Sunday, November 22, 2009
The passenger car industry is on a strong growth path. Although commercial vehicles have posted a more tentative recovery, a near 5 per cent year-to-date growth in domestic sales from the steep declines last year offers hope of an early recovery .
While tyre makers are set to cash in on this revival, Phillips Carbon Black, which makes the carbon black used in tyres, could benefit too. After recording a loss last fiscal, the company returned to profitable operations beginning FY-10.
Investors with a high-risk appetite and a two-year horizon can consider buying the stock. Trading at Rs 158, the stock discounts its expected per share earnings for FY-11 by 4 times.
This leading producer of carbon black, part of the RPG group, commands a market share of 41 per cent in India and is also the largest exporter in Asia. It operates in two business verticals — carbon black and power, with the former accounting for over 90 per cent of revenue.
Carbon black is mostly used as a reinforcing agent for rubber and finds extensive use in the manufacture of automotive tyres as it provides high resistance to abrasion, thereby increasing their life span and enhancing their grip. Carbon black accounts for almost 16 per cent (by value) of the raw material for tyre manufacture.
Apollo Tyres, Ceat, Bridgestone, JK Tyres and MRF are some of the important customers in the Indian market. Its major overseas clients include the Bridgestone Group, and Goodyear. The company enjoys a well-diversified client base.
Challenges faced by the automobile sector in the second half of last fiscal resulted in demand for carbon black declining by 35 per cent globally and by 25 per cent in India. The industry encountered the following problems in India: First, the demand slump led to production cuts during the second half of FY 09.
Second, raw material costs shot up sharply. Carbon Black Feed Stock (CBFS), the primary ingredient in carbon black production, is a residual oil from distillation of crude and its pricing is related to that of crude oil.
Though crude oil prices have recovered from their lows they are currently at about half the peak levels. The three-month lag between crude oil price movements and their impact on CBFS suggests that Phillips Carbon Black may continue to benefit from lower raw material costs in the near term. Third, cheap imports pushed Phillips Carbon Black into an operating loss of Rs 82.92 crore and net loss of Rs 64.84 crore during 2008-09.
Sharp decline in input costs over the June and September quarters of 2009-10helped expand operating profit margins from 9.6 per cent in the September quarter of 2008 to 18.7 per cent in the same quarter of 2009. This,despite a flat sales volume and a decline in realisations.
Though crude oil prices have more than doubled from December lows, inventory overhang and a slow pace of global recovery may pre-empt any sharp rise from current levels. The recently concluded anti-dumping investigation against import of carbon black from countries such as Thailand, Australia and Chinamay also favour Indian companies and reduce the threat of cheap imports.
In October, Phillips Carbon Black expanded production capacity by 90,000 million tonnes per annum (to 450,000 million tonnes), at a newly commissioned plant in Mundra. Proximity to the port may help it save on transportation costs, as more than 80 per cent of its CBFS requirement is imported.
The expansion is also well-timed to capture the revival in the automobiles tyres industry.
According to a recent CARE report, the tyre industry recorded a production growth of 4.1 per cent for the period April-August 2009, when compared to the same period last year.
While the replacement market expanded, OEM market witnessed a decline. However the recent numbers released for August 2009, indicate 3.1 per cent growth in original equipment manufacturers segment.
Exports too increased in August 2009 . With key challenges adequately addressed, the company appears well placed to show an improving profit trajectory. Contributions from its power business may also augment revenues and profits.
Phillips Carbon Black generates power using the flue gases released as a by-product of carbon black manufacture. Its capacity of 60.5 MW is used for in-house requirements; surplus power is sold to electricity boards.
Though the power plants contribute only 10 per cent to the total sales, they account for 30 per cent of the total profits. Expansion of power plants in Kochi and Mundra will further augment revenues.
Given that both profits and sales for Phillips Carbon Black are highly commodity driven, earnings are quite cyclical. Investors need to exercise caution and book profits on target returns on this stock.
If you had set your heart on new jewellery and were waiting for gold prices to dip ‘just a little’ before you made that purchase, gold’s recent price moves may have had you grinding your teeth in frustration!
After setting a record at Rs 16,000 per 10 gm in late September, gold prices have continued to nonchalantly race ahead to breach the Rs 17,300-mark recently. So, why are gold prices on fire, even after the festive season demand is well and truly over?
Well, recent gold price moves have nothing to do with Diwali or even Indian buyers, but with factors such as a weak US dollar, central bank buying and the metal’s newly acquired sheen as an investment option.
Hitched to global prices
Gold prices in India do perk up a bit during Diwali or Akshaya Trithiya, when retail buyers throng the jewellery shops. However, do remember that India imports the bulk of its gold requirements.
Hence, only two factors actually hold sway over where Indian gold prices are headed in the long term — global gold price trends and the rupee-dollar exchange rate.
Take 2009. Gold prices in the Mumbai market (for standard gold, ten grams) have shot up from about Rs 13,520 at the start of the year to over Rs 17,300 now — a 28 per cent gain.
Domestic prices have merely followed global gold prices, which rose from $827/ounce to $1,139/ounce (a 38 per cent gain) over the same period. Price gains in India have, in fact, not kept up with global trends, mainly because of the rupee strengthening by about 8 per cent against the dollar for the year. Gold in global markets is usually priced in dollars.
A stronger rupee makes every tonne of gold cheaper to import into the country; translating into more moderate domestic prices for gold.
So the question we should actually be asking is: Why did global gold prices shoot up this year? For one, after being buffeted by the economic crisis last year, many investors were wary of traditional assets such as stocks or bonds and were desperately seeking a safe haven.
Gold, globally accepted and easily convertible into cash, seemed to fit the bill perfectly. Since then, stocks and bonds have staged a rebound. But lingering doubts about whether the “global recovery” was going to last have ensured that gold prices held on to relatively high levels.
Some of gold’s gains this year also have to do with the commodities pack seeing a surge in investor interest this year. Gold, donning its commodity hat, has benefited from this rising investor fancy for hard assets such as industrial metals, which could see demand improve as Asian economies such as India and China recover from last year’s slump.
Much like other metals, the mining supply of gold hasn’t seen much improvement over the past five years, leading to relatively tight global supply of the yellow metal.
However, the most important reason why gold prices are at a lifetime high today (gold has already sailed past its previous all-time high of $1,030/ounce hit in March 2008) has to do with the sliding value of the US dollar against other leading currencies. Why should the dollar’s behaviour impact gold prices in any way?
For one, the dollar’s weakness against other currencies has the potential to give worldwide demand for gold a leg-up. If a weaker dollar makes it cheaper for Indians to buy gold in rupee terms, it does the same for other large gold consumers whether it is the West Asians or the Chinese.
Two, the US dollar is much more than just paper money in the global scheme of things. The US’ status as global economic power has ensured that its currency — the dollar — has remained an investment of choice for most global investors with surplus cash on their hands.
For many years now, surplus liquidity from all over the world has flowed into dollar-denominated assets — the currency itself, US government bonds and American money market funds. However, the steadily sliding value of the US dollar in recent times, coupled with the country’s economic troubles, has stoked fears that the dollar could be in a terminal decline.
Those fears have prompted a whole host of global investors, the central banks of many nations included, to look for alternative “safe havens” to park their funds in.
Gold, once the standard on which all paper money was based, currently appears to be the haven of choice.
While the People’s Bank of China admitted to progressively adding to its gold reserves in April this year, India’s own Reserve Bank of India has recently bought a whopping 200 tonnes of gold from the International Monetary Fund to buttress its gold reserves.
This move proved to be the tipping point which pushed gold prices beyond their earlier lifetime highs. Investors saw central banks emerging as a new class of gold buyers!
With so many factors at play, it is no surprise that gold has emerged as quite a good investment option in recent years. Gold is now at a new lifetime high, which means that any investor in gold over the past few decades would now be sitting on a positive return.
To clinch the argument, gold has managed an impressive 21 per cent annual return over the past five years and has closed every one of the last eight years with price gains — a record that even stocks would struggle to beat. With returns looking so upbeat, can a horde of investors be far behind?
Gold’s steadily rising price has seen a steady rise in the “investment” demand for gold at the global level. Gold Exchange Traded Funds (ETFs are mutual funds that stock up on gold and then issue units for the same value for investors to trade in), have seen demand for their units shoot through the roof in recent years. That has meant higher gold demand from these funds.
According to World Gold Council estimates, ETF demand for gold in the first half of 2009 stood at over 500 tonnes, three times their annual levels five years ago. ETF demand today accounts for roughly a third of the annual gold demand.
What ETFs have essentially done is to allow normal investors to hold gold “electronically” in paperless form, much like stocks or bonds.
Buying gold a few years ago meant acquiring weighty and cumbersome bars of gold, putting them through purity checks and then hiring a safe deposit locker at stiff rentals, all to just own a zero-dividend paying asset.
The emergence of ETFs has taken away all those negatives associated with buying and storing gold.
With the winning combination of convenience, instant liquidity and great returns…. Is it any surprise that gold prices are at never-before levels?
Investors can consider booking partial profits in the Neyveli Lignite Corporation stock as valuations have run ahead of fundamentals, driven by divestment hopes.
At the current market price of Rs 153, the stock trades at 24 times its estimated FY-10 earnings. This is at a premium to NTPC’s earnings multiple of 20 times despite having lower capacity (2,490 MW) and return ratios.
Neyveli Lignite, a mini-ratna PSU, is an integrated lignite mining and power generation company. Neyveli plans to add around 750 MW by 2010, with the next tranche of capacity-addition coming up only after 2012. This may partly limit its ability to take advantage of the near-term power deficit scenario and recent Central Electricity Regulatory Commission (CERC) norms. The gradual phase-out of the Neyveli Thermal Power Station (TPS)-1 600 MW plant with the commissioning of new capacity also suggests that revenues may not witness strong growth over the next three years.
Execution delays on projects being commissioned also cannot be ruled out, given that the company has faced such delays in the past.
The company’s key advantages are its strong balance-sheet with more than Rs 5,400 crore of cash and cash equivalents, a debt-equity ratio of just 0.43 and scope for improvement in the overall return on equity (ROE), thanks to favourable CERC norms. Neyveli Lignite has captive mines which not only eliminate fuel risk but also enable it to earn margins higher than peers, given that the company is allowed to retain some of the margins on mining of fuel. Neyveli’s ROE may also improve as it deploys excess cash in expansion projects instead of conservative investments.
The company currently operates 24 million tonnes per annum (MTPA) of lignite mining facility, the output of which is used as a feedstock for generating 2490 MW capacity at Neyveli, Tamil Nadu. Neyveli Lignite is in the final stages of commissioning a 250 (125x2) MW Barsingsar Thermal project at Rajasthan and 500 (250x2) MW TPS-II extension projects; it plans to develop captive lignite mines for these projects. While the Barsingsar TPS and Neyveli TPS-II extension are expected to be fully commissioned by January 2010 and November 2010 respectively, there is no news yet on the Barsingsar’s first unit that was to be commissioned by October 2009, as per the revised schedule.
Bulk of the company’s projects, however, is set to be commissioned during the 12th Plan (2012-17). The company has a portfolio of more than 10,000 MW of power projects on the anvil for the next Plan period — including Jayamkondan 1600 MW, 1000 MW Tuticorin JV, 2000 MW Orissa project, Neyveli TPS-II extension and Neyveli TPS III.
The company’s net profits have not shown a secular trend over the last five years due to blips in operating income linked to monsoon-related disruptions and a spike in employee costs after the pay revisions last year. Profits have been impacted partly by a lag between the actual incurring of costs and their eventual payment of the revised tariff by electricity boards, based on CERC norms. For the first half of this year, while sales grew by 26 per cent (excluding the revenues arising out of adjustments related to previous years), net profit rose by 12 per cent, impacted by employee pay revisions. The profits may improve as the benefits of the CERC’s new tariff (2009-14) order start flowing.
According to CRISIL, the rise allowed on ROE may increase the tariffs by 6-8 per cent for a Central power project, thereby improving the company’s topline.
The new CERC norms also allow the company to charge higher operation and maintenance expenses, which can help it pass on employee pay revisions.
Bulk of the profits earned by Neyveli Lignite comes from lignite mining, which is supplied based on transfer pricing to its power business. The margins built into the captive mining business have enabled the company to earn steady returns. However, as the company diversifies from captive sources to seek coal linkages externally, this may put pressure on margins.
Risks and concerns
The company’s topline growth over the next fiscal will come from the 750 MW capacity-addition and favourable CERC norms. However, over the following two fiscal years, revenue drivers appear limited.
With power projects moving to competitive bidding, Neyveli Lignite may enjoy a cost advantage due to its captive fuel. However, operation and maintenance (O&M) costs and interest may have to be borne by the company, partly offsetting these benefits.
The company is also diversifying into wind projects by setting up a 50 MW project, whose capacity may be increased to 200 MW. Land acquisition delays for expansion of lignite mines are also a major hurdle for the company which wants to increase its mining capacity at Neyveli Mine-II from 10.5 to 15 MTPA.
The current quarter may see some disruption in mining activity due to its open cast mines, exposing it to monsoon, which may, in turn, disrupt power generation. PLF at plants especially from TPS-I extension and TPS-II may improve post-monsoon. However, large improvements may not be possible as these plants are operating at their lifetime high PLFs.
The current disinvestment expected in Neyveli Lignite may be a “offer for sale by the government” given the company’s comfortable liquidity position.
As the Neyveli Lignite stock’s valuations are stretched, follow-on public offer (FPO) offer price may be pegged at a discount to the current market price, paring the gains.
Shareholders can retain their exposure to the stock of Hotel Leelaventure, which owns and operates a chain of luxury hotels across the country.
While falling occupancy levels and room rentals in the aftermath of the global recession, Mumbai terror attacks and the more recent swine flu scare have weighed on the company’s financial performance so far, what instils some confidence is that there are signs of improving prospects in the coming quarters.
With the effects of the financial meltdown easing and economic activity beginning to pick up, the company may well be able to attract higher occupancies hereon, its established brand presence and properties in lucrative business markets giving it an added edge.
The expected opening of its new properties in New Delhi and Chennai by the next fiscal year also portends additional revenue triggers.
At current market price of Rs 39, the stock trades at about 37 times its likely FY10 per share earnings. Besides high valuations, a high debt may also weigh on its earnings prospects.
The luxury hotels market, which derives a considerable portion of its revenues by catering to foreign tourists, had suffered a severe blow over the last two years.
But in what may be an encouraging sign of things to come, the recent statistics on foreign tourist arrivals (FTAs) suggest improving prospects.
After declining significantly to 13.8 per cent during the first quarter of FY10 , FTAs have fallen only 1.8 per cent in the September quarter.
Not surprisingly, the company has reported better numbers on a quarter-on-quarter basis. While revenues appreciated 7.9 per cent over the quarter, profits surged by 68.3 per cent, albeit on a low base.
What’s more, the company has seen a marked increase in booking levels across its properties in recent times. It has reported an increase in average occupancy levels in Bangalore (its main revenue driver) and Gurgaon up to over 70-75 per cent levels. However, the average room rates are still a far throw from the peak levels seen earlier.
Potential revenue trigger
The next big opportunity for the company may come from the Commonwealth Games that Delhi will host in October 2010. Government estimates expect nearly 1,00,000 tourists during the 15-day period. An estimated 30,000 guest-rooms are required for this eventin addition to the existing 11,000 accomodation.
The management expects to commission its next hotel at Chanakyapuri, New Delhi, (located near the Diplomatic Enclave) by July 2010, well before the commencement of the event.
While the high demand would certainly boost occupancy levels for the new property, the ARRs may be capped since a handful of other star-rated hotels are also expected to come up around the same time in the region.
At present, the company operates six hotels across Mumbai, Goa, Bangalore, Kovalam (Kerala), Udaipur and Gurgaon totalling to 1,523 guestrooms and 90 serviced apartments.
While the New Delhi property would add another 250 rooms to the inventory, the slated inauguration of its Chennai property in the later half of next fiscal would add another 380 to the overall count.
But the key to making the best of the new properties would be to capture market share before competitors do. Considering that both the regions are on the expansion of other hotel chains as well, any further delay in capex could prove detrimental.
Timely execution of these projects will also help bring down Leela’s revenue dependence on its Bangalore property (about 40 per cent of FY-09 revenues).
Over the long-term, Leela also has plans to open hotels in Agra, Hyderabad and Pune, for which it has already bought the land.
Gearing, a concern
Though the company has bought back a substantial portion of its FCCBs, , it still has a significant debt on its book; total debt (at about Rs 2,450 crore) at the end of last fiscalstood at more than three times its net worth.
At the end of last fiscal, the company had FCCBs worth Euro 39.20 million (about Rs 275 crore) due for maturity in September 2010 and another $67 million (about Rs 315 crore) debt maturing in April 2012. Earnings therefore may trail revenues for some time to come.
A late charge by bulls helped key indices surpass crucial resistance levels. However, select momentum indicators are currently in a sell mode even while the trend is up. It seems that markets will remain directionless until a clear breakout in either direction appears.
The current key level for the Sensex is 16,940, above which the index may rise to 17,125. A break above 17,125 will ensure further strength to the index. On the other hand, a break below 16,940 could see the index slip to 16,550, which is likely to act as a strong support level. Only a break below 16,550 could trigger fresh weakness in the market. Broadly speaking, the Sensex is expected to move in the range of 16,550-17,125 till a breakout takes place.
This week, the Sensex moved in a range of 463 points. The index touched a high of 17,099, and a low of 16,636, before settling with a gain of 173 points at 17,022. On the past two occasions in October, the index after getting a weekly close above 17,000 had slipped in the following week. With the expiry week and global cues in focus, the market may see continued volatility next week.
Among the Sensex stocks - Tata Steel surged nearly 6 per cent to Rs 552. Hero Honda, Maruti, ACC, Tata Motors, TCS, Hindustan Unilever and Infosys were the other major gainers. On the other hand, Reliance Infrastructure shed nearly 5 per cent at Rs 1,098, followed by Bharti Airtel, down over 4 per cent.
The NSE Nifty moved in a range of 147 points. The index touched a high of 5,079 during the week, and finally ended with a gain of 53 points at 5,052.
The Nifty continues to trade above its short- and medium-term moving averages. The medium-term (50-days) moving average is currently above the short-term (20-days) moving average, which is a negative sign. The ADX (Directional Index) too is in the sell mode, but the trend is weak. It indicates whipsaw movements. On the positive front, the Moving Average Convergence Divergence (MACD) indicator is in a bullish mode as it hovers above the signal line.
The Nifty may face resistance around 5,105-5,145, while support on the downside could be around 4,995-4,960.
Investors with a two-year horizon can buy the shares of Tata Elxsi, a niche software services provider, considering the improving prospects in its key business segment and the stock’s availability at an attractive valuation. At Rs 166, the share trades at nine times its likely 2009-10 per share earnings. Investors also have an added incentive in owning the share as it is a relatively high dividend-yielding stock. The dividend yield is around 4-5 per cent, based on payouts so far.
Despite 2008-09 being a challenging year for all software players, more so for niche providers, Tata Elxsi has seen its revenues grow 4.3 per cent to Rs.419.4 crore, while net profits expanded 10 per cent to Rs 58.2 crore. After a tepid first quarter, the company has seen further improvement in revenue growth in the September quarter.
Tata Elxsi broadly operates in two segments – software development services (mainly product design and industrial design services) and system integration. The relatively high-margin software development services segment has increased contribution over the years and forms a pie of nearly 90 per cent of the overall revenues in the current fiscal. Recovery in some of the key sectors where the company operates such as automotive, semi-conductors, broadcast and consumer electronics augurs well for the company. Even in 2008-09, revenues from its software development services went up by nearly 8 per cent, while system integration revenues declined. Pointers are also emerging on improving business confidence in key segments.
Gartner reports indicate that semi-conductor revenue in 2010 is expected to bounce back to the same revenue level as 2008 at $255 billion, a 13 per cent increase from 2009. In another report, Gartner also predicts that worldwide smartphone sales will grow by 29 per cent year-over-year to reach 180 million units in 2009. Car manufacturers around the world are increasingly adopting “electronics” for more comfort features and design and also for new concepts such as electric and fuel-efficient cars. Studies by Strategy Analytics Automotive Electronics suggest that electronics is likely to account for 35 per cent of the total cost of a car by 2010. All these point to the possibility of increasing outsourcing of design services to companies such as Tata Elxsi. Internally, the company has frozen wage hikes till a strong recovery is signalled, which should reduce the strain on margins. Rupee appreciation against the dollar is a key risk, but the US geography accounts for only about 30 per cent of revenues and the rupee’s direction against the yen, euro and pound have been more or less favourable for the company.
Google's proposed web-oriented Chrome operating system will boot a PC in as little as seven seconds, officials of the web search titan said. Google showed off its Chrome operating system designed for PCs that do their work on the Web. Google gave the first public look at its Chrome OS four months after declaring its intention of developing the PC's main software. The Chrome OS resembles a Web browser more than it does a traditional computer operating system. Google said that the software will initially be available by the holiday season of 2010 on low-cost netbooks that meet Google's hardware specifications. Netbooks running Chrome OS will only be able to run Web applications and the user's data will automatically be stored on the internet, Google executives said at an event at the company's Mountain View, California headquarters.
Google said that it is giving away the software for free. Google officials said that the Chrome OS netbooks will be able to provide some functions when offline, but that the product is primarily designed to be connected to the Web. Google also made the computer code for the Chrome OS available to outside developers. Google said that all data in Chrome will automatically be housed on external servers, but also cached on the computer's internal hardware to boost performance. If a person loses their netbook, they can buy a new one, log in and within seconds have a machine with access to all the same data.
The world's leading industrialised nations will witness a moderate recovery, which will not be enough to check the soaring unemployment until late next year or early 2011, the Organization for Economic Cooperation and Development (OECD) said. The combined GDP of the 30 member countries, which represent the world's largest developed economies, would grow by 1.9% in 2010, the Paris-based think tank said in its semi-annual economic outlook. OECD growth will accelerate to 2.5% in 2011. In the current year, the output is set to shrink by 3.5%. In June, OECD had forecast a growth of just 0.7% in 2010 following a contraction of 4.1% in 2009. "Overall unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago," Joergen Elmeskov, the OECD's acting head of economics, said in a preface to the report.
The OECD now expects US growth to shrink 2.5% in 2009, followed by growth of 2.5% in 2010 and 2.8% in 2011. In June, the OECD forecast a 2.8% fall this year and growth of 0.9% in 2010. Japan is forecast to contract 5.3% this year, compared to an earlier forecast for a 6.8% decline. Next year, Japan is expected to grow by 1.8%, followed by an expansion of 2% in 2011. The OECD previously forecast 2010 growth of 0.7%. The euro zone is now projected to contract 4% this year, compared to a previous forecast for a 4.8% fall. In 2010, the euro zone is seen expanding by 0.9%, compared to the OECD's previous call for flat economic growth. In 2011, the OECD expects growth of 1.7%.
"The recovery is being held back by still substantial headwinds as households, financial institutions, non-financial enterprises and, eventually, governments have to repair their balance sheets," Elmeskov said. "This also means that unemployment is set to move higher and already-low inflation will be under further downward pressure," he said. "It is only some time down the line that the recovery will become sufficiently strong to begin to reduce unemployment," he added.
Telenor said that it has trimmed its accumulated capex guidance for the first five years of its operations in India by about 4 billion crowns (US$712.6mn) while maintaining other targets. The Norwegian wireless telephone operator said that its rollout, combined with better terms from equipment vendors will reduce capex requirements. The company is scheduled to launch its India services later this year. "The earlier communicated peak funding of Rs155bn is now expected to be somewhat lower," Telenor said in a statement, adding that the reduction in Indian capex would be around Rs30-35bn. "The market share ambition and other financial targets, including EBITDA break-even approximately three years after launch and operating cash flow break-even approximately five years after launch, are still valid," it added. Telenor also said that the Foreign Investment Promotion Board (FIPB) has formally allowed it to increase its shareholding in its Indian venture to 67.25%. The company gave the status update on India at Morgan Stanley's annual investor conference in Barcelona. Telenor has agreements with approximately 1,000 distributors and 300,000 points of sale in place. About 12,000 base stations have been installed already. It will rollout mobile services in majority of 22 Indian telecom circles, while meeting licence obligations in all. Telenor will evaluate the opex profile according to market development.
Bharti Airtel announced a new Airtel Turbo plan that reduces roaming rates by nearly 60%. This is expected to drive usage amongst the 115 million customers across the country while roaming. Airtel mobile customers who enroll into the Airtel Turbo plan will be charged 60 paisa per minute for all incoming calls while roaming. Building on the strong Airtel community of customers, Airtel Turbo offers Local and STD outgoing calls to an Airtel mobile customer while roaming at 60 paisa per minute. While Local and STD outgoing calls to another network while roaming will be 80 paisa per minute. These reduced roaming tariffs spells huge benefits of up to 60% for all Airtel mobile users enrolled under the Airtel Turbo plan.
Reliance Industries Ltd. (RIL) plans an aggressive exploration campaign, investments in petrochemicals and overseas acquisitions, chairman Mukesh Ambani told shareholders at the annual general meeting (AGM). The company will work towards attaining global scale for its conventional energy platform - petrochemicals, refining and oil and gas exploration - and invest in its new businesses such as retailing and alternative energy, Ambani said. "The business transformation initiative would create a Reliance that is able to scale up existing businesses; adds new business both organically and inorganically," said Ambani.
He said that while the global financial crisis had fundamentally changed the world of business, RIL expected it would have both strong growth and a larger global footprint. "Exploration and production business would give the company a much higher growth trajectory in the coming years," Ambani said.
In April, RIL began pumping gas from its find in the Krishna Godavari basin, off the east coast, which is expected to almost double the country's gas supplies at peak production. Gas production has crossed 6 billion cubic metres and the field is slated to plateau production by the second half of 2010. Oil production has reached 2.8 million barrels with daily peak production expected by the end of the year, Ambani said. This production is from just three of the 19 discoveries in the area, he said.
RIL also plans to set up a petrochemical complex in Jamnagar that would nearly double its current capacity to 4 million tons a year. "Now that the oil and gas petroleum refining projects are commissioned, Reliance will work on making this world-class project a reality." RIL already has the single largest refining complex in world at Jamnagar in Gujarat, with a capacity to process 1.24 million barrels per day.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged the Finance Minister to urgently direct commercial banks to relax lending rates by at least 2% in a bid to inspire corporates to increase credit off take from them.
According to information received by the ASSOCHAM, corporates have started devising alternate means to access liquidity to support their diversification plans to channels like Qualified Institutional Placements (QIP), Private Equity (PE), Venture Capital (VC), Mutual Funds (MFs) and foreign capital in absence of the fact that commercial banks are refusing to adhere to softer lending regime.
The cost of funds in Indian economy is much more expensive even now than anywhere in world, despite huge liquidity available with the system. This has also adversely impacted exporters, who have to compete with neighbouring countries, where cost of funds and other sops are much more attractive than at home, feels the ASSOCHAM.
In an SoS sent to Finance Minister, Mr. Pranab Mukherjee, the ASSOCHAM has argued that despite the fact commercial banks are flushed with funds, credit off take has not been happening as intended and therefore, there is a strong case to reduce lending rates by at least 2%.
In a statement, President ASSOCHAM, Dr. Swati Piramal pointed out that growth in deposit rates has gone up by about 22% up to October end, as against their credit off take of around 9% up to the corresponding period, which has hardly kept pace with growing deposit rates. Commercial banks’ lending rates vary at 12-15% as of now.
The ASSOCHAM Chief further pointed out that since lending rates continue to be on higher plane, Indian corporates have found alternate means to access credit at cheaper and reasonable rates to fund their expansion plans. The instruments on which corporates are turning their reliability to raise resources as compared to commercial banks include QIP, PE, VC, MFs and foreign capital etc.
This is due to the reason that processes and procedures for raising funds in above identified instruments are virtually cumbersome less and lending rates there are much more reasonable. These channels have put up stiff challenge for commercial banks and until interest rates are brought down in them, whatever access liquidity they have acquired due to growing deposit rates and other factors, the money will stagnate with the system without being use to Indian industry.
Dr. Piramal also said that commercial banks are being avoided by domestic players as a good number of them are offloading the promoters equity by roping public participation in their entities. This is another channel that the corproates have discovered to raise money.
Thus, it is in the interest of commercial banks that they relax lending rates to avoid accumulation of liquidity with them. Still other reason as to how money and liquidity keeps accumulating with the commercial banks is because their excessive deposits and incremental credit is parked with government securities at a rate of return of around 3.25% in the form of repo rate and mutual funds. Rs.1,50,000 crores of money of commercial banks is parked with RBI in the form of repo rate and in government securities, mutual funds, bank’s investments exceed Rs.1 lakh crore.
These accumulated funds have limited income unless lent and such funds can be flushed out provided there is a taker for them. Thus, the ASSOCHAM has advised the Finance Minister to immediately issue directives so that commercial banks reduce interest rates as suggested by at least 2% which will also be in line with the monetary policy rates relaxed by RBI.
The Reserve Bank of India (RBI) must tighten its monetary policy fairly soon to check rising inflation, the Organization for Economic Cooperation and Development (OECD) said. "Given the magnitude of easing and the speed at which inflation has bounced back, monetary policy will need to be tightened fairly soon," the Paris-based adviser to the world's most industrialised nations said. India's consumer price index (CPI) for industrial workers may average 5.4% in the next fiscal year starting April 1, 2010, more than double the rate in the current year, the OECD said. During the same period, India’s economic growth may accelerate to 7.3% from 6.1%, it said in a report. "Given that activity is expected to strengthen relatively quickly and that the recovery is likely to have begun with only a modest level of slack in the economy, delayed fiscal consolidation will also contribute to higher inflationary pressures," the OECD said.
New Zealand has been named the world's least corrupt nation by Transparency International.It has topped the table with a score of 9.4 after coming second last year. Last year's leader Denmark has slipped to the second place with a score of 9.3. Singapore and Sweden are tied at the third place with a score of 9.2 and Switzerland is ranked fourth with a score of 9.0.
Somalia had a score of 1.1, Afghanistan 1.3, Myanmar 1.4 and Sudan has been tied with Iraq at 1.5.Rounding out the top 10 are Finland, the Netherlands, Australia, Canada and Iceland. Britain came 17th in the list and the United States was 19th with a score of 7.5. More than 130 of the countries scored below 5.
The bulls and bears are all set to continue their slugfest, as both the camps try to outdo each other amid what looks like a listless market. The key indices will remain generally clueless in a tight range, though the bias still remains slightly positive. The Nifty could take another shot at a new high for the year 2009 even as traders consider their bets ahead of the F&O expiry on Nov. 26. Its a no-brainer that global markets will continue to drive the sentiment along with the trend in fund flows. In this context, what is worrying is that the FIIs have turned net sellers in the past two days. Local funds continue to exhibit caution with the market close to the year's peak. Keep a close watch on fund flows to gauge the mood of the market.
For India, the next big event will be the release of Q2 GDP figures on Nov. 30. Of course, with the winter session of parliament underway one should expect a fair bit of newsflow from the capital. Sugar stocks will remain in the spotlight on expectations of some announcement on the proposed sugar ordinance. Also, the Prime Minister leaves for the much-hyped US visit over the weekend.
Coming to the global markets, Wall Street will be in a holiday mood ahead of the traditional Black Friday. US markets will be shut on Thursday on account of the Thanksgiving Day and will close early on Friday. Lots of potentially market moving economic reports are due next week in the US. Among the key ones include: data on existing home sales, new home sales, GDP, consumer confidence, FOMC minutes, durable goods order, personal income and consumer spending. Volume, which have already dipped lately, could take further hit. Don't forget to tune into events and developments from other parts of the world as well.
Parliament proceedings were completely paralyzed for the first two days of the winter session as sugarcane farmers, with the backing of the opposition parties, protested against a proposed ordinance. The farmers protested against Sugar Control (Amendment) Order, which fixes a uniform Central Fair and Remunerative Price (FRP) for sugarcane growers. They forced adjournment of both Lok Sabha and Rajya Sabha till Monday demanding a hike in sugarcane purchase prices. Thousands of sugarcane farmers gathered in New Delhi to protest a Rs35 per quintal drop in price they get for their crop after an Oct. 21 government ordinance. The Government has announced a price of Rs129.85 per quintal for sugarcane during the 2009-10 crushing season under the FRP system, while the Uttar Pradesh State Advisory Price (SAP) has been set between Rs.165 and Rs.170 per quintal. In case a state government fixes SAP higher than the FRP, it will have to pay the difference, according to the proposed sugar ordinance. Farmers want Rs.280 per quintal for their produce.
Farmers from Western UP, who have been demanding a price of Rs 240 per quintal, jammed Central Delhi, while their representatives in Parliament from Ajit Singh-led RLD, Mulayam Singh led-SP and Sharad Yadav-led JD(U) disrupted the functioning of the Lok Sabha, demanding withdrawal of the Order and payment of higher purchase price for sugarcane by mills. The Bharatiya Janata Party asked the government to convene an all-party meeting on the sugarcane pricing policy in the wake of opposition to the Centre's FRP ordinance. The Government will amend the ordinance on sugarcane prices if it affects the interest of farmers, Prime Minister Dr. Manmohan Singh said. Congress General Secretary Digvijay Singh said that the PM has assured Rahul Gandhi that the Centre will amend the ordinance suitably if it was against the interest of farmers. The Government called leaders of all political parties for a breakfast meeting on Monday to find a solution.
The Government has no plans to put a keep lid on overseas capital inflows but will monitor the trend closely, Finance Secretary Ashok Chawla said on Thursday. He told reporters in New Delhi that rising capital inflows is not a matter of concern as of now. He also denied that the Government is planning to cap overseas borrowings by local companies in a bid to check relentless foreign capital inflows. A business daily had reported earlier that the Centre was planning to auction quotas for external commercial borrowings (ECB) by Indian companies, which would increase the cost of raising such funds. "There is no such proposal," Chawla said.
With interest rates in matured economies near zero and no signs of central banks in these nations being in a hurry to withdraw the unprecedented stimulus measures, money has been flooding risky assets like emerging market equities, commodities and gold. India too has seen strong foreign inflows into its stock market this year with a steady improvement in its economy and corporate earnings. In order to prevent a repeat of 2007 when unbridled FII inflows made monetary management really tough for the Reserve Bank of India (RBI). Some countries, including Brazil and Taiwan, have already imposed certain controls, and some Asian central banks, including the RBI have adopted measures to curb a surge in real estate prices.
"As of now it is not a cause of concern. As the situation evolves we will see what needs to be done," Chawla said when asked if the Government is contemplating any move to curb the strong foreign inflows. FIIs have pumped in more than US$15bn into Indian stocks in 2009, after pulling out US$13bn in 2008, helping send the benchmark indices up more than 75%. The influx of foreign funds has also lifted up the rupee against the US dollar. On Nov. 18, Finance Minister Pranab Mukherjee said that the Centre has the wherewithal to deal with any possible surge in foreign capital inflows, but added that they are not a major cause for concern just yet.
The Government is not considering imposing a tax to curb capital inflows, and wants the inflows to rise a little more, deputy chairman of the planning commission Montek Singh Ahluwalia was quoted as saying. "Capital flows are rising but we want it to rise a little bit more," Ahluwalia said. Asked if there was a possibility of India imposing a tax to curb capital inflows, he said, "I don't, certainly not". He said that foreign fund inflows we