgrades in the next two-to-three months.” Kulkarni’s UTI MNC (UTIUGSC) fund has beaten 97 percent of its peers this year, data compiled by Bloomberg show.
BRIC Declines
The Sensex may sink to 14,500 in the next six months, according to a Dec. 5 Bank of America report. That’s 8.4 percent lower than its close of 15,836.47 yesterday. The gauge’s drop this year has outpaced the Standard & Poor’s 500 Index’s 3 percent loss and, in dollar terms, is more than the declines for measures in any of the so-called BRIC countries that include Brazil, Russia and China.
“I am sure investors are wise enough to distinguish between short-term aberrations and long-term prospects,” Prime Minister Singh said in the interview in New Delhi two days ago. “There are short-term issues sometimes over which we don’t have any control.”
With inflation above 9 percent for the past 12 months, the Reserve Bank of India increased its benchmark interest rate 375 basis points in 13 moves since March 2010. That’s slowed the expansion in India’s $1.7 trillion economy, Asia’s third- largest, to 6.9 percent in the three months to September, the least in more than two years. Industrial production fell 5.1 percent in October from a year earlier, the first decline since 2009, according to statistics office data on Dec. 12.
‘Biggest Threat’
“A slowdown in economic growth, a weak rupee and global factors are the biggest threat to earnings growth,” UTI’s Kulkarni said. “The question is how much is priced” into stock markets, she said.
While net income at the Sensex’s 30 companies climbed a combined 7 percent in the three months through September, the least in five quarters, 40 percent of the gauge’s companies including New Delhi-based Bharti Airtel Ltd. (BHARTI), the nation’s largest mobile-phone operator, and Mumbai-based Tata Consultancy Services Ltd. (TCS), the biggest software services exporter, reported profit that missed analysts’ estimates, data compiled by Bloomberg show.
Lower Target
Bank of America predicts Sensex companies may earn 1,200 rupees per share for the year ending March 2013, 21 percent lower than the 1,510 rupees estimated in April, according to the report from Bank of America analysts led by Jyotivardhan Jaipuria, the lender’s Mumbai-based head of India research.
The bank’s latest target is 9.2 percent lower than the 1,322 rupee forecast of analysts compiled by Bloomberg.
“For the next six months, we will see most of the downgrades happening,” Jaipuria said in a Dec. 1 interview.
The slide in the Sensex means the gauge trades at 2.7 times corporate net worth, near the lowest level since July 2009. While that’s higher than the MSCI BRIC Index, which trades at 1.4 times, cheaper valuations are luring Franklin Templeton Investments’ Mark Mobius, who is buying consumer banks that benefit from increasing wealth in India as well as utilities, because of electricity shortages.
“Valuations are good in India,” Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said in a telephone interview on Dec. 9. “We can get great opportunities right now.”
More Expensive
Indian stocks remain 39 percent more expensive than companies in the MSCI Emerging Markets Index, compared with an average premium of 12 percent since 1996, according to price- earnings ratios based on trailing profits compiled by MSCI Inc. and Bloomberg.
International investors withdrew $787.1 million from local shares last month, the most since August, data from the market regulator show. Foreign funds have pulled out $321.5 million from domestic stocks this year compared with a record inflow of $29.4 billion in 2010, as Europe’s worsening debt crisis prompted investors to flee from assets perceived as risky. The European Union is the Asian nation’s biggest trading partner, according to India’s Commerce Ministry.
“There is a long-term appetite for Indian equities but in the near term, with the global crisis dominating, investor appetite for risk is not high,” Nick Cringle, co-chief investment officer at Royal Bank of Scotland Group Plc’s wealth management division, said in a Nov. 23 interview in Mumbai. The Sensex trades at 13.7 times estimated profit and equities will become attractive when valuations fall to 11-to-12 times, according to Cringle.
Risk Appetite
Kotak Institutional Equities, the Mumbai-based brokerage controlled by billionaire Uday Kotak, has pared its earnings growth forecast for Sensex companies for the year ending in March to 14.4 percent from 19 percent, Sanjeev Prasad, co-head of institutional equities at Kotak, said in an interview with Bloomberg UTV on Nov. 23.
CLSA lowered its target for Sensex companies’ earnings per share for 2013 by 3 percent to 1,269 rupees, analysts led by Mahesh Nandurkar wrote in a Dec. 8 report. CLSA cut its 12-month Sensex target to 17,000 from 18,200 citing lower earnings and “political logjam,” according to the report.
Prime Minister Singh decided on Dec. 7 to shelve plans to allow overseas investment in some domestic retailers, bowing to opposition lawmakers and adding to government initiatives that haven’t been completed, such as the planned sale of stakes in state-run companies to help narrow the budget deficit. Singh expects to push through the reform of the retail industry next year, he said on Dec. 14.
‘Uncertainty and Confusion’
Policy decisions in India are fraught with “uncertainty and confusion,” John Flannery, chief executive officer for General Electric Co.’s local unit, said in an interview in New Delhi on Dec. 7.
“Any near-term positive newsflow appears unlikely on the ‘reforms’ front,” CLSA’s Nandurkar and his team wrote in their report. An economic “slowdown is visible,” they said.
The rupee’s slump is also driving up financing costs and providing little relief to the trade deficit, which widened by $19.6 billion in October, the most in at least 17 years, according to government data.
Rising Costs
Tata Steel reported an 89 percent drop in group profit in the quarter ended Sept. 30. The Mumbai-based company’s costs to service its foreign currency bonds may rise by 1.5 billion rupees because of currency depreciation, Chief Financial Officer Koushik Chatterjee told reporters on Nov. 10.
New Delhi-based Maruti Suzuki, India’s biggest passenger car maker, is “selectively” hedging its foreign-exchange risk as the rupee plunges, Chief Financial Officer Ajay Seth said in a Nov. 21 interview. Maruti’s imports are about twice the size of the company’s exports, he said. Maruti Suzuki and Tata Steel’s shares have slumped more than 30 percent this year.
“A lot of analysts tend to keep the forex loss as a one- off,” Bank of America’s Jaipuria said. “It would be probably worse if we took the forex loss into account. Earnings will come down.”
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Earnings forecasts (SENSEX) for BSE India Sensitive Index companies for the year ending in March 2012 have fallen 7.9 percent to 1,160 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd. (MSIL), the country’s biggest carmaker, and Tata Steel Ltd. (TATA), the largest producer of the alloy, by at least 29 percent, the data show.
While Prime Minister Manmohan Singh said in a Dec. 14 interview with Bloomberg News that he expects economic growth in India to accelerate to an annual pace of 9 percent, analysts are slashing their forecasts for companies as seven interest-rate increases this year drive up financing costs and a 17 percent plunge in the rupee boosts import prices. Bank of America Corp., CLSA Asia-Pacific Markets and UTI Asset Management Co. say the downgrades will extend into the 2013 fiscal year and deepen declines in the Sensex, which has slumped 23 percent this year, the most among benchmark measures in the 10 largest markets.
“Till now, the concern was that inflation and interest rates are going to hurt earnings growth,” said Swati Kulkarni, who helps oversee $12 billion at Mumbai-based UTI Asset, India’s fifth-largest money-management company. “Now the rupee is causing the biggest damage to earnings. We may see more earnings downgrades in the next two-to-three months.” Kulkarni’s UTI MNC (UTIUGSC) fund has beaten 97 percent of its peers this year, data compiled by Bloomberg show.
BRIC Declines
The Sensex may sink to 14,500 in the next six months, according to a Dec. 5 Bank of America report. That’s 8.4 percent lower than its close of 15,836.47 yesterday. The gauge’s drop this year has outpaced the Standard & Poor’s 500 Index’s 3 percent loss and, in dollar terms, is more than the declines for measures in any of the so-called BRIC countries that include Brazil, Russia and China.
“I am sure investors are wise enough to distinguish between short-term aberrations and long-term prospects,” Prime Minister Singh said in the interview in New Delhi two days ago. “There are short-term issues sometimes over which we don’t have any control.”
With inflation above 9 percent for the past 12 months, the Reserve Bank of India increased its benchmark interest rate 375 basis points in 13 moves since March 2010. That’s slowed the expansion in India’s $1.7 trillion economy, Asia’s third- largest, to 6.9 percent in the three months to September, the least in more than two years. Industrial production fell 5.1 percent in October from a year earlier, the first decline since 2009, according to statistics office data on Dec. 12.
‘Biggest Threat’
“A slowdown in economic growth, a weak rupee and global factors are the biggest threat to earnings growth,” UTI’s Kulkarni said. “The question is how much is priced” into stock markets, she said.
While net income at the Sensex’s 30 companies climbed a combined 7 percent in the three months through September, the least in five quarters, 40 percent of the gauge’s companies including New Delhi-based Bharti Airtel Ltd. (BHARTI), the nation’s largest mobile-phone operator, and Mumbai-based Tata Consultancy Services Ltd. (TCS), the biggest software services exporter, reported profit that missed analysts’ estimates, data compiled by Bloomberg show.
Lower Target
Bank of America predicts Sensex companies may earn 1,200 rupees per share for the year ending March 2013, 21 percent lower than the 1,510 rupees estimated in April, according to the report from Bank of America analysts led by Jyotivardhan Jaipuria, the lender’s Mumbai-based head of India research.
The bank’s latest target is 9.2 percent lower than the 1,322 rupee forecast of analysts compiled by Bloomberg.
“For the next six months, we will see most of the downgrades happening,” Jaipuria said in a Dec. 1 interview.
The slide in the Sensex means the gauge trades at 2.7 times corporate net worth, near the lowest level since July 2009. While that’s higher than the MSCI BRIC Index, which trades at 1.4 times, cheaper valuations are luring Franklin Templeton Investments’ Mark Mobius, who is buying consumer banks that benefit from increasing wealth in India as well as utilities, because of electricity shortages.
“Valuations are good in India,” Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said in a telephone interview on Dec. 9. “We can get great opportunities right now.”
More Expensive
Indian stocks remain 39 percent more expensive than companies in the MSCI Emerging Markets Index, compared with an average premium of 12 percent since 1996, according to price- earnings ratios based on trailing profits compiled by MSCI Inc. and Bloomberg.
International investors withdrew $787.1 million from local shares last month, the most since August, data from the market regulator show. Foreign funds have pulled out $321.5 million from domestic stocks this year compared with a record inflow of $29.4 billion in 2010, as Europe’s worsening debt crisis prompted investors to flee from assets perceived as risky. The European Union is the Asian nation’s biggest trading partner, according to India’s Commerce Ministry.
“There is a long-term appetite for Indian equities but in the near term, with the global crisis dominating, investor appetite for risk is not high,” Nick Cringle, co-chief investment officer at Royal Bank of Scotland Group Plc’s wealth management division, said in a Nov. 23 interview in Mumbai. The Sensex trades at 13.7 times estimated profit and equities will become attractive when valuations fall to 11-to-12 times, according to Cringle.
Risk Appetite
Kotak Institutional Equities, the Mumbai-based brokerage controlled by billionaire Uday Kotak, has pared its earnings growth forecast for Sensex companies for the year ending in March to 14.4 percent from 19 percent, Sanjeev Prasad, co-head of institutional equities at Kotak, said in an interview with Bloomberg UTV on Nov. 23.
CLSA lowered its target for Sensex companies’ earnings per share for 2013 by 3 percent to 1,269 rupees, analysts led by Mahesh Nandurkar wrote in a Dec. 8 report. CLSA cut its 12-month Sensex target to 17,000 from 18,200 citing lower earnings and “political logjam,” according to the report.
Prime Minister Singh decided on Dec. 7 to shelve plans to allow overseas investment in some domestic retailers, bowing to opposition lawmakers and adding to government initiatives that haven’t been completed, such as the planned sale of stakes in state-run companies to help narrow the budget deficit. Singh expects to push through the reform of the retail industry next year, he said on Dec. 14.
‘Uncertainty and Confusion’
Policy decisions in India are fraught with “uncertainty and confusion,” John Flannery, chief executive officer for General Electric Co.’s local unit, said in an interview in New Delhi on Dec. 7.
“Any near-term positive newsflow appears unlikely on the ‘reforms’ front,” CLSA’s Nandurkar and his team wrote in their report. An economic “slowdown is visible,” they said.
The rupee’s slump is also driving up financing costs and providing little relief to the trade deficit, which widened by $19.6 billion in October, the most in at least 17 years, according to government data.
Rising Costs
Tata Steel reported an 89 percent drop in group profit in the quarter ended Sept. 30. The Mumbai-based company’s costs to service its foreign currency bonds may rise by 1.5 billion rupees because of currency depreciation, Chief Financial Officer Koushik Chatterjee told reporters on Nov. 10.
New Delhi-based Maruti Suzuki, India’s biggest passenger car maker, is “selectively” hedging its foreign-exchange risk as the rupee plunges, Chief Financial Officer Ajay Seth said in a Nov. 21 interview. Maruti’s imports are about twice the size of the company’s exports, he said. Maruti Suzuki and Tata Steel’s shares have slumped more than 30 percent this year.
“A lot of analysts tend to keep the forex loss as a one- off,” Bank of America’s Jaipuria said. “It would be probably worse if we took the forex loss into account. Earnings will come down.”
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, December 14, 2011
No Surrender on India Retail Initiative: Singh By Unni Krishnan and Matthew Winkler - Dec 14, 2011
India’s Prime Minister Manmohan Singh pledged to overcome opposition to opening the country’s retail industry to companies like Wal-Mart Stores Inc. (WMT), saying his two-decade reform agenda is the best way of reviving the slowest economic growth in two years.
In an interview in his office at Parliament House in New Delhi, Singh said he’ll succeed in letting foreign companies buy majority stakes in Indian retailers after contesting regional elections early next year and as slower inflation bolsters support for his administration. He said he underestimated the opposition that derailed the plan a week ago and sent the benchmark stock index to its biggest three-day drop since July 2009.
“There was inadequate preparation and some partners in the coalition developed cold feet,” Singh said in the interview yesterday covering subjects from his legacy to the losses suffered by Kingfisher Airlines Ltd. “But I can assure you, India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment.”
Singh is facing one of the most challenging periods since taking office in 2004 after opposition from coalition allies prompted his Dec. 7 decision to delay indefinitely the retail- opening measure. At stake for Singh, 79, is preserving an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies.
The policy setback is a symptom of a functioning democracy, Singh said. Still, a democratic system of government remains “the most credible,” he said.
‘Only Path’
“There may be zigzags along the way, but the path is the one I set,” said Singh, the only Indian to have served as governor of the Reserve Bank of India, finance minister and prime minister and the nation’s first head of government to come from a religious minority. “It is the only path to reduce the chronic poverty millions still live under.”
He predicted that gross domestic product will increase 7.5 percent in the fiscal year that ends March 31, while inflation will cool to between 6 percent and 7 percent. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said.
Shoppers Stop Ltd. (SHOP), India’s second-largest retailer by market value, gained 1 percent to 310.6 rupees, ending five straight days of losses after Singh’s comments yesterday.
Rupee, Stocks
The rupee briefly pared losses, before weakening to a record low of 53.715 per dollar in Mumbai. India’s currency has tumbled 17 percent so far this year, the worst performance among 10 major Asian currencies tracked by Bloomberg, hurt by India’s parliamentary gridlock, elevated inflation, widening budget gap and the weakest economic growth in two years. The benchmark Sensitive Index (SENSEX) of stocks has fallen 23 percent in 2011.
“This is his last innings and he has everything to gain,” said B.G. Verghese, an analyst with the Centre for Policy Research in New Delhi, using a term from cricket, India’s most popular sport. “The economic indicators are such that he realizes that he better do something or there will be trouble.”
Verghese, who served as an aide to former Prime Minister Indira Gandhi and has written books on Indian development policy, predicted the government will invigorate its legislative record by passing an anti-corruption bill. Policy makers may follow up with efforts to reduce regulation in the financial industry and the revival of the foreign retailers’ measure, he said.
Political Patchwork
As prime minister, Singh has had to hold together a coalition government in a nation of 1.2 billion people where political backing in some areas is aligned with social castes. More than half a century after independence from Britain, debates still occur over carving out new states to acknowledge ethnic and social differences.
The Congress party-led United Progressive Alliance has 263 seats in the lower house of parliament, 9 short of a majority. Two allies, the All India Trinamool Congress party that’s centered in West Bengal, and the Dravida Munnetra Kazhagam based in southern Tamil Nadu state, have 18 members each.
Both of those allies opposed the policy to allow foreign direct investment in retailing, a measure that Singh and Commerce Minister Anand Sharma said would create 10 million jobs, and help rein in inflation by reducing the 40 percent of fruit and vegetables that rot before they can be sold due to a lack of cold-storage facilities.
“Reforms were not sold the way they ought to have been,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and former International Monetary Fund economist. “The narrative that was built up around the change in policy on FDI into retail was that it would end up benefiting some big multinational companies,” rather than improving the nation’s distribution system and keeping prices down, he said.
Kingfisher (KAIR) Aid
Turning to Kingfisher Airlines, the Indian carrier seeking cash after losses, Singh predicted that banks will support its turnaround efforts. Kingfisher has pledged assets ranging from its brand to office furniture for bank loans of as much as 64.2 billion rupees ($1.2 billion).
“In the case of Kingfisher, where government banks have given loans, if they take corrective measures I am sure things should work out,” Singh said. “The Indian banking system has a stake in their well-being. With a government nod things will turn around.”
The prime minister said some of his administration’s unpopularity at home stems from high inflation. Wholesale prices, India’s benchmark gauge, rose 9.1 percent in November from a year before, the government reported yesterday. India’s inflation is the highest among the BRIC nations, which include Brazil, Russia and China.
Inflation Pressures
While international commodity prices have pushed up costs in India, record food production should help to ease inflation pressures, said Singh. Interest rates should be about two percentage points more than inflation over the long run to encourage savings, he said.
The Reserve Bank of India has raised interest rates 13 times since the start of last year, to 8.5 percent. Governor Duvvuri Subbarao has blamed fiscal deficits for contributing to inflation. Singh yesterday indicated he agreed.
“We have taken steps on the monetary policy side but we haven’t been as successful in the fiscal side,” Singh said. “You should understand fiscal policy is an acutely political weapon.”
ICICI Securities Primary Dealership Ltd., a unit of the nation’s second-biggest lender, sees the gap widening to 5.5 percent of GDP, compared with the 4.6 percent target.
2004 Appointment
Without making a harder push to get his economic agenda approved, Singh may risk clouding his legacy, after his initial appointment by Congress party President Sonia Gandhi in 2004 won accolades from overseas investors.
The government has failed to enact key economic legislation, including an overhaul of the tax code, since the end of last year. The past three sessions of parliament have been disrupted by opposition protests in the aftermath of a former telecommunications minister, bureaucrats and businessmen being accused of conspiring to benefit from a 2008 sale of mobile- phone licenses.
“The government should have done more -- it is very frustrating as an investor,” said Walter Rossini, a Milan-based fund manager who oversees 200 million euros in Indian equities at Aletti Gestielle SGR SpA. Rossini has switched to an underweight on the country’s shares from overweight in the last year, compared with benchmarks he uses to gauge performance.
Welfare System
Singh has had more success in strengthening India’s welfare system than deepening market deregulation since he took office as prime minister. The government has expanded programs to provide jobs and subsidized food for the nation’s poor, in a country where more than three quarters of the population lives on less than $2 a day.
“He played a very important role in setting India on a high growth path, and that will be his legacy,” said Prasad, who serves on an advisory committee to India’s finance minister. “The lack of an independent political base certainly constrained his ability to push forward reforms aggressively. That in addition to his modest and demure personality made it very difficult for him to be as effective as prime minister.”
Engineer of Change
A Sikh born in what is now Pakistan, Singh studied economics at both Oxford and Cambridge universities. He built his reputation as an engineer of change during his time as finance minister in the government of Congress party Prime Minister Narasimha Rao. With a surge in oil prices depleting India’s foreign exchange reserves, he began removing barriers to investment in what had until then been an economy dominated by state enterprises.
In his first two months as finance minister, Singh devalued the rupee, dismantled government monopolies, cut import tariffs and taxes and let foreign companies take 51 percent stakes in sectors including automobiles and pharmaceuticals. The measures helped growth accelerate to 7.6 percent from 2.1 percent during his tenure, and the economy has quadrupled in size.
“The world has seen India’s potential,” Singh said. “India should remain a functioning democracy which is integrated with the evolving global economy, that recognizes globalization brings many advantages, that makes a success of globalization.”
To contact the reporters on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
In an interview in his office at Parliament House in New Delhi, Singh said he’ll succeed in letting foreign companies buy majority stakes in Indian retailers after contesting regional elections early next year and as slower inflation bolsters support for his administration. He said he underestimated the opposition that derailed the plan a week ago and sent the benchmark stock index to its biggest three-day drop since July 2009.
“There was inadequate preparation and some partners in the coalition developed cold feet,” Singh said in the interview yesterday covering subjects from his legacy to the losses suffered by Kingfisher Airlines Ltd. “But I can assure you, India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment.”
Singh is facing one of the most challenging periods since taking office in 2004 after opposition from coalition allies prompted his Dec. 7 decision to delay indefinitely the retail- opening measure. At stake for Singh, 79, is preserving an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies.
The policy setback is a symptom of a functioning democracy, Singh said. Still, a democratic system of government remains “the most credible,” he said.
‘Only Path’
“There may be zigzags along the way, but the path is the one I set,” said Singh, the only Indian to have served as governor of the Reserve Bank of India, finance minister and prime minister and the nation’s first head of government to come from a religious minority. “It is the only path to reduce the chronic poverty millions still live under.”
He predicted that gross domestic product will increase 7.5 percent in the fiscal year that ends March 31, while inflation will cool to between 6 percent and 7 percent. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said.
Shoppers Stop Ltd. (SHOP), India’s second-largest retailer by market value, gained 1 percent to 310.6 rupees, ending five straight days of losses after Singh’s comments yesterday.
Rupee, Stocks
The rupee briefly pared losses, before weakening to a record low of 53.715 per dollar in Mumbai. India’s currency has tumbled 17 percent so far this year, the worst performance among 10 major Asian currencies tracked by Bloomberg, hurt by India’s parliamentary gridlock, elevated inflation, widening budget gap and the weakest economic growth in two years. The benchmark Sensitive Index (SENSEX) of stocks has fallen 23 percent in 2011.
“This is his last innings and he has everything to gain,” said B.G. Verghese, an analyst with the Centre for Policy Research in New Delhi, using a term from cricket, India’s most popular sport. “The economic indicators are such that he realizes that he better do something or there will be trouble.”
Verghese, who served as an aide to former Prime Minister Indira Gandhi and has written books on Indian development policy, predicted the government will invigorate its legislative record by passing an anti-corruption bill. Policy makers may follow up with efforts to reduce regulation in the financial industry and the revival of the foreign retailers’ measure, he said.
Political Patchwork
As prime minister, Singh has had to hold together a coalition government in a nation of 1.2 billion people where political backing in some areas is aligned with social castes. More than half a century after independence from Britain, debates still occur over carving out new states to acknowledge ethnic and social differences.
The Congress party-led United Progressive Alliance has 263 seats in the lower house of parliament, 9 short of a majority. Two allies, the All India Trinamool Congress party that’s centered in West Bengal, and the Dravida Munnetra Kazhagam based in southern Tamil Nadu state, have 18 members each.
Both of those allies opposed the policy to allow foreign direct investment in retailing, a measure that Singh and Commerce Minister Anand Sharma said would create 10 million jobs, and help rein in inflation by reducing the 40 percent of fruit and vegetables that rot before they can be sold due to a lack of cold-storage facilities.
“Reforms were not sold the way they ought to have been,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and former International Monetary Fund economist. “The narrative that was built up around the change in policy on FDI into retail was that it would end up benefiting some big multinational companies,” rather than improving the nation’s distribution system and keeping prices down, he said.
Kingfisher (KAIR) Aid
Turning to Kingfisher Airlines, the Indian carrier seeking cash after losses, Singh predicted that banks will support its turnaround efforts. Kingfisher has pledged assets ranging from its brand to office furniture for bank loans of as much as 64.2 billion rupees ($1.2 billion).
“In the case of Kingfisher, where government banks have given loans, if they take corrective measures I am sure things should work out,” Singh said. “The Indian banking system has a stake in their well-being. With a government nod things will turn around.”
The prime minister said some of his administration’s unpopularity at home stems from high inflation. Wholesale prices, India’s benchmark gauge, rose 9.1 percent in November from a year before, the government reported yesterday. India’s inflation is the highest among the BRIC nations, which include Brazil, Russia and China.
Inflation Pressures
While international commodity prices have pushed up costs in India, record food production should help to ease inflation pressures, said Singh. Interest rates should be about two percentage points more than inflation over the long run to encourage savings, he said.
The Reserve Bank of India has raised interest rates 13 times since the start of last year, to 8.5 percent. Governor Duvvuri Subbarao has blamed fiscal deficits for contributing to inflation. Singh yesterday indicated he agreed.
“We have taken steps on the monetary policy side but we haven’t been as successful in the fiscal side,” Singh said. “You should understand fiscal policy is an acutely political weapon.”
ICICI Securities Primary Dealership Ltd., a unit of the nation’s second-biggest lender, sees the gap widening to 5.5 percent of GDP, compared with the 4.6 percent target.
2004 Appointment
Without making a harder push to get his economic agenda approved, Singh may risk clouding his legacy, after his initial appointment by Congress party President Sonia Gandhi in 2004 won accolades from overseas investors.
The government has failed to enact key economic legislation, including an overhaul of the tax code, since the end of last year. The past three sessions of parliament have been disrupted by opposition protests in the aftermath of a former telecommunications minister, bureaucrats and businessmen being accused of conspiring to benefit from a 2008 sale of mobile- phone licenses.
“The government should have done more -- it is very frustrating as an investor,” said Walter Rossini, a Milan-based fund manager who oversees 200 million euros in Indian equities at Aletti Gestielle SGR SpA. Rossini has switched to an underweight on the country’s shares from overweight in the last year, compared with benchmarks he uses to gauge performance.
Welfare System
Singh has had more success in strengthening India’s welfare system than deepening market deregulation since he took office as prime minister. The government has expanded programs to provide jobs and subsidized food for the nation’s poor, in a country where more than three quarters of the population lives on less than $2 a day.
“He played a very important role in setting India on a high growth path, and that will be his legacy,” said Prasad, who serves on an advisory committee to India’s finance minister. “The lack of an independent political base certainly constrained his ability to push forward reforms aggressively. That in addition to his modest and demure personality made it very difficult for him to be as effective as prime minister.”
Engineer of Change
A Sikh born in what is now Pakistan, Singh studied economics at both Oxford and Cambridge universities. He built his reputation as an engineer of change during his time as finance minister in the government of Congress party Prime Minister Narasimha Rao. With a surge in oil prices depleting India’s foreign exchange reserves, he began removing barriers to investment in what had until then been an economy dominated by state enterprises.
In his first two months as finance minister, Singh devalued the rupee, dismantled government monopolies, cut import tariffs and taxes and let foreign companies take 51 percent stakes in sectors including automobiles and pharmaceuticals. The measures helped growth accelerate to 7.6 percent from 2.1 percent during his tenure, and the economy has quadrupled in size.
“The world has seen India’s potential,” Singh said. “India should remain a functioning democracy which is integrated with the evolving global economy, that recognizes globalization brings many advantages, that makes a success of globalization.”
To contact the reporters on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, December 13, 2011
StanChart to Increase India M&A Financing By George Smith Alexander and Ruth David - Dec 13, 2011
Standard Chartered Plc (STAN) plans to increase takeover financing for Indian companies as it seeks to gain ground in mergers advisory in emerging markets on rivals weakened by Europe’s credit crisis.
“As the world goes through this turmoil, banks like ours which do have the capability and a strong balance sheet see that as an opportunity,” to lend for acquisitions, Neeraj Swaroop, the U.K. bank’s outgoing chief executive officer for India and South Asia, said in an interview in Mumbai yesterday.
Standard Chartered funded deals including Aditya Birla Group’s $875 million acquisition of Columbian Chemicals Co. in January to help defend its No. 3 position in Indian mergers advisory this year, data compiled by Bloomberg show. The London- based bank ranks 43rd globally among arrangers of takeovers.
Banks that offer financing to gain advisory credit distort the rankings among takeover arrangers, said Uday Kotak, the billionaire owner of rival Kotak Mahindra Bank Ltd. (KMB) Kotak did not specifically name Standard Chartered. The Mumbai-based firm, which is 21st in arranging mergers involving Indian companies this year, runs financing operations independently of advisory, he said.
“An advisory league table is about what value has been added by a banker and you don’t mix it with financing,” Kotak said in an interview in Mumbai on Dec. 12.
‘Whole Solution’
The value of mergers involving Indian companies has slumped 42 percent this year to $37.4 billion, according to Bloomberg data. Inbound purchases are outpacing acquisitions abroad for the first time in at least a decade, the data show.
Barclays Plc, State Bank of India (SBIN) and Standard Chartered advised on, and were among the financiers for, New Delhi based Bharti Airtel Ltd.’s $9 billion acquisition of Kuwait’s Mobile Telecommunications Co.’s African operations.
Standard Chartered wants to offer a “whole solution” to clients in India, including domestic and offshore financing, advisory, and transaction banking, Swaroop said. The bank assesses the overall return on capital it can achieve on each client when deciding whether to extend takeover loans, he said.
Swaroop, who joined Standard Chartered as India CEO from domestic rival HDFC Bank Ltd. (HDFCB) in 2005, will move to Singapore next year to run the company’s Southeast Asian operations.
Profit Generator
Standard Chartered got over 70 percent of its pretax profit from Asia last year, as CEO Peter Sands expanded in emerging markets while European rivals sought to fend off contagion from the sovereign debt crisis. It is the largest foreign bank in India by number of branches, and the country was Standard Chartered’s third-largest profit generator in the first half, behind Hong Kong and Singapore.
The bank’s profit in India before taxes for the first half of 2011 fell 39 percent to $378 million, amid increased competition and rising interest rates in India, Bloomberg data show. Swaroop said he expects earnings to rise in 2012 as profits increase at the wholesale bank.
Standard Chartered bolstered its position in India with acquisitions, including the purchase of the South Asian and Middle Eastern operations of Melbourne-based ANZ Grindlays Bank Ltd., in 2000, which made it the biggest foreign lender in India, Pakistan, Sri Lanka and Bangladesh. It bought the banking unit of American Express Co. for about $860 million in 2007, adding branch licenses in markets including India and Taiwan.
Standard Chartered, the only foreign company to list (STAN) its shares in India, had 1.06 trillion rupees ($19 billion) of assets in India as of March 31. Swaroop said the company plans to add “a few hundred people” at its local consumer and wholesale banking operations next year.
To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
“As the world goes through this turmoil, banks like ours which do have the capability and a strong balance sheet see that as an opportunity,” to lend for acquisitions, Neeraj Swaroop, the U.K. bank’s outgoing chief executive officer for India and South Asia, said in an interview in Mumbai yesterday.
Standard Chartered funded deals including Aditya Birla Group’s $875 million acquisition of Columbian Chemicals Co. in January to help defend its No. 3 position in Indian mergers advisory this year, data compiled by Bloomberg show. The London- based bank ranks 43rd globally among arrangers of takeovers.
Banks that offer financing to gain advisory credit distort the rankings among takeover arrangers, said Uday Kotak, the billionaire owner of rival Kotak Mahindra Bank Ltd. (KMB) Kotak did not specifically name Standard Chartered. The Mumbai-based firm, which is 21st in arranging mergers involving Indian companies this year, runs financing operations independently of advisory, he said.
“An advisory league table is about what value has been added by a banker and you don’t mix it with financing,” Kotak said in an interview in Mumbai on Dec. 12.
‘Whole Solution’
The value of mergers involving Indian companies has slumped 42 percent this year to $37.4 billion, according to Bloomberg data. Inbound purchases are outpacing acquisitions abroad for the first time in at least a decade, the data show.
Barclays Plc, State Bank of India (SBIN) and Standard Chartered advised on, and were among the financiers for, New Delhi based Bharti Airtel Ltd.’s $9 billion acquisition of Kuwait’s Mobile Telecommunications Co.’s African operations.
Standard Chartered wants to offer a “whole solution” to clients in India, including domestic and offshore financing, advisory, and transaction banking, Swaroop said. The bank assesses the overall return on capital it can achieve on each client when deciding whether to extend takeover loans, he said.
Swaroop, who joined Standard Chartered as India CEO from domestic rival HDFC Bank Ltd. (HDFCB) in 2005, will move to Singapore next year to run the company’s Southeast Asian operations.
Profit Generator
Standard Chartered got over 70 percent of its pretax profit from Asia last year, as CEO Peter Sands expanded in emerging markets while European rivals sought to fend off contagion from the sovereign debt crisis. It is the largest foreign bank in India by number of branches, and the country was Standard Chartered’s third-largest profit generator in the first half, behind Hong Kong and Singapore.
The bank’s profit in India before taxes for the first half of 2011 fell 39 percent to $378 million, amid increased competition and rising interest rates in India, Bloomberg data show. Swaroop said he expects earnings to rise in 2012 as profits increase at the wholesale bank.
Standard Chartered bolstered its position in India with acquisitions, including the purchase of the South Asian and Middle Eastern operations of Melbourne-based ANZ Grindlays Bank Ltd., in 2000, which made it the biggest foreign lender in India, Pakistan, Sri Lanka and Bangladesh. It bought the banking unit of American Express Co. for about $860 million in 2007, adding branch licenses in markets including India and Taiwan.
Standard Chartered, the only foreign company to list (STAN) its shares in India, had 1.06 trillion rupees ($19 billion) of assets in India as of March 31. Swaroop said the company plans to add “a few hundred people” at its local consumer and wholesale banking operations next year.
To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, December 12, 2011
Funding Squeeze Driving ICICI Default Swaps Up Most in Asia: India Credit By Anoop Agrawal and Jeanette Rodrigues - Dec 12, 2011
Costs to protect the bonds of Indian banks against default are rising at the fastest pace among Asian lenders as a worsening cash crunch threatens profits.
Five-year credit-default swaps on Mumbai-based ICICI Bank Ltd. (ICICIBC), the nation’s largest private lender, jumped 76 basis points in the past month to 471 basis points, the biggest advance in the region, while those for government-controlled State Bank of India (SBIN) rose 43 to 361, according to data provider CMA. Similar contracts for China Development Bank fell 15 to 283 and those for Korea Development Bank slipped 10 to 178.
Lenders in India have borrowed from the central bank each day since April to meet fund shortages as policy makers raised interest rates seven times in 2011 to slow inflation that has stayed above 9 percent. The Reserve Bank of India won’t compromise on its fight against price increases to address the cash deficit in the financial system, Deputy Governor Subir Gokarn said last week.
“Banks face risks on profit margins because of policy makers’ stance on liquidity,” Aneesh Srivastava, the Mumbai- based chief investment officer at IDBI Federal Life Insurance Co. that oversees about $430 million, said in an interview on Dec. 4. “The central bank has to bring inflation down so it will ensure that cash is available at a higher premium.”
The average cost of credit-default swaps insuring against non-payment by five Indian lenders more than doubled in 2011 as the Reserve Bank boosted the repurchase rate by 225 basis points, or 2.25 percentage points, to a three-year high of 8.5 percent. Swaps for State Bank, the largest lender and a proxy for the nation, hit a two-year high of 397 basis points this quarter, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Interbank Loan Rates
Credit 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.
Indian banks borrowed an average 745 billion rupees ($14 billion) a day from the central bank this quarter, compared with 438 billion rupees in the three months to Sept. 30, as rising benchmark rates bolstered funding costs in the money market. Rates on overnight interbank loans climbed 315 basis points this year to 8.65 percent, according to data compiled by Bloomberg. Inflation was 9.73 percent in October, the fastest pace among Asia’s 10 biggest economies.
‘No Sustained Easing’
“The outlook is not really comforting on the liquidity front because there is no sustained easing in inflation,” Diwakar Gupta, a managing director at Mumbai-based State Bank, said in an interview on Dec. 4. “So there will be implications on the performance of the banking industry while inflation is what it is.”
State Bank will cancel untapped lines of credit and reorganize its balance sheet to boost the amount of available funds as it waits for an injection of funds from the government, Chairman Pratip Chaudhuri said in an interview yesterday in Mumbai. The lender has set up a panel to review ways to conserve capital, Chaudhuri said.
Moody’s Investors Service downgraded the outlook for India’s banking system last month to “negative,” saying a domestic economic slowdown and the surge in borrowing costs will boost bad loans. State Bank had its financial strength rating cut by the ratings provider in October on inadequate capital buffers and rising non-performing credit. The Bankex index (BANKEX), the nation’s main gauge of banking stocks, has lost 26 percent this year.
No ‘Dramatic Recovery’
Non-performing assets at the biggest Indian lender rose to 4.19 percent of total debt last quarter from 3.35 percent a year earlier. Bad-loan provisions jumped 35 percent to 29.2 billion rupees in the same period. India’s industrial production shrank 5.1 percent from a year earlier in October, the first decline in 28 months, government data showed yesterday.
“India’s growth momentum has been slipping in the last few months, and we don’t expect a dramatic recovery in the near term as long as the export outlook remains clouded, borrowing costs high and business confidence low,” Atsi Sheth, a credit analyst at Moody’s, said in an e-mail on Dec. 8.
The government’s decision last week to suspend plans to allow overseas investment in the retailing industry due to lack of political consensus will further hurt investor confidence, Moody’s said in a research note yesterday.
“The policy reversal is credit negative,” Mumbai-based Sheth wrote in the note. “It reinforces the popular view that Indian politics hamper the government’s ability to implement policies decisively.”
Bank Lending Slows
Annual increases in bank lending slowed to 17.6 percent last month from 24.4 percent at the end of 2010, according to central bank data. Sales of rupee-denominated bonds by Indian companies shrank 23 percent this year to 1.49 trillion rupees from 2010, data compiled by Bloomberg show. The Reserve Bank forecast in June that bad loans will rise 25 percent in the year to March to 2.91 percent of total credit.
Mumbai-based ICICI Bank bought the first rupee-denominated credit-default swap contract last week to guard against the risk of debt defaults. The lender bought credit protection on Rural Electrification Corp.’s one-year bond from Mumbai-based IDBI Bank Ltd., N.S. Venkatesh, head of treasury at IDBI, said on Dec. 7.
Lower Returns
Yields in India’s government and corporate notes have gained this year as the central bank boosted benchmark rates. Yields on 10-year sovereign bonds climbed 53 basis points in 2011 to 8.47 percent. The yield on the 8.79 percent note due 2021 fell nine basis points yesterday in Mumbai, according to the central bank’s trading system. The extra yield demanded by investors to hold the notes over similar-dated U.S. Treasuries has widened 182 basis points to 644 in 2011.
Rupee-denominated bonds returned 5.1 percent in 2011, compared with the 20 percent earned by Indonesian debt, according to HSBC Holdings Plc indexes.
The Indian rupee’S 15 percent slide in 2011, the worst performance among Asian currencies, will also boost the risk of bad debt, according to Morgan Stanley. The currency slid 1.5 percent yesterday to 52.8350 per dollar and touched a record-low 52.84.
“Higher cost of capital, a slowdown in growth, and foreign-exchange volatility are likely to result in a further rise in non-performing loans,” analysts at Morgan Stanley led by Hong Kong-based Chetan Ahya wrote in a research note dated yesterday.
To contact the reporters on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net; 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.
Five-year credit-default swaps on Mumbai-based ICICI Bank Ltd. (ICICIBC), the nation’s largest private lender, jumped 76 basis points in the past month to 471 basis points, the biggest advance in the region, while those for government-controlled State Bank of India (SBIN) rose 43 to 361, according to data provider CMA. Similar contracts for China Development Bank fell 15 to 283 and those for Korea Development Bank slipped 10 to 178.
Lenders in India have borrowed from the central bank each day since April to meet fund shortages as policy makers raised interest rates seven times in 2011 to slow inflation that has stayed above 9 percent. The Reserve Bank of India won’t compromise on its fight against price increases to address the cash deficit in the financial system, Deputy Governor Subir Gokarn said last week.
“Banks face risks on profit margins because of policy makers’ stance on liquidity,” Aneesh Srivastava, the Mumbai- based chief investment officer at IDBI Federal Life Insurance Co. that oversees about $430 million, said in an interview on Dec. 4. “The central bank has to bring inflation down so it will ensure that cash is available at a higher premium.”
The average cost of credit-default swaps insuring against non-payment by five Indian lenders more than doubled in 2011 as the Reserve Bank boosted the repurchase rate by 225 basis points, or 2.25 percentage points, to a three-year high of 8.5 percent. Swaps for State Bank, the largest lender and a proxy for the nation, hit a two-year high of 397 basis points this quarter, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Interbank Loan Rates
Credit 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.
Indian banks borrowed an average 745 billion rupees ($14 billion) a day from the central bank this quarter, compared with 438 billion rupees in the three months to Sept. 30, as rising benchmark rates bolstered funding costs in the money market. Rates on overnight interbank loans climbed 315 basis points this year to 8.65 percent, according to data compiled by Bloomberg. Inflation was 9.73 percent in October, the fastest pace among Asia’s 10 biggest economies.
‘No Sustained Easing’
“The outlook is not really comforting on the liquidity front because there is no sustained easing in inflation,” Diwakar Gupta, a managing director at Mumbai-based State Bank, said in an interview on Dec. 4. “So there will be implications on the performance of the banking industry while inflation is what it is.”
State Bank will cancel untapped lines of credit and reorganize its balance sheet to boost the amount of available funds as it waits for an injection of funds from the government, Chairman Pratip Chaudhuri said in an interview yesterday in Mumbai. The lender has set up a panel to review ways to conserve capital, Chaudhuri said.
Moody’s Investors Service downgraded the outlook for India’s banking system last month to “negative,” saying a domestic economic slowdown and the surge in borrowing costs will boost bad loans. State Bank had its financial strength rating cut by the ratings provider in October on inadequate capital buffers and rising non-performing credit. The Bankex index (BANKEX), the nation’s main gauge of banking stocks, has lost 26 percent this year.
No ‘Dramatic Recovery’
Non-performing assets at the biggest Indian lender rose to 4.19 percent of total debt last quarter from 3.35 percent a year earlier. Bad-loan provisions jumped 35 percent to 29.2 billion rupees in the same period. India’s industrial production shrank 5.1 percent from a year earlier in October, the first decline in 28 months, government data showed yesterday.
“India’s growth momentum has been slipping in the last few months, and we don’t expect a dramatic recovery in the near term as long as the export outlook remains clouded, borrowing costs high and business confidence low,” Atsi Sheth, a credit analyst at Moody’s, said in an e-mail on Dec. 8.
The government’s decision last week to suspend plans to allow overseas investment in the retailing industry due to lack of political consensus will further hurt investor confidence, Moody’s said in a research note yesterday.
“The policy reversal is credit negative,” Mumbai-based Sheth wrote in the note. “It reinforces the popular view that Indian politics hamper the government’s ability to implement policies decisively.”
Bank Lending Slows
Annual increases in bank lending slowed to 17.6 percent last month from 24.4 percent at the end of 2010, according to central bank data. Sales of rupee-denominated bonds by Indian companies shrank 23 percent this year to 1.49 trillion rupees from 2010, data compiled by Bloomberg show. The Reserve Bank forecast in June that bad loans will rise 25 percent in the year to March to 2.91 percent of total credit.
Mumbai-based ICICI Bank bought the first rupee-denominated credit-default swap contract last week to guard against the risk of debt defaults. The lender bought credit protection on Rural Electrification Corp.’s one-year bond from Mumbai-based IDBI Bank Ltd., N.S. Venkatesh, head of treasury at IDBI, said on Dec. 7.
Lower Returns
Yields in India’s government and corporate notes have gained this year as the central bank boosted benchmark rates. Yields on 10-year sovereign bonds climbed 53 basis points in 2011 to 8.47 percent. The yield on the 8.79 percent note due 2021 fell nine basis points yesterday in Mumbai, according to the central bank’s trading system. The extra yield demanded by investors to hold the notes over similar-dated U.S. Treasuries has widened 182 basis points to 644 in 2011.
Rupee-denominated bonds returned 5.1 percent in 2011, compared with the 20 percent earned by Indonesian debt, according to HSBC Holdings Plc indexes.
The Indian rupee’S 15 percent slide in 2011, the worst performance among Asian currencies, will also boost the risk of bad debt, according to Morgan Stanley. The currency slid 1.5 percent yesterday to 52.8350 per dollar and touched a record-low 52.84.
“Higher cost of capital, a slowdown in growth, and foreign-exchange volatility are likely to result in a further rise in non-performing loans,” analysts at Morgan Stanley led by Hong Kong-based Chetan Ahya wrote in a research note dated yesterday.
To contact the reporters on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net; 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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