Record India Deficit May Limit Rate Cuts as Rupee Drops By Kartik Goyal - Jan 4, 2013

India’s record current-account deficit threatens to weigh on the rupee and curb the magnitude of interest-rate cuts forecast to begin this month in support of government policies seeking faster growth.
The shortfall swelled to $22.31 billion in the quarter ended Sept. 30, the widest in Reserve Bank of India data beginning 1949. The rupee is down 6.1 percent against the dollar in the past three months, fanning price gains that will limit Governor Duvvuri Subbarao to a 25 basis-point rate cut on Jan. 29, according to eight of 10 analysts in a Bloomberg News survey.
India has the biggest deficit among the largest emerging markets, stoked by the worst export slump since the 2009 global recession and gold imports that Finance Minister Palaniappan Chidambaram said are a “huge drain.” Trade and budget gaps have increased economic risks, the Reserve Bank said Dec. 28, even as the government tries to lure more foreign investment and limit subsidies as Asia’s No. 3 economy struggles.
“The widening current-account deficit indicates very severe macroeconomic threats,” said Rupa Rege Nitsure, an economist at Bank of Baroda (BOB) in Mumbai. “The central bank has less room to ease policy meaningfully.”
Subbarao has left borrowing costs at 8 percent since a 50 basis-point cut in April 2012, resisting Chidambaram’s calls in October for a further reduction.
Still, the central bank signaled in a statement of the Dec. 18 policy review that it may ease in 2013 as an inflation rate exceeding 7 percent cools. Two analysts in the Bloomberg survey predicted a 0.5 percentage-point cut in January.

Export Slide

The rupee weakened 1.1 percent, the most in two months, to 55.075 per dollar at the 5 p.m. close in Mumbai. The BSE India Sensitive Index (SENSEX) climbed 0.1 percent. Five-year interest rate swaps advanced to 7.16 percent, the highest in more than a week, while the one-year rate rose as high as 7.6 percent, indicating investors pared bets on the extent of cuts in borrowing costs.
The deficit in the current account, which tracks goods, services and investment income, reached 5.4 percent of gross domestic product in July-to-September from 3.9 percent in the previous quarter.
Exports slid for seven months through November. Gold imports accounted for more than two-thirds of the current- account gap on average in the last three years, the central bank said in its Financial Stability report last month. India also purchases about 80 percent of its crude oil from overseas.

Rupee Outlook

The rupee will weaken about 7 percent to 59 per dollar by year-end, according to Nomura Holdings Inc. Kotak Mahindra Bank Ltd. (KMB) predicts a drop to as low as 57 per dollar this quarter.
Prime Minister Manmohan Singh curbed fuel subsidies in September and opened industries including retail to more foreign investment, seeking to steady the currency, revive growth and avert a credit-rating downgrade that may disrupt capital inflows.
The current-account deficit may narrow as 2013 progresses, which, along with an acceleration in the economy, could “give the central bank room to ease policy” later in the year, said Sujan Hajra, a Mumbai-based economist at Anand Rathi Financial Services Ltd.
The nation may raise taxes on gold imports to tackle the shortfall, Chidambaram said two days ago as he called on citizens to curb demand for the metal. He is due to deliver the annual budget in February.

Remaining Vulnerable

For now, the rupee “will remain vulnerable” and the central bank’s “scope for aggressive easing is rather limited,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai.
The Finance Ministry predicts GDP growth of as little as 5.7 percent in the year to March 31, the least in a decade.
The Jan. 29 policy review is set to be the first with Urjit Patel as an RBI deputy governor. Banking Secretary D.K. Mittal said yesterday Patel has been appointed pending final checks.
A report today showed India’s service industries expanded at a faster pace in December. The purchasing managers’ index rose to 55.6 from 52.1 in November, HSBC Holdings Plc and Markit Economics said in a statement.
China’s services activity slowed in December, while Australia’s contracted for the 11th month, reports today showed. Elsewhere in Asia, Philippine inflation accelerated last month.
European services and factory output contracted more than initially estimated in December, adding to signs a recession in the region may extend into this year. Consumer prices in the euro area increased more than economists expected in December.
In the U.S., non-farm payrolls probably rose by 153,000 in December after a 146,000 gain in November while the unemployment rate held at 7.7 percent, according to Bloomberg surveys. Factory orders probably climbed in November. An index may indicate non-manufacturing output expanded at a slower pace last month.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Record India Deficit May Limit Rate Cuts as Rupee Drops: Economy By Kartik Goyal - Jan 3, 2013

India’s record current-account deficit threatens to weigh on the rupee and curb the magnitude of interest-rate cuts forecast to begin this month in support of government policies seeking faster growth.
The shortfall swelled to $22.31 billion in the quarter ended Sept. 30, the widest in Reserve Bank of India data beginning 1949. The rupee is down 5 percent against the dollar in the past three months, fanning price gains that will limit Governor Duvvuri Subbarao to a 25 basis-point rate cut on Jan. 29, according to eight of 10 analysts in a Bloomberg News survey.
India has the biggest deficit among the largest emerging markets, stoked by the worst export slump since the 2009 global recession and gold imports that Finance Minister Palaniappan Chidambaram said are a “huge drain.” Trade and budget gaps have increased economic risks, the Reserve Bank said Dec. 28, even as the government tries to lure more foreign investment and limit subsidies as Asia’s No. 3 economy struggles.
“The widening current-account deficit indicates very severe macroeconomic threats,” said Rupa Rege Nitsure, an economist at Bank of Baroda (BOB) in Mumbai. “The central bank has less room to ease policy meaningfully.”
Subbarao has left borrowing costs at 8 percent since a 50 basis-point cut in April 2012, resisting Chidambaram’s calls in October for a further reduction.
Still, the central bank signaled in a statement of the Dec. 18 policy review that it may ease in 2013 as an inflation rate exceeding 7 percent cools. Two analysts in the Bloomberg survey predicted a 0.5 percentage-point cut in January.

Export Slide

The rupee weakened 0.2 percent to 54.49 per dollar at the close in Mumbai yesterday. The BSE India Sensitive Index (SENSEX) rose 0.3 percent. The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.97 percent.
The deficit in the current account, which tracks goods, services and investment income, reached 5.4 percent of gross domestic product in July-to-September from 3.9 percent in the previous quarter.
Exports slid for seven months through November. Gold imports accounted for more than two-thirds of the current- account gap on average in the last three years, the central bank said in its Financial Stability report last month. India also purchases about 80 percent of its crude oil from overseas.
The rupee will weaken about 8 percent to 59 per dollar by year-end, according to Nomura Holdings Inc. Kotak Mahindra Bank Ltd. (KMB) predicts a drop to as low as 57 per dollar this quarter.

Inviting Investment

Prime Minister Manmohan Singh curbed fuel subsidies in September and opened industries including retail to more foreign investment, seeking to steady the currency, revive growth and avert a credit-rating downgrade that may disrupt capital inflows.
For now, the rupee “will remain vulnerable” and the central bank’s “scope for aggressive easing is rather limited,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai.
The Finance Ministry predicts GDP growth of as little as 5.7 percent in the year to March 31, the least in a decade.
The Jan. 29 policy review is set to be the first with Urjit Patel as an RBI deputy governor. Banking Secretary D.K. Mittal said yesterday Patel has been appointed pending final checks.
HSBC Holdings Plc and Markit Economics will release their purchasing managers’ index on India’s service industries for December today. China’s services activity slowed last month, while Australia’s contracted for the 11th month, reports today showed. Elsewhere in Asia, Philippine inflation accelerated last month.
Data to be published in Europe may confirm euro-area manufacturing and services output contracted in December, while inflation in the region slowed for a third month, according to Bloomberg surveys. German retail sales probably extended a four- month slump in November, a separate survey showed.
In the U.S., non-farm payrolls probably rose by 153,000 in December after a 146,000 gain in November while the unemployment rate held at 7.7 percent, according to Bloomberg surveys. Factory orders probably climbed in November while an index may indicate non-manufacturing output expanded at a slower pace last month, surveys showed.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

India’s Nifty Futures Rise, Signaling Third Day of Stock Gains By Shikhar Balwani - Jan 2, 2013

Indian stock-index futures rose, signaling equities will extend a two-day rally that drove benchmark indexes to a two-year high.
SGX S&P CNX Nifty Index futures for January delivery climbed 0.4 percent to 6,064.5 at 9:56 a.m. in Singapore. The underlying S&P CNX Nifty (NIFTY) Index added 0.7 percent to 5,993.25 yesterday. The BSE India Sensitive Index (SENSEX), or Sensex, rose 0.7 percent to 19,714.24 yesterday. Both gauges closed at their highest levels since Jan. 6, 2011.
The Bank of New York Mellon India ADR Index of U.S.-traded shares jumped 2.3 percent as a U.S. manufacturing report added to optimism the global economic recovery will accelerate. India’s cash surplus of 1.3 trillion rupees ($24 billion) and efforts to clamp down on spending will help it keep to its borrowing target for the year to March, said a government official with knowledge of the matter.
Indian stocks gained yesterday after U.S. lawmakers approved a bill averting most of the tax increases and spending cuts threatening the recovery in the world’s biggest economy. The U.S. accounted for 11 percent of India’s exports in the six months to September 2011, trade ministry data show. An industry report yesterday showed American manufacturing expanded more than forecast in December.
The Sensex climbed 26 percent last year, fueled by fund flows and government steps to open the economy and boost economic growth. The rally has driven the Sensex’s valuation to 15.6 times estimated earnings, the highest level since March, data compiled by Bloomberg show. The MSCI Emerging Markets Index trades at a multiple of 12.4.
Prime Minister Manmohan Singh began a wave of policy announcements in September, raising diesel prices and allowing more foreign investment in the retail and airline industries to bolster an economy growing at the slowest pace in three years.
The measures propelled foreign inflows into local shares to a net $24.5 billion last year, the highest among 10 Asian markets tracked by Bloomberg, excluding China. Foreign funds were net buyers of Indian stocks on all but one day last month. They bought $149 million of shares on Jan. 1, data from the market regulator show.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

Urjit Patel Said to Be a Candidate for RBI Deputy Governor Post By Tushar Dhara and Unni Krishnan - Jan 1, 2013

India is considering economist Urjit Patel as one of three candidates for deputy governor at the nation’s central bank, a government official with direct knowledge of the matter said.
The other candidates are World Bank economist Kalpana Kochhar and Subir Gokarn, with a decision probable today, the official said, asking not to be identified before an announcement. Gokarn was one of four deputy governors and was in charge of the monetary policy department until his three-year term ended on Dec. 31 after a one-month extension.
Governor Duvvuri Subbarao has taken charge of that policy unit until further notice, the Reserve Bank of India said yesterday. The central bank has so far resisted calls from Finance Minister Palaniappan Chidambaram for cheaper credit, while signaling it may cut interest rates in coming months to help revive economic growth as inflation eases.
Patel is an adviser to the Boston Consulting Group, a non- resident senior fellow at the Brookings Institution, an ex- International Monetary Fund economist and a former adviser to the Reserve Bank, according to the Brookings website.
He didn’t answer questions when reached on his mobile phone and didn’t pick up subsequent calls. Gokarn didn’t answer calls to his office and home phones. Kochhar’s e-mail and phone number weren’t immediately available.
The economic and policy research and statistics units will also report directly to Subbarao following the reallocation of responsibilities, the central bank said in its statement.
The RBI said it expanded the portfolios of the three continuing deputy governors.
K.C. Chakrabarty will look after the Deposit Insurance and Credit Guarantee Corporation, the department promoting the use of Hindi in banking and finance, and the Right to Information Division. Anand Sinha was given the communication and risk monitoring divisions, and Harun Rashid Khan the financial markets department.
Subbarao has left the repurchase rate at 8 percent since a 50 basis-point cut in April. Inflation exceeding 7 percent for most of last year curbed his scope to lower the benchmark to spur Asia’s third-largest economy.
To contact the reporters on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Stocks Beat Bonds, Commodities by Most Since 2009 on Stimulus By Inyoung Hwang, Rita Nazareth and Lu Wang - Jan 1, 2013

Unprecedented central bank stimulus sent global stocks to the biggest annual rally in three years, beating bonds, commodities and the dollar by the most since 2009 as shares surged from America to Germany and Venezuela.
The MSCI All-Country World Index of equities increased 16.9 percent in 2012 including dividends after climbing 2.3 percent in December. The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 0.1 percent last year, while the U.S. Dollar Index (DXY) lost 0.5 percent. Bonds of all types returned 5.73 percent, on average, according to Bank of America Merrill Lynch’s Global Broad Market Index.
Stocks rebounded after posting the worst returns in 2011 as central bankers’ efforts to push investors into riskier assets and corporate earnings growth overshadowed the third year of Europe’s debt crisis. Shares overcame the slowest expansion in China in 13 years and a U.S. government debate over how to avoid more than $600 billion of spending cuts and tax increases.
“The massive global stimulus has been a big piece of it,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “That had a big impact on reducing the fears of a recession. There was also the support from the corporate earnings side. It was just a matter of time to have stocks outperforming.”

Bernanke, Draghi

U.S. Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Mario Draghi pledged bond purchases amid the slowest global economic growth since 2009. The world economy is estimated to have expanded 2.2 percent in 2012, according to the median estimate from economists surveyed by Bloomberg. Gross domestic product may increase 2.4 percent this year, the projections show.
Bernanke said in September that the U.S. central bank will buy mortgage securities until the labor market recovers. The ECB announced a plan that involved unlimited purchases of government debt to reduce borrowing costs in the euro region. Draghi, fighting to keep the currency union intact, has also cut the benchmark interest rate to a record low of 0.75 percent, while the People’s Bank of China lowered its rate to 6 percent.
The rally in global stocks followed a 6.9 percent slump in 2011. The MSCI global index, which tracks companies in 45 developed and emerging markets, trades for 15.4 times reported earnings, or about 26 percent below its historical average of 20.7, according to data compiled by Bloomberg from 1995.

Profit Gains

Analysts’ estimates show profit at companies in the MSCI All-Country gauge climbed 11 percent to $25.13 a share in 2012, according to data compiled by Bloomberg. That’s close to the record high of $25.30 in 2007. Analysts project earnings will continue to rise in 2013, increasing 12 percent, the data show.
Within developed markets, 23 out of 24 benchmark indexes advanced. Stocks in Europe rallied the most as cheap valuations for companies in Greece, Germany and Denmark lured investors. Equity measures in those countries climbed at least 27 percent. The price-earnings multiple of the Stoxx Europe 600 Index has surged more than 86 percent since hitting an almost three-year low in September 2011.
Spain’s IBEX 35 was the only developed market gauge to fall. Japan’s Nikkei 225 Stock Average surged 23 percent, the biggest rally since 2005, amid calls from the new government for more monetary easing.

Obama’s Re-election

The S&P 500 Index (SPX) climbed 13 percent last year, the most since 2009. The U.S. equity benchmark sank as much as 7.7 percent from its 2012 high in September as Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The S&P 500 ended 1.8 percent above the average estimate of 1,401 from 14 Wall Street strategists tracked by Bloomberg. It will rally 7.3 percent to 1,531 in 2013, the average of forecasts showed.
Financial companies in MSCI’s global index posted the biggest gain last year, returning 29 percent as a group, as companies such as Grupo Financiero Santander Mexico SAB de CV, Brussels-based KBC Groep NV and Bank of America Corp. surged at least 109 percent. In 2011, the group slumped more than twice as much as the MSCI All-Country World Index.
The MSCI Emerging Markets Index of stocks gained 18 percent last year including dividends, rebounding from an 18 percent loss in 2011.
Venezuela’s benchmark climbed 342 percent including dividends, the most in the world, as inflation, which rose about 18 percent year-over-year as of November, prompted investors to buy shares as a way to preserve the value of their savings. The deteriorating health of President Hugo Chavez, re-elected in October, fueled speculation that a regime change may reverse policies that drove away investors.

Commodity Markets

The S&P GSCI Total Return Index of commodities dropped 0.6 percent in December, paring its annual advance.
Gains last year were led by a 19 percent increase in wheat futures traded in Chicago, 17 percent in soybeans and 16 percent in Kansas City wheat. Arabica coffee in New York, cotton and raw sugar fell the most among the five members of the GSCI spot index that retreated.
Crop prices rose in 2012, with records in soybeans and corn, as U.S. farmers endured the most-severe drought since the 1930s Dust Bowl. Heat waves and dry weather also curbed output in Europe and Australia.

Coffee, Sugar

Agricultural commodities were also among the biggest decliners as a record coffee harvest in Brazil added to a global glut that drove arabica futures to a 37 percent retreat, the biggest drop since 2000. There were also supply surpluses in raw sugar after Brazilian output expanded; futures in New York slumped 16 percent.
Lead was the best-performing industrial metal among the members of the GSCI spot index, advancing 14 percent, as Morgan Stanley predicted the biggest shortage in seven years in 2013. Gold gained 7.1 percent in London, rising for a 12th consecutive year, the longest streak since at least 1920. Holdings through exchange-traded products rose 12 percent to 2,631 metric tons, more than the reserves of all but two central banks.
“If you look at returns for managers in the commodities space it has been challenging, but there have been opportunities,” said Colin O’Shea, the head of commodities at Hermes Investment Management Ltd. in London, which manages about $2.3 billion of raw-material assets. “What we’ve seen over the course of the last 12 months is a lack of a trend. There haven’t been significant trends for long periods of time, and that’s what’s made things difficult for some.”

‘Super Cycle’

Citigroup Inc. analysts said in a report in November that the “super cycle” of returns in commodities has ended, while their counterparts at Goldman Sachs Group Inc. and Morgan Stanley are forecasting higher prices. The S&P GSCI gauge has more than doubled since the end of 1998.
Brent crude futures advanced 3.5 percent last year, the smallest annual gain since prices collapsed in 2008, as threats to Middle Eastern supplies offset the drag on oil demand from Europe’s sovereign debt crisis. Prices posted a record annual average of $111.68 a barrel, buoyed by new international sanctions on Iran and the risk that conflict in Syria will spread. Brent rose as high as $128.40 on March 1, and fell to $88.49 on June 22.
“Although oil ended 2012 at almost the level as it began, the danger of a major supply disruption in the Middle East put a floor under the market,” said Christopher Bellew, a senior oil broker at Jefferies Bache Ltd. in London. “Oil came under pressure in the summer as Europe was gripped by recession, Chinese growth slowed, and Saudi Arabia made up for any supply shortage. But the price slump that some had expected did not materialize.”

Dollar, Euro

Intercontinental Exchange Inc.’s Dollar Index fell in December amid signs the U.S. economy is continuing to grow. The gauge will rise to a reading of 80.6 in the first quarter of 2013, from 79.8 at the end of December, according to the median of 11 analyst estimates compiled by Bloomberg.
The 17-nation euro rallied 1.8 percent against the dollar in 2012 and 7.4 percent since July 26, when Draghi assured markets that he would do “whatever it takes” to save the common currency.
“If I had to pick one event, it’s the stabilization that we’ve seen in the Europe, and a lot of that is Draghi’s pledge,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said Dec. 26 in a telephone interview. “The ECB has essentially committed to backstopping government borrowing and has been supportive of the euro.”

Bond Markets

Bank of America Merrill Lynch’s Global Broad Market Index was little changed in December after climbing for the previous five months. The gauge, tracking about 20,000 fixed-income securities with a market value of about $46 trillion, returned 5.73 percent last year as of Dec. 28. Average yields rose one basis point, or 0.01 percentage point, last month to 1.6 percent on Dec. 28. The yield fell to 1.57 percent on Dec. 6, the lowest level since at least 1996, from 2.24 percent at the end of 2011.
Global investment-grade corporate debt returned 0.35 percent including reinvested interest in December, a ninth consecutive monthly gain in the longest advance since 1998, a Bank of America Merrill Lynch index shows. The securities gained 10.9 percent in 2012 through Dec. 28, the most in three years. An index of high-yield bonds returned 1.78 percent last month as of Dec. 28 and gained 18.72 percent in 2012. Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P.

Treasuries

U.S. Treasuries lost 0.35 percent in December, reducing the 2012 gain to 2.31 percent, the third straight annual advance. Yields on 10-year U.S. government debt are forecast to climb to 1.88 percent by the end of the second quarter, from 1.76 percent at the end of December, according to the median estimate of 81 economists surveyed by Bloomberg News.
Greek bonds were the best performers in December and for 2012 among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 30.5 percent and 97.4 percent. Portugal’s returned 3.4 percent and 57.1 percent, while Italy’s rose 0.5 percent and 20.8 percent.
“We’ve been reminded of the old saying, ‘Don’t fight the Fed,’” Andrew Slimmon, Chicago-based managing director of global investment solutions at Morgan Stanley Smith Barney, said by phone. His firm has $1.7 trillion in client assets. “This is exactly what happened in Europe. They’re much earlier in the accommodative process so the gain coming off from the bottom is going to be bigger.”
To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

Mistry at Tata Helm as Investors Query $500 Billion Goal By Bhuma Shrivastava and Siddharth Philip - Dec 28, 2012

Cyrus Mistry, who takes charge today at Tata, India’s biggest business group, may face an uphill battle if he is to meet his predecessor’s vision of boosting revenue fivefold to $500 billion in the next decade.
Mistry, 44, becomes chairman of Tata Sons Ltd., the holding company for the salt-to-software group, just as slower economic growth damps demand for products from steel to cars. Ratan Tata, who steps down on turning 75 after two decades at the helm, built the business into a $100 billion global conglomerate through acquisitions including the U.K.’s Corus Group Plc and Jaguar Land Rover. Tata succeeded his uncle in 1991 as India’s economy was opening up.
“It is not an easy task to grow fivefold in this global economic scenario,” said Shishir Bajpai, senior vice president at IIFL Wealth Management Ltd. in Mumbai. “The bar is set high for Mistry to deliver. Ratan Tata took a group well known in the domestic markets global, now Mistry has to take it forward.”
The change of guard marks a rare opportunity to shape the group of more than 100 companies, whose expansion has mirrored India’s emergence as a global economic power and ranks Tata above Japan’s Panasonic Corp. and Swiss food giant Nestle SA by sales. At stake is the equivalent of about 6 percent of India’s gross domestic product, and the future of firms including Tata Steel Ltd. (TATA), India’s biggest producer of the alloy, and Tata Motors (TTMT) Ltd., the nation’s No. 1 automaker by revenue.

Biggest Shareholder

Mistry’s performance could also weigh on his family’s fortune: along with his billionaire father, Pallonji Shapoorji Mistry, and his brother, the chairman’s family owns about 18 percent of Tata Sons. Little is known about the London Business School management postgraduate’s leadership style or strategic vision, and the man chosen by a select search panel in November 2011 has so far shied away from the media and investors.
“I haven’t heard from him on company plans, so I don’t know” how Mistry will lead, Koen Vanderauwera, a Luxembourg- based bond-fund manager at KBC Asset Management SA that holds the debt of Tata Steel and Tata Power Ltd., said in a phone interview. “I’ll wait and see what kind of announcements he makes, how he comments.”
The $500 billion revenue vision for Tata in 2021 was outlined by Ratan while addressing his top executives in April, and confirmed by Tata Sons director R. Gopalakrishnan. Group spokesman Debasis Ray declined to comment on the vision or Mistry’s plans for Tata. “Such matters are internal to the company,” Ray said in an e-mailed reply to a query.

Textile Trading

Mistry and the Tatas follow the Zoroastrian religion and belong to the small Parsi community, which originated in Persia and found sanctuary centuries ago in India. The Tata group was founded by Ratan’s great grandfather Jamsetji Nusserwanji Tata, who started a textile-trading business in 1868 and then built the country’s first steel mill and hydroelectric plant. He also built the Taj Mahal Palace & Tower hotel in Mumbai, which was damaged in the November 2008 terrorist attacks.
Mistry will also need all the project-handling skills honed at running the construction business at his family’s Shapoorji Pallonji & Co. to sustain profitability even as many of Tata’s key companies battle adverse market conditions or regulatory changes.
“Revenue without sustained profits and a high return on invested capital is of no use,” Neeraj Monga, head of research at Toronto-based Veritas Investment Research Corp., said by e- mail. The group’s biggest businesses, steel and automobiles, are both cyclical industries and maintaining profitability is a challenge, said Monga.

Steel, Autos

For a group that includes Tata Consultancy Services Ltd. (TCS), India’s largest software company, Tata Motors, owner of the Jaguar and Land Rover luxury marques, and Tata Global Beverages Ltd., the local partner of Starbucks Corp., sales and profit growth is slowing at its biggest businesses.
Profit growth at Tata Motors decelerated to the slowest pace in four quarters in the three months ended Sept. 30 and sales growth slowed to the least in three years amid waning demand for luxury vehicles in Europe. Tata Steel posted an unexpected loss even as sales growth stayed below 5 percent for the third straight quarter.
“It’s not easy to grow fivefold organically, so Mistry at some point will have to pull a multibillion dollar surprise acquisition,” said Jagannadham Thunuguntla, head of research at New Delhi-based SMC Global Securities Ltd. “He has to be careful because the group’s experience on this front has been mixed.”

Overseas Acquisitions

Tata Steel, which acquired Corus for $12.9 billion in 2007, making it the group’s biggest overseas purchase, reported a loss of 3.64 billion rupees ($66 million) in the three months ended Sept. 30 as weak demand in Europe and China cut prices of the alloy. The steelmaker plans to restructure its U.K. business, cutting 900 jobs and closing 12 sites, it said in a Nov. 23 statement, to shore up margins in a market dogged by overcapacity.
In contrast, Tata Motors’ 2008 acquisition of Jaguar Land Rover from Ford Motor Co. for $2.3 billion helped boost the Indian automaker’s sales almost fivefold over four years. That pace of growth may be hard to sustain as Europe struggles to recover from a debt crisis.
Tata Steel shares have climbed 28 percent in Mumbai trading this year, outperforming the BSE India Sensitive Index’s 26 percent advance. The steelmaker’s shares fell 0.5 percent to close at 428.55 rupees in Mumbai trading. Tata Motors has surged 74 percent, making it the best performer on the 30-company benchmark index. The automaker’s shares gained 0.3 percent to close at 310.05 rupees.

‘Minds Open’

“We should always keep our minds open to acquisitions,” Mistry told recruits in comments that were viewable in a video on one of the group’s websites. “We would, in each company as part of its own strategy, look at M&A for growth but not as a must have.”
Purchases overseas have also proved harder in the past year with Tata’s recent attempts failing to clinch a deal.
Orient-Express Hotels Ltd. (OEH), owner of New York’s 21 Club restaurant and Hotel Cipriani in Venice, last month rejected a takeover offer by Tata’s Indian Hotels Co., saying the bid undervalues the company. In April, Tata Communications Ltd. (TCOM) decided against making an offer for Cable & Wireless Worldwide Plc after failing to agree on a price.
Mistry can look to fund acquisitions by tapping the cash pile at Tata Consultancy Services, the group’s most valuable company by market value, in which Tata Sons holds 74 percent. The Mumbai-based software exporter had 79.2 billion rupees in cash and short-term investments on Sept. 30, according to data compiled by Bloomberg.
Still, Tata’s new head may opt to look within and consolidate holdings to bolster profitability instead of continuing to pursue acquisitions, according to Tarun Kataria, chief executive officer at Religare Capital Markets Ltd.
“Cyrus takes over the reigns of a highly regarded but sprawling conglomerate at a time of great global uncertainty and muted economic growth,” Mumbai-based Kataria said in an e-mail. “His very deliberate focus will likely be on consolidation, deleveraging, exiting certain businesses and bringing related businesses under a unified whole.”
To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net

Tata, Birla May Lead $9 Billion Urea Spending: Corporate India

By Abhishek Shanker - Dec 25, 2012

Aditya Birla Nuvo Ltd. (ABNL) and Tata Chemicals Ltd. (TTCH) may lead $9 billion of spending to increase India’s urea capacity by almost 50 percent, spurred by a government policy guaranteeing returns on investments.
Producers of the nitrogen-based soil nutrient including state-run companies and co-operatives may add 10 million metric tons of capacity over the next five years, said S.C. Sharma, an officer at the Planning Commission, which assesses and allocates the nation’s resources. The government will assure new urea units a profit margin 12 percent to 20 percent, Food Minister K.V. Thomas said in New Delhi on Dec. 13.
“As much as 500 billion rupees ($9 billion) of investments could come,” Sharma said in an interview in Mumbai. “They’ll start flowing in after this policy change.”
Government control on the price of urea and ambiguity over natural gas feedstock costs have deterred new investments in the sector for more than 10 years, leading to an increase in imports and state subsidies. An increase in urea capacity will also boost agricultural productivity, helping feed two-thirds of India’s 1.2 billion people that live on less than $2 a day and contain inflation that averaged 7.5 percent in 2012.
“India has to support a large population base on a small land area, so the use of fertilizers like urea is critical and will only rise,” said Apurva Shah, an analyst at Dalal & Broacha Stock Broking Pvt. Ltd. in Mumbai. “Other fertilizer makers not present in urea may plan setting up a unit to expand their product base. In three to four years, there’s bound to be large-scale investments in this sector.”

Double Capacity

Billionaire Kumar Mangalam Birla may spend as much as $1 billion to double Aditya Birla Nuvo’s urea capacity after the government approves the new policy, Managing Director Rakesh Jain said in an interview on Nov. 8.
Tata Chemicals planned to double urea capacity at its unit in the northern state of Uttar Pradesh at an estimated cost of 35 billion rupees, it said in October 2010. The company was waiting for government assurances on supplies of natural gas, the main fuel used to produce urea, it had said.
Other planned urea projects include Rashtriya Chemicals & Fertilizers Ltd. (RCF)’s 1.15 million ton unit, for which it secured environment approval in 2006, in western Maharashtra state. Chambal Fertilisers & Chemicals Ltd. plans to build a similar- sized factory in the northern state of Rajasthan.
State-owned GAIL India Ltd. (GAIL), Coal India Ltd. (COAL) and Rashtriya Chemicals have planned a venture to build a coal gasification and fertilizer project in eastern Odisha state at an estimated cost of 80 billion rupees, while Oil & Natural Gas Corp. is seeking a partner to build a urea factory in the eastern part of the country.

Rising Imports

India imports about 33 percent of the 28 million metric tons of urea it needs and the quantity is increasing by about 1 million tons each year, according to a Planning Commission report last year. Supply shortages may widen to 12 million tons by March 2017 should new capacities fail to be added, the commission said.
The government’s subsidy burden increased as urea prices surged to a 3 1/2-year high of $515 in April. Urea imports are estimated to have risen to about 7 million tons in the year ended March 31, inflating the subsidy by 21 percent to 294 billion rupees from a year earlier, according to the report.
The new policy will save 47.6 billion rupees of subsidies and reimburse producers the cost of natural gas, which comprises about 80 percent of the input cost, Dalal & Broacha’s Shah said.

Pending Plans

Plans to expand the nation’s urea capacity by 50 percent to 34 million metric tons have been held back by companies, pending a well-defined state policy. The reopening of a unit in the eastern state of Assam was the only major urea project to come on stream since 1999, according to the fertilizer ministry’s annual report.
At a conservative estimate, urea units will need at least 72 million metric standard cubic meters of gas fuel daily by March 2017, compared with the current availability and demand of 41 mmscmd and 43 mmscmd, respectively, according to the commission report. Should all plans to start new plants, expand existing facilities and resume closed units be implemented, the required quantity may exceed 100 mmscmd.
“India needs a robust pipeline network to carry natural gas for urea and other industries,” said Ashok Kumar Balyan, managing director at Petronet LNG Ltd. (PLNG), the state-owned owner of LNG terminals in the western and southern coast of India. “While our Kochi terminal is ready, the lack of a pipeline network is a constraint.”

Gas Terminal

Petronet is planning to set up a 5 million metric ton LNG terminal by 2016 at a cost of 45 billion rupees in the east coast to meet demand in the eastern part of the country.
“We’re prepared to supply LNG to urea makers as and when capacities come up,” Balyan said on Dec. 19 on the sidelines of an energy conference in Mumbai. “The new policy will boost investments in urea capacity expansion and boost demand for natural gas.
Aditya Birla Nuvo, the $4 billion company present in businesses like financial services, fashion and information technology, plans to sell the increased output in the eastern states of Bihar, Jharkhand, West Bengal, the eastern region of Uttar Pradesh and in the central state of Chhattisgarh, Jain said last month. The company declined to comment after the new policy was approved.
The government will provide financial support to private entrepreneurs for making capital investments in the fertilizer sector, the then Finance Minister Pranab Mukherjee had said in his budget speech in March. On Oct. 11, the cabinet increased urea prices by 50 rupees a ton and approved direct transfer of the fertilizer subsidy to the farmers.
“At current prices, it is better to import liquefied natural gas and produce urea locally,” Planning Commission’s Sharma said. “There should be higher activity in this industry that has not seen much interest.”
To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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