Gold Traders Most Bullish in 10 Weeks on Stimulus: Commodities

By Nicholas Larkin - Nov 2, 2012

Gold traders are the most bullish in 10 weeks and investors are hoarding a record amount of bullion as central banks pledge to do more to spur economic growth.
Eighteen of 27 analysts surveyed by Bloomberg expect prices to rise next week and five were bearish. A further four were neutral, making the proportion of bulls the highest since Aug. 24. Holdings in gold-backed exchange-traded products gained the past three months, the best run since August 2011, data compiled by Bloomberg show. They reached a record 2,588.4 metric tons yesterday, valued at $140 billion, the data show.
The Bank of Japan (8301) expanded its asset-purchase program on Oct. 30 for the second time in two months, increasing it by 11 trillion yen ($137 billion). The Federal Reserve said last week it plans to continue buying bonds and central banks from Europe to China have pledged more action to boost economies. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.
“Central banks are all very concerned about a depression, so they’re keeping monetary policies as loose as possible,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars. “People are buying gold as a store of value to protect against currency depreciation.”

Gold Prices

Gold rose 7.6 percent to $1,681.97 an ounce in London this year, heading for a 12th straight annual gain, the longest winning streak in at least nine decades. The Standard & Poor’s GSCI gauge of 24 commodities lost 2.5 percent since the end of December, and the MSCI All-Country World Index of equities climbed 11 percent. Treasuries returned 1.9 percent, a Bank of America Corp. index shows.
Bullion slid as much as 2 percent to a two-month low today as a Labor Department report that showed American employers added more workers than economists had forecast in October bolstered the dollar.
The BOJ said its fund will increase to 66 trillion yen, a separate credit loan program will stay at 25 trillion yen and it will also offer unlimited loans to banks to boost credit demand. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank has said it is ready to buy bonds of indebted nations and China approved a $158 billion subways-to-roads construction plan.

Inflation Outlook

Some investors buy bullion as a hedge against inflation and a weaker dollar, and the metal generally earns returns only through price gains, increasing its allure as interest rates decline. Inflation expectations measured by the break-even rate for five-year Treasury Inflation Protected Securities jumped 35 percent this year and reached a 16-month high in September.
ETP holdings jumped about 193 tons since the end of July and now account for almost a year of mine production, according to data compiled by Bloomberg and Barclays Plc. Options traders are also bullish, with the 10 most widely held contracts giving the right to buy the metal at prices from $1,800 to $2,300 between November and March, data from Comex in New York show.
Hedge funds’ bets on a rally declined for two weeks after reaching the highest since August 2011 on Oct. 9, U.S. Commodity Futures Trading Commission data show. Speculators cut their net- long position by 12 percent in the week ended Oct. 23 from the prior week, the most since July, to 161,987 futures and options, the data show.

Coin Sales

The U.S. Mint sold 59,000 ounces of American Eagle gold coins last month, 14 percent fewer than in September, data on its website show. This year’s sales of 543,500 are down 39 percent from the same period in 2011.
While prices slid for three consecutive weeks through Oct. 26, the longest losing streak in more than a year, this year’s average of $1,662 is set to be a record. A faster increase in prices compared with income growth will curb jewelry usage, Standard Bank Plc said in a report e-mailed on Oct. 30.
Demand in India, last year’s biggest buyer, slid the past several months as record local prices cut demand, according to Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation. Indian consumers usually boost purchases before the wedding season and religious festivals later in the year, and that should improve consumption, Bamalwa said.
Barack Obama and Mitt Romney face off in a Nov. 6 presidential election and an Obama victory would support gold because “market uncertainty” will be removed, Edel Tully, an analyst at UBS AG in London, wrote in an Oct. 31 report. An Obama win may be positive for bullion because investors see greater monetary accommodation and currency debasement from a Democratic administration, according to Ross Norman, the chief executive officer of London bullion brokerage Sharps Pixley Ltd.

Copper Survey

In other commodities, 12 of 19 traders and analysts surveyed expect copper to rise next week and seven were bearish. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, added 1.2 percent to $7,688.75 a ton this year.
Four of 10 people surveyed said raw sugar will gain next week and the same amount expected a decline. The commodity slid 17 percent to 19.41 cents a pound since the start of January on the ICE Futures U.S. exchange in New York.
Fifteen of 28 people surveyed anticipate higher corn prices next week and eight were bearish, while 14 of 29 said soybeans will climb and nine predicted a drop. Corn rallied 15 percent to $7.4275 a bushel in Chicago trading this year as soybeans rose 27 percent to $15.38 a bushel. Both crops reached records since August as the worst U.S. drought in a half century hurt crops.

Commodities Prices

The GSCI gauge of raw materials erased this year’s gain last week after entering a bull market in the third quarter. The last annual decline was in 2008 and the index (MXWD) made annual advances in 11 of the past 13 years. The International Monetary Fund cut its global growth forecast for next year to 3.6 percent from 3.9 percent on Oct. 9.
“We see the weakness in the global economy continuing to be a drag on commodity prices,” said Ross Strachan, a commodities economist at Capital Economics Ltd. in London. “Global stimulus mainly is not having very much effect at this point. It’s struggling to feed through into the economy due to the uncertainty that persists.”

Gold survey results: Bullish: 18 Bearish: 5 Hold: 4
Copper survey results: Bullish: 12 Bearish: 7 Hold: 0
Corn survey results: Bullish: 15 Bearish: 8 Hold: 5
Soybean survey results: Bullish: 14 Bearish: 9 Hold: 6
Raw sugar survey results: Bullish: 4 Bearish: 4 Hold: 2
White sugar survey results: Bullish: 4 Bearish: 4 Hold: 2
White sugar premium results: Widen: 2 Narrow: 3 Neutral: 5

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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Mahindra Bucks Slowing Car Sales With New SUVs, Holidays

By Siddharth Philip - Nov 2, 2012

Mahindra & Mahindra Ltd. (MM), India’s largest maker of sport-utility vehicles, is betting on new models and giveaways such as holidays to maintain its market position and buck a slowdown in car sales.
Industrywide SUV sales growth in India may accelerate to 50 percent in the year ending March 31, said Pawan Goenka, president of the automotive and farm equipment division at the Mumbai-based company, after expanding 17 percent in the previous year. The Society of Indian Automobile Manufacturers estimates domestic car sales to increase by as little as 1 percent this fiscal year.
Mahindra has introduced two new SUV models in the past two months to widen its lead over rivals including Tata Motors Ltd. (TTMT) and take advantage of a surge in demand for bigger passenger vehicles run on subsidized diesel. The company’s service quality improved the most among its peers this year, according to J.D. Power Asia Pacific, helping attract customers.
“The utility vehicle space is growing at a fast pace and Mahindra being a veteran in the field has used innovative products to generate sales,” said Rikesh Parikh, vice president of equities at Motilal Oswal Securities Ltd. in Mumbai. “Mahindra has been able to create interest in their products.”

SUV Demand

Industrywide sales of SUVs have climbed 56 percent in the six months ended Sept. 30, compared with a 0.3 percent decline in car deliveries, according to the automakers’ association. Mahindra’s sales of passenger vehicles including SUVs rose 31 percent to 156,082 units in the seven months through Oct. 31, the company said yesterday.
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker by volume, said yesterday domestic passenger vehicle sales rose 8.5 percent in the same period.
Some Indians are choosing SUVs over sedans and hatchbacks as family vehicles because their higher ground clearance allows for use on pot-holed roads both in the city and rural areas.
The growth in demand for SUVs over the past few years has attracted a number of overseas companies from Toyota Motor Corp. (7203) to Renault SA to unveil models in the segment. Renault, which started selling its Duster SUV in August, said yesterday it sold 5,406 units of the model last month.
Toyota introduced refreshed version of its Fortuner earlier this year, while Tata Motors last month started selling a new version of its Safari Storme SUV. Ford Motor Co. (F) plans to introduce the EcoSport compact SUV next year.

‘Main Challenge’

The key test for Mahindra will be its ability to develop products in the next few years, according to Ashvin Chotai, London-based managing director at Intelligence Automotive Asia, said by phone.
“The main challenge is to see how much more growth they can get in the future and what will be the next growth driver,” said Chotai. “There isn’t that much competition in the SUV segment, so there will be rising competition.”
In September, the company unveiled the Quanto, a compact SUV priced at 582,000 rupees ($10,829) targeting hatchback and sedan customers. Maruti’s diesel-engined DZire sedan starts at 634,930 rupees, while the gasoline-powered DZire costs 517,798 rupees.
Mahindra, which last month started selling the Rexton SUV, aims to sell 500 units a month of the model, Goenka said on a conference call with investors on Oct. 25. This is the first model from Ssangyong Motor Co. (003620), which it acquired last year. The two companies will reveal the first jointly developed platform by 2015, Goenka had said on May 31.
The company has added features such as voice command operation of some functions and started a Purple Club for its XUV500 and Rexton customers offering holidays, special services such as a chauffeur on demand, and round-the-clock roadside assistance.

‘Value for Money’

“Mahindra is gaining from customers upgrading from hatchbacks and small cars for its Quanto and XUV500, as well as from rural demand for its UVs such as the Bolero,” said Ronak Sarda, an analyst with MSFL Institutional Research in Mumbai. “It has positioned products well at a value for money proposition, and with poor roads, many Indians are turning to UVs for family vehicles.”
Mahindra, excluding units, reported second-quarter profit rose 22 percent to 9.02 billion rupees, which beat analysts’ estimates. Sales increased 32 percent to 96.6 billion rupees.
Maruti’s profit declined 5.4 percent in the three months ended Sept. 30 after a deadly labor riot led to a monthlong production halt at one of its factories. Tata Motors will report earnings Nov. 7.
Mahindra rose 2 percent to a record 917.45 rupees at the close in Mumbai. The stock has jumped 28 percent in the past six months making it the best performer in the 10-company BSE Auto Index. Maruti, a unit of Japan’s Suzuki Motor Corp., has gained 10 percent in the period, while Tata Motors, the owner of Jaguar and Land Rover marques, has slumped 11 percent.

Waiting Period

Mahindra introduced its XUV500 model last year. It had a waiting list of three months on the XUV500 and two months on the Quanto, Goenka said on a call with investors on Oct. 25. The company had also begun exporting the XUV500 to South Africa, Australia and Italy, he said.
Bookings for the XUV500 had to be closed twice after the company was swamped with orders. Priced between 1.1 million rupees and 1.36 million rupees, the XUV500 initially received 8,000 orders in 10 days, and led Mahindra to increase production to 5,000 a month, from the initial 3,000 unit capacity it had set up.
“The Indian consumer is now realizing the versatility of an utility vehicle that offers great comfort, style and fuel efficiency,” said Goenka. “Mahindra has been the leader of the utility vehicle pack and our endeavor will be to defend our turf.”
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

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Wipro Profit Beats Estimates as Outsourcing Orders Climb

By Ketaki Gokhale and Suresh Seshadri - Nov 1, 2012

Wipro Ltd. (WPRO), India’s third-largest software-services exporter, reported profit that beat analysts’ estimates as businesses sought savings through outsourcing.
Net income rose 24 percent to 16.1 billion rupees ($300 million) in the second quarter ended September, Bangalore-based Wipro said in a statement today. That exceeded the 15.5 billion- rupee median of 42 analysts’ estimates compiled by Bloomberg. Revenue from its information-technology services business may range between $1.56 billion and $1.59 billion in the current quarter, according to the statement.
Wipro joins larger rival Tata Consultancy Services Ltd. in reporting profit that exceeded analysts’ estimates, as businesses outsource more information technology services to cut costs. The board of the company, controlled by billionaire Chairman Azim Premji, yesterday agreed to separate Wipro’s consumer care and lighting, infrastructure engineering and medical diagnostic businesses into a separate company.
“IT services got better margins and the restructuring of the business units is quite positive for the minority shareholders,” said Jigar Shah, an analyst at Kim Eng Securities Pvt. in Mumbai. “It should augur well for the stock going forward.”

Revenue Growth

Net sales rose 17 percent to 106.2 billion rupees, according to the to a stock exchange filing. That lagged behind the 108.5 billion-rupee median of 45 analysts’ estimates compiled by Bloomberg.
Wipro said yesterday it will separate its consumer care and lighting, infrastructure engineering and medical diagnostic businesses into a closely held company called Wipro Enterprises Ltd., according to a filing made to exchanges.
Separating units that make baby soaps and light bulbs will help Premji increase focus on the IT business, which accounted for 86 percent of Wipro’s 372 billion-rupee revenue in the year ended March 31, amid intensifying competition from rivals including Cognizant Technology Solutions Corp.
The move will also help Premji increase Wipro’s public ownership and meet India’s shareholding requirement. Premji, his family and related entities, who own 80 percent of the company, need to reduce their stake to 75 percent.

Clients Added

Sales at the information-technology services unit in the three months ended September rose 4.6 percent to $1.54 billion, Wipro said.
Wipro, which provides services such as designing and building software programs, product-engineering and back-office support to companies including BP Plc (BP), William Morrison Supermarkets Plc. and Verizon Communications Inc. added 53 new clients in the quarter.
Global spending on information technology may grow at a 3 percent pace in 2012 to $3.6 trillion, Gartner said in a July 9 report. That’s slower than 7.9 percent increase last year as the euro zone crisis, a weaker U.S. recovery and a slowdown in China curb economic growth, the researcher said.
Infosys Ltd. (INFO), India’s second-largest software exporter, cut its annual sales forecast in rupee terms on Oct. 12, warning that higher wages and currency fluctuations will hurt profitability amid a business environment that continues to be “challenging.” Bangalore-based Infosys lowered the revenue projection for the fiscal year ending March 31 to 395.8 billion rupees from a July estimate of 403.6 billion rupees.
Still, Tata Consultancy (TCS) said last month it would grow at a faster rate than the industry, driven by “tremendous traction” with projects in social media, data, analytics and cloud computing.
To contact the reporters on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Suresh Seshadri in Bangalore at sseshadri1@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Kingfisher Woes Show Need for Bankruptcy Law: Corporate India

By Karthikeyan Sundaram - Nov 1, 2012

Kingfisher Airlines Ltd. (KAIR), controlled by liquor tycoon Vijay Mallya, is struggling to resume services after five straight years of losses and mounting debt forced it to ground planes. India’s bankruptcy laws aren’t helping.
The carrier can’t emulate U.S. airlines that have gone through court-led Chapter 11 restructuring, as India doesn’t have any similar procedures for service providers. Under the existing law, a government body only oversees rehabilitation of companies with licenses to run factories.
Kingfisher’s troubles highlight how India’s corporate laws have failed to keep pace with growth and emergence of new businesses in Asia’s third-biggest economy. Lack of a modern legal framework makes it slower for struggling companies to renegotiate debts and cut cost, said Jai Pathak, partner-in- charge at Gibson, Dunn & Crutcher LLP. in Singapore.
“India needs a comprehensive bankruptcy law that will allow financially distressed companies to revive faster,” Pathak said. The existing system doesn’t “provide a framework by which companies can take preventive measures to avoid a further downward spiral.”
Current rules allow companies that operated for at least five years and holding a factory license to approach the Board for Industrial and Financial Reconstruction if accumulated losses equal or exceed their net worth. The recourse is available under the Sick Industrial Companies (Special Provisions) Act of 1985.

‘Outdated Tool’

Under the Indian Companies Act of 1956, firms can voluntarily wind up operations or a court can order their closure. In a court-ordered shutdown, an official liquidator will be appointed to oversee the process and distribute the proceeds from sale of assets to creditors.
“BIFR is the most outdated tool available under law in India,” Kishor Ostwal, managing director at CNI Research Ltd. in Mumbai, said. “There are examples where companies have applied for rehabilitation and it has taken several years for even the plan to be approved. It’s next to impossible.”
BIFR took almost four years to approve a rehabilitation plan for Windsor Machines Ltd. (WML), which was declared a ‘sick’ company in June 2006. By the time the revival plan got approval from the agency in April 2010, the company had made quarterly profits.

World Ranking

India ranked 116 among 185 economies when it comes to ease of resolving insolvency, according to Doing Business 2013 data published by International Finance Corp. and the World Bank. The nation’s ranking fell from 109 in 2012. India scored 132 for the overall ‘ease of doing business’ in the latest report published last month.
In 2001, as an alternative to the BIFR process, India’s central bank allowed companies and their creditors to enter into a debt recast arrangement to help businesses return to financial health. The mechanism was limited to firms that had borrowed more than 200 million rupees ($3.7 million) from a group of lenders.
Kingfisher in 2010 restructured 77.2 billion rupees of debt it had run up by ordering aircraft and buying a budget carrier. It can seek a second round of debt recast if a majority of its lenders agree, said Avinash Gupta, head of financial advisory services at Deloitte Touche Tohmatsu India Pvt. The carrier has been seeking more loans and investments at least for a year after losses widened and debt swelled to 86 billion rupees.
Shares of the airline gained 4.4 percent to 13.15 rupees at 9:51 a.m. in Mumbai today. Kingfisher shares have slumped 38 percent this year, compared with a 20 percent gain in the benchmark Sensitive Index. (SENSEX)

Lengthy Process

Debt restructuring may offer little help for distressed companies because of the lengthy procedures, said Thomas Britt, a Hong Kong-based partner at Debevoise & Plimpton LLP.
“Negotiations with creditor banks take place in a time- consuming Reserve Bank of India-supervised process and only after the company has reached a state of severe financial crisis, if not a complete collapse,” Britt wrote in an e-mail. That makes “the prospects remote for that company’s return to financial health and viability.”
India’s Civil Aviation Minister Ajit Singh said he will push for an overhaul of the bankruptcy laws to help companies like Kingfisher restructure operations. He didn’t say what changes he is seeking in the rules.
“It’s not just the owner who suffers, it’s also the employees, the creditors and the consumers,” Singh said in an interview in New Delhi on Oct. 27. “Reform of the companies law will not only offer protection from creditors, but also from labor unions and other agencies.”
Prakash Mirpuri, spokesman at Kingfisher Airlines, didn’t respond to an e-mail seeking comments.

Delta, American

India’s aviation regulator suspended Kingfisher’s license on Oct. 20 after the carrier failed to provide a plan to resume operations that were halted Oct. 1 because of a strike by pilots and engineers. The employees resumed work last week after management promised to pay their salary dues. The carrier will soon prepare a “comprehensive” revival plan, Mallya said in New Delhi Oct. 30.
In the U.S., carriers including Delta Air Lines Inc. have used bankruptcy protection to restructure debt and shed costly pension and retiree benefit plans in the years after the 2001 terrorist attacks. In November last year, American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements. With the filing, American became the final large U.S. full-fare carrier to seek court protection from creditors.
India has been planning to update company laws for almost a decade. A new Companies Bill that proposes to replace the 1956 Act with easier restructuring rules has been in the works since at least 2004. The Bill needs to be passed by parliament. Its previous versions have been introduced in parliament at least three times.
Absence of bankruptcy laws means Mallya has very few options to revive Kingfisher unless he wins investments, said Pathak at Gibson, Dunn & Crutcher. He can either seek to restructure the debt or try to reach a compromise with the carrier’s creditors after getting approvals from a high court.
“Had Kingfisher been a U.S. carrier, the natural choice for it would have been to seek Chapter 11 bankruptcy protection,” CNI Research’s Ostwal said.
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

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

India Data Dearth Roils Investors as RBI Gathers Own Statistics

By Kartik Goyal - Oct 30, 2012

Mumbai housewife Sangita Shinde sought work in a shopping mall last year to help pay her children’s soaring school fees. Don’t expect to find that jump in living costs reflected in India’s inflation data.
“I was forced to take up a job,” said Shinde, 35, as she oversaw cleaning at a retail complex in India’s financial center. “It’s so difficult to meet rising expenses.”
What Shinde and millions of others have to cope with every day is hidden from investors and central bank Governor Duvvuri Subbarao when it comes to gauging India’s economy, because official data are often incomplete or months out of date. The statistical fog spurred the central bank to collect its own price data to supplement the benchmark wholesale-price index, which excludes services including education that make up 57 percent of gross domestic product.
“To a large extent, the Reserve Bank of India is essentially making decisions in the dark,” said Jahangir Aziz, India chief economist at JPMorgan Chase & Co. in Washington and a former adviser at the nation’s Finance Ministry. “There is no doubt about it that India lacks a solid, good measure of inflation. There has to be much broader coverage of services.”
What Subbarao can deduce about price pressures left him holding off on lowering the benchmark interest rate yesterday and opting to reduce lenders’ reserve requirements instead. He said at a press briefing in Mumbai that the central bank must not lose sight of its inflation goals, adding the “stickiness” of price increases is a main concern.

Patchy Data

While Shinde says school fees have doubled in the past five years, the wholesale index shows inflation in Asia’s third- biggest economy averaged 7.3 percent since September 2007. The gauge conflates retail and producer prices, and fails to reflect services, Subbarao said July 17. In contrast, economies from Indonesia to the European Union and the U.S. include services such as education in inflation measures.
The Reserve Bank now collects prices for items such as food grains and lentils to capture variations across the country, it said last month.
Labor-market data are also patchy -- the most recent jobless estimate is at least four months old. The reliability of the official 3.8 percent unemployment-rate estimate is clouded by being based on a sample of about 0.05 percent of Indian households.
“It’s almost unthinkable for the central bank to make policies without knowing unemployment,” said Aziz, who previously worked at the International Monetary Fund. “If I don’t even know the demand side of the economy, how can I do demand management?”

‘Uncertain Past’

Less than a year after becoming governor in September 2008, Subbarao said that while “most economies have to contend with an uncertain future, here, in India, we are having to contend with an uncertain past as well,” citing more frequent data revisions than elsewhere.
Subbarao’s point was underscored this year with an inflation report that might have affected the Reserve Bank’s April 17 decision to lower interest rates for the first time since 2009. The half-percentage-point cut in the benchmark repurchase rate came a day after a release showing wholesale- price inflation had eased to 6.89 percent in March, signaling more scope for monetary stimulus.
Weeks later, revisions showed inflation had accelerated to 7.69 percent that month, the second-fastest for the year so far, pulling away from Subbarao’s comfort level of about 5 percent and casting doubt on the judgment to reduce borrowing costs.

Defending Decisions

“If the true extent of inflation was known to the central bank, they probably wouldn’t have gone for such an aggressive action,” said Rupa Rege Nitsure, an economist at state-owned Bank of Baroda in Mumbai.
Subbarao defended the rate cut when asked whether he had any regret on a conference call with analysts on Aug. 1, saying that the move was the “best decision based on the situation at that time.”
While peers in the Group of 20 major economies rely on consumer inflation as their main gauge, India only began publishing a comprehensive, year-on-year measure of such prices in February.
The late introduction shows how the nation’s data system has struggled to keep up since Prime Minister Manmohan Singh began modernizing the economy two decades ago as finance minister, cutting import and investment barriers.
“The nature of the economy has changed at a very fast pace and some of our systems are still old,” said Ashish Kumar, who’s in charge of compiling gross domestic product figures at the government’s Central Statistical Office.

Buffeting Investments

The agency relies on information from India’s 28 states and seven union territories, and such reports can be very delayed or revised, he said.
Revisions to economic figures also buffet Indian investments. The government on April 12 slashed its estimate of January year-on-year industrial production growth to 1.1 percent from 6.8 percent, blaming an error in sugar output calculations. Benchmark bonds rallied the most in more than two months that day on speculation the central bank would cut rates.
Equities surged on Feb. 14, 2011, with the BSE India Sensitive Index rising 2.7 percent, aided by a government report that inflation had cooled in January. Two months later, the index slid the most in seven weeks when officials revised the inflation rate up by more than 1 percentage point, to almost 9.5 percent.
“Huge data revisions lead to improper asset allocation by investors and cause unnecessary market volatility,” said Mumbai-based Ganti N. Murthy, who oversees about $981 million as head of fixed-income investments at Peerless Funds Management Co.

Inflation Maze

The country’s economic data are “adequate for surveillance, but weaknesses remain in the timeliness and coverage of certain statistical series,” the IMF said in a report in April.
Subbarao has refrained from further lowering the benchmark rate even as counterparts from Asia to Europe eased policy to address rising global economic risks. Price increases, stoked by food costs, supply bottlenecks and a 9.8 percent drop in the rupee against the dollar in the past year, have sapped growth.
Indian inflation based on wholesale prices was 7.81 percent in September, the fastest in the BRIC group that also includes Brazil, Russia and China. Using the new consumer-price index, it was 9.73 percent, the highest in the G-20 after Argentina, which the IMF has put on notice to address concerns about the quality of its data.
There are six further Indian inflation gauges, and Subbarao says he analyzes them all to set policy. They include a central bank in-house core inflation index that excludes food and fuel costs.

Growth Puzzle

Measuring growth in India’s $1.8 trillion economy is also tricky: an Aug. 31 report showed it both accelerated and slowed.
GDP rose 5.5 percent in the three months through June from a year earlier, near the three-year low of 5.3 percent in the previous quarter, using assessments of output from industries.
An alternative estimate based on spending on goods and services shows a slowdown to 3.9 percent, according to calculations by Bloomberg using data in the release.
Subbarao flagged discrepancies in GDP reports in July 2011 and said policy choices can turn out to be “sub-optimal” if they use inaccurate provisional estimates.
The Indian economy will expand 4.9 percent this year, the slowest pace in a decade, according to IMF projections. Prime Minister Singh is trying to boost confidence in the nation’s ability to return to 8 percent growth.

RBI’s Efforts

The Reserve Bank under Subbarao has stepped up efforts to fill information gaps. Aside from gathering its own price data, the bank started a consumer confidence survey in 2010 and introduced a house-price index for Mumbai, the financial capital, in 2009, that was later extended to eight more cities.
It also surveys inflation expectations and compiles a composite leading indicator for the economy.
India isn’t alone in suffering data failings. In China, Vice Premier Li Keqiang, then a regional Communist Party head, said in 2007 that the figures going into the country’s GDP are “man-made” and “for reference only,” according to a diplomatic cable published by Wikileaks in 2010.
The deficiencies in India are worse than a number of regional peers, said Rahul Bajoria, an economist at Barclays Plc in Singapore.
“India’s data does fall short on many benchmarks as compared to other nations in the region,” he said. “If you are not able to take the data completely at the face value, you have to be ready that you may make some mistakes.”
While the new consumer-price gauge is a step in the right direction, its limited history makes it unsuitable as a sole headline measure of inflation, Subbarao said in July.
For Shinde and other consumers, sacrifices are needed to cope with the increasing cost of living. Since July, she’s stopped taking taxis to work, and now joins millions of commuters taking Mumbai’s packed trains into the city, jostling in carriages so crowded that passengers cling to the roofs and hang out of doorways.
“With rising school fees, transportation costs and house rent, life is becoming quite a struggle,” she said.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Suzlon Seeks to Recast $2 Billion Debt After Bond Default By Natalie Obiko Pearson - Oct 29, 2012

Suzlon Energy Ltd. (SUEL), the wind-turbine maker behind India’s biggest convertible bond default, proposed a restructuring for 107 billion rupees ($2 billion) of bank loans, offering to repay them over a decade.
India’s biggest maker of the machines has begun talks with lenders for a two-year moratorium on interest and principal repayments, the company said in an e-mailed statement late yesterday.
Suzlon, which has posted losses for three years, also suspended guidance for the current fiscal year due to liquidity constraints, volatile market conditions and problems financing its debt.
The company is negotiating separately with bondholders and expects “an acceptable solution will be reached at the earliest possible date,” Chief Financial Officer Kirti Vagadia said in the statement.
Suzlon is struggling to pay down debt it racked up in overseas acquisitions before a global supply glut slashed turbine prices by 23 percent from their peak in 2009, data compiled by Bloomberg show. On Oct. 11, it defaulted on $209 million of convertible notes after bondholders rejected its request for a four-month extension.

State Bank

In an effort to unlock cash for the company, lenders led by State Bank of India (SBIN) are seeking to acquire loans made to Suzlon’s German unit Repower Systems SE, said three people with knowledge of the matter.
The Hamburg-based unit of Suzlon raised a 725-million euro letter of guarantee and a 25-million euro credit facility from lenders including BayernLB Holdings AG and Commerzbank AG in February.
Terms of that loan prohibit Suzlon from tapping Repower’s cash or drawing on credit available to the unit, two of the people said asking not to be identified because the information is private. The SBI-led group plans to change those terms after acquiring the loan, the people said.
Suzlon and Repower declined to provide the unit’s stand- alone cash balance or debt. A spokesman at SBI did not reply to an e-mail seeking comment.

Balance Sheet

Repower’s cash balance was about $163 million, said Antoine Bourgault, a London-based analyst at ISM Capital LLP, citing figures provided by Suzlon for the quarter ending June 30. The German unit also has $163 million of debt, “which may or may not have to be redeemed,” Bourgault said.
In 2010, Suzlon refinanced 100 billion rupees of debt accumulated from buying stakes in Repower and Belgium-based gearbox maker Hansen Transmissions. Principal repayments started on those loans after a two-year grace period ended in April. Maturity for the loans was scheduled for 2017. The restructuring plan would push repayment back to March 2023.

Shares Decline

Suzlon shares have declined 59 percent in the past year, according to data compiled by Bloomberg. A lack of working capital constrained its ability to complete orders in the quarter that ended June 30, Vagadia said in August after the company reported its second-biggest quarterly loss since at least 2007.
The company is also asking lenders for an injection of working capital and an interest rate reduction as part of its corporate debt restructuring proposal, according to Vagadia.
India’s Corporate Debt Restructuring Mechanism allows viable companies additional time to meet debt obligations. Suzlon’s lenders have 90 days to approve or make changes to the proposal with the possibility of a 180-day extension, according to the program’s rules. If the proposal is rejected as unfeasible, “lenders may start action for recovery of their dues,” according to the program’s website.
To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

Singh Overhauls Cabinet Amid Push to Bolster Indian Economy

By Bibhudatta Pradhan and Andrew MacAskill - Oct 28, 2012

Indian Prime Minister Manmohan Singh overhauled his cabinet six weeks after unveiling the biggest policy changes in a decade as he bids to invigorate an embattled minority government in what may be his last reshuffle ahead of elections due within 18 months.
Seven cabinet ministers and 15 junior ministers were sworn in by President Pranab Mukherjee at a ceremony in the colonial- era president’s palace in central New Delhi yesterday. Salman Khurshid, 59, was named foreign minister after S.M. Krishna, 80, resigned from the post ahead of the reshuffle. Rahul Gandhi, the scion of three Indian prime ministers who is expected to take on a more senior party role, was not among those drafted into Singh’s team of ministers.
Ashwani Kumar was elevated to cabinet rank and given the law and justice portfolio. Ajay Maken was also promoted as minister for housing & urban poverty alleviation. Shashi Tharoor, 56, who quit as junior minister in April 2010 amid allegations that he influenced the award of a cricket franchise to his benefit was re-inducted.
“The prime minister is organizing the team that will take him into the next elections,” said N. Bhaskara Rao, chairman of the New Delhi-based Centre for Media Studies. “He has taken a young and fresh set of faces that will be able to inject some energy into the cabinet.”

Ally Quits

After two years, during which corruption charges and opposition within the ruling alliance paralyzed policy making and stripped away voter support, Singh and his finance minister, Palaniappan Chidambaram, have rolled out a string of policy changes in a bid to restore credibility. The overhaul led to the government’s largest coalition ally quitting, an exit that has left Singh dependent on the whim of regional parties to pass legislation in parliament.
Subsidies on diesel have been cut and overseas supermarket chains allowed to open stores. Investment regimes for power markets and broadcasting were eased. Foreign airlines can now own minority stakes in local carriers, and the government has accelerated a plan to sell shares in state-owned companies and lowered the tax paid by Indian businesses that borrow abroad.
Two-thirds of the way through its second term, the Congress party is trying to reverse declining support. Opinion polls show Congress may lose power to a coalition led by the Bharatiya Janata Party, the main federal opposition. A BJP-led group may win as many as 205 seats, while Singh’s coalition may win 78 fewer seats than the 259 it secured in May 2009, a poll carried out by Nielsen and India Today forecast in August.

Election Rout

Congress, after a campaign led by Rahul Gandhi, was routed in assembly elections in the country’s most populous province this year, coming fourth and losing seats in Gandhi family bastions. In the first test of its popularity since announcing the economic overhaul, Congress will seek to wrest power from its main rival in two provincial elections in the states of Gujarat and Himachal Pradesh before the end of the year.
Ratcheting up the pressure on the government, the opposition BJP is leading the charge against the plans to allow foreign companies to open supermarkets, a policy it proposed when in office. With opposition parties threatening to bring a no confidence vote, Singh is maneuvering to shore up its support from smaller regional parties for a majority in parliament.

‘Underachiever’ Singh

Veerappa Moily, 72, was given charge of the petroleum ministry, while S. Jaipal Reddy, who held the portfolio previously, was named minister for science and technology and earth sciences. Jyotiraditya Scindia, 41, was named power minister.
Mulayam Singh Yadav, the leader of the Samajwadi Party, the third-largest party in Parliament, has signaled his support to the government, while saying he will continue to oppose the retail policy. Others unwilling to face the electorate in the next few months may also bail Singh out in the legislature.
The Congress party, which won its biggest election victory in two decades in May 2009, has had to fight off an opposition onslaught over alleged corruption that has included the 2010 hosting of the Commonwealth Games, a sale of mobile-phone licenses in 2008 and now a scandal over coal-block allocations. Street protests, strikes and public fasts have combined to dent Singh’s reputation as an able administrator.
Singh has been labeled India’s “weakest ever” prime minster by opposition leader L.K. Advani, while Time magazine July 16 branded him an “underachiever” on its cover.
To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net
To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net

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