Sunday, March 21, 2010
Investors with a two to three year investment horizon can consider accumulating the shares of Tata Investment Corp (TIC), the Tata Group's listed investment arm.
The stock is trading at a significant discount to the value of its investment book, which comprises mainly of Tata Group companies. TIC is a good defensive option with low volatility, as the stock's beta against the BSE 500 is 0.43. This, coupled with steep discount to the underlying book value, reduces downside.
The company's December 2009 Net Asset Value (NAV) per share was Rs 765. At its current market price of Rs 492, the stock is trading at a 35 per cent discount even to this NAV. This discount is likely to be wider today as the company's top holdings (Tata Chemicals, Tata Steel, Tata Motors, Tata Tea, Voltas) have appreciated further from their December levels, on the back of improved prospects.
The company also holds unquoted investments in Tata Asset Management and National Stock Exchange which may provide significant scope for value unlocking as they are captured at cost.
Portfolio looking up
According to the 2008-09 Annual Report, quoted investments made up 52 per cent of the company's total investment book. Equity shares constituted 51 per cent of the total investment book. The proportion of equity has come down from 62 per cent in 2007-08 due to the stock market meltdown. Rest of the investment book comprises debentures, mutual funds and preference shares. The company's top-10 exposures include Tata Chemicals, Tata Steel, Tata Motors, Tata Tea, Voltas, Tata Power, Trent, Indian Hotels and Titan.
TIC increased its stake in Tata Motors, Tata Elxsi and Tata Steel in 2008 when the market was beating down these stocks. In 2008, TIC raised Rs 440 crore zero-coupon convertible bonds with warrants through a rights issue, for long-term investment.
Since then, a turnaround in the global environment has led to improving prospects for some of these companies, resulting in their gradual re-rating. However, the TIC stock price has tended to lag those held in its investment book and is still far from the peak levels of Rs 900 a share in January 2008.
Higher dividend payout is also a key investment argument in favour of this stock with the stock's recent dividend yield at 6 per cent.
There is also potential for dividend payouts to be increased as the company may book profits on certain investments it holds. It may also receive higher dividends from companies, as the underlying companies' profitability improved over the last few quarters.
The company may get Rs 275 crore of additional funding in 2011 post-warrants conversion of the rights issue. These shares will be allotted on payment of Rs 400 a warrant, which is well below the current market price.
After sporting shaky balance-sheets a year ago, real-estate companies have utilised almost the whole of the past year to strengthen their balance-sheets and concentrate on reviving working capital flows. While volumes too have started trickling in, not many saw the projects translate into revenues on their books.
The Mumbai-based Orbit Corporation has been quick to fast-track execution of projects that had slowed down and generate better revenue growth than the others.
An improved balance-sheet, presence in the lucrative redevelopment Mumbai market and willingness to quickly shed stake in large projects to keep the cash clock ticking are key positives for Orbit Corporation. These factors are likely to aid the company achieve superior earnings growth over the next two years.
Investors with a high-risk appetite can consider exposure to the stock of Orbit Corporation with a two-year perspective. At the current market price of Rs 277, the stock discounts its likely per share earnings for FY-11 by 13 times.
While this valuation is not necessarily at a discount to key peers, the company's presence in high-end projects is likely to ensure that its demand scenario is affected only marginally by factors such as higher home loan interest rates, compared with most other players which are currently in the mid-sized housing segment.
Jump in revenues
For the quarter ended December 2009, Orbit's revenues trebled to Rs 150 crore over a year ago numbers, while net profits jumped 10-fold to Rs 32 crore. On a sequential basis too the company has been witnessing steady growth since the beginning of the current financial year.
While revenue typically flows from projects sold at an earlier stage, the December quarter also saw the company demonstrating strength in fresh sales. Sales volume of 1.72 lakh sq. ft. in the December quarter as against 0.62 lakh sq. ft. in September quarter suggests traction in volumes.
Fresh sales, though, appear to have come at lower realisations. Projects in Napean Sea Road/Worli and Lower Parel, for instance, have fetched an average rate of Rs 34,899 per sq. ft. (Rs 40,785 in September) and Rs 16345 per sq. ft. (Rs 17,278 per sq ft) respectively.
As these areas have not witnessed any correction, Orbit appears to be making a marginal cut in prices to accelerate volumes. We believe this could be a wise strategy as mid-sized companies such as Orbit may be better off kick-starting with higher volumes and revive working capital needs after a prolonged slowdown, rather than stay uncompromising on the margin front.
Advances received by the company at Rs 626 crore (up 16 per cent compared with last quarter) would provide the much-needed cash infusion for projects.
Even as property advances provided some funding, Orbit reduced its high debt levels that prevailed at the beginning of FY-10. Besides repayments made during the year, qualified institutional placement and conversion of warrants have also reduced debt-equity levels from over 1.3 times at the beginning of FY-10 to about 0.9 now.
Orbit's debtor levels though cause concern, having increased by close to 50 per cent from September to Rs 420 crore as of December. These debtors though do not appear over-due.
Cost over-runs in a couple of projects have also raised concerns. The overruns are also reflected in marginal operating profit margin erosion to about 28 per cent in the latest ended quarter, as against the over 35 per cent average. The company has stated that it has fully accounted for the cost overruns. Going forward, though, mild dip in the average realisations of fresh sales, once they come into books (revenue booked on at least 25 per cent completion of project), may also hurt OPMs marginally.
Orbit has also been quick to identify projects that may be too large to handle on its own. In its 130-acre Mandwah project (along the coastline), where it plans upmarket gated townships, the company recently sold a part of its stake to IL&FS and had earlier issued convertible instruments to another private equity player.
Shedding stake in a project of this scale (with another 70 acres to be added) may be a necessary strategy to ensure too much capital does not get locked up and, at the same time, allow the project to leverage on its own.
Orbit may need much equity to tap the redevelopment potential that Mumbai offers. As a good part of the company's projects come under the Mumbai redevelopment laws, they enjoy higher Floor Space Index (FSI), thus allowing the company to build more out of a given land, improving the internal rate of return.
Recent changes have resulted in increased FSI from 2.5 to 3 for redevelopment of buildings that came up between 1940 and 1960. While the immediate upside from this may not be significant, it only adds sheen to Orbit's redevelopment business.
According to estimates, at least 16,460 old buildings built in the above period are available for redevelopment.
The euro common currency took a beating and slipped to a one-week low against the dollar as concerns over Greece refused to subside amid lack of cohesion in the European Union (EU). The nation now may resort to aid from the IMF. About €20bn (US$27bn) of Greek debt becomes due in the next two months. Greece warned that it will have to tap the IMF for help if the EU can't agree next week to a plan of attack that will help it cut its borrowing rates. Greece has already implemented so-called austerity measures to cut back some of its debt, but they are being countered by rising borrowing rates, as lenders fear that Greece will ultimately default on its debt. Greek government still needs to raise another 10 billion euros to repay bonds maturing on April 20 and May 19. It is currently trying to tackle its debt burden.
Greek Prime Minister George Papandreou called on EU leaders next week to agree to a package of standby loans, according to reports. Reports quoted European Commission President Jose Manuel Barroso as saying that euro-zone countries, including Germany, are prepared to extend aid to Greece if asked. The Wall Street Journal reported that Germany has signaled that it is open to a joint bailout by European governments and the IMF if needed. So far Greece has not asked for financial support, Barroso said, noting that earlier this week he had a meeting with Greek Prime Minister Papandreou.
Tata Teleservices Maharashtra Ltd. (TTML) announced that it would sell its 100% stake in its tower arm 21st Century Infra Tele Ltd. (TFCITL) to QUIPPO-WTTIL. As part of this deal, TFCITL’s entire portfolio of 2535 towers in Mumbai, Maharashtra and Goa will be acquired by QUIPPO-WTTIL at an enterprise value of Rs13.18bn. The transaction will provide strategic advantage to QUIPPO-WTTIL as it will complement the tower portfolio of the company in Mumbai, Maharashtra and Goa, where QUIPPO-WTTIL does not have a significant presence currently. The TFCITL portfolio, with a high tenancy ratio of 2.15, will further strengthen QUIPPO-WTTIL's current tenancy ratio. This transaction will take the overall portfolio of QUIPPO-WTTIL to over 38,000 towers nationally. This transaction will also bring immense benefit to QUIPPO-WTTIL with the 3G and WiMax auctions to be conducted shortly.
Reliance Industries Ltd. (RIL) is out of the race for Value Creation after the Canadian firm sold a majority stake in an oil sands property to BP Plc. Earlier this year, RIL had made a US$2bn takeover bid for majority stake in Value Creation to rival BP's US$1.2bn bid. Value Creation’s subsidiary Technoeconomics is the owner of a technology that helps produce oil from sand and upgrade bitumen - a major feed stock for petroleum - at a relatively lower cost. Value Creation's largest block of leases, Terre de Grace, covers about 290 square miles in the Athabasca region of Alberta.
Separately, RIL plans to buy three shale gas assets in the US, according to reports. The company may acquire a 40% to 50% stake in the US based company and the deal size is likely to be between US$1bn and US$2bn, added reports. RIL is nearing a deal for the US shale gas assets in a joint venture with Atlas Energy, which controls part of a huge gas field in the northeast of the US, according to reports. While RIL is the prime player in the discussions, other parties such as San Diego-based Sempra Energy are also negotiating to be part of the deal. Recently RIL failed in its attempt to buy bankrupt petrochemical major LyondellBassell.
Total domestic passengers carried by the scheduled airlines of India in February 2010 was 3.86mn, the Union Ministry of Civil Aviation said in a statement. Total passengers carried by domestic airlines in January 2010 was 4.08mn. Passengers carried by domestic airlines from January-February 2010 were 8.06mn as against 6.76mn in the corresponding period of year 2009, thereby registering a growth of 19.2%. An analysis of Capacity (ASKM) and Demand (RPKM) data on Year-to-Year basis indicates that trend of increase in both the capacity and demand continued in February 2010 also. The overall cancellation rate of scheduled domestic airlines for February 2010 was 1.5%. The overall On-Time Performance (OTP) of scheduled domestic airlines for February 2010 was 79.4%. The overall On-Time Performance (OTP) of these 47 foreign carriers for February 2010 was 73.7% in departures and 73.6% in arrivals.
India’ food inflation dropped for a third consecutive week, giving some relief to consumers amid mounting concerns that spiraling prices could prompt the RBI to hike interest rates. The index for 'Food Articles' group declined by 1.1% to 282.6. Inflation in Food Articles group slipped to 16.30% in the week ended March 6 from 17.81% in the previous week and 17.87% in the week ended February 20. Inflation in Food Articles space was at 7.57% only last year.
Primary Articles inflation also slipped to 14.16% in the week under review as compared to 15.08% in the previous week. It stood at 5.06% in the week ended March 7, 2009. The WPI for Primary Articles group declined by 0.9% to 282.1. Inflation in the Non-Food Articles group rose to 13.99% from 13.60% in the previous week. Inflation in the Fuel & Power group rose to 12.68% in the week ended March 6 as against 11.38% in the previous week. Inflation in this group was at -5.95% in the corresponding period of last year. Inflation in the Electricity group shot up to 4.72% in the week under review from 1.95% in the week ended February 27
Investors with a higher risk appetite can subscribe to the Initial Public Offer of gold jewellery exporter, Shree Ganesh Jewellery House (Ganesh Jewellery). In the price band of Rs 260-270, the offer values the company at about 11.6 to 12.1 times the annualised FY10 per-share earnings on a post-issue equity.
At the upper end of the price band, the company will raise about Rs 385 crore, of which Rs 57.6 crore represents an offer for sale of shares by a private equity investor.
Factors that support investing in this offer include enhanced manufacturing capacities, operating partly from special economic zone (SEZ) that allows tax breaks, gold refining that could help improve margins, and the company's increasing presence in the domestic jewellery market. Risks stem from its export dependency, limited retail reach and possible delays in setting up manufacturing units.
Ganesh Jewellery manufactures and exports gold and gold-studded jewellery, besides a domestic jewellery chain under the name Gaja. Products span various price points, from the value market to the high-end segment.
Close to 95 per cent of revenues (for the half year ended September 2009) were exports, primarily to West Asia, Singapore and Hong Kong. For the financial year 2008-09, exports made up almost 99 per cent of revenues. The company plans to further penetrate West Asia and South-East Asian markets, having already set up offices in Singapore and Dubai.
While export exposure is high, both current and intended markets hold better potential than markets such as the US and Europe where other listed jewellery players such as Renaissance Jewellery are concentrated. The strength showcased by revenues for FY-09, which were up 77 per cent over FY-08, a difficult period for gems and jewellery players is a confidence building factor. Customers include Wondercut Pte, Denzong Hong Kong, Ibrahim Al Sayegh Jewellery and so on.
The company's existing facility at Manikanchan SEZ, West Bengal, has an annual capacity of 30,500 kg of gold. About Rs 145 crore of the issue proceeds will fund the ramping up of manufacturing capacity, by setting up plants in three locations. Land has already been tied up in one of these locations. Manufacturing capacity will therefore add 11,400 kg to gold capacity.
Besides jewellery manufacturing units, Ganesh Jewellery will set up a gold refining plant with an annual capacity of 1,000 kg of gold, thus capitalising on replacement demand — exchanging old gold for new. Refining used gold would then address a part of the raw material requirement of the company, thereby reducing raw material costs to an extent resulting in improved margins.
In the fast-growing domestic jewellery market, Ganesh Jewellery has marked a presence through its Gaja brand, and associated brands such as Sitaare, Marigold and G Elements, together addressing women's, children and men's jewellery. The branded jewellery market is yet in a nascent stage, and the company may be poised to increase revenues from this segment as it develops.
Its current store network is minimal at 13 stores combining company-owned stores, shop-in-shops and franchise outlets. Rs 68 crore of the issue proceeds will go towards setting up an additional 46 stores across the country. Risks in this space stem from its small store count and stiff competition from brands such as Tanishq and those of Gitanjali Gems which have a wider reach. Additionally, it has an agreement with Vishal Retail to set up shop-in-shops, with three already in place. The retailer is presently undergoing debt restructuring, and the future of the store chain is yet unclear.
Sales have clocked a whopping 157 per cent three-year compounded annual growth rate, while net profits have grown 127 per cent in the same period. The main raw material is gold, accounting for more than 90 per cent of sales. The company addresses risk of price fluctuations to some extent through a transparent system customers deciding on the timing of gold purchases. Ganesh Jewellery also goes in for bill discounting with banks, limiting losses on exchange rate fluctuations.
Gross margins have been steadily improving from 2006-07, moving from 7.6 per cent to 9.4 per cent for FY-09. The first half of FY-10, however, saw a slight dip to 9.1 per cent. Higher interest costs due to huge increases in debt have resulted in a slide in net margins from 8.9 per cent in 2006-07 to 6.2 per cent in FY09. Still, margins are superior to most listed players in the gems and jewellery space.
Most debt had been taken on to fund gold imports. Even so, the debt-equity ratio is at 0.78 times, below most jewellery players. Rs 50 crore of the issue proceeds will fund working capital.
The issue is open from March 19 to 23. On offer are 14,269,831 shares, of which 2,133,334 shares are an offer for sale. The book running lead managers are Axis Bank, ICICI Securities and Avendus Capital.
Investors can refrain from subscribing to the Initial Public offer of Goenka Diamond and Jewels (Goenka), which processes diamonds and manufactures diamond jewellery.
In its price band of Rs 135-145, the offer values the company at 10.7-11.5 times the annualised per share earnings on a post-issue capital. While not very expensive in absolute terms, this is at a premium to listed players such as Gitanjali Gems.
The company has clocked healthy growth rates, caters to a wider customer base, and has margins superior to most listed peers.
However, we believe its new retailing business poses significant execution risks, going forward.
The time likely to be taken in building a robust brand suggests that it may be better to take a wait-and-watch approach to this offer.
The company's brands are still in infancy, and address the mid-to-high-end range. Current and projected retail reach is minimal, and most issue proceeds are earmarked for the retail foray.
The company's primary business involves cutting and polishing rough diamonds, and manufacturing and retailing jewellery.
At the upper end of the price band, the company will raise Rs 145 crore, to be deployed towards expanding its retail chain, increasing manufacturing capacities and investment in an overseas subsidiary.
Exports form about 70 per cent of sales in both 2008-09 and the nine months ending December 09, down from the 81 per cent in 2007-08. Domestic sales account for the rest.
Goenka also brought down exposure of its diamond business to the riskier US market to 13 per cent of exports for the nine months ending December 09, from the 66 per cent in 2007. Besides the US, the company exports to Hong Kong (which forms a re-export hub) and South-East Asia. About Rs 7 crore of the issue proceeds will fund expansion in manufacturing capacity through the setting up of a jewellery manufacturing plant and a diamond processing plant in Mumbai.
Goenka has a subsidiary, M.B. Diamonds, in Russia, one of the largest diamond producers. This allows the company to source rough diamonds, its primary raw material, directly through diamond auctions held there, which would reduce raw material costs. The subsidiary also has a unit to polish diamonds. The entire output of the subsidiary — both processed and rough diamond — is sold to the company. Of the issue proceeds, the company will invest Rs 25 crore in the subsidiary to fund working capital and other expenses.
Goenka's sales recorded a three-year compounded growth rate of 127 per cent, while net profits grew at 290 per cent, largely on account of drop in raw material costs.
Gross margins, therefore, improved significantly from 4.4 per cent in FY-06 to 7.4 per cent in FY-09, further moving up to 9.8 per cent in the nine months ended December 09. Net margins similarly improved from 1.2 per cent in FY-06 to 6.1 per cent in FY-09.
Strong sales and profit margins aside, the key risk to this offer, stems from its concentration on its retail business.
About 75 per cent of the issue proceeds will be deployed towards increasing store count for its two brands G Wild and Ceres.
Both launched in 2008, G Wild is a mid-to-high end designer diamond jewellery brand while Ceres is wholly high-end.
Plans are to build on the reach of these brands. 17 stores of G Wild and two of Ceres will be opened by end-FY-12. This retail foray holds execution risks on multiple counts.
One, the branded jewellery market may be nascent, but Goenka already faces stiff competition from the diamond offerings of Gitanjali Gems in the mid-priced segment and international brands as well at the high end. Breaking into the market may well take time.
Two, given the size and the spread of the jewellery market, the store network will require much more scaling up to truly exploit opportunities of an expanding market. Margins may also come under pressure on the back of high rentals on stores and increased brand promotion exercises.
Three, working-capital requirement for these stores appear rather high, given the small size of the store network.
The company has, in its prospectus, estimated working capital cycle at 232 days for Ceres and 184 days for G Wild.
Compare this to the 310 days for Gitanjali Gems which has a larger store network numbering hundreds including shop-in-shops and distributors.
Therefore, the company's potential may be judged post-listing, and after it showcases its ability to scale up store presence and firm up brand recall.
The issue is open from March 23 to 26. On offer are one crore shares.
SBI Capital Markets is the lead manager to the issue.
Investors can give the initial public offering of IntraSoft Technologies a miss, given the stiff challenges that the company faces in terms of scalability and ability to attract advertising revenues. The company owns the Web site 123greetings.com (123G).
At Rs 145 (upper end of price band), the company asks for 36 times its likely per share earnings for FY10. This makes the offer quite expensive given that it is the same level that Info Edge (which owns naukri.com), which generates more than 10 times the revenues of IntraSoft, commands.
The company has seen its revenues over a four-year period grow at a compounded annual rate of 11.9 per cent to Rs 23.4 crore in FY09, while net profits grew at 25.7 per cent to Rs 5.3 crore.
The growth in net profits may have been much lower but for stringent cuts in employee costs. For the first half of FY10, the company has managed revenues of Rs10.5 crore and net profits of Rs 3.1 crore.
Just to put that number in perspective, Info Edge tripled its revenues over a three-year period and more than quadrupled its profits.
IntraSoft, which through its main Web site 123G, generates revenues by selling spaces on its Web site to advertisers, has clearly found scalability a challenge as evidenced by its growth rates.
Its current business model may not allow it to garner greater advertising revenues, nor will it be able to ward off competition easily.
123G is a Web site that allows users to send greetings to others. Its revenues are purely derived by offering advertising space in its Web site to companies and individuals. Based on the number of times the advertisement is viewed, companies pay 123G.
This accounts for over 98 per cent of advertising revenues while the rest come from other models such as ‘cost per click' and ‘cost per action' basis.
This model may be unsuitable for rapid expansion. First, 123G is the only product and not one of the products.
To elaborate on this, top Web sites such as rediff, indiatimes, yahoo! and MSN have full-fledged Web sites offering news, business updates, astrology services, sports updates, shopping options and a host of other services for which there are always takers.
This broadens the advertising base and allows for greater ‘per-view' advertising revenues. 123G's user base is likely to be only a small fraction of the overall number of Internet users looking to send greetings.
In addition, social networking sites such as Facebook, Orkut and Twitter as well as instant messaging and chat facilities of Web sites may offer quicker and easier way of greeting people.
Second, Web sites such as yahoo! and indiatimes also offer greetings services to customers. Competition also exists in the form of other specialised greeting card players such as AG Interactive and evite.com and many others. So the ability to hike advertising rates is likely to be limited.
In the US, from where the company derives nearly half of its revenues, Internet advertising is expected to grow by only 6.4 per cent over the next three-four years, according to a report from PWC on Entertainment and Media.
In India, Internet advertising is expected to grow at a healthy rate of 32 per cent to Rs 2,000 crore by 2013, which is still only 5.5 per cent of the overall advertising pie.
Given this relatively small size and any number of global and local Web sites with a host of offerings competing to grab their advertising share, a Web site with a single offering such as 123G would be hard pressed to drive growth.
IntraSoft is looking to raise Rs 53.6 crore at the upper end of the price band (Rs 137-145). The proceeds are to be spent in branding and promotion and for purchasing a corporate office in Kolkata.
As the India Inc is set to converge from the Indian Accounting Standards to International Financial Reporting Standards (IFRS) from 1st April 2011, the industry captains voiced that the convergence would favour Indian corporates eyeing the global markets, at the IFRS summit organized by Confederation of Indian Industry (CII) - ‘IFRS Convergence Gaining Strength’.
T V Mohandas Pai, Director and Head, Finacle, Admin, Human Resources, Infosys Leadership Institute and Education and Research, Infosys Technologies Ltd said at the CII IFRS summit, "There are concerns among industry players but in fact it would benefit the Indian industries. IFRS is world’s best accounting standard and converging into the same would make raising funds outside India and attracting foreign investment easier. IFRS shall help in maintaining transparency levels to attract overseas players."
S Mahalingam, Chairman – CII IFRS Summit and Executive Director & Chief Financial Officer, Tata Consultancy Services Limited also said that there should be no fears among industry players as the key elements of Indian Accounting Standards and IFRS are not going to vary much.
Y H Malegam, Chairman of the National Advisory Committee on Accounting Standards (NACAS) said, "Under IRFS, there will be changes in treating certain aspects of assets and liabilities like treatment of redeemable preference shares and depreciation provisions. But,mainly the terminologies will change and other provisions would not affect the tax treatments and cash profit calculations." He further added that IRFS guidelines for the banking, insurance and NBFCs would be released soon. He also said, "IRFS will consist of two parts,initially for the organizations with more than Rs 500 crore networth and rest having less than Rs 500 crore networth with having a difference of reporting disclosures by both."
Manfred Hannich, Global Head of Accounting Advisory Services, KPMG informed that the US is also considering IRFS convergence. "India is one of the earliest countries to go for IRFS and the US may follow soon as discussion on consolidated taxation treatment on financial reports is underway," Hannich said
Telecoms majors like Bharti Airtel, Vodafone Essar and RCOM submitted applications for the long overdue third-generation (3G) mobile spectrum in an April auction. These companies submitted bids for all of India's 22 telecoms zones. Abu Dhabi-based Etisalat, which has a telecoms joint venture in India, also applied for the 3G spectrum bid, while reports said that Tata Teleservices, India's fifth-ranked mobile firm and 26% owned by NTT DoCoMo, submitted its interest to bid on Thursday. Reports also said that Videocon has also put in a bid for 3G spectrum, while Uninor (a JV between Telenor and Unitech) decided not to joint the mad rush as did a spate of big global names.
Tata Communications, Tikona Wireless and London-based Augere submitted applications for the forthcoming auction of spectrum for wireless broadband access (BWA). Qualcomm announced that it has filed an application to bid in the upcoming BWA auction in the 2.3 GHz band. Bharti, Vodafone and RCOM also expressed interest in BWA spectrum. The bidding for BWA spectrum is expected to be aggressive as only two blocks of spectrum are available across the 22 circles. Spectrum winners will not automatically get a unified licence or ISP licence on winning the bid. They will have to procure it by paying the necessary fees. BWA spectrum would attract a charge of 1% of annualised gross revenues from BWA services.
The 3G auction starts from April 9, and the BWA auction will kick off two days after that, the Government said last month. March 19 was the last date for submitting interest to participate in the auctions. Bidding for 3G would start from a government-fixed base price of Rs35bn (US$770mn) for all-India radio waves, but analysts expect companies to spend between US$1bn to US$1.5bn due to the huge demand for scarce spectrum and cut-throat competition. For all-India BWA spectrum, the base price is Rs17.5bn. In the Union Budget announced last month, the Centre has penciled in revenue projection of Rs350bn (US$7.7bn) from the twin auctions
Bulls had a fairly good week, and would want to retain the upper hand next week as well. It will be a truncated week due to a public holiday on March 24. F&O expiry could make things interesting and trading may turn a bit volatile. Broadly speaking the bias is likely to remain positive, and the key indices could surpass their previous 52-week highs. But, traded volume and market breadth should improve if the market has to sustain the current advance. FII inflows would continue to be healthy, especially after S&P's decision to raise India's outlook. Local funds however appear to be a bit cautious ahead of an imminent hike in interest rates and Q4 earnings. The ongoing benign scenario in the local market could face challenges in the event of any untoward event in the overseas markets. A big event to watch is Greece's summit with the EU authorities for securing funds to drive down debt. Any nasty surprise here could spook the sentiment.
Standard & Poor's Ratings Services said that it revised the outlook on the Republic of India to 'stable' from 'negative'. At the same time, it affirmed the 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on India. "The revision in outlook reflects our view that India's fiscal position could now begin to recover and that its economy will remain on a strong growth path. The Union Budget targets a general government (including central and state governments) deficit of 8.3% in the fiscal year ending March 2011, from 9.8% in the previous fiscal year.
The Government intends to follow the medium-term fiscal consolidation plan outlined by the 13th Finance Commission. The commission recommended that government deficit be reduced to 5.4% of GDP and the ratio of government debt to GDP be lowered to 68% of GDP by the fiscal year ending 2015. The decision to change the fertilizer policy to implement a nutrient-based pricing policy and to raise urea prices by 10% from April is a step forward for the reduction of subsidies, S&P said in a statement. The Budget also announced an average increase in the prices of domestic petroleum and diesel of 6% and 7.8%, respectively.
"We expect India's GDP growth to be 8% in fiscal year ending March 2011, which is higher than many other countries' and exceeds our previous expectation," said S&P's credit analyst Takahira Ogawa. In addition, S&P views India's external position as resilient. "We expect the country's ratio of gross external financing need to current account receipts plus international reserves to remain stable at 77% in fiscal 2010," it said.
However, the ratings continue to be constrained by the high government debt burden, high fiscal deficit, and India's weak fiscal profile, according to S&P. The consolidated debt of India's central and state governments is estimated at 80% of GDP in the current fiscal year, while interest payments are likely to consume about 27% of general government revenue, it added. High inflation rate could also derail the stable macroeconomic and interest rate environments," said Ogawa.
India's sovereign ratings could be raised, if the Government continues to reduce the deficits materially, S&P said. Conversely, if the Government continues its loose fiscal policy or there are policy setbacks that lower India's medium-term growth prospects, there could be a downward pressure on the ratings, it added.