Indian 2023 Bonds Complete Weekly Gain After RBI’s Easing Signal

By Shikhar Balwani - Jun 6, 2014

India’s sovereign bonds due 2023 capped a weekly gain, pushing the yield to an eight-month low, after the central bank said it could ease monetary policy.
Quicker than anticipated disinflation “will provide headroom for an easing of the policy stance,” the Reserve Bank of India, which sees inflation as measured by the consumer-price index at 8 percent in January 2015 and 6 percent a year later, said in a statement on June 3. Governor Raghuram Rajan left the benchmark repurchase rate at 8 percent for a second straight meeting the same day, as predicted by all 38 economists surveyed by Bloomberg News. India sold 160 billion rupees ($2.7 billion) of bonds as planned at an auction today.
The yield on the 8.83 percent notes due November 2023 slumped 13 basis points, or 0.13 percentage point, this week and one basis point today to 8.51 percent in Mumbai, according to prices from the central bank’s trading system. That’s the lowest close for benchmark 10-year rates since Oct. 11.
“The RBI hinting at the possibility of easing has cheered bond markets,” said Paresh Nayar, the Mumbai-based head of currency and money markets at FirstRand Ltd. “While 8.50 percent is a psychological level, an uptick in yields could attract more buyers.”
Benchmark securities due in a decade climbed the most in a year in May on optimism Prime Minister Narendra Modi will boost efforts to curb inflation and revive the economy after his Bharatiya Janata Party won the biggest parliamentary majority in 30 years. The 10-year yield will fall to 8.39 percent by year-end, a Bloomberg News survey of 10 banks and mutual funds showed this week after the RBI’s rate decision.
Barclays Plc expects the RBI to cut the key interest rate by 50 basis points in the second half of 2014. Rajan has raised it by 75 basis points since taking charge in September to rein in consumer-price gains. The CPI rose 8.59 percent in April from a year earlier, the fastest pace among Asia’s top 10 economies.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, slumped 22 basis points this week and one basis point today to 8.16 percent, data compiled by Bloomberg show. That’s the lowest level since July.
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 Sam Nagarajan

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India’s Rupee Rises Most in Two Weeks as ECB Cuts Interest Rates

By Divya Patil - Jun 6, 2014

India’s rupee advanced by the most in two weeks after the European Central Bank cut its benchmark interest rates to unprecedented lows, spurring speculation the move will spur demand for emerging-market assets.
The ECB lowered the deposit rate to minus 0.1 percent yesterday and reduced the refinancing rate by 10 basis points to 0.15 percent. The MSCI Asia Pacific Index (MXAP) of shares rose to the highest level in more than seven months, while the S&P BSE Sensex (SENSEX) Index of Indian stocks climbed 0.6 percent. Traders are watching for the outcome of U.S. jobs data later today, according to Andhra Bank
“The ECB’s aggressive rate cut has spurred demand for high-yielding Asian assets,” said Vikas Babu, a Mumbai-based foreign-exchange trader at Andhra Bank. “The currency will probably trade in a 59.05 to 59.45 range today.”
India’s currency strengthened 0.2 percent to 59.20 per dollar as of 9:27 a.m. in Mumbai, trimming the week’s loss to 0.2 percent, according to prices from local banks compiled by Bloomberg. It was the biggest advance since May 22.
The rupee pared gains of as much as 0.3 percent to 59.17 on speculation the Reserve Bank of India bought dollars as foreign inflows continue, said four Mumbai-based traders, who asked not to be identified because the information isn’t public.
The U.S. Labor Department may report that 215,000 workers were added to nonfarm payrolls in May, holding above 200,000 for a fourth month, according to the median estimate of economists in a Bloomberg survey.
One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, declined three basis points, or 0.03 percentage point, to 7.16 percent today, data compiled by Bloomberg show. The measure fell 22 basis points this week.
Three-month offshore non-deliverable forwards rose 0.4 percent today and 0.2 percent this week to 59.95 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 Simon Harvey, Andrew Janes

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Gupta Becomes Billionaire as Havells Climbs to Record

By Netty Ismail - Jun 4, 2014

Qimat Rai Gupta became a billionaire as shares of Havells India Ltd. (HAVL), the nation’s largest electrical parts maker by market value, surged to a record.
Gupta, 77, and his family control almost 62 percent of the company, according to exchange filings, a stake valued at $1.4 billion, according to the Bloomberg Billionaires Index. Anil Sharma, a spokesman for Havells, confirmed the family stake in the company based in Noida, near New Delhi.
The maker of lighting products, cables and fans has benefited from rising incomes in the world’s second-most populous nation as consumers shift to branded products, Firstcall Research said in a June 3 report. Havells owns Sylvania, a European maker of Lumiance lighting products.
“They have shown steady and quality performance in terms of growth and earnings,” said Gautam Chhaochharia, head of research at UBS Securities India Pvt. in Mumbai, who has a buy recommendation on the Havells. “That’s given investors confidence in the stock.”
The stock rose for a fifth day, advancing 1.1 percent to a record 1,067.55 rupee at the close in Mumbai yesterday. The shares have surged 35 percent this year, twice the gain for the S&P BSE Sensex (SENSEX) benchmark gauge.
Gupta, who’s the chairman of Havells, controls the fortune along with his family, including son Anil Rai Gupta and daughter-in-law Sangeeta Gupta.

School Teacher

In 1958, Gupta, then 21, quit his job as a school teacher in India’s Punjab state and moved to Delhi. With less than $200, he started a trading company selling fixtures and electric cables to businesses, according to Havells’ website.
He bought the Havells brand more than a decade later and expanded it from a garage-based manufacturing and distribution company to a business with about a dozen factories in India, as well as in Europe, Latin America, Africa and China, according to its website.
The company acquired SLI Holdings Inc.’s lighting business for 227 million euros ($309 million) in 2007 and sells electrical products under brand names including Crabtree, Concord and Standard, according to its website.
“Over a period of time, they have consistently grown with stable, improving margins, which have led to earnings growth,” UBS’s Chhaochharia said.
To contact the reporter on this story: Netty Ismail in Singapore at nismail3@bloomberg.net
To contact the editors responsible for this story: Peter Newcomb at pnewcomb2@bloomberg.net Linus Chua, Robert LaFranco

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India 10-Year Bonds Advance to Four-Month High on Rate Outlook

By Divya Patil - Jun 4, 2014

Indian 10-year government bonds rose, pushing the yield to a four-month low, after the central bank signaled it could ease monetary policy if consumer-price gains slow more than anticipated.
Should disinflation be faster than expected, “it will provide headroom for an easing of the policy stance,” the Reserve Bank of India said in a statement yesterday after it left the repurchase rate at 8 percent, as predicted by all 38 economists surveyed by Bloomberg. Tightening won’t be warranted if consumer-price inflation stays on course to slow to 8 percent in January 2015 and 6 percent a year later, the RBI said.
“The statement from the RBI that there is headroom to ease if inflation slows is driving the bonds higher,” said Paresh Nayar, the Mumbai-based head of currency and money markets at FirstRand Ltd. “Yesterday’s statement not only gives comfort of no rate hikes, but also highlights a possibility of rate cuts.”
The yield on the 8.83 percent government notes due November 2023 declined one basis point, or 0.01 percentage point, to 8.59 percent as of 10:41 a.m. in Mumbai, according to prices from the central bank’s trading system. It fell to 8.57 percent earlier, the lowest level since Jan. 21.
Consumer-price inflation has stayed below 9 percent for the first four months of the year after topping 11 percent in November, official data show.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, declined five basis points to 8.21 percent, data compiled by Bloomberg show.
The rupee was little changed at 59.385 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, slipped one basis point to 7.28 percent, data compiled by Bloomberg show.
Three-month offshore non-deliverable forwards declined 0.1 percent to 60.30 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 Andrew Janes, Simon Harvey

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Modi Spurs Mahindra Growth as India Vehicle Sales Rebound

By Siddharth Philip - Jun 3, 2014

Mahindra & Mahindra Ltd. (MM) and Ford Motor Co. (F) are preparing for a rebound after the worst sales slump in India in a decade. They are priming new capacity, betting Prime Minister Narendra Modi will spur demand.
Mahindra, India’s biggest maker of utility vehicles and also a producer of tractors, cars and scooters, said last month that it plans to spend 40 billion rupees ($676 million) on a 400,000-unit-a-year factory even as it pared production in existing plants. Ford will open a new facility in Gujarat next year as it seeks to raise output in Asia’s No. 3 market.
The companies are counting on Modi to cool inflation, add jobs, boost income and pave the way for a revival after the highest borrowing costs among Asia’s biggest economies depressed consumer demand. Modi, who became prime minister on May 26 after winning the clearest mandate in three decades, has vowed to revitalize the $1.8 trillion economy that suffered from policy paralysis under the previous administration.
“Car buyers look at the economic and jobs outlooks while making decisions,” said Kapil Singh, an analyst at Nomura Holdings Inc. in Mumbai. “The initial sentiment on these is already looking up.”
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest vehicle maker, reported a 19 percent growth in May deliveries, the best growth in nine months, showing early signs of a rebound. Passenger vehicle sales declined 6.1 percent to 2.5 million units in the year ended March, the biggest drop since 2002.

Early Signs

The S&P BSE India Auto index, representing 10 stocks, has rallied 20 percent this year in anticipation of a pick up. Nomura’s Singh recommends buying shares of Maruti Suzuki, Mahindra, and the nation’s top two truck makers Tata Motors Ltd. (TTMT) and Ashok Leyland Ltd., according to data compiled by Bloomberg.
Maruti’s shares have risen 33 percent this year, while Mahindra has gained 31 percent and Tata Motors 11 percent.
Mahindra plans to spend about 75 billion rupees in capital expenditure over the next three years, Chief Financial Officer V.S. Parthasarathy said in an interview yesterday. Of this, about 25 billion rupees will be spent on the new plant, he said. A further 15 billion rupees will be spent in the fourth and fifth years, he said.
“You have to start investing when you can,” Parthasarathy said in an interview in his office yesterday. “The signals so far have been positive from the new government.”
Ford, which reported a 51 percent increase in May deliveries, will begin producing cars at its $1 billion factory in Gujarat in 2015, it said in an e-mail yesterday. With the new facility, Ford will double its capacity in India.

New Models

Some carmakers are adding new models before a potential recovery. Honda Motor Co. (7267)’s local unit plans to introduce the Mobilio minivan in July and the revamped Jazz hatchback this financial year, the company said in an e-mail yesterday.
Tata Motors, the nation’s biggest automaker by revenue, will begin selling its new Bolt hatchback and Zest compact sedan this year, Ranjit Yadav, the president of Tata’s passenger vehicle unit said last week.
Besides Modi, the Reserve Bank of India will also do its bit to revive economic growth, some economists say. The nation’s central bank will cut its benchmark repurchase rate by a half-percentage point by the second quarter of 2015, according to the median of 15 economists surveyed by Bloomberg. That may help stimulate demand as almost 75 percent of all car purchases in India are funded by loans.

Poll Years

“Sooner or later, a cut in interest rates along with economic growth and new models will revive demand for cars,” said Yaresh Kothari, an analyst at Angel Broking in Mumbai. “The demand is there in the market, it’s just sentiment that is holding back buyers.”
Passenger-vehicle sales have risen in each of the three fiscal years when voters in the world’s largest democracy went to polls in 1999, 2004 and 2009. Deliveries climbed by an average 31 percent in those years, or more than twice the average 13 percent annual rate over the past 15 years, according to data provided by the Society of Indian Automobile Manufacturers.
During his election campaign, Modi, who led his Bharatiya Janata Party to its biggest electoral victory with 282 seats in India’s lower house of parliament, promised to rein in inflation, expedite foreign investment in most sectors and develop labor-intensive manufacturing.

Growth Outlook

Morgan Stanley expects India’s economy to expand 5.4 percent in the year that started April 1 from 4.7 percent in the previous 12 months. Citigroup Inc. predicts a 5.6 percent growth in the current year.
Stalled projects amid delays in land acquisitions, environmental clearances and graft allegations under former prime minister Manmohan Singh crimped growth to 4.5 percent in the year ended March 2013, the slowest in a decade.
A turnaround in the economy will help auto sales grow 10 percent in 2015, said Deepesh Rathore, the New Delhi-based director of Emerging Markets Automotive Advisors.
“The downturn we have gone through is a minor blip on the long-term horizon,” he said. “Capacity planning is for the long term and the growth story is pretty much intact.”
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Sam Nagarajan, Dick Schumacher

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Rajan Seen Holding India’s Key Rate as Modi Takes Power

By Kartik Goyal - Jun 1, 2014

Indian central bank Governor Raghuram Rajan will keep the benchmark interest rate at an 18-month high to fight Asia’s second-fastest inflation after raising it three times since taking office last year.
The benchmark repurchase rate will be left at 8 percent, according to all 34 economists in a Bloomberg survey before the Reserve Bank of India’s policy review tomorrow, the highest since January 2013. Finance Minister Arun Jaitley agreed with Rajan on the need to curb inflation when the two met last week following Prime Minister Narendra Modi’s landslide election win.
Modi’s control over parliament puts him in position to narrow the budget deficit and boost Asia’s third-largest economy, prompting stocks and the rupee to surge on optimism that India will lead a recovery in the world’s biggest emerging markets. Jaitley said he’d make reducing the fiscal shortfall a priority when he unveils the budget in July, in line with Rajan’s wishes.
“Modi’s government is unlikely to tamper with the RBI’s operational independence as the central bank has great credibility under Rajan,” said Gaurav Kapur, a senior economist at Royal Bank of Scotland Group Plc in Mumbai. “To consider lowering rates, Rajan would need a credible plan from the budget to cut the deficit and boost long-term growth.”
Bond risk for India fell last month while the benchmark stock index touched a record high on optimism Modi will bolster the economy. The rupee weakened 0.1 percent today after climbing 2.1 percent in May, the biggest gain among Asia’s 11 top-traded currencies, according to data compiled by Bloomberg.

Fiscal Discipline

Jaitley said yesterday in a Facebook post that India must rein in spending to benefit in the long term.
“We must move towards an era of fiscal discipline where we can reduce the fiscal deficit, contain inflation and improve upon our growth rates,” he said.
An RBI panel this year proposed a shift to inflation targeting as part of the most sweeping changes in its 79-year history, prompting then Finance Minister Palaniappan Chidambaram to say that economic growth should also be a priority. Jaitley hasn’t commented directly on inflation targeting or Rajan, who paid a courtesy call to Modi yesterday.
Rajan kept borrowing costs on hold in April and said further tightening isn’t anticipated if gains stay on a “glide path” to hit 8 percent in January 2015 and 6 percent a year later as the panel recommended. Retail inflation was 8.59 percent in April, accelerating the fastest in three months.

Inflation Target

Rajan said in February it’d be “good” if parliament or the prime minister sets a medium-term inflation target based on advice from the central bank. The RBI panel in January proposed a 4 percent inflation target, plus or minus 2 percentage points, to be adopted in 2016.
The 1934 Reserve Bank of India Act says the federal government may give direction to the central bank on what it considers the public interest. While high inflation erodes the purchasing power of more than 800 million Indians who live on less than $2 a day, slower growth threatens job creation in the world’s second-most populous nation.
Gross domestic product expanded 4.7 percent in the fiscal year that ended March 31, compared with a decade-low of 4.5 percent in the previous 12 months. Lowering inflation is crucial to spur growth, Rajan said last month, adding that the government must pursue “fiscal discipline” and create a more competitive corporate environment.

Some Tension

“There is always some tension between the government and the central bank, but some constructive tension is good,” Duvvuri Subbarao, Rajan’s predecessor at the RBI, said in a May 24 interview in Singapore. “What’s important is not just the quantum of fiscal consolidation but also the quality of fiscal adjustment.”
Modi faces the challenge of cutting fuel subsidies, allowing more foreign investment and pushing through projects that had been stalled due to delays in approvals. He campaigned on his record of delivering economic growth as chief minister of Gujarat state and promised to stem consumer-price gains.
Modi’s first test will be the budget. Jaitley in February criticized Chidambaram for fiscal laxity over the interim budget in effect for several months, saying deficit reduction had been achieved through cutting capital expenditure instead of boosting revenues or reviving investment. The fiscal deficit for the 12 months ended March was 4.5 percent of GDP, smaller than the previous government’s revised target of 4.6 percent.

BJP Plan

To stem inflation, Modi has called for price stabilization funds and measures to prevent hoarding of food, which makes up 50 percent of the CPI basket. The monsoon, which provides most of the annual rainfall, will be below normal this year amid a 60 percent chance for the emergence of an El Nino that previously caused droughts, the country’s weather forecaster said April 24.
Higher borrowing costs and subdued economic growth has hurt some companies including carmakers. Sales of Maruti Suzuki India Ltd. and others dropped 10.2 percent in April from a year earlier, compared with a 5.1 percent contraction in March, the Society of Indian Automobile Manufacturers said May 9.
“Policy will be based on how the inflation numbers pan out rather than how the markets are behaving,” said Suvodeep Rakshit, an economist at Kotak Securities in Mumbai. “The RBI would want to see actions in terms of reducing food inflation and the budget deficit.”
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

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