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Sunday, February 14, 2010
China surprises...raises bank reserve requirement again
In an unexpected move, China's central bank once again sought to check the unbridled loan growth in that nation by asking banks to increase their reserves for the second time this year. The move once again rattled markets around the globe. From Feb. 25 Chinese banks will be required to set aside an additional 0.5% of deposits as reserves, the People's Bank of China said. After the hike major banks will be required to set aside 16.5% of deposits. Smaller banks are currently required to set aside 14% of deposits. The announcement came after the close of financial markets in Shanghai and on the eve of the week-long Chinese New Year holiday. On January 12, the Chinese central bank had increased banks’ reserve requirements for the first time since June 2008.
Chinese policy makers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles. Policy makers are reining in credit growth after banks extended 19% of this year’s 7.5 trillion yuan (US$1.1 trillion) lending target in January and property prices climbed the most in 21 months. Economic data this week showed property prices across 70 cities surged 9.5% in January, exports climbed and producer-price inflation accelerated. Bank lending of 1.39 trillion yuan topped the total for the previous three months combined.
The central bank said on Feb. 11 that it plans to gradually normalise monetary conditions from a crisis mode after gross domestic product (GDP) grew by 10.7% in the fourth quarter, the fastest pace in two years. The move doesn’t alter the central bank’s moderately loose monetary policy, local media reports cited an unnamed official as saying. Concerns about possible asset bubbles in China, and what action the Beijing government may take to prevent or deflate them, have mounted this year. Oil, copper and European stocks fell on concerns that tighter lending in China will hurt the fragile global recovery.
Telenor acquires further stake in Unitech Wireless
Uninor, the joint venture between Unitech and Telenor, announced that it has received the fourth and final round of the planned fresh equity investment from the Telenor Group. With this, the Telenor Group has invested a total of Rs61.35bn of new equity into the company, taking its ownership to 67.25%, as per the shareholders' agreement. The Cabinet Committee on Economic Affairs (CCEA) had approved Uninor's application to increase its foreign shareholding up to 74% in 2009. Uninor aims at achieving EBITDA break-even within 3 years and Operating Cash Flow break-even within 5 years of launch of operations and a market share of 8% by 2018.
Reliance Capital hikes stake in Fame India
The Anil Dhirubhai Ambani Group (ADAG) firm Reliance Capital said it had raised its stake in Fame India. Reliance Capital Partners hiked its holding in Fame India to 7.6% through open market purchases since February 3, when Inox Leisure announced a deal to acquire Fame. Inox had acquired 43% stake owned by promoters in Fame India and bought further shares from the stock market to take total holding to a comfortable 50.48%. It has also announced a mandatory open offer to acquire another 20% in Fame India at Rs 51 a share. ADAG, that runs the country's largest multiplex chain under the Big Cinemas brand, had objected to the deal. It said that the Inox offer for Fame India was inferior to its own bid of Rs 80. In a statement, issued on February 9, Reliance MediaWorks said that it plans to bring all the relevant facts to the notice of all regulatory authorities, including markets regulator SEBI, the Ministry of Corporate Affairs, the Reserve Bank of India, the Income Tax department and others for such action, if any, as they deem appropriate.
Jan car sales up 32% yoy
India’s domestic car sales rose by 32% to 145,905 units in January 2010 from 110,300 units sold in the same month a year ago, data released by the Society of Indian Automobile Manufacturers (SIAM) showed. Utility Vehicle (UV) sales were up 54.7% at 26,120 units in January 2010 while the total passenger vehicle sales rose by 36.6% to 187,605 units. Local sales of trucks and buses (CVs) jumped 130.8% to 53,447 units from 23,154 units in January 2009, according to the SIAM data.
Two wheeler sales grew by 43.4% to 834,383 units in January this year from to 581,729 units in the year-ago period. Motorcycle sales in January 2010 were up 43.7% at 650,633 units versus 452,809 units sold in the corresponding month last year. Total three-wheeler sales rose by 46.5% to 38,722 units during January 2010 compared with 26,435 units sold in the same month a year earlier.
Total sales of automobiles stood at 11,14,157 units in January 2010 as against 768,698 units sold in January 2009, representing an increase of 44.9%. Total exports were up 45.7% at 150,780 units in January 2010 with shipments of passenger cars growing by 77% to 38,118 units.
GSM user base swells 13.7mn in January
India's GSM wireless telecom operators added 13.7 million new subscribers in January 2010, taking the overall subscriber base to 394.2 million, data released by industry body COAI showed. Last month’s GSM addition was marginally up from the December 2009 numbers when the GSM operators signed up 13.1 million new users. Bharti Airtel, India's top GSM mobile operator, added 2.85 million new mobile subscribers in January, taking its total to 121.7 million, according to the COAI data. Vodafone Essar signed up 2.74 million new mobile users in January this year, to boost its total to 94.1 million. Idea Cellular along with Spice Communications added 2.27 million new users, taking it to a total 59.88 million. It retains the position as the third largest GSM operator. The state-run BSNL added 2.2 million new users last month taking its total subscriber base to 59.45 million. Aircel added 2 million new users, taking its user base to 33 million and MTNL added a mere 45,067 users taking its users base to 4.6 million. The latest GSM data does not contain the subscriber addition of Tata DoCoMo, the GSM services of Tata Teleservices and the GSM numbers from Reliance Communications (RCOM). Both these companies prefer to release separate data.
Food inflation inches higher
Inflation, which till recently was largely restricted to essential food items, appears to be slowly but surely getting transmitted to other categories as well. While inflation in the crucial Food group remains in high double digits, that in Minerals and Fuel groups suddenly jumped in the last days of January. Government data released today showed that inflation, as measured by the Wholesale Price Index (WPI), for the Primary Articles group stood at 15.75% in the week ended January 30, as against 14.56% in the preceding week. Inflation in this group stood at 8.17% during the corresponding week (Jan. 31, 2009) of the previous year. The WPI for the Primary Articles group rose by 0.1% to 285.2 in the week ended January 30 from 284.9 in the previous week.
Food inflation rose to 17.94% in the week ended January 30 from 17.56% in the previous week, the Commerce & Industry data revealed today. The index for the Food Articles group increased by 0.3% to 287.3 in the week under review. Inflation for the Non-food Articles group increased to 11.32% from 10.93% in the week ended January 23 while the same for the Minerals group shot up to 7.72% as opposed to a drop of 5.18%.
Fuel & Power inflation surged to 10.44% in the week ended January 30, as against 5.88% in the week ended January 23. Inflation for this group stood at (-)3.54% during the corresponding week (ended Jan. 31, 2009) of the previous year. The index for the Fuel & Power group rose by 1.2% to 355.4 from 351.2 in the previous week due to higher prices of non-coking coal (15%), coking coal (11%).
Weekly Newsletter - Feb 14 2010
Though the main Indian indices managed moderate gains after a rollercoaster week, the near-term outlook remains cloudy on account of an uncertain external climate. On the domestic front, IIP growth in December has been extremely strong notwithstanding the low base effect. A major worry now is with regard to inflation and its fallout on the monetary policy. The latest monthly inflation figures will be released on Monday and could have sentiment effect on markets.
A weak monsoon has led to a 7.5% drop in kharif foodgrain output. The good news is that the winter farm output is not likely to be quite as bad. What is needed is a good monsoon this year. If that doesn't materialise then there could be some hiccups for the economy and policy makers. The RBI has vowed not to tinker with rates till its annual review in April, but a sharper than anticipated jump in inflation could force its hands.
We expect the market to remain volatile and rangebound between a broad range of 4700 and 5200. There is considerable anxiety over how Europe's debt woes will play out. Also, China has surprised global markets with its second monetary tightening move in a month. One also has to see how the US economy performs over the next few months and how long does the Fed continue the ultra loose monetary regime.
Back home, the big event in the near term will be the Union Budget. The Finance Minister should announce a gradual rollback of fiscal stimulus as India Inc. no longer requires the support extended at the height of the financial crisis. At the same time, it may come out with a medium term road map for returning to the path of fiscal consolidation. The FM may or may not meet these expectations, in which case the market might falter again. Also, FII inflows must turn positive again.
Industrial output growth beats expectations
India's industrial production grew at its fastest pace in 15 years in December, surpassing all optimistic forecasts, lending credence to a growing view that the economy is out of the woods and ready for an 'exit' from the crisis-fighting stimulus measures. Industrial output, as measured by the Index of Industrial Production (IIP), expanded by a robust 16.8% in December from the same month a year earlier, data released by the Commerce & Industry Ministry showed. The figure was well above consensus estimates of 12-13%.
India's industrial output had contracted by 0.2% in December 2008, as credit markets seized up in the wake of the global financial turmoil and industrial demand sank amid weak external environment. It was the highest reading since April 1995, when the series, which uses 1993-94 as base year, started. On a month-ago basis (with no seasonal adjustments), however, the December 2009 performance showed an industrial growth rate of 10.81%, the highest since the industrial slowdown began in the third quarter of 2008.
Manufacturing, with an almost 80% weightage in the IIP, grew by 18.5% in December 2009 compared to a 0.6% decline in the same month in 2008. The Electricity sub-segment grew by 5.4% in the month under review versus 1.6% in December 2008. Mining output grew by 9.5% in the last month of 2009 as against 2.2% growth achieved in December 2008.
Consumer Durables expanded by a whopping 46% in December 2009 after contracting 4.2% in the same period in 2008. Consumer Non-durables grew by 3.7% compared to 3.2% in December 2008. Overall, Consumer Goods recorded a respectable growth rate of 12% over a measly 1.7% in December 2008. Capital Goods grew by 38.8% in December 2009 compared to 6.6% for the same month of 2008. Intermediate Goods grew by 21.7% in December 2009 after shrinking 8.9% in December 2008. The growth rate in Basic Goods category stood at 7.5% versus 2% in the year-ago period.
Expressing satisfaction at the latest IIP numbers, Finance Minister Pranab Mukherjee said that the third-quarter GDP growth would be strengthened by the strong recovery in the industrial sector. In fact, if the current momentum in the industrial sector continues at the same pace in the next three months, the GDP growth figure for FY10 could actually surpass the Central Statistical Organisation's advance estimate of 7.2%. Mukherjee expects the economy to grow around 7.75% in FY10 while the RBI sees a growth rate of 7.5%.
For April-December 2009-10, industrial output growth stands at 8.6% against 3.6% during the corresponding period in the previous fiscal year.
For the first nine months of the current fiscal year, Manufacturing recorded a growth rate of 9% (3.6% in April-Dec 2008-09), Mining 8.5% (3.2%) and Electricity 5.8% (2.7%), according to the Commerce Ministry data.
The RBI is widely expected to raise interest rates at its April policy review after it surprised markets with a stronger-than-expected rise in the cash reserve ratio (CRR) in its January meeting. The Union Budget, to be announced on Feb. 26, would have a major bearing on the central bank's future course of action. Higher-than-expected government borrowings might prevent the RBI from raising interest rates.
Earlier this month, RBI Governor Duvvuri Subbarao said that the Government's gross market borrowings in the fiscal year ending March 2011 might be slightly higher than FY10 because of redemptions. Bond yields touched a 16-month high of 7.88% on Thursday on uncertainty about government borrowings in the coming fiscal year
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