Sunday, September 30, 2012
Foreign Institutional Investors (FIIs) have pumped in more than Rs. 90bn (~US$1.67bn) in the country's equity market so far this month. Between Sept. 1 and Sept. 21, FIIs were gross buyers of Rs. 390.37bn, while they sold equities totaling Rs. 298.92bn, translating into a net investment of Rs. 91.45bn, according to SEBI data. FIIs also invested Rs. 9.09bn in the debt market during the period under review. FIIs investment in the country's equity market has reached to Rs. 722.15bn (US$14bn) so far in 2012 while pouring in Rs. 254.27bn into the debt market. The acceleration in FII Inflows into Indian markets has been mainly on account of the slew of reform measures announced by the Government, including permitting up to 51% FDI in multi-brand retail and allowing foreign carriers to buy up to 49% stake in domestic airlines. FII inflows are likely to continue in next 6-8 months if the Government remains on the path of reforms. The BSE Sensex has gained ~1.5% so far this month and closed at 18,752.83 points on Friday. Separately, a report by UK's Barclays Capital says that India may get US$2bn in additional FII inflows per year in the medium term after the Government last week cut the withholding tax on overseas borrowing by local firms. The tax cut would reduce the cost of overseas borrowing by 75-100 bps for companies, assuming current borrowing costs of Libor+500 bps, Barclays Capital says, adding that FII inflows would have a significant impact given India faces a negative balance of payments (BoP) of ~US$15bn. CWC supports govt on reforms; meets to chalk out strategy ahead
The rupee on Friday rose to nearly a five-month high after the Government retained its FY13 market borrowing programme for the second half of FY13 and ruled out additional borrowings during the rest of the year. The Government on Thursday said that it would borrow Rs. 2 trillion via bonds in the second half of FY13, which begins on October 1. That is in line with the budget estimate. Economists are still skeptical that the Government will be able to meet its fiscal deficit estimate of 5.1% of GDP. Already, the Government's subsidy burden is running higher than budget estimate. Average borrowings via bonds sales will be Rs. 120-130bn per week between October and February. The Government is due to sell Rs. 150bn of bonds this week, taking its borrowings in the first six months of FY13 to Rs. 3.7 trillion. Meanwhile, Fitch Ratings has cut its 2012 growth forecasts for India to 6% from 6.5%. It has expressed concern over the Government's economic and investment policy weighing down business confidence. It sees budget deficit at 8.5% of GDP. Fitch has also cut its forecast for GDP growth in the major advanced economies by 0.2% in 2012 (to 1%) and 0.3% in 2013 (to 1.4%). The global debt ratings agency has revised down its expectations for the eurozone to a 0.5% contraction in 2012 and just 0.3% growth in 2013. Fitch's US GDP forecast remains unchanged at a growth of 2.2%/2.3%. In overseas currency trades, the euro rose for a second day after Spain said it will meet its budget deficit target for this year and cut estimate for next year. The 17-nation currency headed for a second weekly decline versus US dollar. The Australian dollar advanced on speculation that Chinese authorities will add to stimulus measures. The rupee is headed for its strongest quarterly gain since 2009 after FII inflows accelerated in the wake of the Government's decision to unveil a spate of economic reforms to boost GDP growth. FII inflows into Indian equities totaled US$3.5bn this month through Sept. 26, the biggest increase since February. The rupee is up ~5.% this quarter. This is the biggest three-month gain since June 2009 and the best performance in Asia. It touched 52.5675 earlier, the strongest level since April 30, and has gained 5.4% in September. The rupee has rebounded 8.8% from a record low of 57.3275 per dollar touched June 22. Meanwhile, the BSE Sensex is up 7.9% this month, headed for the biggest gain since January. The Sensex has rallied 4.3% since Sept. 13 after Prime Minister Dr. Manmohan Singh ended a freeze on diesel prices and permitted FDI in multi-brand retail and aviation sectors.
Indian equity indices managed to extend the current winning streak, belying expectations of some softening, as FII inflows continued unabated. The Government too carried forward its reforms agenda by announcing relief package for the debt-ridden power sector. Also, the Centre said it will stick to its borrowing plan for FY13 and ruled out extra debt sales. India’s benchmark 10-year bonds advanced the most in three weeks. The rupee rose versus the US dollar to touch a five-month high, while the stock indices hit 16-month highs. The broader market too joined the party. However, the prospects for economic growth remain far from bright as inflation is sticky, borrowing costs remain high and capex cycle is yet to revive. The global backdrop also remains fragile despite repeated attempts by policymakers to rein in growth slowdown. From next week, short-term focus will be on latest corporate earnings even as markets await further policy action from the governments. Management guidance will be closely followed. One must exercise some caution at higher levels as there is every chance of a small correction after the recent spike.
According to a Thomson Reuters/INSEAD survey, Indian companies were more positive in Q3 than they were in the previous quarter, reports said. The fact that the government stepped up on reforms recently by announcing a diesel price hike and permitting FDI in various sectors may have lifted sentiment. The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to 62 in the third quarter from 69 in the second quarter of 2012, having peaked at 80 in the first quarter of 2011. A reading above 50 indicates an overall positive outlook. The index surveyed 200 of the Asia-Pacific's top companies in 11 economies. Sectors focused on exports such as autos, technology and shipping were the least optimistic in the survey whereas those exposed to domestic growth were much more sanguine. Indonesia and the Philippines had the highest score in the survey of 100, followed by Malaysia and Singapore. India was at 80. Meanwhile, China was at its lowest at 50, since the survey began in 2009. The survey showed sentiment in Asia's property sector improved significantly, with five of 10 companies surveyed responding with a positive view on their outlook, while the others were neutral. Developers in Singapore and the Philippines were the most optimistic. Sentiment among Australian companies rose to 50 from 42 with most respondents reporting that new orders were steady or higher. Japanese respondents were the least upbeat since the fourth quarter of last year. Seventeen companies reported a neutral outlook, two were negative and one positive. The prime concern cited by 54 of the 97 respondents in the survey was global economic uncertainty, followed by 15 companies citing "other" risks that included domestic uncertainty and oil prices. Eight companies said rising costs were the key risk.
Gold has witnessed a golden era in terms of return to investors, while the share market has given negative returns on investment in the last three years, an ASSOCHAM study has noted. Those who invested in gold during August-September in 2009 have seen their money grow more than double up to August-September this year, thanks largely to the yellow metal becoming the first choice for investors not only in India but all round the globe.On the other hand, investors in the equity market have seen their wealth erode in the same period. The erosion has been seen more for the retail investors who generally invest in the small mid-cap stocks. Property which is generally out of reach for the small investors, too has seen good returns but not as much as gold, which has outshone all other investment avenues when the global economy has been through tumultuous times. Standard gold was selling at around Rs. 15,000-15,500 per ten grams in India just about three years ago. Today it is well above Rs. 32,000 per ten grams- giving more than double the returns on investment in three years. The worst performer has been the equity market. The high point of the benchmark Sensex in 2009-10 was 17,711. Today, it is trading in the same range. So, the investment in equity has not even given a simple bank interest rate equivalent and are negative in actual yield. In fact, on a five-year horizon, the equity investors have lost significantly. The high point of Sensex in fiscal 2007-08 was 20873 whereas it is range-bound between 17,000-18,000 now. "Net-net, gold has really outdone other asset classes and it is likely to remain an attractive bet as long as uncertainty over the global economy stays" ASSOCHAM Secretary General D S Rawat said. Rawat said whether it is local investor or global investors, they have all gone by the conventional wisdom of gold being the safest bet when there is uncertainty about all other investment avenues. On the five- year horizon, gold has given even more handsome results to the investors. The precious metal was selling around Rs. 9,500 per ten grams five years ago in September, 2007. So, the returns on this time horizon are about 350 per cent. Its prices have seen a sharp rise even in the London Metal Exchange (LME). It was being traded in the range of USD 900-1000 per ounce in 2009 and now it is selling above USD 1700 ounce. The property prices, according to the ASSOCHAM study, have given average yield of 40-50 per cent on all-India basis. It is true that prices in some pockets of big cities like Delhi, Mumbai, Chennai, Gurgaon have doubled in the past three years. But these cases are far and few. There are also cases in cities like Hyderabad where the investors have not got the yield at simple interest rates in property.
The Government has stuck to its FY13 market borrowing programme for the second half of the ongoing fiscal year and ruled out additional borrowings during the remainder of FY13. The Government on Thursday said that it would borrow Rs. 2 trillion in the second half of FY13, in line with the budget estimate. Economists are still skeptical that the Government will be able to meet its fiscal deficit forecast of 5.1% of GDP for FY13. Already, the Government's subsidy burden is running higher than budget estimates. Average borrowing via bonds sales will be Rs. 120-130bn per week between October and February. The Government is due to sell Rs. 150bn of bonds this week, taking its borrowings in the first six months of FY13 to Rs. 3.7 trillion. The rupee rose to a near five-month high on Friday while the benchmark 10-year bond yield fell as much as 5 basis points to 8.11%. The rupee rose to a high of 52.55, a level not seen since May 1. It was trading at 52.62 in recent trades versus the previous close of 53.01/02.
The Cabinet Committee on Economic Affairs on Monday approved the scheme for Financial Restructuring of State Distribution Companies (Discoms). The scheme contains various measures required to be taken by State Discoms and State Governments for achieving the financial turnaround of the Discoms by restructuring their debt with support through a transitional finance mechanism by the Central Government. The scheme is effective as soon as notified and will remain open upto 31st Dec 2012 unless extended by the GOI. Support under the scheme will be available for all participating State owned Discoms on fulfilling certain mandatory conditions as outlined in Part C of the Scheme. The salient features of the scheme are as follows: 50 percent of the outstanding short term liabilities upto March 31, 2012 to be taken over by State Governments. This shall be first converted into bonds to be issued by Discoms to participating lenders, duly backed by State Governments guarantee. Takeover of liability by State Governments from Discoms in the next 2-5 years by way of special securities and repayment and interest payment to be done by State Governments till the date of takeover. Restructuring the balance 50 percent Short Term Loan by rescheduling loans and providing moratorium on principal and the best possible terms for this restructuring to ensure viability of this effort. The restructuring/reschedulement of loan is to be accompanied by concrete and measurable action by the Discoms/States to improve the operational performance of the distribution utilities. For monitoring the progress of the turnaround plan, two committees at State and Central levels respectively are proposed to be formed. Central Government will provide incentive by way of grant equal to the value of the additional energy saved by way of accelerated AT&C loss reduction beyond the loss trajectory specified under RAPDRP and capital reimbursement support of 25 percent of principal repayment by the State Governments on the liability taken over by the State Governments under the scheme. The accumulated losses of the state power distribution companies (Discoms) are estimated to be about Rs. 1.9 Lakh crore as on 31st March, 2011. In order to look into the issues of State Discoms and to suggest a strategy for the turnaround of the distribution sector, Planning Commission constituted an Expert Group under the chairmanship of Sh. B K Chaturvedi, Member (Energy), Planning Commission. The approved scheme is formulated based on the report of the Expert Group and deliberations in the PMO and Ministry of Finance.
The Supreme Court (SC) on Thursday said that public auction is not the only permissible option for allocation of natural resources and that its Feb. 2 verdict is limited to the allocation of mobile-phone permits. The Government should try to distribute all scarce natural resources with an aim to bring in more revenue, a five-judge panel headed by Chief Justice S.H. Kapadia said. "Profit maximisation cannot be only basis for allocating natural resources. The clarification from the apex court, however, has no bearing on the 2G order," the Bench said in its statement today. The Government had on April 12 moved the Presidential Reference signed by the then President Pratibha Patil in which eight questions were raised, including whether there could be judicial interference in policy matters, vis-a-vis disposal of natural resources and investments made by foreign investors under multi and bilateral agreements. The reference had sought the apex court's opinion on whether the judgement is required to be given retrospective effect so as to unsettle the licences issued for 2G spectrum and allocated after 1994 till 2008. In February this year, the apex court had canceled 122 telecom licences granted in early 2008, saying that money power and the ability to manipulate the system helped bidders win new telecom licenses when A. Raja was the Telecom Minister. The Government made a presidential reference to the Supreme Court, seeking clarity on the universal applicability of the verdict. The Supreme Court clarified that its opinion doesn't have a bearing on its 2G order, which was only restricted to telecom spectrum. The five-judge bench said "which policy is best is the wisdom of the executive, since the judiciary doesn't have the expertise to decide which method is suitable for disposal of a particular natural resource." "Merely because there is scope for potential abuse of the process, the policy of auction can't be declared as the only route for disposal of natural resources," the judges added. The Supreme Court's opinion today is not binding on the Government, or on other courts.
The Indian markets witnessed an action packed trading session for the fourth consecutive week with the Sensex rising 0.05% and the Nifty up by 0.21% for the week ended September 28, 2012. Major Headlines of the Week: S&P cuts India growth forecast to 5.5% Inflows of $2 bn/yr eyed after cut in overseas borrowing tax FDI up 60% to $1.76 bn in July Domestic pharmaceuticals market up 16.9% during August Core sector growth slows to 2.1% in Aug 2012 3rd downgrade in a row; Fitch cuts India growth forecast to 6%
Key benchmark indices edged higher on last trading session of the month and the quarter, with market sentiment was boosted by data showing that foreign funds remained buyers of Indian stocks on Thursday, 27 September 2012. The 50-unit S&P CNX Nifty attained its highest closing level in more than 14-1/2 months. The barometer index, BSE Sensex, attained its highest closing level in more than 14 months. The Sensex jumped 183.24 points or 0.99%, off close to 105 points from the day's high and up about 65 points from the day's low. The market breadth was positive. From a recent high of 18694.41 on 25 September 2012, the Sensex had lost 114.91 points or 0.61% in two trading sessions to settle at 18,579.50 on Thursday, 27 September 2012. The Sensex advanced 1,333.18 points or 7.64% in September 2012 as government initiated economic reforms. The barometer index advanced 1,332.76 points or 7.64% in Q2 September 2012. The Sensex has jumped 3,307.82 points or 21.4% in calendar 2012 so far (till 28 September 2012). From a 52-week low of 15,135.86 on 20 December 2011, the Sensex has risen 3,626.88 points or 23.96%.
The market may remain volatile next week as investors may continue to book profits after recent run up in share prices. The stock market will remain closed on Tuesday, 2 October 2012, on account of Mahatma Gandhi Jayanti. Automobile and cement stocks will be focus as companies from these two sector start unveiling monthly sales volume data for September 2012 from Monday, 1 October 2012.
The market managed to end the volatile week on a positive note. The market fell in three out of five trading sessions. Most of the gains were recorded in the last trading session of the week on Friday, 28 September 2012, when the market rose on the back of a global rally that was triggered by Spain announcing a crisis budget for 2013 on Thursday, 27 September 2012, based mostly on spending cuts. The BSE Sensex rose 9.91 points or 0.05% to 18,762.74. The 50-unit S&P CNX Nifty rose 12.15 points or 0.21% to settle at 5,703.30. The BSE Mid-Cap index rose 2.72% and the BSE Small Cap index rose 3.06%. Both these indices outperformed the Sensex.