Indian Underwriters Buy Unsold Debt at Sale Amid Inflation Woes

By Shikhar Balwani - Jun 27, 2014

Indian primary dealers bought unsold sovereign debt at an auction for the first time in 2014, fueling speculation investors sought higher yields as a weak monsoon threatened to spur inflation. Bonds erased gains.
The government raised 150 billion rupees ($2.5 billion) selling securities due 2020, 2023, 2032 and 2042 today, of which underwriters bought 9.62 billion rupees of the six-year notes, according to a central bank statement. On June 25, it missed its target at an auction of 364-day bills, raising 18.7 billion rupees instead of the planned 60 billion rupees.
“This shows investors demanded higher yields given the prospect of a weaker monsoon driving up food prices,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts Ltd. in New Delhi. “This is a signal from the Reserve Bank of India that they want a steeper yield curve and don’t want short-term rates to be higher.”
The monsoon, which accounts for more than 70 percent of India’s annual rains, has been 41 percent lower than the 50-year average since June 1, the weather department said yesterday. The weak start to the June-September season is delaying planting of crops from rice to soybeans and lentils, threatening to push up food prices, which make up about 50 percent of India’s consumer-inflation basket.
Ten-year bonds erased an earlier advance after the auction results were published. The yield on the 8.83 percent sovereign notes due November 2023 was little changed from yesterday at 8.74 percent as of 3:30 p.m. in Mumbai, according to the central bank’s trading system. It dropped as low as 8.71 percent earlier. The last time primary dealers bought government notes at an auction was on Dec. 27.

Inflation Quickens

Wholesale-price inflation in India quickened to 6.01 percent in May, the fastest since December. Consumer prices increased 8.28 percent in May from a year earlier, the slowest pace in three months.
India’s one-year interest-rate swaps headed for a third weekly increase on concern faster inflation amid a shortage of rainfall will reduce room for monetary easing by the central bank. RBI Governor Raghuram Rajan has raised the benchmark repurchase rate by 75 basis points since taking charge in September to rein in consumer-price gains. He left the rate unchanged at 8 percent for a second straight meeting on June 3.
The swaps, derivative contracts used to guard against swings in funding costs, rose one basis point, or 0.01 percentage point, this week to 8.37 percent, data compiled by Bloomberg show.
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, Sam Nagarajan

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Ranbaxy Wins U.S. Approval for Generic Diovan for Heart

By Anna Edney - Jun 27, 2014

Ranbaxy Laboratories Ltd. (RBXY) surged to an 18-month high in Mumbai trading after winning U.S. approval to make Novartis AG (NOVN)’s blood pressure drug Diovan almost two years after the $3.5 billion medicine lost patent protection.
Ranbaxy gained as much as 8 percent to 510.75 rupees, headed for the highest level since January 2013 before trading at 495.05 rupees at 9:35 a.m. in Mumbai today. Sun Pharmaceutical Industries Ltd. (SUNP), which agreed in April to purchase Ranbaxy, gained as much as 6.3 percent.
Ranbaxy has held exclusive rights to copy Diovan for the first six months of the medicine’s generic period though it couldn’t manufacture the drug after plants in India failed inspections. The Food and Drug Administration approved Ranbaxy’s Ohm Laboratories in New Jersey to make the generic, Christopher Kelly, a spokesman for the agency, said in an e-mail.
Ranbaxy had planned to produce generic Diovan at its plant in Mohali, Punjab. The FDA banned the facility from selling products in the U.S. in September 2013. Three more Ranbaxy plants in India are prohibited from U.S. sales dating back to 2009. The Gurgaon, India-based company has been cited for unsanitary conditions and manipulating quality tests.
Once Ranbaxy’s generic Diovan has been on the market for six months, other drugmakers are eligible to gain FDA approval and introduce their versions to the market. Diovan lost patent protection in September 2012.
Diovan and a version of the drug combined with a diuretic that is already generic generated $3.5 billion in revenue last year, making the combined therapies the second-best selling medicine for Basel, Switzerland-based Novartis.
To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net
To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Anjali Cordeiro, Frank Longid

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Top Steelmakers Profit Boosted by Cheaper Coal: Corporate India

By Abhishek Shanker and Rajesh Kumar Singh - Jun 26, 2014

India’s steelmakers are set for a rebound. Falling fuel costs just as a new government promises to revive demand growth from the slowest pace in five years are burnishing their earnings outlook.
Contract prices of coking coal, used to fire furnaces, may drop 7 percent to about $112 a metric ton next quarter from the three months through June, according to the average of estimates compiled by Bloomberg from eight industry executives and analysts. Spot prices have tumbled 17 percent this year as demand in China shrank and Australian supplies increased.
At least three of 13 analysts have raised earnings estimates for Tata Steel Ltd. (TATA), Steel Authority of India Ltd. and JSW Steel Ltd. (JSTL), according to data compiled by Bloomberg. Though the producers have struggled to boost profit margins from near a decade-low as an economic slump crimped demand, their shares have outperformed the benchmark index this year on Prime Minister Narendra Modi’s pledge to build 100 cities and rekindle stalled projects.
“We expect coking coal contract prices to drop,” JSW’s Group Financial Officer Seshagiri Rao said in an interview. “Business sentiment is upbeat and construction has picked up well, which means we are selling more and are also able to raise prices.”

Relying on Imports

Coking coal is scarce in India, with the biggest mine in the eastern state of Jharkhand trapped in a century-old underground fire. India imports about 65 percent of its coking coal requirement, with the top three steelmakers accounting for half of the purchases. State-owned Steel Authority, the biggest importer, uses the shipments to meet 70 percent of its needs.
China’s efforts to cut pollution coupled with an overcapacity in sea-borne coking coal will weigh on prices of the commodity, said Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd. The world’s biggest consumer is also planning to reduce a steel capacity glut, estimated at 210 million tons, according to Bloomberg Industries analysts Zhuo Zhang and Kenneth Hoffman.
Demand for the alloy in India may rise at least 4.5 percent in the 12 months ending March 31, rebounding from less than 1 percent last year, the smallest since 2009, fueled by construction and automobiles, according to Jayant Acharya, director at JSW Steel. Peeyush Gupta, vice president at Tata Steel, estimated 5 percent in a newsletter last month.

Better Estimates

“The July-September period may be one of the best quarters for Indian steel companies as alloy prices remain high and costs for buying coking coal fall,” said Giriraj Daga, analyst at Mumbai-based Nirmal Bang Equities Pvt. “There can be positive surprises.”
The forecast for Tata Steel’s group net income for the current financial year was raised by six of 13 analysts who updated their projections this month, according to estimates compiled by Bloomberg. ICICI Securities Ltd.’s Abhijit Mitra was the most bullish, lifting his forecast by 46 percent to 40 billion rupees.
For JSW Steel, five of 12 analysts increased profit estimates, with Nirmal Bang’s Daga elevating his by 32 percent to 31.7 billion rupees, while three of 10 Steel Authority (SAIL) analysts raised net income projections. Motilal Oswal Securities Ltd.’s Sanjay Jain boosted his forecast by 12 percent to 31.9 billion rupees.

Share Rally

New Delhi-based Steel Authority rose as much as 1.2 percent to 95.40 rupees and traded at 94.15 rupees as of 9:44 a.m. in Mumbai. Tata Steel increased 0.1 percent to 531.35 rupees, while JSW Steel also climbed 0.1 percent to 1,234.60 rupees. The benchmark S&P BSE Sensex (SENSEX) fell 0.7 percent.
Also leading gains in the $1.5 trillion stock market are India’s utilities, banks and builders as investors bet Modi will clear the investment backlog after taking power last month.
The rally may extend as Modi’s policies lead to higher corporate earnings and fewer bad loans at lenders, Rohit Singhania, who runs the BlackRock Inc’s the DSP BlackRock India T.I.G.E.R. Fund, which invests in shares of nation’s infrastructure companies, said in an interview on June 12.
Operating profit margins are set to improve after the key gauge of profitability narrowed in the 12 months to March 2013 to the least in 10 years for Tata Steel, smallest in 11 years for Steel Authority and to the worst since at least 2007 for JSW, according to data compiled by Bloomberg.

Consumer Spending

The profit margin at Tata Steel’s Indian operations may expand to 38 percent this financial year from 26 percent, while Steel Authority may see it doubling to 10 percent from 5.2 percent and JSW Steel’s at 13.65 percent versus 11.87 percent, according to the estimates compiled by Bloomberg.
Prime Minister Modi has vowed to build 100 new cities, provide houses to all citizens by 2022, introduce high-speed trains and low-cost airports connecting smaller towns, as he seeks to revive economic growth from a decade low.
A rebound in growth may also increase consumer spending, spurring vehicle sales, said A.S. Firoz, chief economist at the federal steel ministry. Maruti Suzuki India Ltd., the nation’s biggest carmaker, reported a 19 percent increase in May deliveries, the best in nine months after the industry survived the worst slump in a decade.
“The thrust of the government is to improve infrastructure and boost economic growth,” Firoz said by phone in New Delhi. “A natural consequence of an improving economy is a rise in consumption. All of that is great news for the steel industry.”
To contact the reporters on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net; Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Indranil Ghosh, Abhay Singh

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Indian Jewelers Offer BMWs, Discounts to Lure Gold Buyers

By Swansy Afonso - Jun 24, 2014

Joyalukkas Group, a gold and diamond retailer in India, is offering 12 free BMW cars and two kilograms (4.4 pounds) of bullion in a lucky draw as it fights a lean season in the world’s second-biggest buyer of the yellow metal.
Others including Gitanjali Gems Ltd. (GITG), Rajesh Exports Ltd. and Kalyan Jewellers Ltd. are promising everything from discounts to an opportunity to dine with Bollywood celebrities.
The monsoon season starting this month, usually considered a lean period for gold demand due to the lack of festivals and weddings, is threatening to deepen a sales slump caused by import curbs imposed last year. India raised duties on inbound shipments of the metal three times in 2013 to contain a record current-account deficit that pushed the nation’s currency to an all-time low.
“This is the first time we have come out with a single promotion for entire India and the Gulf countries to boost demand during the rainy season,” Joy Alukkas, managing director of Joyalukkas, said by phone from Kochi on June 18. “There are holidays in the Gulf countries during these months and non-resident Indians come back to their hometowns in south India. We are hoping to tap that market.”
Joyalukkas’s offers, valid until Aug. 2, are likely to boost sales this monsoon season by 10 percent to 15 percent, Alukkas said. The group has 47 stores in India, 32 in the Middle East and one each in the U.K., Singapore and Malaysia.

Rekindling Demand

Sales of Gitanjali Gems dropped 24 percent to 124.4 billion rupees ($2.1 billion) in the financial year ended March 31, the first annual decline in revenue since listing on the stock exchanges in 2006, according to data compiled by Bloomberg.
Rajesh Exports’ (RJEX) sales slid 24 percent to 235.4 billion rupees, the first annual slump since 2003, while Titan Co. Ltd. (TTAN)’s jewelry revenue grew 6.5 percent to 86.32 billion rupees, the slowest pace since at least 2008.
While freebies may stem the decline in sales, Prime Minister Narendra Modi’s efforts to revive economic growth may have a greater impact on rekindling jewelry demand, according to Abhijeet Kundu, an analyst at Antique Stock Broking Ltd.
Modi won the election after promising to revive economic growth from near a decade-low. His poll victory, the biggest for any single party in three decades, drove the benchmark S&P BSE Sensex (SENSEX) to an all-time high this month, as foreign investors bought about $10 billion of shares in 2014 and domestic mutual funds attracted the most inflows in five years in May.

‘Rain & Shine’

The new government has pledged to build 100 new cities, introduce high-speed trains and take steps to cool inflation while simplifying tax and investment rules
“To see an acceleration in earnings growth, the discounts have to come down and volumes have to pick up,” Mumbai-based Kundu at Antique said by phone on June 19. “There is some amount of revival in gold jewelry demand. By December, if the consumer sentiment improves further, then you could see better volume growth.”
Gitanjali Gems, India’s biggest gold and diamond jeweler by revenue, will announce a “rain and shine” plan next month, offering discounts on ornaments and jewelry making charges, Chairman Mehul Choksi said.
“Sales are flattish at the moment because stocks are less and people are waiting for new policies to be unveiled” by the new government, he said by phone from Mumbai on June 17. “We expect demand to pick up because of these offers and the restrictions being eased as well.”

Deficit Shrunk

India raised gold import taxes to 10 percent and required shippers to supply 20 percent to jewelers for export and sell 80 percent on the local market. The steps resulted in a drop in demand for the metal, helping China surpass the South Asian country as the world’s No. 1 buyer.
The industry expects the Modi administration, which took office last month, to reduce the tax in the federal budget to be presented July 10 because of improving economic conditions, according to the All India Gems & Jewellery Trade Federation.
The curbs on gold helped narrow the current-account deficit to $32.4 billion in the financial year ended March 31, from a record $87.8 billion a year earlier, the Reserve Bank of India said May 26.
A shrinking deficit aided the rupee in its recovery. It has rebounded about 13 percent since touching an all-time low of 68.845 against the dollar in August.
The rally in the rupee and reduction in the deficit may allow Modi to ease the restrictions on imports, Rajesh Exports Chairman Rajesh Mehta said by phone from Bengaluru, formerly known as Bangalore, on June 17. A pick-up in demand may result in a growth of as much as 25 percent in net income this financial year, he said.

Bollywood Stars

“We are looking at a good year,” said Mehta, whose 82 stores in Karnataka state have waived ornament making charges to increase sales.
Billionaire T.S. Kalyanaraman’s Kalyan Jewellers offers its regular customers a chance to dine with a celebrity and watch its brand ambassador Aishwarya Rai Bachchan on the sets of a film. Kalyan has been rewarding loyal customers with such offers depending on the number of times they visited the store in a year, said Ramesh Kalyanaraman, executive director of the Thrissur-Kerala based jeweler.
“This time we expect demand to be better as the mood is positive because of the change in government,” he said. “People assume the government will be friendly for gold.”

Monsoon Risk

Gitanjali’s shares have gained 29 percent this year in Mumbai, compared with the 19 percent rally in the benchmark S&P BSE Sensex index. Rajesh Exports has more than doubled to 183 rupees, while Titan has advanced 44 percent to 329.35 rupees.
A weak monsoon poses a risk as almost 65 percent of Indian purchases are from the rural areas, according to UBS AG. The monsoon will be 7 percent below normal this year as an El Nino emerges, the nation’s weather department said June 9.
Monsoon rainfall is the the main source of irrigation for India’s 263 million farmers as about 55 percent of the crop land is rain dependent. An estimated 833 million people out of the 1.2 billion population depend on agriculture for their livelihood and the sector accounts for 14 percent of the nation’s gross domestic product.
India’s gold imports may climb 25 percent to 800 tons in the year that began April 1 as the central bank may relax some restrictions, Citigroup analysts Rohini Malkani and Anurag Jha said in a report on May 22. Shipments were 845 tons in 2012-2013, the finance ministry says.
“With the kind of promotions and expectation of a change in import tax, we should see some normalcy in demand,” C.P. Krishnan, a director at Geojit Comtrade Ltd., said by phone from the southern Indian city of Kochi yesterday.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Thomas Kutty Abraham, Dick Schumacher

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India’s Nifty Futures Advance After Two-Week Retreat for Sensex

By Santanu Chakraborty - Jun 22, 2014

Indian stock-index futures gained after the benchmark equity gauge posted its longest stretch of weekly losses in almost three months.
SGX CNX Nifty Index futures for June delivery rose 0.3 percent to 7,551 at 10:30 a.m. in Singapore. The underlying CNX Nifty Index on the National Stock Exchange of India Ltd. fell 0.4 percent to 7,511.45 on June 20. The S&P BSE Sensex (SENSEX) declined 0.4 percent to 25,105.51 for a third day of losses. The Bank of New York Mellon India ADR Index of U.S.-traded shares dropped 0.7 percent to 1,313.90.
The Sensex capped its second weekly loss on June 20 amid concern rising oil prices and below-normal rainfall will stoke inflation, reducing scope for monetary easing. The index has risen 19 percent this year amid expectations Prime Minister Narendra Modi’s government will take measures to boost growth after India’s strongest electoral mandate in 30 years.
“We expect the markets to be volatile this week until global unrest settles down and we have a clear picture on the Iraq crisis,” Rakesh Goyal, senior vice president at Bonanza Portfolio Ltd., said by e-mail on June 20.
West Texas Intermediate rose for a third day today as insurgents fighting Iraqi forces seized more territory. India, which imports almost 80 percent of its oil, is the region’s most vulnerable economy to this month’s jump in crude prices amid violence in Iraq, according to Barclays Plc.
The Sensex trades at 15.5 times projected 12-month profits, and compares with the MSCI Emerging Markets Index’s multiple of 11. Overseas investors sold a net $72.6 million of Indian shares on June 19, paring this year’s inflows to $9.91 billion, the most among Asian markets tracked by Bloomberg.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Phani Varahabhotla, Chan Tien Hin

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