Nov industrial output grows by 14.4% yoy
India's industrial production grew by an impressive 14.4% in November as against just 6% in the same month last year, the Government said on Friday. At the same time, the Government revised the industrial growth figure for October, from the provisional level of 6.2% to 4.4%. The November expansion in the Index of Industrial Production (IIP) was led primarily by the manufacturing sector, which surged by 15.7% compared to 7% in the corresponding month a year earlier. Cumulative growth in IIP during April-November 2006-07 was up 10.6% versus 8.3% in the same period a year ago. As many as sixteen 16 out of the 17 industry groups showed a positive growth during the month compared to the corresponding month of the previous year. ‘Basic Metal and Alloy Industries’ clocked the highest growth of 25.4%, followed by 23.2% in ‘Rubber, Plastic, Petroleum and Coal Products’ and 21.8% in ‘Transport Equipment and Parts’. But, ‘Metal Products and Parts except Machinery and Equipment’ showed a negative growth of 1.5%. Basic Goods and Capital Goods, and Intermediate Goods grew by 11.6%, 25.3% and 16.7%, respectively. Consumer Durables and Consumer Non-durables recorded a growth of 11.4% and 12.1%, respectively, with the overall growth in Consumer Goods being 11.9%.
Growth hampered by supply constraints: PM
Prime Minister Dr. Manmohan Singh said that the country's economic growth was being constrained by supply side bottlenecks like shortage of power, ports and skilled workforce. "Be it power, be it port capacity, be it supply of skilled manpower - a variety of supply bottlenecks are holding the growth rate back," Dr. Singh told the FICCI Annual General Meeting in New Delhi. "A major responsibility for us in the Government is to help relax these supply constraints." The Prime Minister announced that he would ask the Finance Ministry and the Investment Commission to suggest an institutional mechanism whereby large scale projects both in the public and private sectors are facilitated so that they take off as originally planned. The Prime Minister also reiterated the Government's plan to increase spending on infrastructure projects such as roads, ports and airports to US$320bn in the five years ending 2012. The Government also plans to increase spending to produce a more skilled workforce, Dr. Singh said.
Bidding war for Hutch Essar heats up
As expected (or rather reported), Vodafone CEO Arun Sarin landed in the country to press the case for the British cellular phone service provider. He met top Government officials like Kamal Nath, P. Chidambaram and Dayanidhi Maran to enlist their support for the Hutch Essar deal and apprise them about the company's India plans. Sarin also held talks with Sunil Mittal, though both refused to divulge the details of the nature of their dialogue. He said that Vodafone will make its bid for Hutch Essar in the next few weeks. Sarin also said that Vodafone was open to joining hands with other bidders and that Essar was a natural partner. Separately, Reliance Communications Board reaffirmed the company's interest in Hutch Essar and authorised Chairman Anil Ambani to take all necessary steps in this regard. The very next day, and a day after Sarin's visit to the corridors of power in New Delhi, Anil Ambani too met the Finance Minister and the Telecom Minister to shore up its support base. Reliance Communications also began the due diligence of Hutch Essar and the Hinduja Group was expected to do so next week. The Essar Group maintained its individual interest and said it had also started a confirmatory due diligence. Meanwhile, S&P said that Vodafone's ratings were not under any threat if its offer for Hutch Essar doesn't exceed US$19bn. However, if the Vodafone bid crosses US$19bn, the global credit rating agency could downgrade the ratings of the London-based wireless operator.
NYSE, 3 others to buy 20% stake in NSE
Once again the National Stock Exchange of India Ltd. (NSE) managed to beat the Bombay Stock Exchange Ltd. (BSE). Even before Asia's largest bourse decides on a stake sale and a proposed public issue as part of its demutualisation process, four global investors have picked up 5% each in NSE. The New York Stock Exchange (NYSE), Goldman Sachs, General Atlantic Partners and Softbank Asian Infrastructure Fund entered into an agreement with ICICI Bank, IFCI, IL&FS, PNB and GIC for the purchase. The domestic promoters will sell part of their holdings in NSE. While ICICI Bank and IL&FS sold 5% each, PNB offloaded 1%, GIC 2% and IFCI 7%. NYSE will purchase the shares of NSE for US $115mn in cash from the consortium of selling shareholders. Other bidders reportedly paid higher price for their stake. The deal is expected to close during the first quarter of 2007, subject to obtaining certain approvals from various government agencies. NSE is India's largest exchange and ranks third globally by number of trades in the equities market. In 2006, the average daily traded value in equities was around US$2bn and the notional average daily traded value in equity derivatives was around US$7bn. The development comes close on the heels of the guidelines issued by the Reserve Bank of India (RBI) on foreign investment in Indian stock exchanges. The central bank has allowed foreign investment of up to 49% in local stock exchanges, with FDI capped at 26%.
RBI gets flexibility in setting SLR limits
The Government allowed the RBI to fix the floor and ceiling of the Statutory Liquidity Ratio (SLR). The Cabinet approved the promulgation of an ordinance to amend the Banking Regulation Act, 1949, which will give the central bank the flexibility to set the statutory liquidity ratio (SLR) for banks. At present, banks are required to maintain at least 25% of their deposits under SLR by investing in government securities. "The RBI has been given the flexibility to go below the SLR. If it decides to do so, it will increase liquidity," Finance Minister P. Chidambaram said after the Cabinet meeting. The RBI can lower SLR once the presidential decree is issued. The proposed move would have no impact on the Government's borrowing programme, he said. The reduction in the SLR will improve liquidity in the system amid a strong demand for credit. Banks have been reeling under the cash crunch after the RBI hiked the Cash Reserve Ratio (CRR) by 50 basis points to 5.5%. The deposit growth at around 20% continues to lag credit expansion, which is growing at 30%. The outflows towards advance tax payments by companies last month has also added to the tightening. Lowering of the SLR limit would help banks boost credit in a fast growing economy and ease pressure on interest rates. Morgan Stanley says the move is an enabling provision. "We believe that the move will be a long term positive, but in the short run it’s likely to be neutral. This is because the RBI has been tightening liquidity in the last few months, and is unlikely to take a step back and lower the SLR requirement from 25% currently."
Sugar stocks smile as export ban goes
Sugar stocks rose after the Government lifted a six-month ban on the export of the sweetener. Sugar companies will gain from the move, as they will be able to export surplus production. India is expected to have a 3 million-ton sugar surplus this year. The resumption of exports may push up local sugar prices, which have declined about 17% since July 2006. Sugar mills are expected to export 1.1mn tons of sugar this year, SL Jain, Director General of Indian Sugar Mills Association was quoted as saying. Finance Minister P. Chidambaram said the country has replenished inventories to comfortable levels from a record crop this year, helping to lift the ban. India is the world's second-biggest producer and the largest consumer of sugar. He told reporters after a cabinet meeting that the restrictions had been removed as domestic sugar prices had come down. But he added that exporters would need clearance for their planned sales from the Government. India's sugar production may rise to a record 24mn tons in the year ending September 2007, Agriculture Minister Sharad Pawar said last week. That is 6% more than the 22.7mn tons estimated by the Government in November and has increased the pressure to boost exports and avoid a domestic glut. The Government had halted sugar exports on July 4, 2006 to boost domestic supplies and curb inflation. On Dec. 18, mills that imported raw sugar duty-free in 2005 under the advance license to meet a shortage, were allowed to export an equivalent amount.
Inflation climbs to 5.58%
India's inflation, based on the Wholesale Price Index (WPI), rose to 5.58% in the week ended December 30, 2006 due to a rise in food and fuel prices, the Government said on Friday. It was at 5.48% in the previous week and 4.56% in the comparable period last year. The figure was lower than a forecast of around 5.6%. The WPI rose by 0.05% to 208.1 from 208 in the previous week. The index of Primary Articles (weight: 22.02%) rose by 0.05% to 212.5. The index of Fuel, Power, Light & Lubricants (weight: 14.23%) rose by 0.1% to 321.9. The index of Manufactured Products (weight: 63.75%) remained unchanged at its previous week's level of 181.2. Prices of furnace oil (2%) and naphtha (1%) increased. However, prices of bitumen (2%) declined. Poultry chicken (9%), fish-marine (8%) and arhar (2%) became dearer. However, prices of eggs (8%) and gram (3%) fell. Meanwhile, Finance Minister P. Chidambaram asked India Inc. to refrain from jacking up product prices in the short-term view of making profits in a booming economy. This would only harm the industry in the long run and push up interest rates further.
Year-to-date tax revenues surge
With the economy on a roll, the Government too is set to benefit a great deal as tax revenues swell. The total indirect tax collection in the first eight months of the current fiscal year (April-Nov 2006-07) was up 22.5% at Rs1.49 trillion. Within this basket, Customs & Excise receipts grew by 17% to Rs1.44 trillion while Service Tax mop-up surged by 65% to Rs217.79bn. In November, indirect tax receipts jumped 28.5% to Rs203.19bn. Customs & Excise collections grew by 14.9% to Rs172.52bn while service tax revenues were up 65.3% at Rs29.87bn. The net direct tax collections as on Dec 31, 2006 stood at Rs1.44 trillion, up 41.8% over the corresponding period last year. The net direct tax collections have so far outpaced the targeted growth of 27.5% over last year as per the Budget Estimates for fiscal 2006-07. Corporate tax mop-up was up 51.8% at Rs924.63bn while personal Income-Tax (including FBT, STT & BCTT) was up 27.1% at Rs515.65bn. STT and BCTT stood at Rs32.26bn and Rs3.57bn, up 87.8% and 98.1% respectively. FBT grew by 65.2% to Rs29.33bn.
Govt to cut fuel prices if oil falls under US$50
The Government will review petrol and diesel prices on January 31 and a reduction is likely if international crude prices fall below US$50 per barrel, Petroleum Secretary MS Srinivasan said. "There will be a review on January 31. If the current average continues there will be no cut. For a reduction to happen prices have to fall further," he added. The Indian basket of crude oil is currently averaging around US$51 a barrel and a reduction in petrol and diesel prices was possible only if crude prices slip below US$50 a barrel on a sustained basis. In November, petrol and diesel prices were cut by Rs2 and Re1 a litre, respectively when the basket of crude that Indian refiners buy was at US$56.8 per barrel. The Indian basket has since fallen to just under US$53 per barrel, the lowest in FY07. Public sector oil marketing companies are currently incurring a loss of Re0.22 per litre on petrol and Rs1.42 a litre on diesel, Srinivasan said. Kerosene is being sold at a loss of Rs13-14 per litre and domestic LPG at a loss of Rs50 per cylinder. Indian Oil, BPCL, HPCL and IBP together are losing about Rs1bn a day on fuel sales. Meanwhile, Petroleum Minister Murli Deora said that he had asked the Finance Ministry to make changes in tax rates for petroleum products, for the forthcoming union budget, to make fuels cheaper. Deora also said that his ministry had sought same tax breaks for gas pipeline projects, as is provided to various other infrastructure schemes.
Cairn India stock gets hammered on listing
As expected, shares of Cairn India plunged on the maiden trading day on January 9, as investors preferred to exit amid the ongoing dispute with MRPL over the offtake of crude from the company's Rajasthan oil fields. The stock opened at Rs140 on the Bombay Stock Exchange (BSE), as against the issue price of Rs160 per share. It hit a low of Rs128.65 and a high of Rs155. It finally ended the week at Rs134.90. The beleaguered Cairn India found it tough to sell its mega issue and had a rocky ride all through with its IPO failing to fully subscribe. Then, merchant bankers to the issue had to come to the rescue and put in the money from their own pockets. The Indian arm of Cairn Energy Plc raised US$1.93bn from its IPO at Rs160 per share, the lower end of its price band of Rs160-190 a share. Most analysts expected the stock to come under pressure amid uncertainty over the offtake of crude from the company's Rajasthan block. Cairn India's oil production may get delayed because MRPL, which has been designated by the Government for buying the crude from Cairn India's Rajasthan fields has demanded that the latter share the cost of building the pipeline to carry the crude. The pipeline, which Cairn India claims is to be built by MRPL, is 311 miles (498 kilometers) long and expected to cost Rs20bn, according to ONGC Chairman RS Sharma. Analysts say the dispute between the two companies could delay the construction of the pipeline to transport oil from Cairn India's fields in Rajasthan to ports in Gujarat for shipment to the MRPL refinery. Meanwhile, shares of Shree Ashtavinayak Cine Vision Ltd. jumped on the company's stock market debut on January 10. The scrip opened at Rs189.90 as against the issue price of Rs160 per share on the BSE. It touched a high of Rs240.30 and a low of Rs185.10. It closed the week at Rs225.90.
Wireless user base keeps expanding
The calendar year 2006 proved to be the best ever for the GSM service providers in terms of subscriber growth. The GSM industry added 4.6mn new subscribers in December 2006, taking their total user base to 105.4mn, the Cellular Operators' Association of India (COAI) said. The subscriber additions for the entire year were far higher at 47mn compared to just 21mn additions for the year ended December 2005, representing a jump of 124% in new subscriber additions. CDMA operators added 1.8mn subscribers in the month of December 2006. Reliance Communications added 1.4mn subscribers on its wireless network both (CDMA and GSM). The company added over 4mn wireless subscribers during the October – December 2006 quarter, taking the total wireless subscriber base close to 30mn mark.
India Inc seeks more tax sops from FM
Despite the strong momentum in business for the last 4-5 years and growth in scale after several years of restructuring, India Inc. still wants tax benefits from the Government, especially for big-ticket acquisitions abroad. In its pre-Budget memorandum to Finance Minister P. Chidambaram, the Indian industry sought a reduction in corporate tax outgo, besides the long-term demand for the removal of the Fringe Benefit Tax (FBT). The head honchos of the industry urged Chidambaram to support domestic companies seeking to go in for large acquisitions overseas, like the Tata Steel's proposed bid for Corus and Videocon's offer for Daewoo Electronics. They also want him to drastically cut the incidence on total tax, from about 38% currently to 25%.
December car sales up 23% yoy
A slew of new launches combined with the proposed price hikes in January to shore up sales in December. The last month of a year is generally considered weak as potential buyers put off purchases to new year due to re-sale considerations. The Society of Indian Automobile Manufacturers (SIAM) said that domestic car sales in December grew by 23% to 81,026 from 65,853 in the same month a year earlier. Cumulative car sales for 2006-07 stood at 765,131 units, up 22.7% from 623,782 in the same period a year earlier. Sales of commercial vehicles (CV) rose by 49.6% to 41,952 in December while the for first nine months of the current fiscal year CV sales were up 37.2% at 327,039 units. Sales of motorcycles was up 5.3% at 592,247 units in December while year-to-date bike sales grew by 13.4% to 5,900,965 units from 5,201,485 units in the same period a year earlier.
More IPOs in pipeline
House of Pearl Fashion Ltd., a multinational, ready-to-wear apparel company, is entering the capital market with an IPO of 5,984,994 equity shares of Rs10 each through a 100% Book-building process. The price band for the IPO has been fixed between Rs525 to Rs600 per share. The issue opens for subscriptions on January 23 and closes on January 23.
Global Broadcast News Ltd. (GBN), the operator of CNN IBN and IBN 7 news channels, announced that it aims to raise Rs1.05bn through an IPO of equity shares. The company, part of the TV18 Group, has fixed the price band of Rs230 to Rs250 per share for the public issue. The IPO will open on January 15 and will close on January 18.
Cinemax India Ltd., one of the largest exhibition theatre chains in India announced a price band of Rs135 to Rs155 for its forthcoming IPO. The issue comprises 8,920,000 equity shares of Rs10 each, including a fresh issue of 7,000,000 equity shares and an offer for sale of 192,000 equity shares by the selling shareholders.
Akruti Nirman Ltd., a real estate development company, proposes to enter the capital market on January 15 with a public issue of 6,700,000 equity shares of Rs10 each through a 100% book building process. The issue closes on January 19 and the price band for the IPO has been fixed at Rs475 to Rs540. The issue will constitute 10.04% of the post-issue capital of the company.
Oil falls below US$52 per barrel
Oil prices fell under the US$52 per barrel mark for the first time since June 2005 after demand for petroleum products in the US slipped to its lowest level in more than two years. US light, sweet crude for February delivery rose 82 cents to US $52.70 a barrel in after-hours electronic trading on the New York Mercantile Exchange on Friday. The contract fell US $2.14 to settle at US $51.88 a barrel on January 11, but not before reaching a low of US $51.80 a barrel, a level not seen since May 2005. Brent crude on London's ICE Futures exchange rose 92 cents to US $52.62 a barrel. Crude oil has tumbled 15% so far this year in a huge sell-off that was kicked off by investment funds last year and then stoked by a historically warm US winter that has left supplies of heating fuel barely touched. A US Government report said this week that consumption, based on deliveries from refineries, dropped 4% last week as mild weather lowered the demand for heating oil. As a result, stockpiles of heating oil and other distillates jumped the most in three years. US crude stockpiles are 7.1% higher than the five-year average at 314.7mn barrels. Separately, OPEC President Mohamed al-Hamli said that crude at US$53 a barrel was unacceptable, and urged members of the oil producers' cartel to comply with pledged cuts to check the recent slide in prices. al-Hamli, who is also UAE Oil Minister said, "It's very difficult to have 100% compliance, but we need to make the cuts that we have agreed." OPEC had agreed in the fourth quarter to cut oil output by 1.7mn barrels per day by February 1.
Bank of England hikes rate; ECB holds
In a surprise move, the Bank of England (BoE) jacked up its key interest rate by a quarter percentage point to 5.25%, the highest level in more than five and half years. The move is aimed at containing inflation. The 25 basis points increase caught most economists off guard. Most analysts had expected the central bank policymakers to hold rates steady at least this month, and possibly raise borrowing costs in February. In a statement announcing its decision, the BoE said it expected consumer inflation to rise further in the near future. Inflation is already well above the Government's 2% target and some analysts believe it will exceed 3% when the latest figures are published this month. Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade. The BoE had increased the cost of borrowing twice last year in an effort to reign in rising inflationary pressures. Meanwhile, the European Central Bank (ECB) left its benchmark interest rate unchanged as President Jean-Claude Trichet awaits more evidence of accelerating inflation before raising borrowing costs. ECB policy makers, who last month increased the refinancing rate for the sixth time since December 2005, kept it at 3.5%. Futures trading indicates investors expect two quarter-point increases by September. "Acting in a firm and timely manner to ensure price stability in the medium term is warranted," Trichet said.
Apple unveils iPhone; Cisco sues over trademark
Apple finally unwrapped the much-awaited iPhone on January 8. The iPhone will serve both as an iPod as well as 3G phone, somehow cramming a 3G radio, iPod functionality, and even a version of OS X into the phone-size package. The phone itself is dominated by a giant touchscreen, the patent Apple applied for in February. Apple's iPhone will be available in June for US$499 to US$599. But, the euphoria didn't last long, as Cisco filed a lawsuit against Apple in the District Court for the Northern District of California, seeking to prevent the latter from infringing upon and deliberately copying and using it's registered iPhone trademark.
Cisco obtained the iPhone trademark in 2000 after completing the acquisition of Infogear, which previously owned the mark and sold iPhone products for several years. Infogear’s original filing for the trademark dates to March 20, 1996. Linksys, a division of Cisco, has been shipping a new family of iPhone products since early last year. On Dec. 18, Linksys expanded the iPhone family with additional products. Cisco said that Apple had approached the company several years ago seeking to use the name, and the two Silicon Valley tech giants have been negotiating ever since to hammer out a licensing agreement. But Cisco said the talks broke down just hours before Apple's chief executive, Steve Jobs, took to the stage on Tuesday at the annual Macworld Conference and Expo to introduce the company's latest multimedia device.
Arcelor Mittal won't sue Dutch trust over Dofasco
Arcelor Mittal announced that the respective Boards of Directors of Mittal Steel Co. NV and Arcelor SA decided not to initiate litigation seeking to dissolve the Strategic Steel Stichting, an independent Dutch foundation, with a view to obtaining the transfer of the 89% shares of Dofasco Inc., the North American steelmaker, currently held by the Stichting. Mittal Steel had agreed to sell Dofasco to Germany's ThyssenKrupp if it was successful in gaining effective management control of Arcelor. In addition, under a Consent Decree with the US Department of Justice, which was filed on Aug 1, 2006, Mittal Steel had agreed to use its best efforts to sell Dofasco to ThyssenKrupp or, if Dofasco cannot be sold due to the Stichting, to sell certain alternative assets. The Stichting's holding of the Dofasco shares currently prevents their sale without the Stichting’s consent. By resolutions adopted respectively on Sept 25 and on Oct 11, 2006 the Boards of Mittal Steel and Arcelor formally requested that the Stichting be dissolved and return Dofasco shares to Arcelor. On Nov 10, 2006 the Stichting’s Board unanimously decided not to dissolve and to retain the Dofasco shares, thereby continuing to prevent their sale. On Dec 22, 2006, ThyssenKrupp initiated legal proceedings against Mittal Steel in Rotterdam alleging that Mittal Steel had breached the agreement by failing to cause Arcelor to initiate legal proceedings against the Stichting.
China's growth slowed in 2006
The Chinese economy slowed in the fourth quarter as government measures to curb lending and investment appeared to be working its way through the world's fastest-growing economy, a statement from the top economic planning agency showed. GDP expanded by 10.5% in 2006 from a year earlier, National Development and Reform Commission head Ma Kai said in a statement. That is down from 10.7% over the first three quarters. GDP topped 20 trillion yuan (US$2.6 trillion) last year, Ma said. The final figures are due to be released by the statistics bureau in Beijing on January 25. The statement didn't give a separate figure for the fourth quarter. The slowdown in investment and loans is not stable, according to Ma. The pace of economic growth is still fast, the planner said, adding that China's Government will continue to strengthen and improve macro-economic controls.
Yuan rises above HK dollar
The yuan surged against the US dollar and rose above parity with the Hong Kong dollar's peg to the US currency for the first time in over a decade. Traders took the rise through parity at 7.80 as a sign that China's central bank was now willing to let the currency appreciate a little faster. The Hong Kong dollar is pegged at 7.8 to the US dollar, although it can trade between 7.75 and 7.85. It was the first time that the yuan rose above the Hong Kong dollar peg since China unified its dual exchange rate system in 1994 and launched its domestic foreign exchange market, the China Foreign Exchange Trade System. However, the one-year offshore non-deliverable yuan forwards did not respond to the spot market's jump, suggesting that despite the short-term volatility, the market did not think that China was changing its year-end target for the yuan.
Euro slips to 1 1/2 month low vs dollar
The euro fell to a one and a half month lows against the dollar after European Central Bank (ECB) chief Jean-Claude Trichet signaled that the next rate hike would come in March rather than February. The euro hit an 18-month low against the pound sterling after the surprise rate hike from the Bank of England. The dollar hit a 13-month peak against the yen, as investors noted that even if the Bank of Japan raises interest rates to 0.5% next week as expected, the yen will remain the lowest yielder among the major currencies.