Chairman Tata Seeks to Salvage World’s Cheapest Nano Car By Siddharth Philip - Aug 21, 201

Ratan Tata wants another shot at promoting the Nano, conceived by the Tata Motors Ltd. (TTMT) chairman as the world’s cheapest car and whose sales plunged and never fully recovered after at least three caught fire.
The Nano, which starts at 141,898 rupees ($2,565) was developed as an upgrade option for millions of Indian motorcycle owners. First introduced in 2009, demand fell to a record low of 509 units in November 2010 after the cars caught fire. Sales have since lagged behind pricer models even after the company said the fires were isolated incidents.
“The Nano is something I would love to make successful because I don’t think it’s exploited its full potential right now,” Tata said in an interview with Bloomberg TV India, broadcast yesterday. “There has to be another push to make Nano what it can be.”
Tata, due to retire in December after running the Tata group for two decades, decided to develop the car after seeing a family riding on a scooter. The car faced problems even before sales began, with the company having to abandon a near-complete factory in West Bengal state because of violent protests by farmers demanding the return of land acquired for the site.
After the fires, the company in December 2010 lengthened warranties to four years or 60,000 kilometers (37,290 miles) and started offering as much as 90 percent financing through unit Tata Motors Finance Ltd.
An increase in borrowing costs however pinched the budgets of consumers that Tata Motors targeted to upgrade from motorcycles. Many chose cheaper two-wheelers instead, hitting sales of the Nano.

New Features

“Tata will have to refresh the Nano with new features as competitors such as Maruti and Hyundai are also stepping up their efforts,” said Umesh Karne, an analyst at BRICS Securities Ltd. in Mumbai. “If they manage to introduce new features and maintain a competitive price, I think its possible to resurrect the Nano.”
Tata said in January that the automaker is working on the vehicle’s upgrades to undo the “stigma” attached to the hatchback. The company wasn’t “adequately ready” with advertising campaigns and a dealer network when it started sales of the car in 2009, he told reporters then.
The automaker introduced a new version of the compact with a more powerful engine in November and said in December that it would change the starter motor in about 115,000 Nanos as part of efforts to improve the vehicle’s performance.

Nano Sales

Tata Motors sold 5,485 Nanos in July, an increase of 68 percent over the same period a year earlier though still a fraction of the 20,000 units a month the dedicated factory at Sanand in the western Indian state of Gujarat is capable of making.
The Mumbai-based automaker sold a total of 74,527 Nanos in the year ended March 31, giving it a 10 percent share in the mini and micro car segments, according to data from the Society of Indian Automobile Manufacturers. Maruti Suzuki India Ltd. (MSIL), rocked by worker riots last month, sold 491,389 units in the same period for a 69 percent share.
Tata Motors chose the first 100,000 customers for the Nano through a lottery from the 206,703 orders it got in the initial sales period in April 2009. The car was first displayed at the New Delhi auto show in 2008.
“The fact that we did achieve what we set out to achieve to design and build an affordable family car for the people is an achievement I was very proud of,” said Tata.
“I would love to be involved rather than think this is the level that” Nano sales can be, he said.
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

Indian Rate Cut Will Depend on Inflation Easing, Gokarn Says By Kartik Goyal - Aug 19, 2012

India can only consider cutting interest rates when inflation starts to show “very sustainable signs of moving down,” Reserve Bank of India Deputy Governor Subir Gokarn said.
“Our position on that is very clear,” Gokarn said in Goa yesterday. “It’s always balancing between inflation risks and growth risks” and price gains are currently the “dominant” threat, he said.
The central bank refrained from joining a wave of rate cuts from China to Brazil in July as it fights the fastest inflation among the biggest emerging nations. A moderation in investment has contributed to the slowest economic growth in nine years and left bottlenecks unresolved, sustaining price pressures.
“We have both oil and food as pressure points that have re-emerged” Gokarn said in a question and answer session after a speech to the Forex Association of India. “We cannot ignore” that risk, he said. “If we do, there is a likelihood of inflation resurging very quickly and requires even more aggressive action. That’s not the scenario we want to take a chance on.”
Inflation eased to a 32-month low of 6.87 percent in July yet remains the highest among BRIC economies, the group of nations comprising Brazil, Russia, India and China. The plunge in the rupee and the impact on crops of the weakest monsoon since 2009 threaten to fan price rises.
Speaking in Bangalore on Aug. 18, Gokarn said there is a “high risk” that the increase in pulse prices will accelerate.
The rupee has weakened about 18 percent against the dollar in the past year. It slid 0.8 percent to 55.7450 per dollar in the week ending Aug. 17.

Elevated Inflation

The BSE India Sensitive Index rose 0.2 percent on Aug. 17, taking the week’s gains to 0.8 percent. The yield on the 8.15 percent government bond due June 2022 increased seven basis points, or 0.07 percentage point, for the week to 8.24 percent, according to the central bank’s trading system.
Prime Minister Manmohan Singh is struggling to salvage his development agenda as elevated inflation, graft scandals and gridlock over attempts to open up the economy deter investment. Reviving economic expansion is a matter of national security, Singh said in his annual Independence Day speech on Aug. 15.
Indian gross domestic product rose 5.3 percent in the three months through March from a year earlier, the least since 2003.
The Reserve Bank left interest rates unchanged for a second meeting last month at 8 percent. It hasn’t lowered the benchmark repurchase rate since a 0.5 percentage-point cut in April which was the first since 2009. The RBI’s next meeting is scheduled for Sept. 17.

Ratings Downgrade

Finance Minister Palaniappan Chidambaram said on Aug. 18 he urged banks to follow the State Bank of India which has lowered retail lending rates. He spoke in New Delhi after meeting the heads of state-run banks.
Risks such as a budget shortfall and a current-account deficit have led Standard & Poor’s and Fitch Ratings to say they may strip India of its investment-grade credit rating.
“Our formal stance is that actions needed to avoid such an outcome are very clear and we have been pushing for fiscal consolidation in a systematic way for quite some time,” Gokarn said yesterday in response to a question on the threat of a ratings downgrade. “It’s clearly from our viewpoint a factor that is weakening the transmission of our policy actions. It’s also a contributory factor to the risk perception.”
India’s budget deficit was 5.8 percent of gross domestic product in the 12 months ended March, the widest among the largest emerging markets. Singh’s administration is seeking to narrow the shortfall to 5.1 percent in the current fiscal year.

Curb Spending

Forecasters from Citigroup Inc. to Crisil Ltd., the local unit of Standard & Poor’s, predict the gap will instead widen as the government fails to curb spending sufficiently.
Moody’s Investors Service has said power blackouts on July 30-31, India’s worst, underscore infrastructure gaps and have a “credit negative effect” on economic activity.
Officials this year have stepped up the struggle to steady the rupee. The efforts include boosting the amount of government bonds foreign investors can buy and curbs on trading in currency derivatives to rein in volatility.
India has also moved to increase the supply of dollars by cutting the amount of overseas income companies can hold in foreign currency and raising interest rates on non-rupee deposits.
Sustained growth, a low current-account deficit and low inflation rate are needed for a stable currency, Gokarn said yesterday.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

S&P 500 Caps Longest Weekly Rally Since January 2011

By Rita Nazareth - Aug 18, 2012

U.S. stocks rose for a sixth week, giving the Standard & Poor’s 500 Index its longest rally since January 2011, as economic reports beat forecasts and Germany backed the European Central Bank’s bond-buying plan.
Apple Inc. (AAPL), the world’s most valuable company, jumped 4.3 percent to a record and surpassed $600 billion in market value on speculation that production has started on a smaller version of the iPad tablet as well as a new television product. Cisco Systems Inc. (CSCO), the biggest maker of computer-networking equipment, climbed 8.7 percent as profit and sales exceeded analysts’ projections. Sears Holdings Corp. (SHLD), the retailer controlled by Edward Lampert, surged 16 percent after reporting a smaller quarterly loss.
The S&P 500 (SPXL1) rose 0.9 percent to 1,418.16, bringing its gain for the year to 13 percent. The Dow Jones Industrial Average added 67.25 points, or 0.5 percent, to 13,275.20. On the last day of trading, it touched the highest level since December 2007. (INDU) The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, slumped 8.8 percent to 13.45, a five-year low.
“Perhaps we ran out of sellers,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees about $2.7 billion in New York. “Better economic data helps. Corporate earnings didn’t fall apart. If you’re not involved, you could be a long way behind this market.”
Equities rose, sending the S&P 500 near a four-year high reached in April, as data showed rising U.S. industrial production while consumers and homebuilders gained confidence. The reports helped ease concern that the European debt crisis and slowing demand in Asia will weaken the U.S. recovery.

German Priorities

Investor concerns over Europe also faded after German Chancellor Angela Merkel said the ECB’s insistence on conditionality in return for help to lower borrowing costs in indebted countries matches her country’s priorities to end the crisis in the euro region. A person familiar with the matter said Spain is about to get an emergency disbursement from a 100 billion-euro ($123 billion) bailout package.
American companies, which posted the weakest results since 2009, have beaten earnings estimates for a 14th straight quarter, according to data compiled by Bloomberg. More than 72 percent of S&P 500 (SPX) companies reported second-quarter profits that topped projections even as 59 percent missed sales forecasts.

Stimulus Bets

Since reaching a four-month low on June 1, the S&P 500 has climbed 11 percent amid bets on economic stimulus. The rally has pushed the gauge to a valuation level of 14.4 times reported earnings, which is still below the average since 1954 of 16.4, data compiled by Bloomberg showed.
Stocks rallied amid a slowdown in volume as vacationing traders awaited policy clues from the Federal Reserve’s summit in Jackson Hole, Wyoming. On Aug. 13, U.S. equity volume reached the lowest level since at least 2008 excluding holidays. About 4.5 billion shares changed hands on all venues that day, the lowest level in data compiled by Bloomberg going back four years that excludes the days surrounding New Year’s, Christmas, Thanksgiving and Independence Day.
Fed Chairman Ben S. Bernanke will have a chance to talk more about policy options at the Kansas City Fed’s conference Aug. 30 to Sept. 1. His speech at the 2010 conference set the stage for a second round of asset purchases. Faster job growth is needed to push down an unemployment rate that has been stuck above 8 percent since February 2009, according to Northern Trust Corp.’s James McDonald.

‘Fragile Recovery’

“The recovery is fragile,” said McDonald, chief investment strategist at Northern Trust in Chicago, whose firm manages $704.3 billion. “As we look at what the Fed is going to do, I would say that they will still lean toward some further accommodation. If we get better data between now and the September meeting, they might pull back.”
The Fed next month will hold off from a third round of bond buying, known as quantitative easing, amid better economic figures, Goldman Sachs Group Inc. said in a report.
So-called cyclical companies, which generate profits that are more sensitive to changes in the economy, had the biggest gains in the S&P 500 among 10 industries. Technology and clothing retailers climbed at least 1.8 percent. Utility, health-care and phone companies in the S&P 500 declined.
Technology shares, which comprise 20 percent of the S&P 500, have rallied for five straight weeks in the longest run since April.

Apple, Cisco

Apple jumped 4.3 percent to $648.11. With tablet sales predicted by research firm Yankee Group to overtake those of personal computers by 2015, Apple is introducing a smaller iPad model to fend off challengers to its top-selling device. The tinier iPad may go on sale by October and a new television could reach stores by 2013, according a research report from Peter Misek, an analyst at Jefferies & Co.
Cisco Systems added 8.7 percent, the biggest weekly gain since 2009, to $19.06. Chief Executive Officer John Chambers has cut 7,800 jobs, shut businesses and reduced prices to win business lost to Juniper Networks Inc. (JNPR) and Hewlett-Packard Co. (HPQ) and combat a slowdown in Europe, which makes up a fifth of sales. The company boosted its dividend by 75 percent.
Sears soared 16 percent, the most in the S&P 500, to $59.49. The company has been working to keep the retailer’s inventory in line with customer demand, with domestic levels decreasing by $512 million from the year-ago period. The lower cost of sales in the quarter helped Sears’s gross margin widen to 26.7 percent of sales from 25.7 percent a year earlier.

Remodeling Projects

Home Depot Inc. (HD) gained 6.9 percent to $56.73, the highest price since 2000. The largest U.S. home-improvement retailer reported second-quarter profit that topped analysts’ estimates and raised its forecast for profit this year as customers spent more on remodeling projects.
Abercrombie & Fitch Co. jumped 12 percent, the most since April 2011, to $35.93. The teen retailer authorized additional share buybacks and reported second-quarter profit that topped the company’s preliminary report earlier this month. It also said in a statement that it will be “disciplined and judicious” with shareholder capital.
Target Corp. (TGT) added 2.1 percent to $64.14 after raising its annual profit forecast as the second-largest U.S. discount retailer increases sales by adding groceries and enticing more spending from customers with a discount card.
Estee Lauder Cos. gained 11 percent to $61.61. The maker of Mac cosmetics and Clinique skin care reported fourth-quarter profit and sales that topped analysts’ estimates.

Homebuilders Jump

A measure of homebuilders in S&P indexes jumped 5 percent to the highest level since April 2008. PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, climbed 7.2 percent to $13.38. KB Home (KBH), the Los Angeles-based homebuilder that targets first-time buyers, rose 6.8 percent to $11.04.
Staples Inc. (SPLS) tumbled 15 percent to $11.34 after the office- supply retailer cut its annual sales and profit forecast amid slower growth in the U.S. and tepid demand in Europe.
Wal-Mart Stores Inc. (WMT) slumped 2.3 percent to $71.99. The world’s largest retailer retreated as its forecast for profit this year trailed some analysts’ estimates amid slowing sales growth in the U.S.
Deere & Co. (DE) retreated 3.1 percent to $76.94 after cutting its full-year profit forecast as sales slow in Asia and Latin America, undermining the growth strategy at the world’s largest manufacturer of agricultural equipment.
Facebook Inc. plunged 13 percent to $19.05, the lowest price since its initial public offering in May, after the end of restrictions on share sales by its biggest investors. The stock traded 50 percent below its IPO price of $38. (FB)

Coupon Sales

Groupon Inc. (GRPN) sank 36 percent to $4.75, a record low. The largest daily-deal website reported second-quarter revenue that missed estimates as economic weakness in Europe curbed online coupon sales. Evercore Partners Inc. downgraded Groupon shares, citing a potential for billings to decline.
Investors also watched second-quarter filings from asset managers, which showed a shift to stocks that are least tied to economic growth. Asset managers increased holdings the most in health-care stocks and companies that make household goods on concern about an economic slowdown. They reduced weightings in technology and energy shares.
Johnson & Johnson (JNJ), the biggest health-care products company, had the largest increase in money managers’ positions, according to second quarter regulatory filings from investment firms with at least $100 million in U.S. equities. Apple had the seventh-biggest decrease in ownership.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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India Lost $33 Billion Giving Away Coal Mines, Auditor Says By Rajesh Kumar Singh and Abhijit Roy Chowdhury - Aug 17, 2012

India’s policy of allocating coal mines without auction may have cost the government 1.86 trillion rupees ($33 billion), the state auditor said in its final report of mining losses to the exchequer.
The Comptroller & Auditor General of India’s assessment, presented in the parliament today, said the mines gave undue benefit to companies including Jindal Steel & Power Ltd. (JSP) and Tata Steel Ltd. A Feb. 28 draft, which included state-owned companies, estimated the loss at 10.7 trillion rupees and triggered a probe by the Central Bureau of Investigation.
The report comes at a time when the government is battling a series of graft charges that have slowed down decision making and impeded reforms. Prime Minister Manmohan Singh, who was in charge of the coal ministry for part of the period under review, has been personally blamed by opposition parties for the loss.
“It’s over-simplification of mining valuations,” said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. “One can’t compare the valuation of an operational mine with an unexplored mine as the risks are exponentially high at the beginning. Whichever mines were allocated for captive use to companies had no reliable data on reserves.”
The state auditor’s report on issuance of phone permits sold in 2008 had led to India’s biggest corruption probe and the arrests of government and company officials, and a cabinet minister.

Transparent Method

India began allocating coal mines to companies for their own use in 1993 and gave away 194 blocks with reserves of 44.4 billion tons. Almost half these reserves, spread across 142 blocks, were explored, the auditor said in the report.
“There couldn’t have been a more transparent method of allocating coal blocks at that time,” Coal Minister Sriprakash Jaiswal told reporters today in New Delhi. “It was the need of the hour to involve the private sector to boost coal production, as Coal India alone was unable to meet the rising needs.”
State-run Coal India Ltd. (COAL) is the world’s biggest producer of the fuel.
Of all the coal blocks allocated for captive use, only 30 have started production. Only one among the 57 blocks the state auditor took up for audit began production, Jaisal said.
The auditor estimated a gain of 295.40 rupees a metric ton and multiplied the number with the reserves at the captive mines. The estimate of gain was reached by taking the difference between the average price of coal and the average of cost of production at Coal India’s mines in the year ended March 31, 2011.
The estimate considered only open-cast mines. It counted 73 percent of the reserves at open-cast mines and 37 percent of reserves at mixed mines, according to the report.
India implemented an auction policy for the allocation of coal mines in 2010. The coal ministry subsequently prepared a list of 54 coal blocks with reserves of 19 billion tons for captive allocation. Some of these blocks will be auctioned and other given away to state-run miners, according to the coal ministry’s web site.
To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net;

Hindalco to Double Sales on Audi, Jaguar Orders: Corporate India By Abhishek Shanker - Aug 16, 2012

Hindalco Industries Ltd. (HNDL), the world’s biggest supplier of aluminum to carmakers, may double group sales to $33 billion in five years as Audi AG (NSU) and other European carmakers swap steel with the lightweight metal.
“Automobiles are a huge prospect,” Debnarayan Bhattacharya, managing director of India’s second-largest producer of the metal, said in an interview. “The European auto market is booming. New environmental norms are an opportunity for aluminum makers.”
Billionaire Kumar Mangalam Birla’s flagship, contending with falling metal prices and rising costs, is betting regulation to cut carbon emissions and improve fuel efficiency in the U.S. and Europe will prompt carmakers to use more aluminum. Jaguar Land Rover plans to start selling its first all-aluminum Range Rover SUV next month, reducing the car’s weight by 39 percent, while Daimler AG’s Mercedes is using the metal for its 93,534-euro ($114,800) SL model.
Carmakers use about 50 million metric tons of steel a year globally, equivalent to the world’s total aluminum capacity, Bhattacharya, who’s also the vice chairman of Hindalco’s Atlanta-based unit Novelis Inc., said in his office in Mumbai. Stricter carbon emission norms in Europe are bound to lift aluminum demand, he said.
The trend to use aluminum “was started by Audi 20 years ago, and today many automakers including Jaguar are using the alloy” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen in Germany. “This trend will continue for the next five years, before we see materials such as plastics and carbon fiber become more widespread.”

Emission Rules

Hindalco’s shares have fallen 19 percent in the past year, compared with a 5.5 percent gain in the benchmark BSE India Sensitive Index. The stock dropped 2.8 percent to 116.7 rupees in Mumbai yesterday.
The European Union renewed its crackdown on carbon-dioxide emissions from cars by seeking a binding target for 2020 that’s 27 percent below the existing limit. The European Commission on July 11 proposed to cap average emissions by passenger vehicles in the EU at 95 grams a kilometer in 2020 through varying targets for individual manufacturers ranging from Volkswagen AG to General Motors Co.
Aluminum content in Europe will rise by more than 25 kilograms per vehicle by 2025, Novelis, which supplies Jaguar Land Rover (TTMT), Bayerische Motoren Werke AG, Daimler AG’s Mercedes- Benz and Audi among others, said in June. Audi, owned by Germany’s Volkswagen AG, registered a 12.4 percent gain in sales in the seven months to July, while BMW posted a 7.6 percent rise in the same period.

Earnings Drop

Alcoa Inc. (AA), the largest U.S. aluminum producer, in July reported second-quarter earnings and revenue that beat analysts’ estimates as a result of an increase in orders from the automakers including Ford Motor Co. and Honda Motor Co.
Hindalco, which bought Atlanta-based Novelis in 2007 to gain 20 percent of the high-end aluminum market and customers including Coca-Cola Co., reported its biggest profit drop in three years in the three months ended June 30 at its Indian operations due to lower prices on the London Metal Exchange and higher costs, according to a statement to exchanges on Aug. 14.
Novelis reported a 20 percent increase in net income at $91 million in three months ended June 30, according to a release on the same day. The company aims to add 900 kilotons of capacity, it said without giving a timeline.

China Plant

Novelis also plans to spend $100 million to build a 120,000-ton automotive sheet facility in China and will start construction at the end of this quarter, Chief Executive Officer Philip Martens said on Aug. 14. Global automotive demand for aluminum is forecast to grow 25 percent in five years, he said.
“At present we supply from our European unit,” Bhattacharya said. “With rising demand in both the regions we have decided to set up a new unit,” in China.
Sales of luxury car brands took off in the last six months, Peter Jones, chief executive officer at Lookers Plc, a U.K. car dealership and parts supplier said on Aug. 15. Profit per unit on new cars increased 11 percent, he said.
Hindalco’s increasing focus on automobile makers may be affected should the governments defer deadlines for cutting carbon emissions, said Bhavesh Chauhan a Mumbai-based analyst at Angel Broking Ltd.

Regulation Delayed

U.S. auto and environmental regulators delayed, past a self-imposed deadline of Aug. 15, the release of a final rule requiring automakers to raise the average fuel-economy of their fleets to 54.5 miles per gallon by 2025. President Barack Obama’s administration didn’t say when it will issue the rule targeting model-year 2017 passenger vehicles sold in the U.S.
Hindalco is boosting capacity at home to meet rising demand. It is spending 270 billion rupees ($5 billion) by fiscal year 2015 that will almost triple its domestic capacity to 1.7 million tons helping boost revenue.
The company, set up in 1958 by Birla’s grandfather Ghanshyam Das Birla, is building aluminum smelting capacities in the central state of Madhya Pradesh and in the eastern states of Odisha and Jharkhand with capacities of 360,000 tons each. The project in Madhya Pradesh was scheduled to start in December, according to a September report on the company’s website.
“I don’t think they will be able to finish their greenfield projects in India by 2015,” said Angel Broking’s Chauhan, who has a neutral rating on the stock. Coal needed to fuel the company’s power plants “aren’t coming on time,” he said. Bhattacharya said he doesn’t expect see further delays.

Raw Materials

Hindalco, which had $16.4 billion of sales in the year ended March 31, is seeking supplies of raw materials outside India to cut production costs, Bhattacharya said.
The company aims to secure raw material supplies including bauxite and coal to fire its projects, Bhattacharya said. The two materials account for 60 percent of the cost of producing the metal.
“I don’t want to put all my eggs in one basket -- that is India,” Bhattacharya said, without elaborating. “We are currently evaluating other opportunities outside. We may go for some mines or form joint ventures.”
To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

China Gains as $17.5 Billion Subsidy Curbs ONGC Buyouts By Pratish Narayanan - Aug 15, 2012

Oil & Natural Gas Corp. (ONGC), India’s biggest state-run explorer, is lagging behind Chinese peers in the race for overseas assets after subsidies to cap fuel prices drained profit by $17.5 billion over the past decade.
“If it weren’t for the subsidies, all that money would’ve gone into overseas acquisitions,” Chairman Sudhir Vasudeva said in an interview. “We’d definitely have been more aggressive.”
ONGC has spent 1.7 trillion rupees ($30 billion) on discounts since India asked state energy explorers to share the cost about a decade ago, draining profit by about 971 billion rupees, Vasudeva said. ONGC pays state refiners that sell fuels such as diesel and kerosene at below-market rates to temper inflation in a nation where almost 800 million people, according to the World Bank, live on less than $2 a day.
The burden is paring ONGC’s ability to challenge Chinese rivals, which made 95 overseas oil and gas purchases worth $86.4 billion in the past decade, according to data compiled by Bloomberg. ONGC, based in New Delhi, has made seven acquisitions valued at about $8 billion in the same period.
“India is very vulnerable to oil because it imports almost 80 percent of its needs, so companies like ONGC need to buy overseas assets,” said Taina Erajuuri, a Helsinki-based money manager at FIM Asset Management, which oversees about $1.2 billion in assets. “China can pay much more because of its huge foreign-exchange reserves, and this has made them more aggressive.”
Indian Oil Corp. (IOCL) reported the nation’s biggest corporate loss this month after the government failed to compensate it for capping fuel prices. The state-run company’s loss widened to 224.5 billion rupees in the three months ended June 30 from 37.2 billion rupees a year earlier.

Videsh Output

ONGC has gained 2.2 percent in the past 12 months, compared with a 5.3 percent increase in the benchmark BSE India Sensitive Index and Brent oil’s 3.7 percent gain in London.
ONGC Videsh Ltd., the overseas unit that can produce about 10 million metric tons of oil equivalent a year, may have doubled its output through acquisitions had the subsidy funds been used for buyouts, Vasudeva said.
State-owned explorers will pay refiners 550 billion rupees as subsidy for the year ended March 31, two people with knowledge of the matter said May 21.
While ONGC, which started in 1955 as a division of the Ministry of Natural Resources, wants to increase international production sixfold by 2030, it has been beaten by overseas rivals in the quest for assets from Latin America to Africa as developing economies in emerging markets seek to secure energy supplies.

Tullow Stake

ONGC failed to win Exxon Mobil Corp. (XOM)’s 25 percent stake in an Angolan oil block after making a $2 billion offer, two people with knowledge of the matter said in March last year. Sonangol EP, Angola’s state-run oil producer, bought the stake, the company said on Feb. 24.
A joint offer by ONGC, Indian Oil and Oil India Ltd. to buy a 33 percent stake in London-based Tullow Oil Plc’s Ugandan exploration interests failed as the consortium was outbid by Cnooc Ltd. (883), the Hong Kong-listed unit of China’s biggest offshore oil and gas explorer, a person familiar with the matter said in June 2010.
Earlier this year, ONGC and GAIL India Ltd. said they were participating in the sale process of Cove Energy Plc. (COV) In June, ONGC Videsh said it wouldn’t make an offer for Cove, for which Thailand’s PTT Exploration & Production Pcl (PTTEP) bid 1.2 billion pounds ($1.9 billion).

Syria Sanctions

ONGC is seeking alternatives as oil output from its Sudan and Syria fields is disrupted, and it faced criticism from India’s auditor for its most expensive acquisition.
Output by ONGC Videsh, which has 30 projects overseas, dropped 7.4 percent to 8.75 million tons of oil equivalent in the year ended March, according to a May 21 company statement.
Syria is producing fewer than 200,000 barrels of oil a day, almost half its output before an uprising against the regime of President Bashar al-Assad began in March 2011, Oil Minister Said Hunaidi said on Aug. 3. The U.S. and European Union have imposed sanctions on the country following al-Assad’s crackdown on protesters. More than 21,000 people have died in the unrest, according to the Syrian Observatory for Human Rights.
“There’s no certainty when production will start again in Syria. We’re in a difficult position there,” Vasudeva said.
South Sudan halted production in January after a pipeline payment dispute with neighboring Sudan. The two nations reached an agreement on Aug. 4. Restarting production may take six months or longer, the International Energy Agency said on Aug. 10.

‘Politically Unstable’

ONGC’s biggest acquisition was the 1.4 billion pound purchase of Russia-focused Imperial Energy Corp. in 2009. ONGC Videsh lost 11.8 billion rupees in the 15 months ended March 2010 because of lower production from its Russian fields operated by Imperial, the Comptroller & Auditor General of India said in March 2011.
The company is close to an agreement to buy its first shale gas asset in the U.S. and plans to spend at least $1 billion on purchases, D.K. Sarraf, managing director of ONGC Videsh, said on March 2. ConocoPhillips (COP) and ONGC have signed an agreement to develop shale resources in India and North America.
ONGC, which had more than 200 billion rupees of cash as of March 31, may not get a cheap asset in developed nations like the U.S., FIM Asset’s Erajuuri said.
“They need to look at countries in Africa that may be politically unstable, but will provide good assets for a better price,” she said.
To contact the reporter on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Subbarao Says India Lacks Scope for Stimulus to Counter a Crisis By Anoop Agrawal - Aug 13, 2012

India has no space for economic stimulus to respond to a future crisis partly because it faces elevated inflation, central bank Governor Duvvuri Subbarao said.

“Inflation is high, oil prices though they have come off $100 a barrel are at elevated levels, the external sector is under stress,” Subbarao said in a speech in the southern Indian state of Kerala yesterday. “There is just no space for fiscal or monetary response.”

The Reserve Bank of India left interest rates unchanged in July, breaking with a wave of cuts in borrowing costs from China to Brazil as the global recovery falters. The pace of Indian price rises has held above 7 percent for most of 2011, stoked by food and energy costs and a drop in the rupee, curbing Subbarao’s scope to counter the slowest economic expansion in almost a decade.

“Some sacrifice in growth is inevitable and an unavoidable cost in bringing inflation down,” Subbarao said. Core inflation at 5 percent is “still quite high,” he also said.

The rupee has tumbled about 18 percent against the dollar in the past 12 months, making imports more expensive. It weakened 0.1 percent to 55.3438 per dollar at the 5 p.m. close in Mumbai yesterday. The BSE India Sensitive Index of stocks advanced 0.4 percent. The yield on the 8.15 percent government bond due June 2022 rose to 8.20 percent from 8.16 percent on Aug. 10.

The central bank kept its benchmark repurchase rate at 8 percent last month for a second meeting. Headline inflation probably exceeded 7 percent for a sixth straight month in July, according to the median estimate of 29 economists in a Bloomberg News survey ahead of a report due today.

Growth in Asia’s third-largest economy slowed to 5.3 percent in the three months through March from a year earlier, the least since 2003.

“In other emerging economies, inflation has also come down,” Subbarao said. “In India, even as the growth has come down, our inflation has not come down. India is somewhat of an outlier in the world.”

At the same time, Subbarao also said that India’s long-term growth story remains credible.

To contact the reporter on this story: Anoop Agrawal at aagrawal8@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net