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.