Jain Irrigation Climbs 11% to Highest Since 2011 on Export Sales

By Randall Hackley - May 23, 2014

Jain Irrigation Systems Ltd. (JI), India’s largest irrigation-equipment maker, climbed to a 2 1/2-year high as export sales increased 46 percent and the company forecast a stronger second half of the year.
The shares rose today to 122.80 rupees, the highest since November 2011. Jain’s stock has surged 69 percent this year in India trading compared with an 8.7 percent gain by the 19-member Bloomberg World Water Index.
While the Jalgaon-based company reported an 87 percent drop in net profit for the year ended March on “significant” foreign exchange losses from a depreciating rupee, sales increased 18 percent. Exports grew 37 percent in the quarter.
“With the new government’s agenda of promotion of micro-irrigation and food-processing industries, growth shall accelerate,” the company said yesterday in a statement of two areas that account for 57 percent of Jain’s 2014 sales.
The developing El Nino weather system “may impact our business. We will know more about it in the next few weeks,” Jain also said. “We feel drip irrigation is the only effective solution for millions of small farmers against climate change.”
To contact the reporter on this story: Randall Hackley in London at rhackley@bloomberg.net
To contact the editor responsible for this story: Randall Hackley at rhackley@bloomberg.net

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Indian Bonds Set for Biggest Weekly Gain Since November on Cash

By Shikhar Balwani - May 23, 2014

Indian bonds due 2023 headed for the biggest weekly gain since November on speculation rising cash in the banking system will spur investment in debt.
The notes advanced for a fourth day today after JPMorgan Asset Management and DSP BlackRock Investment Managers Pvt. predicted a further rally, betting the nation’s new government will boost efforts to curb inflation. Lenders’ overnight borrowings from the central bank to meet cash shortages fell to an average of 87 billion rupees ($1.5 billion) this month, from 123 billion rupees in April, signaling increased fund supply.
The yield on the 8.83 percent debt due November 2023 slumped 15 basis points, or 0.15 percentage point, this week and three basis points today to 8.68 percent as of 9:55 a.m. in Mumbai, prices from the Reserve Bank of India’s trading system show. That’s the biggest weekly drop for benchmark 10-year rates since November.
“Liquidity has been supportive,” said K. Ramanathan, chief investment officer in Mumbai at ING Investment Management Pvt. “There’s a lot of hope and expectation in the market that the new government will join efforts by the central bank to tackle inflation.”
India’s overnight interbank borrowing rate has slid to 7.1 percent from 9 percent at the end of last month. The RBI’s repurchase rate is at 8 percent currently.
JPMorgan Asset sees the 10-year sovereign yield falling to as low as 8.25 percent by year-end, while DSP BlackRock predicts a drop to as low as 8.40 percent.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined 14 basis points this week to 8.39 percent, heading for the biggest five-day drop since November, data compiled by Bloomberg show. They fell four basis points today.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma, Simon Harvey

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Vodafone India Unit Set to Surpass U.K. by Sales Within Years

By Amy Thomson and Bianca Vázquez Toness - May 21, 2014

Vodafone Group Plc (VOD) is poised to claim more revenue from India than the U.K. in the coming years, a first for the British mobile-phone company.
India already commanded the largest share of the carrier’s subscribers and voice calls, and data usage has surpassed any other division. That means the country could overtake the U.K. and Italy in the next few years by revenue, according to Marten Pieters, Vodafone’s chief executive officer for India.
“We are already bigger than Germany in terms of data, which is amazing,” Pieters said this week. “We grow that by combining smartphone sales with cheap data packets.”
A boom in data demand has helped the Indian unit win one of the earliest cash infusions from Vodafone’s two-year, 19 billion-pound ($32 billion) global network improvement program. Vodafone said it was able to raise prices last year in the frenetic Indian market, where users often swap plans when a better deal comes up. That’s something the company isn’t able to do in much of Europe.
The investment in India will help cover 95 percent of the country with third-generation wireless technology by 2016, allowing smartphones to access the Internet and download music and video. Vodafone’s market share has plenty of room to grow, and that means “actively approaching smartphone users that don’t use data,” Pieters said.

Low Penetration

Of Vodafone’s 52 million Indian customers on data plans, just 7 million use the faster 3G network. The country had 405 million mobile users last year, or 32 percent of its population of about 1.26 billion, according to industry association GSMA. There are about twice as many mobile connections as customers switch between phones, compared with a 132 percent penetration rate in Europe.
Vodafone CEO Vittorio Colao has used India as a way to offset losses from shrinking European markets. He took advantage of relaxed rules on foreign ownership to buy out other investors in the Indian unit to bring the holding to 100 percent last month.
While Vodafone’s service revenue in India jumped 13 percent last year, Europe declined 9.1 percent. India is the fastest-growing smartphone market after China, according to researcher International Data Corp. The country is also a vehicle for Vodafone’s mobile payment platform M-Pesa, which will be introduced nationwide by the end of the year.

Price Increases

Unlike in the U.K. and Germany, there may be room to keep increasing prices in India, despite a plethora of providers. India’s tariffs remain among the lowest in the world, according to Nitin Soni, director of Asia-Pacific corporate ratings at Fitch Ratings.
Vodafone has 167 million subscribers in India, compared with 65 million at the South Africa-based business, its second largest, and 32 million in Germany, the biggest by revenue.
Bharti Airtel Ltd., the biggest wireless provider in India by subscribers, had 22.7 percent of the market in March, up from 22.2 percent six months earlier, according to the Telecom Regulatory Authority of India. Vodafone boosted its share to 18.4 percent from 17.9 percent.
One potential stumbling block in India is a long-running dispute with the government over a tax bill stemming from the 2007 purchase of Hutchison Whampoa Ltd.’s Indian assets. More than $2 billion is at stake. Vodafone said it didn’t owe taxes because the acquisition was between two foreign companies. India countered with a law enabling it to retroactively tax cross-border deals.

Tax Dispute

Vodafone has started international arbitration, and the case will be decided by an impartial court, it said this month.
The dispute hasn’t prevented Vodafone from investing more in the country. It agreed in February to spend 1.9 billion pounds on spectrum licenses.
There’s not nearly enough spectrum in major markets like Mumbai to carry calls and data, making it difficult to maintain network quality, Pieters said. Vodafone would like three or four times the current amount and will need the amount doubled to 10 megahertz “very soon” to keep up with growth.
“Nobody in the world has ever done this on 5 megahertz,” he said. “My colleagues in Vodafone, if they hear what we do, they really don’t understand how we do it.”
To pay for the global network improvement plan, Vodafone is using cash it pocketed from its $130 billion sale of its stake in U.S. mobile company Verizon Wireless last year, a deal that has turned Vodafone itself into a takeover target.

AT&T Wait

AT&T Inc. has been interested in buying the U.K. company since at least last year, according to people familiar with the plans. Still, AT&T’s agreement this week to buy U.S. satellite TV provider DirecTV for $48.5 billion is the latest sign that AT&T may set aside a long-held ambition of making a big takeover in Europe.
Until then, Colao will have to continue to rely on India as what he called this week “one of the two or three great pillars” of the company.
“India was always lagging behind the rest of the emerging markets in terms of data usage because of low penetration of smartphones and perceived quality of 3G,” said Anand Kulkarni, a telecom analyst at Care Research in Mumbai. “With the growth of smartphones, obviously there is a lot of potential.”
To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net
To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net David Risser

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Modi Boosts India Outlook as Morgan Stanley Forecast Raised

By Kartik Goyal - May 20, 2014

The prospect of Prime Minister-designate Narendra Modi leading India’s most stable government in three decades has prompted economists to raise growth forecasts in the world’s second-most populous nation.
Morgan Stanley, Citigroup Inc. and Nomura Holdings Inc. see faster expansion in the next few years on Modi’s plans to attract investment and build more ports, roads and bridges. Gross domestic product will expand at a four-year high of 6.5 percent in the year through March 2016, Morgan Stanley predicts, compared with a previous estimate of 6.2 percent.
“The election results could be an inflection point for India’s story,” said Chetan Ahya, Morgan Stanley’s Hong Kong-based chief Asia economist. “The decisive election outcome suggests the new government will be able to implement reforms at a faster than previously expected pace.”
Modi’s win has sparked optimism that India’s economy will lead a rebound in the biggest emerging markets, as Russia grapples with Ukraine tensions and China contends with rising bad loans and slowing growth. Modi should use his mandate to cut subsidies and increase spending on infrastructure to spur private investment from a nine-year low, Ahya said.
Citigroup and Nomura both raised their forecasts for India’s $1.8 trillion economy, saying it will expand 6.5 percent in the 2016 financial year -- up from 6.2 percent and 5.7 percent, respectively. India will have growth of 6.1 percent in fiscal 2016, according to a Bloomberg survey published April 30, compared with China’s 7.25 percent, Brazil’s 3.2 percent and Russia’s 2.5 percent.

Political Clarity

“With political clarity emerging, business and household confidence is likely to rise,” said Sonal Varma, an economist at Nomura in Mumbai.
India’s economy probably grew 4.9 percent in the year ended March 31, near the previous period’s 4.5 percent that was the slowest since 2003. The government and Reserve Bank of India don’t have official growth forecasts for 2016.
Modi will probably simplify approval and implementation policies for infrastructure and industry, help companies improve their balance sheets and boost bank’s capital, according to Morgan Stanley’s Ahya. The policy overhaul will improve business sentiment and corporate profits, incentivizing them to spend more, he added.
Investments by private companies fell to 9.2 percent of GDP in the year ended March 2013, the lowest in data going back to 2005, according to estimates from the Ministry of Statistics and Programme Implementation.

Possible Roadblocks

Boosting this and controlling Asia’s second-fastest inflation is crucial to spur growth from near a decade low, according to Nomura.
The BJP-led bloc won 336 of 543 seats up for grabs, more than the 272 required for a majority. The party alone garnered 282, with the Congress getting 44 seats and smaller regional parties got 148.
While this guarantees smoother progress for bills in the lower house, India’s federal system means negotiating through the upper house and with state governments may hobble efforts for faster implementation of key policies, according to Citigroup.
HSBC Holdings Plc predicts that another roadblock might be presented by the bureaucracy, which was rated the worst among 12 Asian economies tracked by Political & Economic Risk Consultancy Ltd. in 2013. The BJP has only 61 of the 245 members in the upper house, and forms governments in just six of 28 Indian states.

Gradual Revival

“The revival will be investment-led but gradual,” said Rohini Malkani, Citigroup’s Mumbai-based economist. “We are optimistic but believe the path will be more gradual than sharp.”
Risks to economic growth emanate from the threat of higher interest rates if El Nino weather effects damp farm output and stoke inflation, Malkani said.
Lowering price pressures is crucial to boosting growth, Reserve Bank of India Governor Raghuram Rajan reiterated this month. He has raised the benchmark repurchase rate to 8 percent from 7.25 percent in September. The government must pursue “fiscal discipline” and should create a more competitive corporate environment, Rajan said in a speech in New Delhi yesterday.

Markets Rise

The rupee rose in the offshore market today, with the one-month non-deliverable forward gaining 0.1 percent to 59.01 per dollar as of 11:02 a.m. in Singapore.
The value of Indian equities has climbed by $412 billion, or 41 percent, to $1.42 trillion since the BJP named Modi as its candidate for prime minister on Sept. 13. That’s helped the country replace Australia in the world’s top 10 stock markets.
Companies likely to benefit the most from a revival in the economy, such as infrastructure firms, have been the biggest gainers. That’s a turnaround from the previous three years, when investors bought defensive shares, such as makers of consumer goods and pharmaceuticals.
Sesa Sterlite surged 7.9 percent yesterday and Tata Steel rose 3.6 percent to a two-year high, sending a gauge of metalmakers to its highest level since February 2012. Mahindra jumped the most in two weeks while power-equipment maker Bharat Heavy Electricals Ltd. rallied to its highest in more than two years.
“Faster decision-making and reforms, along with prudent monetary policy, should gradually correct India‘s macroeconomic imbalances,’’ said Nomura’s Varma. ‘‘Economic fundamentals change slowly, but as they do, they should feed off each other and unleash other positive indirect effects on the economy.’’
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Jeanette Rodrigues, Dick Schumacher

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Rupee Advances a Fifth Day as Poll Outcome Seen Boosting Inflows

By Divya Patil - May 20, 2014

India’s rupee rose for a fifth day, the longest winning streak since March, on optimism fund inflows will quicken after national elections delivered a clear winner.
The Bharatiya Janata Party secured the first single-party majority in 30 years, putting its prime ministerial candidate Narendra Modi in a position to take steps to revive the economy without being constrained by coalition politics. The BJP won 282 of 543 parliamentary seats, more than the 272 needed to form a government, according to the Election Commission. Global funds bought a net $3.2 billion of local stocks and bonds this month through May 16, the latest exchange data show.
“Continuous flows into the stock market are supporting the appreciation bias in the rupee,” said Naveen Raghuvanshi, a Mumbai-based currency trader at DCB Bank Ltd. “The majority win of the BJP is boosting investor confidence.”
The currency rose 0.1 percent to 58.5350 per dollar as of 9:58 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 58.3750 yesterday, the strongest level since June 18, 2013. The rupee will probably trade between 58.45 and 58.70 today, according to DCB Bank.
“Sharp gains in the rupee are unlikely as state-owned banks are seen buying the greenback around the 58.45-58.46 levels,” said Raghuvanshi.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell five basis points, or 0.05 percentage point, to 8.10 percent, according to data compiled by Bloomberg.
Three-month offshore non-deliverable forwards declined 0.2 percent to 59.45 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
To contact the reporter on this story: Divya Patil in Mumbai at dpatil7@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma, Simon Harvey

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Rupee Seen Extending World’s Best Gain on Modi Win: India Credit

By Shikhar Balwani and Divya Patil - May 18, 2014

Aberdeen Asset Management Plc, Mirae Asset Management Co. and Nomura Holdings Inc. predict the rupee will extend a world-beating rally as India’s clearest election verdict in three decades boosts confidence.
Narendra Modi’s Bharatiya Janata Party got 282 of 543 parliamentary seats in the world’s biggest-ever vote, compared with 272 needed to form a government, as voters punished the incumbent Congress party for graft scandals and the worst economic slowdown in a decade. The rupee surged 2.1 percent last week to 58.78 per dollar, the best performance among 78 global currencies tracked by Bloomberg.
The BJP has garnered the first single-party majority since 1984 and that’s boosting bets the new administration will pursue policies to improve the economy without being constrained by coalition politics, according to Deutsche Bank AG. Nomura, the second-most accurate rupee forecaster in the last four quarters, and Aberdeen Asset see the currency rising toward 57 per dollar by year-end, while Mirae Asset predicts a rally to 55.
“The election result was clearly better than we expected,” Craig Chan, Nomura’s Singapore-based head of currency strategy for Asia ex-Japan, said in a May 16 e-mail interview. “The outlook for reforms, potential foreign inflows and growth prospects will be even more positive now.”

More Bullish

Japan’s largest brokerage is projecting bigger rupee gains now than it did in April, when it had estimated the currency would end the year at 59.5. The exchange rate has rebounded 17 percent from a record low of 68.845 reached last year, when India’s slowing growth, relatively high inflation and current-account deficit fueled capital outflows.
The rupee’s recovery from last year’s slump was powered by Prime Minister Manmohan Singh government’s efforts to narrow the current-account gap and the central bank’s measures to rein in price pressures. The shortfall probably shrank to $35 billion in the year through March from an unprecedented $88 billion in the preceding period, Finance Minister Palaniappan Chidambaram said last quarter. Wholesale inflation slowed to 5.2 percent in April from 7.5 percent in November after the Reserve Bank of India raised interest rates three times since September.
International investors, who pared holdings of rupee debt by a record $8 billion in 2013, have already plowed back $5.3 billion so far this year, according to exchange data. Aberdeen Asset and Mirae Asset see inflows into bonds increasing after the BJP-led National Democratic Alliance’s victory.

‘Strong Position’

“With such a strong showing, the BJP and the NDA alliance are obviously in a strong position to make crucial progress on the various reform areas,” Kenneth Akintewe, a Singapore-based fund manager at Aberdeen, which oversaw $541 billion as of March, said in an e-mail interview on May 16.
A decisive election victory for the BJP would be a “catalyst” for a long-term advance in the rupee toward 40 to 45 per dollar, Adam Gilmour, Citigroup Inc.’s head of Asia-Pacific currency and derivatives sales, said in a March 12 interview in Singapore.
A potential pickup in fund inflows after the election will probably drive the 10-year (GIND10YR) government bond yield to 8 percent, a level last seen in July, as long as inflation doesn’t quicken, according to Mirae Asset. The rate on the benchmark 8.83 percent notes due November 2023 has risen one basis point, or 0.01 percentage point, this month to 8.83 percent in Mumbai.

Inflows Seen

“India will see more positives emerging and foreign inflows rising after this election result so long as the government and the central bank work in tandem,” Kim Jin Ha, a global fixed-income fund manager in Seoul at Mirae, which oversees about $59 billion, said by e-mail on May 16.
While the election results have buoyed optimism about India’s policies, the central bank may restrain exchange-rate gains that would threaten the nation’s exports, Sameer Goel, Deutsche Bank’s head of Asian interest-rate and foreign-exchange research in Singapore, said in a telephone interview on May 16.
The RBI intervened in the foreign-exchange market on May 16 to curb currency volatility, limiting gains in the rupee, according to four traders who asked not to be identified because the information isn’t public. India’s currency reserves have risen $39 billion from a three-year low in September to $314 billion, the latest official figures show, signaling the monetary authority has bought dollars.

Central Bank

RBI Governor Raghuram Rajan said in an interview with the Mint newspaper published last month that a rupee level of 55 per dollar would be “too strong.” He said a study by economists at the finance ministry had suggested a range of 60 to 62 was “reasonable,” after taking into account inflation and export competitiveness.
“There are still uncertainties regarding the longer-term policies of the new government and whether” improvements in external finances and inflation can be sustained, Paul Mackel, head of Asian currency research in Hong Kong at HSBC Holdings Plc, said in a phone interview on May 16. “The central bank has been more inclined to smooth exchange-rate volatility and I think a combination of those factors will encourage the rupee to slowly drift lower towards the end of this year.”
Bond risk in India is falling. Credit-default swaps insuring the notes of State Bank of India, a proxy for the sovereign, against non-payment for five years fell 41 basis points last week to 208, according to data provider CMA.
“It certainly looks like the near-term bias will be for the rupee to appreciate further,” Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp., said in a phone interview on May 16. “For the next one or two weeks, we are going to be in an euphoria mode and that will drive the dollar down in India. I think the RBI will use this as an opportunity to accumulate foreign-exchange reserves and smoothen volatility, but that will not stop the trend.”
To contact the reporters on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net; Divya Patil in Mumbai at dpatil7@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma

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