Stocks Beat Bonds, Commodities by Most Since 2009 on Stimulus By Inyoung Hwang, Rita Nazareth and Lu Wang - Jan 1, 2013

Unprecedented central bank stimulus sent global stocks to the biggest annual rally in three years, beating bonds, commodities and the dollar by the most since 2009 as shares surged from America to Germany and Venezuela.
The MSCI All-Country World Index of equities increased 16.9 percent in 2012 including dividends after climbing 2.3 percent in December. The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 0.1 percent last year, while the U.S. Dollar Index (DXY) lost 0.5 percent. Bonds of all types returned 5.73 percent, on average, according to Bank of America Merrill Lynch’s Global Broad Market Index.
Stocks rebounded after posting the worst returns in 2011 as central bankers’ efforts to push investors into riskier assets and corporate earnings growth overshadowed the third year of Europe’s debt crisis. Shares overcame the slowest expansion in China in 13 years and a U.S. government debate over how to avoid more than $600 billion of spending cuts and tax increases.
“The massive global stimulus has been a big piece of it,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “That had a big impact on reducing the fears of a recession. There was also the support from the corporate earnings side. It was just a matter of time to have stocks outperforming.”

Bernanke, Draghi

U.S. Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Mario Draghi pledged bond purchases amid the slowest global economic growth since 2009. The world economy is estimated to have expanded 2.2 percent in 2012, according to the median estimate from economists surveyed by Bloomberg. Gross domestic product may increase 2.4 percent this year, the projections show.
Bernanke said in September that the U.S. central bank will buy mortgage securities until the labor market recovers. The ECB announced a plan that involved unlimited purchases of government debt to reduce borrowing costs in the euro region. Draghi, fighting to keep the currency union intact, has also cut the benchmark interest rate to a record low of 0.75 percent, while the People’s Bank of China lowered its rate to 6 percent.
The rally in global stocks followed a 6.9 percent slump in 2011. The MSCI global index, which tracks companies in 45 developed and emerging markets, trades for 15.4 times reported earnings, or about 26 percent below its historical average of 20.7, according to data compiled by Bloomberg from 1995.

Profit Gains

Analysts’ estimates show profit at companies in the MSCI All-Country gauge climbed 11 percent to $25.13 a share in 2012, according to data compiled by Bloomberg. That’s close to the record high of $25.30 in 2007. Analysts project earnings will continue to rise in 2013, increasing 12 percent, the data show.
Within developed markets, 23 out of 24 benchmark indexes advanced. Stocks in Europe rallied the most as cheap valuations for companies in Greece, Germany and Denmark lured investors. Equity measures in those countries climbed at least 27 percent. The price-earnings multiple of the Stoxx Europe 600 Index has surged more than 86 percent since hitting an almost three-year low in September 2011.
Spain’s IBEX 35 was the only developed market gauge to fall. Japan’s Nikkei 225 Stock Average surged 23 percent, the biggest rally since 2005, amid calls from the new government for more monetary easing.

Obama’s Re-election

The S&P 500 Index (SPX) climbed 13 percent last year, the most since 2009. The U.S. equity benchmark sank as much as 7.7 percent from its 2012 high in September as Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The S&P 500 ended 1.8 percent above the average estimate of 1,401 from 14 Wall Street strategists tracked by Bloomberg. It will rally 7.3 percent to 1,531 in 2013, the average of forecasts showed.
Financial companies in MSCI’s global index posted the biggest gain last year, returning 29 percent as a group, as companies such as Grupo Financiero Santander Mexico SAB de CV, Brussels-based KBC Groep NV and Bank of America Corp. surged at least 109 percent. In 2011, the group slumped more than twice as much as the MSCI All-Country World Index.
The MSCI Emerging Markets Index of stocks gained 18 percent last year including dividends, rebounding from an 18 percent loss in 2011.
Venezuela’s benchmark climbed 342 percent including dividends, the most in the world, as inflation, which rose about 18 percent year-over-year as of November, prompted investors to buy shares as a way to preserve the value of their savings. The deteriorating health of President Hugo Chavez, re-elected in October, fueled speculation that a regime change may reverse policies that drove away investors.

Commodity Markets

The S&P GSCI Total Return Index of commodities dropped 0.6 percent in December, paring its annual advance.
Gains last year were led by a 19 percent increase in wheat futures traded in Chicago, 17 percent in soybeans and 16 percent in Kansas City wheat. Arabica coffee in New York, cotton and raw sugar fell the most among the five members of the GSCI spot index that retreated.
Crop prices rose in 2012, with records in soybeans and corn, as U.S. farmers endured the most-severe drought since the 1930s Dust Bowl. Heat waves and dry weather also curbed output in Europe and Australia.

Coffee, Sugar

Agricultural commodities were also among the biggest decliners as a record coffee harvest in Brazil added to a global glut that drove arabica futures to a 37 percent retreat, the biggest drop since 2000. There were also supply surpluses in raw sugar after Brazilian output expanded; futures in New York slumped 16 percent.
Lead was the best-performing industrial metal among the members of the GSCI spot index, advancing 14 percent, as Morgan Stanley predicted the biggest shortage in seven years in 2013. Gold gained 7.1 percent in London, rising for a 12th consecutive year, the longest streak since at least 1920. Holdings through exchange-traded products rose 12 percent to 2,631 metric tons, more than the reserves of all but two central banks.
“If you look at returns for managers in the commodities space it has been challenging, but there have been opportunities,” said Colin O’Shea, the head of commodities at Hermes Investment Management Ltd. in London, which manages about $2.3 billion of raw-material assets. “What we’ve seen over the course of the last 12 months is a lack of a trend. There haven’t been significant trends for long periods of time, and that’s what’s made things difficult for some.”

‘Super Cycle’

Citigroup Inc. analysts said in a report in November that the “super cycle” of returns in commodities has ended, while their counterparts at Goldman Sachs Group Inc. and Morgan Stanley are forecasting higher prices. The S&P GSCI gauge has more than doubled since the end of 1998.
Brent crude futures advanced 3.5 percent last year, the smallest annual gain since prices collapsed in 2008, as threats to Middle Eastern supplies offset the drag on oil demand from Europe’s sovereign debt crisis. Prices posted a record annual average of $111.68 a barrel, buoyed by new international sanctions on Iran and the risk that conflict in Syria will spread. Brent rose as high as $128.40 on March 1, and fell to $88.49 on June 22.
“Although oil ended 2012 at almost the level as it began, the danger of a major supply disruption in the Middle East put a floor under the market,” said Christopher Bellew, a senior oil broker at Jefferies Bache Ltd. in London. “Oil came under pressure in the summer as Europe was gripped by recession, Chinese growth slowed, and Saudi Arabia made up for any supply shortage. But the price slump that some had expected did not materialize.”

Dollar, Euro

Intercontinental Exchange Inc.’s Dollar Index fell in December amid signs the U.S. economy is continuing to grow. The gauge will rise to a reading of 80.6 in the first quarter of 2013, from 79.8 at the end of December, according to the median of 11 analyst estimates compiled by Bloomberg.
The 17-nation euro rallied 1.8 percent against the dollar in 2012 and 7.4 percent since July 26, when Draghi assured markets that he would do “whatever it takes” to save the common currency.
“If I had to pick one event, it’s the stabilization that we’ve seen in the Europe, and a lot of that is Draghi’s pledge,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said Dec. 26 in a telephone interview. “The ECB has essentially committed to backstopping government borrowing and has been supportive of the euro.”

Bond Markets

Bank of America Merrill Lynch’s Global Broad Market Index was little changed in December after climbing for the previous five months. The gauge, tracking about 20,000 fixed-income securities with a market value of about $46 trillion, returned 5.73 percent last year as of Dec. 28. Average yields rose one basis point, or 0.01 percentage point, last month to 1.6 percent on Dec. 28. The yield fell to 1.57 percent on Dec. 6, the lowest level since at least 1996, from 2.24 percent at the end of 2011.
Global investment-grade corporate debt returned 0.35 percent including reinvested interest in December, a ninth consecutive monthly gain in the longest advance since 1998, a Bank of America Merrill Lynch index shows. The securities gained 10.9 percent in 2012 through Dec. 28, the most in three years. An index of high-yield bonds returned 1.78 percent last month as of Dec. 28 and gained 18.72 percent in 2012. Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P.

Treasuries

U.S. Treasuries lost 0.35 percent in December, reducing the 2012 gain to 2.31 percent, the third straight annual advance. Yields on 10-year U.S. government debt are forecast to climb to 1.88 percent by the end of the second quarter, from 1.76 percent at the end of December, according to the median estimate of 81 economists surveyed by Bloomberg News.
Greek bonds were the best performers in December and for 2012 among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 30.5 percent and 97.4 percent. Portugal’s returned 3.4 percent and 57.1 percent, while Italy’s rose 0.5 percent and 20.8 percent.
“We’ve been reminded of the old saying, ‘Don’t fight the Fed,’” Andrew Slimmon, Chicago-based managing director of global investment solutions at Morgan Stanley Smith Barney, said by phone. His firm has $1.7 trillion in client assets. “This is exactly what happened in Europe. They’re much earlier in the accommodative process so the gain coming off from the bottom is going to be bigger.”
To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

Mistry at Tata Helm as Investors Query $500 Billion Goal By Bhuma Shrivastava and Siddharth Philip - Dec 28, 2012

Cyrus Mistry, who takes charge today at Tata, India’s biggest business group, may face an uphill battle if he is to meet his predecessor’s vision of boosting revenue fivefold to $500 billion in the next decade.
Mistry, 44, becomes chairman of Tata Sons Ltd., the holding company for the salt-to-software group, just as slower economic growth damps demand for products from steel to cars. Ratan Tata, who steps down on turning 75 after two decades at the helm, built the business into a $100 billion global conglomerate through acquisitions including the U.K.’s Corus Group Plc and Jaguar Land Rover. Tata succeeded his uncle in 1991 as India’s economy was opening up.
“It is not an easy task to grow fivefold in this global economic scenario,” said Shishir Bajpai, senior vice president at IIFL Wealth Management Ltd. in Mumbai. “The bar is set high for Mistry to deliver. Ratan Tata took a group well known in the domestic markets global, now Mistry has to take it forward.”
The change of guard marks a rare opportunity to shape the group of more than 100 companies, whose expansion has mirrored India’s emergence as a global economic power and ranks Tata above Japan’s Panasonic Corp. and Swiss food giant Nestle SA by sales. At stake is the equivalent of about 6 percent of India’s gross domestic product, and the future of firms including Tata Steel Ltd. (TATA), India’s biggest producer of the alloy, and Tata Motors (TTMT) Ltd., the nation’s No. 1 automaker by revenue.

Biggest Shareholder

Mistry’s performance could also weigh on his family’s fortune: along with his billionaire father, Pallonji Shapoorji Mistry, and his brother, the chairman’s family owns about 18 percent of Tata Sons. Little is known about the London Business School management postgraduate’s leadership style or strategic vision, and the man chosen by a select search panel in November 2011 has so far shied away from the media and investors.
“I haven’t heard from him on company plans, so I don’t know” how Mistry will lead, Koen Vanderauwera, a Luxembourg- based bond-fund manager at KBC Asset Management SA that holds the debt of Tata Steel and Tata Power Ltd., said in a phone interview. “I’ll wait and see what kind of announcements he makes, how he comments.”
The $500 billion revenue vision for Tata in 2021 was outlined by Ratan while addressing his top executives in April, and confirmed by Tata Sons director R. Gopalakrishnan. Group spokesman Debasis Ray declined to comment on the vision or Mistry’s plans for Tata. “Such matters are internal to the company,” Ray said in an e-mailed reply to a query.

Textile Trading

Mistry and the Tatas follow the Zoroastrian religion and belong to the small Parsi community, which originated in Persia and found sanctuary centuries ago in India. The Tata group was founded by Ratan’s great grandfather Jamsetji Nusserwanji Tata, who started a textile-trading business in 1868 and then built the country’s first steel mill and hydroelectric plant. He also built the Taj Mahal Palace & Tower hotel in Mumbai, which was damaged in the November 2008 terrorist attacks.
Mistry will also need all the project-handling skills honed at running the construction business at his family’s Shapoorji Pallonji & Co. to sustain profitability even as many of Tata’s key companies battle adverse market conditions or regulatory changes.
“Revenue without sustained profits and a high return on invested capital is of no use,” Neeraj Monga, head of research at Toronto-based Veritas Investment Research Corp., said by e- mail. The group’s biggest businesses, steel and automobiles, are both cyclical industries and maintaining profitability is a challenge, said Monga.

Steel, Autos

For a group that includes Tata Consultancy Services Ltd. (TCS), India’s largest software company, Tata Motors, owner of the Jaguar and Land Rover luxury marques, and Tata Global Beverages Ltd., the local partner of Starbucks Corp., sales and profit growth is slowing at its biggest businesses.
Profit growth at Tata Motors decelerated to the slowest pace in four quarters in the three months ended Sept. 30 and sales growth slowed to the least in three years amid waning demand for luxury vehicles in Europe. Tata Steel posted an unexpected loss even as sales growth stayed below 5 percent for the third straight quarter.
“It’s not easy to grow fivefold organically, so Mistry at some point will have to pull a multibillion dollar surprise acquisition,” said Jagannadham Thunuguntla, head of research at New Delhi-based SMC Global Securities Ltd. “He has to be careful because the group’s experience on this front has been mixed.”

Overseas Acquisitions

Tata Steel, which acquired Corus for $12.9 billion in 2007, making it the group’s biggest overseas purchase, reported a loss of 3.64 billion rupees ($66 million) in the three months ended Sept. 30 as weak demand in Europe and China cut prices of the alloy. The steelmaker plans to restructure its U.K. business, cutting 900 jobs and closing 12 sites, it said in a Nov. 23 statement, to shore up margins in a market dogged by overcapacity.
In contrast, Tata Motors’ 2008 acquisition of Jaguar Land Rover from Ford Motor Co. for $2.3 billion helped boost the Indian automaker’s sales almost fivefold over four years. That pace of growth may be hard to sustain as Europe struggles to recover from a debt crisis.
Tata Steel shares have climbed 28 percent in Mumbai trading this year, outperforming the BSE India Sensitive Index’s 26 percent advance. The steelmaker’s shares fell 0.5 percent to close at 428.55 rupees in Mumbai trading. Tata Motors has surged 74 percent, making it the best performer on the 30-company benchmark index. The automaker’s shares gained 0.3 percent to close at 310.05 rupees.

‘Minds Open’

“We should always keep our minds open to acquisitions,” Mistry told recruits in comments that were viewable in a video on one of the group’s websites. “We would, in each company as part of its own strategy, look at M&A for growth but not as a must have.”
Purchases overseas have also proved harder in the past year with Tata’s recent attempts failing to clinch a deal.
Orient-Express Hotels Ltd. (OEH), owner of New York’s 21 Club restaurant and Hotel Cipriani in Venice, last month rejected a takeover offer by Tata’s Indian Hotels Co., saying the bid undervalues the company. In April, Tata Communications Ltd. (TCOM) decided against making an offer for Cable & Wireless Worldwide Plc after failing to agree on a price.
Mistry can look to fund acquisitions by tapping the cash pile at Tata Consultancy Services, the group’s most valuable company by market value, in which Tata Sons holds 74 percent. The Mumbai-based software exporter had 79.2 billion rupees in cash and short-term investments on Sept. 30, according to data compiled by Bloomberg.
Still, Tata’s new head may opt to look within and consolidate holdings to bolster profitability instead of continuing to pursue acquisitions, according to Tarun Kataria, chief executive officer at Religare Capital Markets Ltd.
“Cyrus takes over the reigns of a highly regarded but sprawling conglomerate at a time of great global uncertainty and muted economic growth,” Mumbai-based Kataria said in an e-mail. “His very deliberate focus will likely be on consolidation, deleveraging, exiting certain businesses and bringing related businesses under a unified whole.”
To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net

Tata, Birla May Lead $9 Billion Urea Spending: Corporate India

By Abhishek Shanker - Dec 25, 2012

Aditya Birla Nuvo Ltd. (ABNL) and Tata Chemicals Ltd. (TTCH) may lead $9 billion of spending to increase India’s urea capacity by almost 50 percent, spurred by a government policy guaranteeing returns on investments.
Producers of the nitrogen-based soil nutrient including state-run companies and co-operatives may add 10 million metric tons of capacity over the next five years, said S.C. Sharma, an officer at the Planning Commission, which assesses and allocates the nation’s resources. The government will assure new urea units a profit margin 12 percent to 20 percent, Food Minister K.V. Thomas said in New Delhi on Dec. 13.
“As much as 500 billion rupees ($9 billion) of investments could come,” Sharma said in an interview in Mumbai. “They’ll start flowing in after this policy change.”
Government control on the price of urea and ambiguity over natural gas feedstock costs have deterred new investments in the sector for more than 10 years, leading to an increase in imports and state subsidies. An increase in urea capacity will also boost agricultural productivity, helping feed two-thirds of India’s 1.2 billion people that live on less than $2 a day and contain inflation that averaged 7.5 percent in 2012.
“India has to support a large population base on a small land area, so the use of fertilizers like urea is critical and will only rise,” said Apurva Shah, an analyst at Dalal & Broacha Stock Broking Pvt. Ltd. in Mumbai. “Other fertilizer makers not present in urea may plan setting up a unit to expand their product base. In three to four years, there’s bound to be large-scale investments in this sector.”

Double Capacity

Billionaire Kumar Mangalam Birla may spend as much as $1 billion to double Aditya Birla Nuvo’s urea capacity after the government approves the new policy, Managing Director Rakesh Jain said in an interview on Nov. 8.
Tata Chemicals planned to double urea capacity at its unit in the northern state of Uttar Pradesh at an estimated cost of 35 billion rupees, it said in October 2010. The company was waiting for government assurances on supplies of natural gas, the main fuel used to produce urea, it had said.
Other planned urea projects include Rashtriya Chemicals & Fertilizers Ltd. (RCF)’s 1.15 million ton unit, for which it secured environment approval in 2006, in western Maharashtra state. Chambal Fertilisers & Chemicals Ltd. plans to build a similar- sized factory in the northern state of Rajasthan.
State-owned GAIL India Ltd. (GAIL), Coal India Ltd. (COAL) and Rashtriya Chemicals have planned a venture to build a coal gasification and fertilizer project in eastern Odisha state at an estimated cost of 80 billion rupees, while Oil & Natural Gas Corp. is seeking a partner to build a urea factory in the eastern part of the country.

Rising Imports

India imports about 33 percent of the 28 million metric tons of urea it needs and the quantity is increasing by about 1 million tons each year, according to a Planning Commission report last year. Supply shortages may widen to 12 million tons by March 2017 should new capacities fail to be added, the commission said.
The government’s subsidy burden increased as urea prices surged to a 3 1/2-year high of $515 in April. Urea imports are estimated to have risen to about 7 million tons in the year ended March 31, inflating the subsidy by 21 percent to 294 billion rupees from a year earlier, according to the report.
The new policy will save 47.6 billion rupees of subsidies and reimburse producers the cost of natural gas, which comprises about 80 percent of the input cost, Dalal & Broacha’s Shah said.

Pending Plans

Plans to expand the nation’s urea capacity by 50 percent to 34 million metric tons have been held back by companies, pending a well-defined state policy. The reopening of a unit in the eastern state of Assam was the only major urea project to come on stream since 1999, according to the fertilizer ministry’s annual report.
At a conservative estimate, urea units will need at least 72 million metric standard cubic meters of gas fuel daily by March 2017, compared with the current availability and demand of 41 mmscmd and 43 mmscmd, respectively, according to the commission report. Should all plans to start new plants, expand existing facilities and resume closed units be implemented, the required quantity may exceed 100 mmscmd.
“India needs a robust pipeline network to carry natural gas for urea and other industries,” said Ashok Kumar Balyan, managing director at Petronet LNG Ltd. (PLNG), the state-owned owner of LNG terminals in the western and southern coast of India. “While our Kochi terminal is ready, the lack of a pipeline network is a constraint.”

Gas Terminal

Petronet is planning to set up a 5 million metric ton LNG terminal by 2016 at a cost of 45 billion rupees in the east coast to meet demand in the eastern part of the country.
“We’re prepared to supply LNG to urea makers as and when capacities come up,” Balyan said on Dec. 19 on the sidelines of an energy conference in Mumbai. “The new policy will boost investments in urea capacity expansion and boost demand for natural gas.
Aditya Birla Nuvo, the $4 billion company present in businesses like financial services, fashion and information technology, plans to sell the increased output in the eastern states of Bihar, Jharkhand, West Bengal, the eastern region of Uttar Pradesh and in the central state of Chhattisgarh, Jain said last month. The company declined to comment after the new policy was approved.
The government will provide financial support to private entrepreneurs for making capital investments in the fertilizer sector, the then Finance Minister Pranab Mukherjee had said in his budget speech in March. On Oct. 11, the cabinet increased urea prices by 50 rupees a ton and approved direct transfer of the fertilizer subsidy to the farmers.
“At current prices, it is better to import liquefied natural gas and produce urea locally,” Planning Commission’s Sharma said. “There should be higher activity in this industry that has not seen much interest.”
To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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India Steps Up Policy Overhaul With Land Law Approval: Economy By Abhijit Roy Chowdhury and Bibhudatta Pradhan - Dec 13, 2012

India approved changes to a century-old land law and set up a panel to speed up infrastructure projects as Prime Minister Manmohan Singh extends a policy overhaul to revive economic growth.
Amendments to the colonial-era Land Acquisition Act may help the government curb often violent protests that have stalled projects for industry and highways. The cabinet committee also allowed the establishment of an infrastructure panel and a 30 percent reduction in the sale of airwaves.
The approvals add momentum to Singh’s policy agenda by addressing transportation and energy bottlenecks that have handicapped growth in Asia’s third-largest economy. The prime minister has already won support to open the economy to overseas retailers, the biggest embrace of foreign investment in a decade, as he bids to repair the government’s reform credentials before national elections in 2014.
“The key here is that the government clearly wants to keep up the reform momentum,” said Robert Prior-Wandesforde, an economist in Singapore at Credit Suisse Group AG, who has covered the Indian economy for almost seven years. “It wants to signal to the Reserve Bank of India, as well, that it’s committed to a series of economic reforms of the sort that the RBI would appreciate.”
The economy expanded 5.3 percent in the three months ended Sept. 30 from a year earlier, slowing to match a three-year low. Central bank Governor Duvvuri Subbarao, in the last policy meeting in October, resisted calls from Finance Minister Palaniappan Chidambaram for lower interest rates to spur growth.

Stalled Investments

Singh will head a new panel aimed at speeding up approvals of infrastructure projects. The prime minister is seeking $1 trillion in investments for highways, ports and power plants from 2012 to 2017 to spur development.
After at least two years of debate, the cabinet yesterday agreed to make it mandatory for companies buying land to win the approval of 80 percent of landholders. For public-private partnership projects, 70 percent of the landowners need to give consent, according to Parliamentary Affairs Minister Kamal Nath.
Abuse of the 1894 law that allowed the state to seize land at cheap rates if it believes there’s a larger public benefit, such as the creation of jobs, has led to clashes between farmers and provincial administrations, and fueled Maoist rebellions in some mineral-rich states, including Chhattisgarh and Odisha. Among investments postponed is a $12 billion project first proposed by South Korean steelmaker Posco in 2005.
The law will be applied retrospectively in certain cases and also seeks to boost the money paid to farmers. Rahul Gandhi, who will lead the Congress party’s election campaign ahead of parliamentary polls in 2014, has championed the land law changes.

Most Pessimistic

India may report inflation accelerated in November, according to a Bloomberg survey ahead of the release of the benchmark wholesale-price index today. Big Japanese manufacturers are the most pessimistic in almost three years, the Bank of Japan’s quarterly Tankan index showed today.
The Reserve Bank of Australia may need to cut its benchmark rate further as the local dollar’s resilience impedes growth, the Organization for Economic Cooperation and Development said. While in China, a preliminary reading for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics showed manufacturing may expand at a faster pace this month.
Euro-area inflation data for November and employment figures for the third quarter are due today. In the U.S., industrial production probably climbed 0.3 percent in November from a month earlier, according to a Bloomberg survey.

Slowest Pace

India’s monetary authority predicts the $1.8 trillion economy will expand 5.8 percent in the year ending March 31, which would be the slowest pace since 2003, according to government data. Growth will rebound to 6.7 percent in the year through March 2014 from an estimated 5.5 percent in the current fiscal year, according to Goldman Sachs Group Inc.
Singh’s minority government needs the backing of regional parties to secure approval for the land acquisition legislation. The prime minister in mid-September curbed fuel subsidies, allowed foreign investment in aviation, and last week won votes in both houses of parliament over his plans to permit the entry of foreign supermarket chains.
“The prime minister is beginning to think more and more about his legacy,” Prior-Wandesforde said. “The measures we saw in September and these more limited steps yesterday in part are an attempt to signal that he is a reformist, has been a reformist and that is what he wants his legacy to be.”
To contact the reporters on this story: Abhijit Roy Chowdhury in New Delhi at achowdhury11@bloomberg.net; Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Top Seller Helps Maruti Buck Falling Deliveries: Corporate India By Siddharth Philip - Dec 12, 2012

Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, forecasts deliveries will rebound from the first drop in eight years, led by surging demand for the latest version of its best-selling car.
Sales at the unit of Suzuki Motor Corp. (7269) may rise as much as 6 percent in the year ending March 31 after dropping 11 percent in the same period a year earlier, said Mayank Pareek, the managing executive officer for sales. The Society of Indian Automobile Manufacturers forecasts car deliveries will expand as little as 1 percent this year.
Maruti has orders for 52,000 units of the new version of the Alto, which it started selling in October. That’s almost equivalent to the sales of Ford Motor Co. (F) in Asia’s third- largest automobile market this year. Cheap parts and easy availability of service stations in the world’s seventh-largest landmass has kept customers “loyal” to Maruti amid four shutdowns due to labor strife, said Umesh Karne, an analyst with Brics Securities Ltd. in Mumbai.
“The value proposition that Maruti offers is something the competition can’t match, which is why Maruti has waiting lists on its models while rivals are offering discounts,” said Kapil Singh, a Mumbai-based analyst at Nomura Holdings Inc., who recommends investors buy the stock. “Maruti will certainly outperform the market.”
Maruti’s shares have risen 60 percent this year, India’s best performing auto stock. They fell 0.1 percent to 1,476 rupees in Mumbai yesterday.

Labor Agitation

Maruti, faced with a labor agitation in July that left one person dead and caused it to close one of its factories for about a month, has seen sales rise for three straight months. Deliveries at Ford, General Motors Co. (GM) and Volkswagen AG (VOW) have dropped in the same period. The company also increased deliveries of diesel-run vehicles in a country where the price of the fuel is capped by the government.
“A coming together of many factors has helped us increase sales,” Pareek said in an interview. “Our new models have gained a lot of traction in the market and we have also had an increased supply of diesel engines.”
Sales of diesel-powered models including the Swift, DZire and Ertiga rose to 45 percent of total dispatches this year compared with about 35 percent last year, Pareek said.
The industry association slashed its forecast for deliveries for a second time this year on Oct. 10. That may prompt Maruti and its rivals to offer discounts to attract buyers, said Deepesh Rathore, the New Delhi-based managing director of IHS Automotive in India.

Earnings Margin

Hyundai Motor Co. (005380), India’s second-largest carmaker, said on Dec. 1 its Indian sales last month dropped 0.7 percent, while Tata Motors Ltd. (TTMT), the maker of the Nano car, reported a 19 percent drop in passenger vehicle dispatches in November.
Maruti’s earnings margin before interest, taxes, depreciation and amortization may narrow for a third straight year, according to data compiled by Bloomberg. The company reported a margin of 7.8 percent in the year ended March 31.
“The overall car market is weakening and Maruti will be affected,” said Mahantesh Sabarad, an analyst with Fortune Financial Services Ltd. in Mumbai. “They have a serious underutilization of their petrol engine capacity while their diesel engine capacity is overburdened.”
Another strike at the company’s main plant in Manesar near New Delhi may also sour customer loyalty should deliveries be delayed again. A general manager was killed and dozens of executives injured when the riot erupted in July, its most violent labor strife, prompting Maruti to announce a lockout.

Services Terminated

The automaker terminated services of 500 regular workers at the Manesar plant, where a total of 3,300 workers were employed. Police arrested workers, including union leaders, following the riot, provoking protests as recently as Dec. 9.
Maruti, named after the son of the wind god in Hindu mythology, has seen its market share dwindle to about 40 percent from as high as 87 percent in 1998. Closest rival Hyundai commands 19 percent, 15 years after starting production in the southern city of Chennai.
Maruti first started selling the Alto in September 2000, priced at 300,000 rupees to compete against Hyundai’s Santro model and defunct Daewoo Motor Co.’s Matiz hatchback. The new version, introduced on Oct. 16, is 19 percent cheaper at 244,000 rupees in New Delhi, making it the company’s least expensive hatchback after the Maruti 800, which it has been producing since 1983.

Kilometer Per Liter

The company says the Alto runs 22.7 kilometers (14.1 miles) on a liter of gasoline in a nation where the fuel is 40 percent costlier than diesel, making it attractive for buyers, Brics’ Karne said. Huyndai’s Eon model offers 21.1 kilometers for every liter, while GM’s Chevrolet Spark goes 18 kilometers.
Maruti’s nearly 3,000 service centers, compared with 800 for Hyundai and 241 sales and service centers for Ford, also help lure customers.
“The satisfaction with the brand is why Maruti continues to dominate the market,” said Rathore. “Maruti’s sales and service network is a kind of machine that it has set up and it works very well.”
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Kingfisher Airlines in Talks With Etihad to Sell Stake

By Niveditha Ravi - Dec 11, 2012

Kingfisher Airlines Ltd. (KAIR), the Indian carrier that halted flights because of a cash crunch, said Etihad Airways PJSC is among possible investors it’s talking to as it seeks to raise funds though a stake sale.
Discussions are only at the “negotiation stages” and no agreement has been reached with Abu Dhabi-based Etihad or any other airline, the Bangalore-based carrier said in a filing yesterday. It didn’t name any other potential investors or give further details on the talks. Etihad declined to comment.
Kingfisher, which grounded flights in October, jumped by its 5 percent daily limit in Mumbai trading yesterday after Mumbai Mirror newspaper said Etihad had agreed to buy a 48 percent stake. The Indian carrier’s chairman, liquor tycoon Vijay Mallya, has been trying to raise capital for more than two years to help ease an 86 billion-rupee ($1.6 billion) debt pile.
Etihad is in due diligence with a “couple” of Indian carriers, Chief Executive Officer James Hogan said last week in an interview. The carrier already has stakes in Virgin Australia Holdings Ltd. (VAH), Aer Lingus Group Plc and Air Berlin Plc. (AB1)
The airline is in talks to buy as much as 24 percent of Jet Airways (India) Ltd. (JETIN), the nation’s biggest listed carrier, an Indian government official said earlier this month. Jet may raise about 16 billion rupees from the sale, said the official, who declined to be identified citing rules.

Mallya’s Birthday

Etihad agreed to purchase the Kingfisher stake for more than 30 billion rupees, Mirror newspaper reported, citing airlines’ officials it didn’t identify. That’s more than double Kingfisher’s market value. A deal may be announced around Dec. 18, Mallya’s birthday, according to the report.
Kingfisher closed in Mumbai trading yesterday at 15.60 rupees, the highest since Sept. 28. The stock has slumped 26 percent this year.
Kingfisher also needs funds to convince India’s aviation regulator to re-active its license, which was suspended following the service disruptions in October.
India in September ended a ban on local airlines selling stakes to overseas operators to help them raise funds amid industrywide losses. The investments can be as big as 49 percent shareholdings.
To contact the reporter on this story: Niveditha Ravi in Mumbai at nravi2@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Asian Stocks Outside Japan Rise Before U.S. Fed Meeting

By Jonathan Burgos and Adam Haigh - Dec 10, 2012

Asian stocks rose, with a regional index excluding Japan heading for its highest close in 16 months, ahead of a Federal Reserve policy meeting and as investors await progress on U.S. budget talks.
BHP Billiton Ltd., the world’s biggest mining company, added 1.4 percent in Sydney after metal prices rose. Renesas Electronics Corp. jumped 4.2 percent as the Japanese chipmaker said it will sell at least 150 billion yen ($1.8 billion) of new shares to a government-backed fund and customers as part of a bailout plan. Kansai Electric Power Co. sank 5.9 percent to lead Japanese utilities lower after regulators said an active earthquake fault may be running under a nuclear reactor.
The MSCI Asia Pacific Excluding Japan Index (MXAPJ) added 0.2 percent to 459.95 as of 1:08 p.m. Tokyo time, heading for its highest close since Aug. 3, 2011. About four shares rose for every three that fell. The gauge climbed the past three weeks on signs of recovery in the world’s two largest economies and optimism U.S. lawmakers will make a budget deal to avert the so- called fiscal cliff.
“The only risk would be is if there’s no resolution of the U.S. fiscal cliff, but I think that’s unlikely,” said Shane Oliver, Sydney-based head of strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “The more likely scenario is that shares continue to rise next year as the U.S. economy picks up momentum.”
Australia’s S&P/ASX 200 Index (AS51) gained 0.4 percent, while Singapore’s Straits Times Index advanced 0.5 percent. South Korea’s Kospi Index added 0.1 percent. Hong Kong’s Hang Seng Index climbed 0.2 percent, erasing losses of 0.2 percent. Japan’s Nikkei 225 Stock Average slipped 0.3 percent.

Chinese Loans

China’s Shanghai Composite Index (SHCOMP) slid 0.4 percent after climbing 2.7 percent the past two days. New lending by the country’s banks increased to 522.9 billion yuan ($84 billion) in November. That compares with 562.2 billion yuan a year earlier and the 550 billion yuan median estimate by 30 economists surveyed by Bloomberg.
“The market needs to take a breather here after its decent rally,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The market will probably continue to go up after the consolidation given the recent positive signs that the economy is bottoming out.”
Indicators are giving a mixed picture of the outlook for the world’s second-biggest economy, with China’s exports rising less than forecast last month even as industrial output accelerated.

U.S. Futures

Futures on the Standard & Poor’s 500 Index fell 0.2 percent today. The gauge gained less than 0.1 percent yesterday as economic data in China beat estimates and investors weighed prospects for a U.S. budget deal.
Federal Reserve policy makers begin a two-day meeting today that will be followed by updated projections on economic growth, unemployment, inflation and interest rates on Dec. 12. Fed officials are considering whether to supplement $40 billion a month of mortgage-bond purchases with Treasury purchases when their Operation Twist program expires at the end of the month.
Separately, U.S. lawmakers need to agree on a budget to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect next year. President Barack Obama and Republican House Speaker John Boehner met one- on-one at the weekend at the White House. Representatives for the two said in statements afterward that “the lines of communication remain open.”

Budget Negotiations

“The market now seems stuck in a trading range until news from Washington about any progress or deterioration in budget negotiations is released,” said Matthew Sherwood, head of markets research at Perpetual Investment, which manages about $25 billion in Sydney.
Raw-material producers advanced. The London Metals Exchange Index (LMEX), which tracks the prices of commodities from aluminum to copper, climbed 1.9 percent yesterday, extending gains for a second day.
BHP Billiton gained 1.4 percent to A$35.445 in Sydney. Rio Tinto Group, the world’s second-biggest mining company, added 0.8 percent to A$61.81.
Renesas advanced 4.2 percent to 321 yen in Tokyo. The chipmaker will sell 150 billion yen of new shares to a group led by Innovation Network Corp. of Japan, making the government- backed fund its biggest shareholder with a 69 percent stake, as part of a bailout plan.
Skyworth Digital Holdings Ltd. (751) rose 3.2 percent to HK$4.22 in Hong Kong after saying total television sales increased 44 percent in November from a year earlier.

Earthquake Risk

The MSCI Asia Pacific Index advanced 11 percent this year through yesterday as central banks from Europe, the U.S., Japan and China took steps to support economic growth. That compares with a 13 percent gain for the S&P 500 and 14 percent for the Stoxx Europe 600 Index. The Asian gauge traded at 14.2 times estimated earnings, compared with 13.7 times for the S&P 500 Index and 12.6 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
Japanese utilities declined. The Nuclear Regulation Authority said earthquake risk may prevent the restart of a reactor operated by the Japan Atomic Power Co.
Kansai Electric dropped 5.9 percent to 730 yen. Chubu Electric Power Co. slid 4.9 percent to 1,032 yen. Tokyo Electric Power Co. (9501), owner of the power plant at the center of last year’s nuclear disaster, fell 2.1 percent to 137 yen.
“Prospects for restarting the nuclear reactors are slowly being squashed, and that’s going to increase the cost of electricity,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo, which has about $400 billion in assets.
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

India Options Trade Grows Fastest in World as Sensex Tops BRICs

By Santanu Chakraborty and Michael Patterson - Dec 9, 2012

India’s options market is growing at the fastest pace in the world, helping restore investor confidence in a stock market yet to recover from a 52 percent plunge during the global financial crisis.
Equity options traded on the National Stock Exchange of India Ltd. rose 36 percent in the first half, the most among the 10 largest bourses, according to the World Federation of Exchanges. The BSE India Sensitive Index’s volatility has dropped below measures in Brazil, Russia and China to the lowest level since at least 1993, data compiled by Bloomberg show.
Foreigners bought a net $21 billion of local equities this year, pushing the Sensex up 26 percent, the most of the so- called BRIC markets. While the increase in options reflects speculation by Indian investors, it also provides international money managers with the opportunity to hedge their bets. In 2008, when the crisis sparked a record plunge in the Sensex, options trading was 92 percent below today’s level.
“Indian options have given sophisticated investors the flexibility to protect themselves from volatility and also profit from it,” Manoj Murlidharan Vayalar, the associate vice president of derivatives at India Infoline Ltd. (IIFL), said in a phone interview on Dec. 7 from Mumbai.
Options trading may grow at a 20 percent annual pace during the next four years as Asia’s fifth-biggest equity market matures, said Rakesh Somani, the president of the Association of National Exchanges Members of India and a director at Eureka Stock & Share Broking Services Ltd., in a Nov. 23 interview. Options give investors the right, without the obligation, to buy or sell assets at a fixed price by a specific date.

Volumes Surge

Volumes began rising in 2008 after the government reduced taxes on the contracts. Trading on the NSE and BSE Ltd.’s bourse in Mumbai exploded to a notional value of about $468 billion in October, or about eight times the value of traded shares, data compiled by the WFE and Bloomberg show. In Brazil, the value of options was about twice that of stocks. A total 23.7 million equity options traded on the NSE in the first six months of 2012.
Average daily trading in options of Mumbai-based State Bank of India, the nation’s largest lender, climbed to about 74,000 contracts in November from 2,200 four years ago, according to data compiled by Bloomberg. Volumes for Bangalore-based Infosys Ltd. (INFY), India’s second-largest software services exporter, increased to about 14,000 from 800.

Speculative Trades

“Options are wonderful instruments as they add to the liquidity, functionality and trading choices,” Sunil Singhania, who helps oversee about $16 billion as the head of equities at Mumbai-based Reliance Capital Asset Management Ltd., India’s second-biggest mutual fund manager, said in an interview at his office on Dec. 7. The growing market “attracts long-term money from both India and abroad.”
Options trading has hurt India’s capital markets by encouraging speculation instead of long-term equity investment, said Jignesh Shah, the vice chairman of MCX Stock Exchange Ltd., which plans to start trading stocks and equity derivatives next year.
The 30-day average value of shares traded on the NSE and BSE has dropped to the equivalent of about $2.4 billion from $4.6 billion three years ago, data compiled by Bloomberg show.
“Giving excessive focus on a single segment like derivatives and a few speculative products has caused great harm to the overall balance of Indian capital markets,” Shah said in an interview in Mumbai on Nov. 19. “The fundamental approach we have is to create an investment culture.”

Leveraged Products

India’s stock market regulator prevented the creation of so-called mini-derivatives linked to the Nifty and Sensex (SENSEX) indexes last month. The Nov. 20 ban is meant to keep individuals from trading the securities, which have a smaller notional value than standard contracts, the Securities & Exchange Board of India said in the order.
“Small investors were not aware of the various nuances and the fact that mini-derivatives were leveraged products,” SEBI Chairman U.K. Sinha said in Mumbai on Nov. 23. “But by no means should options be done away with. Derivatives are not weapons of mass destruction. They serve a legitimate function of providing liquidity and hedging risks.”
The growth is prompting brokerages that dominate trading to shift staff.
Religare Capital Markets Ltd. has moved employees to its options business from equities this year, said Gautam Trivedi, the head of equities at the unit of Religare Enterprises Ltd. (RELG), the nation’s largest securities firm by market value. Motilal Oswal Financial Services Ltd. (MOFS) is increasing options training for research and sales staff, said Sameer Kamath, the chief financial officer at the Mumbai-based broker.

Foreign Buyers

“Domestic brokerages are increasingly selling more derivatives products to offshore clients,” said R.K. Gupta, who helps oversee about $645 million as a New Delhi-based managing director at Taurus Asset Management Ltd.
Foreign purchases of Indian shares this year were the biggest among 10 Asian markets tracked by Bloomberg. The Sensex index is valued at 16 times reported earnings, compared with 20 for Brazil’s Bovespa Index, 11 for China’s Shanghai Composite Index and 5.8 for Russia’s Micex Index.
Options are also becoming more popular because they allow speculators to leverage bets, according to Gupta. Options typically cost a fraction of stocks and prices for contracts approaching expiration often fluctuate more than the underlying shares, data compiled by Bloomberg show.

Strike Price

Call options that expire this month on Reliance Industries Ltd. (RIL), India’s largest company by market value, traded at 15.4 rupees on Nov. 20. The contracts, which have a strike price of 780 rupees, jumped 15 percent to 17.65 rupees the next day as the underlying shares gained 0.8 percent to 771 rupees.
The 90-day historical volatility of the Sensex index fell to a record low of 11.8 on Dec. 7, data compiled by Bloomberg show. Brazil’s Bovespa has a volatility reading of 20, versus 16 for the Micex and the Shanghai Composite, and 11.7 for the Standard & Poor’s 500 Index.
The India VIX, a measure of options prices, dropped to 13.04 on Oct. 22, the lowest level on record, and traded at 14.96 on Dec. 7.
Dalton Capital Advisors India Pvt., a unit of London-based Dalton Strategic Partnership LLP, buys options to protect stock holdings from declines before market-moving events. The contracts are cheap after a drop in volatility, U.R. Bhat, a Mumbai-based managing director at Dalton Capital, whose parent has $2 billion of global assets, said by phone on Dec. 7.
“Most institutions are increasingly using more options,” Bhat said. “Growth of the options market has been aided by a rise in liquidity.”
To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Michael Patterson in Hong Kong at mpatterson10@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Singh Sweeps India Parliament Retail Votes in Boost for Reforms

By Bibhudatta Pradhan - Dec 7, 2012

India’s government won a vote in parliament’s upper house on foreign investment in supermarkets, securing a clean sweep of both chambers and raising expectations it will move ahead with further economic reforms.
While 123 members in the 244-member upper house supported Prime Minister Manmohan Singh’s move to allow companies such as Wal-Mart Stores Inc. (WMT) and Carrefour SA to own majority stakes in ventures in India, 109 voted against. Two regional parties outside the ruling alliance supported the government, one voting in favor and the other walking out before the ballot.
“It’s a victory for more reforms,” said Parliamentary Affairs Minister Kamal Nath. “We will bring financial bills in following weeks.”
The lower house endorsed the key plank of India’s biggest embrace of foreign investment in a decade on Dec. 5 with a margin of victory of 35 votes. Singh plans to present to parliament proposals to increase the foreign investment cap for the insurance sector, and allow overseas companies to buy stakes in pension firms for the first time.
Deputy Governor of the Reserve Bank of India Subir Gokarn said the foreign investment in multibrand retail could help bring down food prices, a major driver of inflation that’s the highest among the largest emerging economies.
The September move to enable overseas companies to open stores in the country didn’t require parliamentary approval to become law. Singh’s government agreed to a vote to end protests that had stalled legislative business as economic growth has slowed to a three-year low.

‘Have Faith’

As the debate began in upper house yesterday, opposition lawmakers repeated arguments that the policy would throw small shopkeepers out of work, further impoverish farmers and hurt consumers. Ruling coalition members defended the retail plan, which can be rejected by state administrations.
“We should have faith” that no supermarket chains will wipe out small retailers, Commerce Minister Anand Sharma said today. “We have taken the decision in the supreme national interest of the country.”
Opposition parties have used the supermarket policy to attack the government as it seeks to recover its poise after two years during which it was attacked over corruption allegations and weak leadership, and just over a year before the next election.
“You would eventually have stores owned by the Americans, the French and the British selling Chinese products,” said Arun Jaitley, leader of the main opposition Bharatiya Janata Party, yesterday. India “would become a nation of sales boys and sales girls.”

Deal Makers

Mayawati’s Bahujan Samaj Party, voted in favor of the government, while members of her regional opponent, Mulayam Singh Yadav’s Samajwadi Party, left the chamber before voting. Both parties, which opposed the retail opening, have a record of refusing to vote alongside the Hindu-nationalist Bharatiya Janata Party and striking deals with governing parties for their support.
The retail policy will enable Wal-Mart, Carrefour SA (CA) and Tesco Plc (TSCO) to step up their presence in the world’s second-most populous nation to tap a market that Technopak Advisors Pvt. estimates will expand to $725 billion by 2017.
To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net
To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Fuel Import Plan to Ease Airline Pain: Corporate India By Karthikeyan Sundaram - Dec 6, 2012

Indian airlines including SpiceJet Ltd. (SJET) and IndiGo may be allowed to store imported jet fuel at state-owned refiners’ facilities as the government works to ease rules to help carriers pare their biggest cost.
The petroleum ministry agreed to allow airlines to use refiners’ infrastructure at airports when they import the fuel, Aviation Minister Ajit Singh said in a Dec. 4 interview. Oil Minister Veerappa Moily said the next day that his ministry will discuss the terms of access with the refiners. He didn’t give a timeframe for concluding the talks.
Prime Minister Manmohan Singh’s government allowed airlines to import fuel and sell stakes to overseas carriers as high operating costs and a price war caused industrywide losses and forced Kingfisher Airlines Ltd. (KAIR) to halt flights. Purchasing fuel overseas will help operators save on local taxes that are as high as 30 percent.
“It’s a very positive step,” said Sharan Lillaney, an analyst at Angel Broking Ltd. who recommends buying SpiceJet shares. “The industry is going through a structural change and everybody is working to improve the state of airlines.”
Airlines have been holding back on plans to import jet kerosene even nine months after a ban was lifted because of lack of storage facilities. Prior to the rule change, only state trading agencies were permitted to import the fuel. In September, the government also allowed airlines to sell as much as 49 percent to overseas operators.

Bangkok, Dubai

Carriers pay at least 60 percent more for fuel in the country than in Bangkok, Dubai, Kuala Lumpur or Singapore because of state taxes ranging from 4 percent to 30 percent, according to a civil aviation ministry document in June. Jet Airways (India) Ltd. (JETIN), the nation’s biggest listed carrier, and discount airline SpiceJet both posted second-quarter losses as fuel costs eroded gains from carrying more passengers.
SpiceJet rose as much as 1.4 percent to 49.7 rupees in Mumbai intraday trading, while Jet Airways gained 0.9 percent to 545.95 rupees. Kingfisher jumped 4.8 percent. The BSE India Sensitive Index gained 0.4 percent.
Sales tax charged by the state government, excise duty and freight-related costs account for 32 percent of the retail price of aviation fuel in Mumbai, according to the oil ministry. Airlines need to pay a 5 percent customs duty when they import the fuel, according to the aviation ministry. Fuel imported directly by users is exempted from local sales tax.
Aviation fuel price in India sometimes move contrary to the international market rate, according to the aviation ministry. Jet fuel prices in major airports also suggest that the rates are almost uniform for all the three state-owned oil marketing companies, the ministry said in its note on industry viability.

Indian Oil

On June 1, price of jet kerosene sold by Indian Oil Corp., the nation’s largest refiner, dropped 0.6 percent to 66,588 rupees per kiloliter in Mumbai from 66,990 rupees on March 16. In comparison, the fuel slumped about 17 percent in Singapore trading during the same period.
Indian Oil Chairman R.S. Butola declined to comment on the plan to share airport infrastructure. Hindustan Petroleum Corp. Chairman S. Roy Choudhury and Bharat Petroleum Corp. Chairman R.K. Singh didn’t answer two calls each to their mobile phones.
The federal government allows state-run refiners including Indian Oil to sell jet fuel to carriers at market-linked prices, which are revised every 15 days. Jet fuel accounted for 3.4 percent of Indian refineries’ total fuel sales at home in the seven months to October, according to oil ministry data. Diesel, kerosene and cooking gas are sold at prices set by the Indian government to curb inflation.

Import Permission

The Directorate General of Foreign Trade in April gave permission to budget carrier IndiGo to import 715,000 kiloliters of the fuel within 18 months. SpiceJet was allowed to import 50,000 kiloliters of the fuel.
Air India Ltd. won approvals to import 100,000 kiloliters and Go Airlines Ltd. 200,000 kiloliters, Aviation Minister Singh told parliament Aug. 17. Kingfisher won permission to import 500,000 kiloliters. The carrier’s didn’t immediately respond to e-mails seeking comments on their fuel purchase.
Carriers may not benefit much by importing the fuel because of the charges for storage and transportation, said Harsh Vardhan, chairman of New Delhi-based Starair Consulting, which advises airlines. “The costs involved in importing, storing and moving the fuel defeat the purpose.”

Combined Debt

CAPA Centre for Aviation, an industry consultant, predicted in May that rising fuel and airport costs will increase the combined debt of local carriers by 18 percent to $20 billion within 12-18 months. Half of the debt are aircraft related and the rest are working capital loans and dues to airport operators and fuel companies, according to the aviation ministry.
The government is also working to introduce a uniform rate of sales tax on jet fuel across Indian states, aviation minister Singh said. Talks are under way with the finance ministry on this proposal, he said without specifying a timeframe for a decision.
“The government has kept trying to arrive at one solution or another,” to help airlines, said New Delhi-based Kapil Kaul, who heads the Indian unit of CAPA. “Facilitating imports will eventually lead to a uniform tax on the fuel.”
To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Gold Holds Near One-Month Low Amid Record Holdings, Dollar Gains By Glenys Sim - Dec 5, 2012

Gold traded little changed after declining to a one-month low as investors’ boosted holdings in exchange-traded products to the highest ever, countering the impact of a stronger dollar.
Spot gold was at $1,692.70 at 9:25 a.m. in Singapore after falling to $1,684.93 yesterday, the least expensive since Nov. 6, as the dollar rallied on speculation that U.S. lawmakers will reach a budget agreement. Holdings in ETPs climbed to 2,627.59 metric tons yesterday, data compiled by Bloomberg show.
A few dozen Republicans joined a bipartisan call to break an impasse between President Barack Obama and House Speaker John Boehner to avoid spending cuts and tax increases in January, known as the fiscal cliff. The Dollar Index, which tracks the greenback against six major partners, halted its longest slump in more than a year yesterday and gained 0.2 percent today.
“Markets are being held hostage by progress on the fiscal cliff in the U.S.,” said Feng Liang, an analyst at GF Futures Co., a unit of the nation’s third-biggest listed brokerage. “There are still bargain hunters for gold below $1,700.”
Gold will probably peak in 2013 and keep declining the following year as U.S. growth accelerates, Goldman Sachs Group Inc. said yesterday. Bullion will be at $1,825 in three months, $1,805 in six months and $1,800 in a year, it said, lowering its three-month forecast from $1,840 and its six- and 12-month outlooks from $1,940, Goldman said in a report.
Gold for December delivery gained as much as 0.2 percent to $1,697.80 an ounce on the Comex in New York, before trading at $1,696.30. The contract slipped to $1,686 yesterday, also the lowest level since Nov. 6.
Cash silver fell for a third day, losing 0.2 percent to $32.8038 an ounce. Spot platinum dropped 0.3 percent to $1,578 an ounce after touching a two-week low of $1,571.15 yesterday. Palladium was little changed at $685.50 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Asian Stocks Swing From Loss to Gain on U.S. Budget Talks

By Jonathan Burgos and Adam Haigh - Dec 4, 2012

Asian stocks swung between gains and losses as President Barack Obama held his ground on raising tax rates for the highest-income Americans, bringing the U.S. budget talks into a stalemate. Ping An Insurance (Group) Co. advanced as HSBC Holdings Plc agreed to sell its stake.
Honda Motor Co. (7267), a Japanese carmaker that gets about 44 percent of sales from North America, declined 1 percent. Western Areas NL sank 4.9 percent in Sydney after the nickel sulphide producer raised A$50 million ($52.4 million) selling shares at a discount. Ping An rose 3.8 percent in Hong Kong after HSBC agreed to sell its entire 15.6 percent stake in China’s second- largest insurer to Thailand’s Charoen Pokphand Group Co. for $9.4 billion.
The MSCI Asia Pacific Index (MXAP) added 0.2 percent to 125.03 as of 11:32 a.m. in Tokyo, erasing losses of as much as 0.3 percent. Almost two shares rose for each that fell on the gauge. The measure advanced last month amid signs China’s economic slowdown may be ending and optimism U.S. lawmakers would agree on a budget deal to avert the so-called fiscal cliff, which would result in more than $600 billion in tax increases and spending cuts taking effect next month.
“The fiscal cliff has the potential to frighten the market until the end of the year, but I don’t think it’ll be substantially surprising,” said Peter Esho, chief market strategist at City Index Ltd., a provider of equities, bonds and currency trading in Sydney. “The market’s consolidating after a good run.”
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Adam Haigh in Sydney at ahaigh1@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Record Brazil Coffee Crop Cuts Costs for Starbucks: Commodities By Marvin G. Perez and Patricia Laya - Dec 3, 2012

Record coffee harvests in Brazil, the biggest grower, are compounding a global glut of arabica used by Starbucks Corp. (SBUX) and Dunkin’ Donuts Inc.
Brazilian farmers will reap 50.8 million bags in 2013, a record for a so-called low-crop season, according to the median of nine analyst estimates compiled by Bloomberg. The harvest reached 55.9 million 60-kilogram (132-pound) bags in 2012, an all-time high for a peak year. Output usually drops in alternate years because of growing cycles. Prices may fall 13 percent to $1.311 a pound by June 30, the average of 14 predictions shows.
Futures slumped about 50 percent since May 2011, as the highest prices in 14 years spurred Brazilian farmers to boost supply. Their exports jumped 54 percent to $8.7 billion in 2011. The flood of beans has continued and stockpiles tracked by the ICE Futures U.S. exchange are headed for the biggest annual gain in more than a decade. Rising costs and concern that economies are slowing encouraged roasters and consumers to favor cheaper robusta beans.
“There’s a significant crop coming from Brazil if the weather continues to be favorable,” said Claudio Oliveira, the head of trading at Castlestone Management LLC in New York, which manages about $500 million of assets. “Abundant supply is the driving force in the market.”

Worst Performer

Futures fell 34 percent to $1.507 this year, the biggest retreat of the 24 commodities tracked by Standard & Poor’s GSCI Spot Index, which gained 0.9 percent. Most agricultural products advanced this year, with records in corn and soybeans as drought parched crops from Australia to Russia to the U.S. The MSCI All- Country World Index of equities rose 11 percent. Treasuries returned 2.7 percent as of Nov. 30, a Bank of America Corp. index shows.
Brazil had record harvests in two of the past three seasons, almost doubling output in about a decade and now accounting for 38 percent of global supply, U.S. Department of Agriculture data show. About 72 percent of the country’s crop was arabica this year and the rest robusta, typically used in espressos.
Minas Gerais, Brazil’s top arabica-growing state, harvested 25.87 bags per hectare this year, up from 18.75 bags in 2004, according to Conab, the government’s crop forecasting agency. That’s adding to a global crop the USDA estimates will expand 7.5 percent to a record 147.9 million bags this season.

Frost Risks

Frost during Brazil’s winter in June and July may limit the drop in prices, said Marco Antonio dos Santos, an agronomist with Sao Paulo-based forecaster Somar Meteorologia. The last severe frost to limit output was in 1994, when a low-season harvest plunged 36 percent the following season, according to data from the International Coffee Organization in London.
“A lot of the optimism about Brazil’s crop has pretty much been factored in, and any weather disturbances could take off 3 to 4 million bags,” said James Cordier, the Tampa, Florida- based founder of Optionsellers.com, a Commodity Trading Advisor.
Economic stimulus by central banks and governments from China to Europe to the U.S. also may revive global growth and boost demand for all commodities, said Kona Haque, an analyst with Macquarie Bank Ltd. in London. Some markets are already expanding, including in Brazil itself, where consumption jumped 12 percent in the three years to 2011, ICO data show.
Arabica cost almost three times more than robusta by September 2011, from a premium of about 39 percent in 2008. That’s since narrowed to about 74 percent as roasters switched blends to use the cheaper beans. Robusta traded on London’s NYSE Liffe exchange rallied 5.4 percent to $1,907 a metric ton (86.5 cents a pound) this year.

Robusta Switch

Robusta will rise to 46 percent of global coffee demand this year, from 40 percent in 2010, according to Volcafe. Consumption of the cheaper bean will rise 6 percent to 66.6 million bags this season as arabica advances 1 percent to 78.6 million, the Winterthur, Switzerland-based company estimates.
The demand is encouraging more robusta supply, which Volcafe predicts will exceed demand by 1.4 million bags in 2012-2013, led by gains from Vietnam and Indonesia. Arabica output will surpass consumption by 6.3 million bags, Volcafe estimates.
Hedge funds and other large speculators had their most bearish bets on arabica since at least 2006 in the week ended Nov. 20, U.S. Commodity Futures Trading Commission data show. They have been wagering on lower prices in all but two weeks since February.

OECD Estimate

The 34-member Organization for Economic Cooperation and Development warned of the risk of a “major” global recession on Nov. 27, and the International Monetary Fund has cuts 2013 global growth forecasts twice since July, to 3.6 percent. Growth in coffee consumption will slow to 2 percent this year, from 4.5 percent in 2011, according to the USDA.
The 17-nation euro area tumbled back into recession last quarter, and economists surveyed by Bloomberg expect Japan to do the same this quarter. U.S. leaders have yet to resolve the so- called fiscal cliff of automatic taxes rises and spending cuts, which the Congressional Budget Office has warned risks shrinking the world’s biggest economy.
While that may be slowing growth in coffee consumption, it’s also lowering prices. Starbucks, the world’s largest coffee-shop owner, will have “significantly lower” costs at the end of its fiscal year in September than at the start, Chief Financial Officer Troy Alstead told analysts on a conference call Nov. 1. The Seattle-based company expects to save $100 million this year from “favorable commodity costs,” he said. Shares of the company advanced 13 percent this year.

Folgers Brand

J.M. Smucker Co. (SJM), the maker of the Folgers brand, expects lower costs for commodities including coffee to be “favorable” for earnings, CFO Mark R. Belgya told investors Nov. 16. The Orrville, Ohio-based company will report an 18 percent gain in net income to $541.8 million in its fiscal year ending in April, the mean of eight analyst estimates compiled by Bloomberg show. Shares of the company rose 14 percent this year.
More sales and lower commodity prices are helping franchisees to be “more profitable than ever,” Nigel Travis, Chief Executive Officer of Canton, Massachusetts-based Dunkin’ Brands Group Inc. (DNKN) told investors Oct. 25. The fast-food chain, with more than 10,000 stores, sells about 1.5 billion cups of coffee a year and buys only arabica.
“When you go back a few years, except for a few spikes in the middle of last year, coffee likes to be between $1 and $1.20,” said Michael Smith, the president of T&K Futures and Options in Port St. Lucie, Florida. “We’re way above the mean of where it’s supposed to be. I think it could come down to a $1 in the first quarter of next year.”
To contact the reporters on this story: Marvin G. Perez in New York at mperez71@bloomberg.net; Patricia Laya in New York at playa2@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

Hedge Funds Increase Bullish Bets Most Since August: Commodities By Elizabeth Campbell - Dec 2, 2012

Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises.
Speculators and money manager increased net-long positions across 18 U.S. futures and options by 9.8 percent to 929,588 contracts in the week ended Nov. 27, the biggest gain since Aug. 21, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.9 percent in November, the first monthly gain since August.
The world economy is in its best shape in 18 months because of the acceleration in China, the biggest consumer of everything from cotton to copper to coal, according to the Bloomberg Global Poll of 862 investors last week. The U.S. probably will avoid the so-called fiscal cliff that the Congressional Budget Office has warned risks sending the country back into recession, even as Europe remains mired in a debt crisis, the poll showed.
“I wouldn’t say that it was a green light all ahead for commodities, but the market is turning slowly based primarily on improved real numbers out of China that outweigh slowdowns in Europe and the U.S.,” said Adrian Day, who manages about $170 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland. China is “overwhelmingly the most important factor,” he said.

Price Gains

The S&P GSCI rose less than 0.1 percent last week, led by gains in industrial metals and agriculture. The MSCI All-Country World Index of equities advanced 0.9 percent and the dollar fell 0.1 percent against a basket of six trading partners. Treasuries returned 0.4 percent, a Bank of America Corp. index shows.
The U.S. economy, the world’s biggest, expanded 2.7 percent in the three months ended Sept. 30, more than economists forecast, according to Commerce Department data on Nov. 29. The S&P/Case-Shiller index of property values in 20 U.S. cities showed that home prices in the 12 months ended September advanced by the most since July 2010.
Confidence in China’s economy rose to the highest in more than a year amid optimism that the new leadership headed by Xi Jinping will improve the financial climate, according to the Bloomberg investor poll. Manufacturing in the country rose to the highest level in seven months in November, the National Bureau of Statistics said Dec. 1.

Tax Deadlock

A deadlock between President Barack Obama and Republicans in Congress over $600 billion in spending cuts and tax increases has extended over a year. Missing the deadline at the end of December means the economy goes over the so-called fiscal cliff and probably will tumble into a recession, the Congressional Budget Office reiterated Nov. 8.
“Until investors see the big overall grand bargain, investor sentiment and business decision-making will be somewhat uncertain,” said Chad Morganlander, a Florham Park, New Jersey- based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “It just means that there’s going to be a lackluster demand for commodities with very little reacceleration of economic activity.”

Debt Crisis

Germany, Europe’s largest economy, probably will face a recession as the sovereign-debt crisis roiling its neighbors extends into 2013, according to the Bloomberg Global Poll. About 18 percent of global copper demand comes from Europe, and the region consumes 22 percent of the world’s oil, according to estimates from Barclays and BP Plc. The 17-nation euro zone fell back into recession in the third quarter.
Money managers withdrew $42 million from non-precious-metal commodity funds in the week ended Nov. 28, according to Cameron Brandt, the director of research for Cambridge, Massachusetts- based EPFR Global, which tracks money flows. Gold and precious- metal funds had a net inflow of $530 million. Investors raised bets on a gold rally by 13 percent to the highest since Oct. 16, CFTC data show. Silver holdings climbed 12 percent.
Holdings in exchange-traded products backed by gold rose to a record for an 11th day Nov. 30. U.S. Mint sales of American Eagle gold coins more than doubled in November to the highest since July 2010. The metal has advanced 9.3 percent this year, headed for a 12th annual gain.

Farm Goods

A measure of net-longs for 11 U.S. farm goods rose 9.1 percent, the biggest gain since Oct. 23, CFTC data show. The Standard & Poor’s GSCI Agriculture Index of eight farm products jumped 0.8 percent last week, the second consecutive increase.
Bullish bets on cattle more than doubled to the highest since Sept. 18. Futures jumped to a record $1.32925 a pound on Nov. 23 in Chicago trading amid shrinking supplies of beef and rising demand. The U.S. cattle herd was the smallest since at least 1973 as of July 1 as ranchers culled animals during the worst drought since 1956.
Corn holdings rose 2.7 percent to the highest since Oct. 23, and wagers on a wheat rally surged 35 percent, the biggest increase since June 26, CFTC data show. Wheat futures jumped 32 percent this year in Chicago as dry weather cut global production to a five-year low.
“The global economy continues to expand next year,” said Peter Sorrentino, who helps manage about $14.6 billion of assets at Huntington Asset Advisors in Cincinnati. “Commodities will not have a ‘shoot the lights out’ year but it should be a profitable year for commodities.”
To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net
To contact the editor responsible for this story: Patrick McKiernan in New York at pmckiernan@bloomberg.net