Thursday, December 31, 2009
Thursday, December 24, 2009
Divestment may bring in Rs 32,500 cr in 3 months
NEW DELHI: The government could raise around Rs 32,500 crore in the next three months through its revived divestment programme, more than 55% of
what it has collected from sale of its shares in public sector undertakings since 1991.
The United Progressive Alliance (UPA) government, which is facing the largest fiscal deficit in the past 16 years, is keen to raise as much as it can this year to bridge the funding gap. The deficit soared to Rs 397,000 crore or about 6.8% of the national income this year, as a result of the government’s stimulus measures, announced to avert an economic downturn after some of the world’s largest economies fell into the grip of a recession.
The government has already kicked off big-ticket divestment programmes in NTPC and NMDC, from which it plans to mop-up around Rs 25,000 crore. In NTPC, the government is divesting a 5% stake to collect Rs 11,000 crore through the fast-track route, making this the fist follow-on public offer to use this facility.
It will divest a 8.38% stake in NMDC to take the total floating stock of the company to 10%. The government is set to appoint six investment bankers for this issue shortly. At the current market price of Rs 415 per share, the stake on the block would fetch the government around Rs 14,000 crore. However, bankers are sceptical about the pricing of the issue.
“The valuation seems to be stretched,” said a banker, who has bid for the mandate of NMDC issue. The current share price is based on a tiny floating stock and may not be reflective of the underlying value of the company, he said, requesting anonymity. The government has set the deadline of March-end to close the issue.
To facilitate the divestment drive, market regulator Sebi has relaxed the guidelines governing follow-on public offers. This will help government complete some of these issues by the year-end.
Under the fast-track route, a company does not have to wait for the approval of the market regulator, which normally takes more than a month. “Once the prospectus is ready and filed with the regulator, the issue can open for subscription,” said a banker. A senior government official in the department of disinvestment said the government is also planning to sell 5% in Steel Authority of India (SAIL).
“The process is likely to start in January after the Cabinet gives its approval. The follow-on public offer (FPO) of SAIL will be under the fast-track route, which will help the government to close the entire process within 45 days from the date of approval,” he said, requesting anonymity.
At the current price of Rs 235.60 per share, SAIL’s market value is Rs 97,300 crore, and a 5% divestment would fetch nearly Rs 5,000 crore. The issue will be priced at the premium to the current market price, said another banker.
The government has already raised Rs 4,260 crore this fiscal year through divestment of minority stakes in NHPC (Rs 2,013 crore) and Oil India (Rs 2,247 crore). The government has already mopped up far in excess of the target of Rs 1,120 crore set by the Union Budget 2009-10. Even in the case of NTPC and REC, the government has asked these bankers to price the issue at substantial premium over the current market price.
The UPA government has collected around Rs 57,683 crore so far from the divestment programme, started in 1991. In its previous term, it could not sell stakes in public sector firms due to pressure from its Left allies. The government led by Manmohan Singh looks more confident to carry forward reform agenda in its second term, as it no longer needs the Left’s support.
what it has collected from sale of its shares in public sector undertakings since 1991.
The United Progressive Alliance (UPA) government, which is facing the largest fiscal deficit in the past 16 years, is keen to raise as much as it can this year to bridge the funding gap. The deficit soared to Rs 397,000 crore or about 6.8% of the national income this year, as a result of the government’s stimulus measures, announced to avert an economic downturn after some of the world’s largest economies fell into the grip of a recession.
The government has already kicked off big-ticket divestment programmes in NTPC and NMDC, from which it plans to mop-up around Rs 25,000 crore. In NTPC, the government is divesting a 5% stake to collect Rs 11,000 crore through the fast-track route, making this the fist follow-on public offer to use this facility.
It will divest a 8.38% stake in NMDC to take the total floating stock of the company to 10%. The government is set to appoint six investment bankers for this issue shortly. At the current market price of Rs 415 per share, the stake on the block would fetch the government around Rs 14,000 crore. However, bankers are sceptical about the pricing of the issue.
“The valuation seems to be stretched,” said a banker, who has bid for the mandate of NMDC issue. The current share price is based on a tiny floating stock and may not be reflective of the underlying value of the company, he said, requesting anonymity. The government has set the deadline of March-end to close the issue.
To facilitate the divestment drive, market regulator Sebi has relaxed the guidelines governing follow-on public offers. This will help government complete some of these issues by the year-end.
Under the fast-track route, a company does not have to wait for the approval of the market regulator, which normally takes more than a month. “Once the prospectus is ready and filed with the regulator, the issue can open for subscription,” said a banker. A senior government official in the department of disinvestment said the government is also planning to sell 5% in Steel Authority of India (SAIL).
“The process is likely to start in January after the Cabinet gives its approval. The follow-on public offer (FPO) of SAIL will be under the fast-track route, which will help the government to close the entire process within 45 days from the date of approval,” he said, requesting anonymity.
At the current price of Rs 235.60 per share, SAIL’s market value is Rs 97,300 crore, and a 5% divestment would fetch nearly Rs 5,000 crore. The issue will be priced at the premium to the current market price, said another banker.
The government has already raised Rs 4,260 crore this fiscal year through divestment of minority stakes in NHPC (Rs 2,013 crore) and Oil India (Rs 2,247 crore). The government has already mopped up far in excess of the target of Rs 1,120 crore set by the Union Budget 2009-10. Even in the case of NTPC and REC, the government has asked these bankers to price the issue at substantial premium over the current market price.
The UPA government has collected around Rs 57,683 crore so far from the divestment programme, started in 1991. In its previous term, it could not sell stakes in public sector firms due to pressure from its Left allies. The government led by Manmohan Singh looks more confident to carry forward reform agenda in its second term, as it no longer needs the Left’s support.
Dubai Shares Fall Most in World as Investors Wait for Debt Plan
Dec. 23 (Bloomberg) -- Dubai stocks retreated the most in two weeks as investors wait for state-owned holding company Dubai World to present a debt restructuring plan.
Emirates NBD PJSC, a Dubai-government controlled lender, tumbled to the lowest close in seven months. Emaar Properties PJSC, the United Arab Emirates’ biggest construction company, fell for a second day. The DFM General Index dropped 3.8 percent, the biggest fluctuation among stock indexes tracked globally by Bloomberg News, to 1,735.7 in Dubai. Dubai’s benchmark index has gained 6.1 percent this year.
Dubai World may present a “standstill” offer to banks in early January as it aims to restructure $22 billion of debt, said three bankers who attended a presentation on the matter earlier this week. The company told lenders it needs time to allow its assets to recover from a drop in value following the credit crunch, said the bankers, who declined to be identified because the meeting was private.
“Investors are waiting” for Dubai World news, said Hesham Bakry, Dubai-based institutional sales manager at Al-Futtaim HC Securities Co. “The Dubai situation is very sensitive.”
Dubai’s benchmark index has retreated 17 percent since Dubai World on Nov. 25 said it would seek to freeze or delay repaying debt until at least May 30. The company said Dec. 1 it wants to alter terms on about $26 billion of debt, including that of Nakheel PJSC, which is building palm tree-shaped islands off the emirate’s coast. Dubai World repaid $4.1 billion on an Islamic bond from Nakheel last week after Dubai received a $10 billion loan from the Abu Dhabi government.
Emirates NBD, the U.A.E.’s biggest bank by assets, tumbled 4.9 percent to 2.89 dirhams, the lowest close since May 19. Emaar dropped 6 percent to 3.59 dirhams.
Abu Dhabi’s benchmark index lost 1.9 percent, Qatar’s DSM 20 Index declined 0.6 percent, the Kuwait Stock Exchange index retreated 0.2 percent, Oman’s MSM30 Index dropped 0.9 percent and Bahrain’s measure slid 1 percent. Saudi Arabia’s Tadawul All Share Index gained 0.2 percent.
Emirates NBD PJSC, a Dubai-government controlled lender, tumbled to the lowest close in seven months. Emaar Properties PJSC, the United Arab Emirates’ biggest construction company, fell for a second day. The DFM General Index dropped 3.8 percent, the biggest fluctuation among stock indexes tracked globally by Bloomberg News, to 1,735.7 in Dubai. Dubai’s benchmark index has gained 6.1 percent this year.
Dubai World may present a “standstill” offer to banks in early January as it aims to restructure $22 billion of debt, said three bankers who attended a presentation on the matter earlier this week. The company told lenders it needs time to allow its assets to recover from a drop in value following the credit crunch, said the bankers, who declined to be identified because the meeting was private.
“Investors are waiting” for Dubai World news, said Hesham Bakry, Dubai-based institutional sales manager at Al-Futtaim HC Securities Co. “The Dubai situation is very sensitive.”
Dubai’s benchmark index has retreated 17 percent since Dubai World on Nov. 25 said it would seek to freeze or delay repaying debt until at least May 30. The company said Dec. 1 it wants to alter terms on about $26 billion of debt, including that of Nakheel PJSC, which is building palm tree-shaped islands off the emirate’s coast. Dubai World repaid $4.1 billion on an Islamic bond from Nakheel last week after Dubai received a $10 billion loan from the Abu Dhabi government.
Emirates NBD, the U.A.E.’s biggest bank by assets, tumbled 4.9 percent to 2.89 dirhams, the lowest close since May 19. Emaar dropped 6 percent to 3.59 dirhams.
Abu Dhabi’s benchmark index lost 1.9 percent, Qatar’s DSM 20 Index declined 0.6 percent, the Kuwait Stock Exchange index retreated 0.2 percent, Oman’s MSM30 Index dropped 0.9 percent and Bahrain’s measure slid 1 percent. Saudi Arabia’s Tadawul All Share Index gained 0.2 percent.
Wednesday, December 23, 2009
Oil Is Near a Two-Week High on Signs of U.S. Economic Recovery
Dec. 23 (Bloomberg) -- Crude oil traded near a two-week high in New York as positive housing and fuel-inventory data signaled a recovery in the U.S., the world’s largest energy user.
Oil climbed above $74 a barrel yesterday after the National Association of Realtors reported November sales of existing homes increased at the highest annual rate since February 2007, indicating the industry at the center of the recession has stabilized. Separately, the American Petroleum Institute said the country’s crude oil and refined-product stockpiles declined.
“The psychology has changed significantly,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “There are increasing signs of recovery in the key market, the U.S.”
Crude oil for February delivery was at $74.42 a barrel, up 2 cents, in electronic trading on the New York Mercantile Exchange at 10:49 a.m. Singapore time. Futures closed yesterday at $74.40, the highest settlement since Dec. 4. There will be no trading Dec. 25 for Christmas and on Jan. 1 for New Year’s Day.
Oil, which lost 54 percent in 2008, has gained 67 percent this year on speculation global demand for fuels will increase with the economic rebound.
Yesterday’s existing-homes sales figure rate exceeded the highest estimate from economists surveyed by Bloomberg News. The Commerce Department is expected to report today November sales of new homes also increased.
Stockpiles Fall
Commercially held crude oil inventories in the U.S. fell 3.71 million barrels last week to 328.8 million, said the industry-funded American Petroleum Institute. Gasoline stockpiles declined 1.1 million barrels to 215.9 million, the biggest drop in 10 weeks. Distillate fuel supplies, which include heating oil and diesel, slipped 745,000 barrels to 165.1 million, the API said.
An Energy Department report today is expected to show crude oil stockpiles fell 1.6 million barrels in the week ended Dec. 18, according to the median of estimates from 16 analysts polled by Bloomberg News. Distillate inventories probably dropped 2 million barrels, the survey showed. The report will be released at 10:30 a.m. in Washington.
U.S. gasoline demand rose the most in three weeks as drivers in the northeast filled up before a snowstorm, according to MasterCard Inc., the second-biggest credit card company.
Motorists bought an average 9.57 million barrels a day of gasoline in the week to Dec. 18, MasterCard said yesterday in its SpendingPulse report. Consumption increased 2.9 percent from the previous week and 1.7 percent from a year earlier.
OPEC Quotas
The Organization of Petroleum Exporting Countries agreed at a meeting yesterday in Luanda, Angola, to hold production quotas at 24.845 million barrels a day. The 12-member group, which pumps about 40 percent of the world’s oil, has gathered four times this year without revising official output targets.
Rising oil prices have encouraged some OPEC members to renege on their pledge in 2008 to reduce supply by 4.2 million barrels a day. Secretary-General Abdalla el-Badri said he wants quota compliance to improve to between 75 percent and 80 percent from the current level of about 60 percent.
“No change in quotas was largely expected by the market,” said Kaha Kiknavelidze, a managing partner at London-based Rioni Capital Partners LLP, a hedge fund that specializes in emerging markets. “More important is compliance, which has deteriorated meaningfully. That puts pressure on prices.”
Brent crude oil for February settlement traded at $73.40 a barrel on the London-based ICE Futures Europe exchange, down 6 cents, at 10:48 a.m. Singapore time. Yesterday, the contract rose 47 cents, or 0.6 percent, to settle at $73.46 a barrel.
Oil climbed above $74 a barrel yesterday after the National Association of Realtors reported November sales of existing homes increased at the highest annual rate since February 2007, indicating the industry at the center of the recession has stabilized. Separately, the American Petroleum Institute said the country’s crude oil and refined-product stockpiles declined.
“The psychology has changed significantly,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “There are increasing signs of recovery in the key market, the U.S.”
Crude oil for February delivery was at $74.42 a barrel, up 2 cents, in electronic trading on the New York Mercantile Exchange at 10:49 a.m. Singapore time. Futures closed yesterday at $74.40, the highest settlement since Dec. 4. There will be no trading Dec. 25 for Christmas and on Jan. 1 for New Year’s Day.
Oil, which lost 54 percent in 2008, has gained 67 percent this year on speculation global demand for fuels will increase with the economic rebound.
Yesterday’s existing-homes sales figure rate exceeded the highest estimate from economists surveyed by Bloomberg News. The Commerce Department is expected to report today November sales of new homes also increased.
Stockpiles Fall
Commercially held crude oil inventories in the U.S. fell 3.71 million barrels last week to 328.8 million, said the industry-funded American Petroleum Institute. Gasoline stockpiles declined 1.1 million barrels to 215.9 million, the biggest drop in 10 weeks. Distillate fuel supplies, which include heating oil and diesel, slipped 745,000 barrels to 165.1 million, the API said.
An Energy Department report today is expected to show crude oil stockpiles fell 1.6 million barrels in the week ended Dec. 18, according to the median of estimates from 16 analysts polled by Bloomberg News. Distillate inventories probably dropped 2 million barrels, the survey showed. The report will be released at 10:30 a.m. in Washington.
U.S. gasoline demand rose the most in three weeks as drivers in the northeast filled up before a snowstorm, according to MasterCard Inc., the second-biggest credit card company.
Motorists bought an average 9.57 million barrels a day of gasoline in the week to Dec. 18, MasterCard said yesterday in its SpendingPulse report. Consumption increased 2.9 percent from the previous week and 1.7 percent from a year earlier.
OPEC Quotas
The Organization of Petroleum Exporting Countries agreed at a meeting yesterday in Luanda, Angola, to hold production quotas at 24.845 million barrels a day. The 12-member group, which pumps about 40 percent of the world’s oil, has gathered four times this year without revising official output targets.
Rising oil prices have encouraged some OPEC members to renege on their pledge in 2008 to reduce supply by 4.2 million barrels a day. Secretary-General Abdalla el-Badri said he wants quota compliance to improve to between 75 percent and 80 percent from the current level of about 60 percent.
“No change in quotas was largely expected by the market,” said Kaha Kiknavelidze, a managing partner at London-based Rioni Capital Partners LLP, a hedge fund that specializes in emerging markets. “More important is compliance, which has deteriorated meaningfully. That puts pressure on prices.”
Brent crude oil for February settlement traded at $73.40 a barrel on the London-based ICE Futures Europe exchange, down 6 cents, at 10:48 a.m. Singapore time. Yesterday, the contract rose 47 cents, or 0.6 percent, to settle at $73.46 a barrel.
Tuesday, December 22, 2009
India 'pleased' with climate summit
India says it is pleased at the outcome of the recently concluded climate change talks in Copenhagen.
Environment Minister Jairam Ramesh told MPs that India had been able to resist pressure from the developed world to sign up to binding emission targets.
The Copenhagen agreement has been criticised in India.
Critics say the country was forced to give up its sovereignty and agree to international checking of its efforts to lower its greenhouse gas emissions.
Facing parliament for the first time since he returned from the talks, Mr Ramesh was upbeat.
He said all of India's concerns had been safeguarded which included resisting signing up to legally binding emission targets and identifying a peak year for carbon emissions.
In fact, he added, the BASIC group of countries which includes Brazil, South Africa, India and China had emerged as a powerful force in climate change negotiations, especially in the face of relentless pressure from richer countries.
But, he said, India's approach had been recognised as constructive.
The Copenhagen agreement has been strongly criticised by environmentalists and opposition parties in India.
Environment Minister Jairam Ramesh told MPs that India had been able to resist pressure from the developed world to sign up to binding emission targets.
The Copenhagen agreement has been criticised in India.
Critics say the country was forced to give up its sovereignty and agree to international checking of its efforts to lower its greenhouse gas emissions.
Facing parliament for the first time since he returned from the talks, Mr Ramesh was upbeat.
He said all of India's concerns had been safeguarded which included resisting signing up to legally binding emission targets and identifying a peak year for carbon emissions.
In fact, he added, the BASIC group of countries which includes Brazil, South Africa, India and China had emerged as a powerful force in climate change negotiations, especially in the face of relentless pressure from richer countries.
But, he said, India's approach had been recognised as constructive.
The Copenhagen agreement has been strongly criticised by environmentalists and opposition parties in India.
Monday, December 14, 2009
November inflation at 4.78% YoY on high food prices
The annual rate of inflation based on monthly wholesale price index (WPI) for the month of November is up 4.78% (provisional) as against 1.34% in October 2009 and 8.48% in November 2008. In the fiscal year, inflation build up so far was 7.54% compared to 3.86% in the corresponding period of last year.
Inflation internals (MoM)
- Primary articles up 2.6% at 280.6
- Food items up 3.2% at 287.1
- Non-food items up 1.6% at 240.1
- Fuel group at 344.9
- Manufactured products up 1.2% at 211.1
Manufacturing inflation has come in as a surprise leading experts to believe that RBI action is almost imminent now.
Saugato Bhattacharya of Axis Bank believes this is a matter of concern, and quite disturbing, "We didn't expect manufacturing inflation to go up this quickly in November," he said in an interview on CNBC-TV18.
"The RBI would be forced to take this number seriously," he said adding that a degree of tightening is almost imminent now.
According to him, the priority would be to tighten liquidity. He expects the RBI to start doing this through a cash reserve ratio (CRR) hike first. Thereafter, he expects that interest rates would be hiked.
He expects the year end inflation to be around 7.5-8% (around March-April). That maybe the peak and inflation may not rise after that, he said.
Inflation internals (MoM)
- Primary articles up 2.6% at 280.6
- Food items up 3.2% at 287.1
- Non-food items up 1.6% at 240.1
- Fuel group at 344.9
- Manufactured products up 1.2% at 211.1
Manufacturing inflation has come in as a surprise leading experts to believe that RBI action is almost imminent now.
Saugato Bhattacharya of Axis Bank believes this is a matter of concern, and quite disturbing, "We didn't expect manufacturing inflation to go up this quickly in November," he said in an interview on CNBC-TV18.
"The RBI would be forced to take this number seriously," he said adding that a degree of tightening is almost imminent now.
According to him, the priority would be to tighten liquidity. He expects the RBI to start doing this through a cash reserve ratio (CRR) hike first. Thereafter, he expects that interest rates would be hiked.
He expects the year end inflation to be around 7.5-8% (around March-April). That maybe the peak and inflation may not rise after that, he said.
Tuesday, December 08, 2009
Repower Expects Wind Turbine Orders to Rise in 2010, CEO Says
Dec. 8 (Bloomberg) -- Repower Systems AG, the German unit of India’s Suzlon Energy Ltd., expects wind-turbine orders to rise next year as climate-change talks in Copenhagen may increase demand for renewable energy.
“The industry was pretty low on order inflow in 2009 and we are seeing the first signs of that easing up a bit,” Repower Chief Executive Officer Per Hornung Pedersen said yesterday, declining to give a numerical forecast. “The signals from Copenhagen are very important.”
Negotiators from 192 nations at the Copenhagen talks that started yesterday may agree on a framework to curb emissions from power plants and factories blamed for global warming. An accord with strong global endorsement to fight climate change could potentially accelerate the wind-power industry, Denmark- based MAKE Consulting said in a Nov. 24 report.
Repower yesterday announced an order from the U.S. to supply 70 turbines capable of generating 143.5 megawatts of power, the second deal in less than two weeks for the Hamburg- based company.
Suzlon rose 4.7 percent to 83.05 rupees in Mumbai trading yesterday, the most since Nov. 30. Repower gained 0.3 percent to 115.05 euros in Frankfurt.
“The industry was pretty low on order inflow in 2009 and we are seeing the first signs of that easing up a bit,” Repower Chief Executive Officer Per Hornung Pedersen said yesterday, declining to give a numerical forecast. “The signals from Copenhagen are very important.”
Negotiators from 192 nations at the Copenhagen talks that started yesterday may agree on a framework to curb emissions from power plants and factories blamed for global warming. An accord with strong global endorsement to fight climate change could potentially accelerate the wind-power industry, Denmark- based MAKE Consulting said in a Nov. 24 report.
Repower yesterday announced an order from the U.S. to supply 70 turbines capable of generating 143.5 megawatts of power, the second deal in less than two weeks for the Hamburg- based company.
Suzlon rose 4.7 percent to 83.05 rupees in Mumbai trading yesterday, the most since Nov. 30. Repower gained 0.3 percent to 115.05 euros in Frankfurt.
India Car Sales Rise Most in 5 Years as Economy Grows
Dec. 8 (Bloomberg) -- India’s passenger car sales rose the most in more than five years in November as cheaper loan rates and economic expansion lifted demand for Maruti Suzuki India Ltd. hatchbacks and Tata Motors Ltd.’s Nano.
Sales totaled 133,687 units in November, 61 percent more than the 83,121 sold a year earlier, the Society of Indian Automobile Manufacturers said in a statement in New Delhi today. That was the biggest surge since February 2004, according to data compiled by Bloomberg.
General Motors Co., Hyundai Motor Co. and Volkswagen AG have boosted investment in China and India as the world’s two most populous nations withstand a slump in global auto sales on government support and economic growth. China, due to report its November auto sales data today, is poised to surpass the U.S. as the world’s largest auto market this year.
“India and China are the two hottest auto markets in the world and no one can afford to ignore them,” said Deepesh Rathore, a New Delhi-based analyst at industry consultant IHS Global Insight Inc. “Anyone who isn’t strong in India will try to emerge a key player as the growth here is sustainable in the long term.”
China Demand
India’s economy expanded at the fastest pace in 1 1/2 years in the quarter ended September, helped by record-low interest rates and an economic stimulus. GM and Toyota Motor Corp. are among carmakers increasing bets on India, China and other emerging markets as sales in the U.S., Japan and Europe tumble.
Sales of trucks and buses jumped 98 percent in November from a year earlier to 40,847 while motorcycle and scooter sales gained 39 percent to 790,613, according to today’s statement.
Gross domestic product grew 7.9 percent in India in the last quarter, helped by the central bank holding its key reverse repurchase rate at a record-low 3.25 percent since April. Government spending and tax cuts took the value of stimulus measures to 12 percent of GDP.
China, Japan, and the U.S. are among countries that offered a mix of credits, tax breaks and subsidies to boost auto sales by getting consumers to trade-in old cars for newer, more fuel efficient models.
SAIC Motor Corp., China’s biggest automaker, said earlier today its November sales rose 91 percent to 252,190 units, according to a filing to Shanghai’s stock exchange. Sales for the first 11 months of the year rose 54 percent to 2.44 million units, according to the statement.
Middle Class
The automaker last week formed a venture with GM, with an investment of $650 million, to enter India.
India’s car sales are forecast to grow at least 10 percent in the year to March, the group of all vehicle makers in the country predicted in August. The 13 carmakers in India sold 1.22 million cars in the fiscal year ended March.
Sales may reach 3 million units annually by 2015, helped by new models such as the Nano, the world’s cheapest car, and higher incomes among a middle class of about 50 million people, according to a 2006 government forecast. The demand has prompted carmakers including Ford Motor Co. and Volkswagen AG to build factories and introduce new models in India, Asia’s fourth- biggest automotive market.
Sales totaled 133,687 units in November, 61 percent more than the 83,121 sold a year earlier, the Society of Indian Automobile Manufacturers said in a statement in New Delhi today. That was the biggest surge since February 2004, according to data compiled by Bloomberg.
General Motors Co., Hyundai Motor Co. and Volkswagen AG have boosted investment in China and India as the world’s two most populous nations withstand a slump in global auto sales on government support and economic growth. China, due to report its November auto sales data today, is poised to surpass the U.S. as the world’s largest auto market this year.
“India and China are the two hottest auto markets in the world and no one can afford to ignore them,” said Deepesh Rathore, a New Delhi-based analyst at industry consultant IHS Global Insight Inc. “Anyone who isn’t strong in India will try to emerge a key player as the growth here is sustainable in the long term.”
China Demand
India’s economy expanded at the fastest pace in 1 1/2 years in the quarter ended September, helped by record-low interest rates and an economic stimulus. GM and Toyota Motor Corp. are among carmakers increasing bets on India, China and other emerging markets as sales in the U.S., Japan and Europe tumble.
Sales of trucks and buses jumped 98 percent in November from a year earlier to 40,847 while motorcycle and scooter sales gained 39 percent to 790,613, according to today’s statement.
Gross domestic product grew 7.9 percent in India in the last quarter, helped by the central bank holding its key reverse repurchase rate at a record-low 3.25 percent since April. Government spending and tax cuts took the value of stimulus measures to 12 percent of GDP.
China, Japan, and the U.S. are among countries that offered a mix of credits, tax breaks and subsidies to boost auto sales by getting consumers to trade-in old cars for newer, more fuel efficient models.
SAIC Motor Corp., China’s biggest automaker, said earlier today its November sales rose 91 percent to 252,190 units, according to a filing to Shanghai’s stock exchange. Sales for the first 11 months of the year rose 54 percent to 2.44 million units, according to the statement.
Middle Class
The automaker last week formed a venture with GM, with an investment of $650 million, to enter India.
India’s car sales are forecast to grow at least 10 percent in the year to March, the group of all vehicle makers in the country predicted in August. The 13 carmakers in India sold 1.22 million cars in the fiscal year ended March.
Sales may reach 3 million units annually by 2015, helped by new models such as the Nano, the world’s cheapest car, and higher incomes among a middle class of about 50 million people, according to a 2006 government forecast. The demand has prompted carmakers including Ford Motor Co. and Volkswagen AG to build factories and introduce new models in India, Asia’s fourth- biggest automotive market.
Japan Releases Stimulus Package as Recovery Weakens
Dec. 8 (Bloomberg) -- The Japanese government unveiled a 7.2 trillion yen ($81 billion) economic stimulus package amid signs the recovery and Prime Minister Yukio Hatoyama’s popularity are waning.
Hatoyama’s first stimulus plan includes 3.5 trillion yen to help regions, 600 billion yen for employment and 800 billion yen on environmental initiatives, the Cabinet said today in a statement in Tokyo. The measures had been delayed because of haggling within the coalition government.
The Democratic Party of Japan, which took office in September pledging to support households battered by two decades of economic stagnation, is grappling with a slide in prices and a surging yen. The government will say third-quarter economic growth was slower than initially reported in revised figures tomorrow, according to economists surveyed by Bloomberg News.
“It’s a necessary step,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “Without another stimulus package, it’s very likely that the economy will fall back into recession. The government simply can’t risk this right now.”
The yen has weakened since climbing to a 14-year high of 84.83 against the dollar on Nov. 27. The Japanese currency traded at 89.07 at 11:41 a.m. in Tokyo from 88.99 before the announcement. The Nikkei 225 Stock Average fell 0.5 percent.
Deflation Risk
“Risk factors include a deterioration in employment conditions, sluggish demand because of deflationary pressure, a rise in long-term interest rates and movements in the currency markets,” the statement said.
“Excessive and disorderly movements in foreign-exchange rates can inflict considerable adverse impact on the economic recovery and the government will watch movements sternly.”
Japanese policy makers are adding stimulus measures just their counterparts around the world consider how to withdraw them as the global economy recovers.
The Bank of Japan released a 10 trillion yen credit program last week, satisfying government calls for it to do more to fight declining prices. Under the program, the central bank will offer three-month loans to commercial banks at 0.1 percent interest. In a meeting with central bank Governor Masaaki Shirakawa last week, Hatoyama applauded the move and refrained from pushing for further monetary easing.
Kamei’s Call
The People’s New Party, a junior coalition member headed by Financial Services Minister Shizuka Kamei, blocked the stimulus plan last week, calling for a larger package to defeat deflation.
Coalition parties agreed to boost the size of the measures by 100 billion yen to accommodate those requests. That increase will need to be funded with so-called construction bonds, Motohisa Furukawa, a vice minister at the Cabinet Office, told reporters late yesterday.
The government said some of the package will be paid for with funds frozen from the previous administration’s extra budget. It wants to avoid selling new bonds “as much as possible,” the statement said.
Japan has the world’s largest public debt, with liabilities that are approaching twice the size of the economy.
Bond Sales
Finance Minister Hirohisa Fujii said bond sales for the current fiscal year will exceed tax revenue for the first time in the postwar period. The government will sell 53.5 trillion yen in bonds, more than the 44 trillion yen budgeted in April, he said. Tax revenue will slump to 36.9 trillion yen, less than the 46 trillion yen projected.
Today’s package includes 3 trillion yen in tax grants to local governments to make up for a revenue shortfall.
Heizo Takenaka, who was economy minister under former Prime Minister Junichiro Koizumi, yesterday attacked the government for lacking policy direction. “There’s no control tower in the policy-making system,” he said in an interview in Seoul.
The premier’s sliding popularity may hurt his party’s momentum ahead of upper house elections in July 2010. His approval rating fell below 60 percent for the first time, declining to 59 percent from last month’s 63 percent, the Yomiuri newspaper reported yesterday.
Exports Improve
Japan’s exports fell at the slowest pace in a year in October as worldwide government spending spurred demand for the nation’s products, a Finance Ministry report showed today. That helped the trade surplus expand 42.7 percent from a year earlier to 1.4 trillion yen.
Other reports show the expansion may be weakening. Industrial production advanced at the slowest pace in eight months in October, wages slid for a 17th month, and consumer prices fell a near-record 2.2 percent.
Gross domestic product rose at an annual 2.8 percent rate in the three months ended Sept. 30, according to the median estimate of 17 economists surveyed by Bloomberg News ahead of tomorrow’s revised figures. That would be slower than the 4.8 percent the Cabinet Office initially reported, reflecting figures last week that showed companies cut capital spending at a record pace in the period.
The world’s second-largest economy will probably shrink 5.4 percent this year, more than a 4.2 percent contraction in the euro area and a 2.7 percent drop in the U.S., the International Monetary Fund forecast in October.
Hatoyama’s first stimulus plan includes 3.5 trillion yen to help regions, 600 billion yen for employment and 800 billion yen on environmental initiatives, the Cabinet said today in a statement in Tokyo. The measures had been delayed because of haggling within the coalition government.
The Democratic Party of Japan, which took office in September pledging to support households battered by two decades of economic stagnation, is grappling with a slide in prices and a surging yen. The government will say third-quarter economic growth was slower than initially reported in revised figures tomorrow, according to economists surveyed by Bloomberg News.
“It’s a necessary step,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “Without another stimulus package, it’s very likely that the economy will fall back into recession. The government simply can’t risk this right now.”
The yen has weakened since climbing to a 14-year high of 84.83 against the dollar on Nov. 27. The Japanese currency traded at 89.07 at 11:41 a.m. in Tokyo from 88.99 before the announcement. The Nikkei 225 Stock Average fell 0.5 percent.
Deflation Risk
“Risk factors include a deterioration in employment conditions, sluggish demand because of deflationary pressure, a rise in long-term interest rates and movements in the currency markets,” the statement said.
“Excessive and disorderly movements in foreign-exchange rates can inflict considerable adverse impact on the economic recovery and the government will watch movements sternly.”
Japanese policy makers are adding stimulus measures just their counterparts around the world consider how to withdraw them as the global economy recovers.
The Bank of Japan released a 10 trillion yen credit program last week, satisfying government calls for it to do more to fight declining prices. Under the program, the central bank will offer three-month loans to commercial banks at 0.1 percent interest. In a meeting with central bank Governor Masaaki Shirakawa last week, Hatoyama applauded the move and refrained from pushing for further monetary easing.
Kamei’s Call
The People’s New Party, a junior coalition member headed by Financial Services Minister Shizuka Kamei, blocked the stimulus plan last week, calling for a larger package to defeat deflation.
Coalition parties agreed to boost the size of the measures by 100 billion yen to accommodate those requests. That increase will need to be funded with so-called construction bonds, Motohisa Furukawa, a vice minister at the Cabinet Office, told reporters late yesterday.
The government said some of the package will be paid for with funds frozen from the previous administration’s extra budget. It wants to avoid selling new bonds “as much as possible,” the statement said.
Japan has the world’s largest public debt, with liabilities that are approaching twice the size of the economy.
Bond Sales
Finance Minister Hirohisa Fujii said bond sales for the current fiscal year will exceed tax revenue for the first time in the postwar period. The government will sell 53.5 trillion yen in bonds, more than the 44 trillion yen budgeted in April, he said. Tax revenue will slump to 36.9 trillion yen, less than the 46 trillion yen projected.
Today’s package includes 3 trillion yen in tax grants to local governments to make up for a revenue shortfall.
Heizo Takenaka, who was economy minister under former Prime Minister Junichiro Koizumi, yesterday attacked the government for lacking policy direction. “There’s no control tower in the policy-making system,” he said in an interview in Seoul.
The premier’s sliding popularity may hurt his party’s momentum ahead of upper house elections in July 2010. His approval rating fell below 60 percent for the first time, declining to 59 percent from last month’s 63 percent, the Yomiuri newspaper reported yesterday.
Exports Improve
Japan’s exports fell at the slowest pace in a year in October as worldwide government spending spurred demand for the nation’s products, a Finance Ministry report showed today. That helped the trade surplus expand 42.7 percent from a year earlier to 1.4 trillion yen.
Other reports show the expansion may be weakening. Industrial production advanced at the slowest pace in eight months in October, wages slid for a 17th month, and consumer prices fell a near-record 2.2 percent.
Gross domestic product rose at an annual 2.8 percent rate in the three months ended Sept. 30, according to the median estimate of 17 economists surveyed by Bloomberg News ahead of tomorrow’s revised figures. That would be slower than the 4.8 percent the Cabinet Office initially reported, reflecting figures last week that showed companies cut capital spending at a record pace in the period.
The world’s second-largest economy will probably shrink 5.4 percent this year, more than a 4.2 percent contraction in the euro area and a 2.7 percent drop in the U.S., the International Monetary Fund forecast in October.
Thursday, December 03, 2009
Bank of America to Repay Bailout, Easing CEO Search
Dec. 3 (Bloomberg) -- Bank of America Corp., the nation’s biggest lender, will repay $45 billion of U.S. government bailout funds, helping free the bank from curbs on executive pay that have hampered its search for a new leader.
The bank will repay the Troubled Asset Relief Program using $26.2 billion of “excess liquidity” and $18.8 billion from the sale of securities, according to a statement. The firm plans to increase equity by $4 billion through asset sales, and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.
Bank of America’s two rounds of U.S. funding included $20 billion to help cushion losses tied to the takeover of Merrill Lynch & Co. The planned repayment will ease the bank’s effort to replace Chief Executive Officer Kenneth D. Lewis, who announced his departure in September.
Dilution for shareholders will be “substantial,” said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees $1 billion, including Bank of America shares. “It looks like this was done for the incoming chief executive,” he said. “You take out the compensation restrictions and everything else that went along with the government ownership.”
Bank of America, based in Charlotte, North Carolina, rose to $16.23 in German trading today, up 3.7 percent from its $15.65 close in New York yesterday. The shares have gained 11 percent this year on the New York Stock Exchange after plummeting 66 percent in 2008.
Curl, Price
The repayment was negotiated by Chief Risk Officer Greg Curl and Chief Financial Officer Joe L. Price, a person familiar with the matter said. The two executives had approval from the board to close the deal once regulators including the Treasury, the Federal Reserve and the Office of the Comptroller of the Currency agreed to it, the person said, speaking anonymously because the details of the talks aren’t public.
Bank officials have cited Curl, 61, as one of two internal candidates most likely to succeed Lewis and his role in negotiating the exit from TARP makes him the favorite, said Anthony Polini, an analyst at Raymond James Financial Inc. While the board continues the search process, the agreement enhances Curl’s prospects, said a person familiar with the process.
No decision has been made with both internal and external candidates under consideration, spokesman Robert Stickler said in an interview. “It removes the stigma we’ve had as a company,” he said.
Limits on Pay
Repaying TARP funds removes Bank of America from limits on compensation required by Kenneth Feinberg, the U.S. special compensation master, Stickler said.
“This is huge for Bank of America’s ability to attract a new CEO,” said Jaime Peters, an analyst at Morningstar Inc. “No longer will they have to say we don’t know how much we can pay you unless some guy in Washington D.C. tells us.”
At least four external candidates, including Citigroup Inc. director Michael O’Neill and Bank of New York Mellon CEO Robert Kelly, rebuffed approaches.
Ending TARP saves $3.6 billion a year in dividend payments, which may help boost earnings next year, Raymond James’s Polini said in an interview. It also means CEO Lewis, 62, can fulfill his vow to arrange the return of all bailout funds before his tenure ends at the end of the year. Lewis endured criticism from lawmakers, regulators and shareholders about his handling of the Merrill Lynch purchase.
JPMorgan Competition “
We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest,” Lewis said in the statement.
The move helps Bank of America compete with rivals including JPMorgan Chase & Co., which already repaid bailout funds, Stickler said.
Bank of America’s plan will reduce income available to common shareholders in the fourth quarter by $4.1 billion, the company said. Terms call for issuing “common equivalent securities,” and shareholders will be asked to approve an increase in authorized shares so they could be converted into common stock. The new securities have warrants to buy a total of 60 million shares of common stock at a penny a share if stockholders don’t vote to approve the increase.
‘Bitter Pill’
The asset sales, designed to boost equity, must be in contract and approved by the Federal Reserve by June 30, Bank of America said. If the sales aren’t completed by the end of 2010, the bank agreed to sell common equity.
The plan calls for the bank to buy back 1.8 million preferred shares sold to the Treasury Department. For now, the bank isn’t buying back warrants also awarded to the U.S., Bank of America said. The warrants are worth from $943 million to $2.5 billion, depending on the type of valuation used, said Linus Wilson, a finance professor at the University of Louisiana at Lafayette who has studied TARP.
Bank of America is offering the common equivalent securities because it doesn’t have stockholder authority to issue enough shares to raise the $18.8 billion of common equity, Stickler said. The sale is commencing immediately, he said.
“It’s a bitter pill, but longer term it outweighs the hit to the stock,” said Matthew McCormick, a banking analyst and portfolio manager at Bahl & Gaynor Inc. in Cincinnati, which oversees $2.5 billion. “I thought it would take longer than this for Bank of America to get out of it. It shows that the government couldn’t attract anyone of substantial talent unless they paid a fair wage.”
The bank will repay the Troubled Asset Relief Program using $26.2 billion of “excess liquidity” and $18.8 billion from the sale of securities, according to a statement. The firm plans to increase equity by $4 billion through asset sales, and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.
Bank of America’s two rounds of U.S. funding included $20 billion to help cushion losses tied to the takeover of Merrill Lynch & Co. The planned repayment will ease the bank’s effort to replace Chief Executive Officer Kenneth D. Lewis, who announced his departure in September.
Dilution for shareholders will be “substantial,” said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees $1 billion, including Bank of America shares. “It looks like this was done for the incoming chief executive,” he said. “You take out the compensation restrictions and everything else that went along with the government ownership.”
Bank of America, based in Charlotte, North Carolina, rose to $16.23 in German trading today, up 3.7 percent from its $15.65 close in New York yesterday. The shares have gained 11 percent this year on the New York Stock Exchange after plummeting 66 percent in 2008.
Curl, Price
The repayment was negotiated by Chief Risk Officer Greg Curl and Chief Financial Officer Joe L. Price, a person familiar with the matter said. The two executives had approval from the board to close the deal once regulators including the Treasury, the Federal Reserve and the Office of the Comptroller of the Currency agreed to it, the person said, speaking anonymously because the details of the talks aren’t public.
Bank officials have cited Curl, 61, as one of two internal candidates most likely to succeed Lewis and his role in negotiating the exit from TARP makes him the favorite, said Anthony Polini, an analyst at Raymond James Financial Inc. While the board continues the search process, the agreement enhances Curl’s prospects, said a person familiar with the process.
No decision has been made with both internal and external candidates under consideration, spokesman Robert Stickler said in an interview. “It removes the stigma we’ve had as a company,” he said.
Limits on Pay
Repaying TARP funds removes Bank of America from limits on compensation required by Kenneth Feinberg, the U.S. special compensation master, Stickler said.
“This is huge for Bank of America’s ability to attract a new CEO,” said Jaime Peters, an analyst at Morningstar Inc. “No longer will they have to say we don’t know how much we can pay you unless some guy in Washington D.C. tells us.”
At least four external candidates, including Citigroup Inc. director Michael O’Neill and Bank of New York Mellon CEO Robert Kelly, rebuffed approaches.
Ending TARP saves $3.6 billion a year in dividend payments, which may help boost earnings next year, Raymond James’s Polini said in an interview. It also means CEO Lewis, 62, can fulfill his vow to arrange the return of all bailout funds before his tenure ends at the end of the year. Lewis endured criticism from lawmakers, regulators and shareholders about his handling of the Merrill Lynch purchase.
JPMorgan Competition “
We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest,” Lewis said in the statement.
The move helps Bank of America compete with rivals including JPMorgan Chase & Co., which already repaid bailout funds, Stickler said.
Bank of America’s plan will reduce income available to common shareholders in the fourth quarter by $4.1 billion, the company said. Terms call for issuing “common equivalent securities,” and shareholders will be asked to approve an increase in authorized shares so they could be converted into common stock. The new securities have warrants to buy a total of 60 million shares of common stock at a penny a share if stockholders don’t vote to approve the increase.
‘Bitter Pill’
The asset sales, designed to boost equity, must be in contract and approved by the Federal Reserve by June 30, Bank of America said. If the sales aren’t completed by the end of 2010, the bank agreed to sell common equity.
The plan calls for the bank to buy back 1.8 million preferred shares sold to the Treasury Department. For now, the bank isn’t buying back warrants also awarded to the U.S., Bank of America said. The warrants are worth from $943 million to $2.5 billion, depending on the type of valuation used, said Linus Wilson, a finance professor at the University of Louisiana at Lafayette who has studied TARP.
Bank of America is offering the common equivalent securities because it doesn’t have stockholder authority to issue enough shares to raise the $18.8 billion of common equity, Stickler said. The sale is commencing immediately, he said.
“It’s a bitter pill, but longer term it outweighs the hit to the stock,” said Matthew McCormick, a banking analyst and portfolio manager at Bahl & Gaynor Inc. in Cincinnati, which oversees $2.5 billion. “I thought it would take longer than this for Bank of America to get out of it. It shows that the government couldn’t attract anyone of substantial talent unless they paid a fair wage.”
Wednesday, December 02, 2009
Microsoft Windows 7 problem 'could affect millions'
Microsoft has been investigating reports that some computers running Windows 7 crash as soon as the user logs on
Users have been complaining on internet forums about the "black screen of death", which causes the screen of their Windows 7 machine to turn black and the computer to crash when a user logs on.
Microsoft confirmed that it was investigating the possibility that a security update, released on Thursday, could be the root of the problem but later said that it was not the cause.
"Microsoft has investigated reports that its November security updates made changes to permissions in the registry that that are resulting in system issues for some customers," a statement read.
"The company has found those reports to be inaccurate and our comprehensive investigation has shown that none of the recently released updates are related to the behavior described in the reports."
It added: "Our support organization is also not seeing this as an issue."
The "black screen of death" also appears to affect other Windows operating systems, including Windows 7's predecessor, Windows Vista, as well as Windows XP. When users log on, they see a completely black screen instead of the usual start menu, desktop icons and system tray.
According to the software firm Prevx, which has issued a patch to resolve the problem, millions of computer users could be affected by the "debilitating" glitch.
"Users have resorted to reloading Windows as a last-ditch effort to fix the problem," said the company in a blog post.
"The cause appears to be a change in the Windows operating system lockdown of registry keys," said Dave Kennerley, a support engineer with Prevx. "This change has the effect of invalidating several key registry entries if they are updated without consideration of the new ACL (access control list) rules being applied."
Microsoft advised those affected by the problem to contact its customer service line. A spokesman said the problems didn't match any existing known issues. Microsoft is yet to release a patch to resolve the problem.
Tuesday, December 01, 2009
India GDP (Jul-Sept) & Dubai effects: Very strong growth, small Dubai impact
As upside surprises go, this was a big one. While we and the market
were looking for a 6.3% year-on-year rise, GDP jumped 7.9% (up from 6.1%
in April-June). This is the strongest figure since the January-March
quarter of 2008 and consistent, on our calculations, with a seasonally
adjusted quarter-on-quarter rise in GDP of 3.3% (13.9% annualised). We
believe this to be the biggest rise the Indian economy has seen since
the quarterly data began in 1996! An extraordinary result and one which
will no doubt make the RBI sit up and take notice. We can safely say
that the chances of a rate move before the end of December have risen
(although we are sticking with the January call for now).
The breakdown of the release showed agricultural GDP rising 0.9%
year-on-year, which in turn implies that ex-agricultural GDP was
up 9% from 6.9% in the previous quarter.
The improvement in ex-agricultural growth was driven both by
manufacturing, where growth leapt from 3.4% to 9.2%, as well as
services (9.3% from 7.8%). Given we already knew from the monthly
numbers that the industrial sector had picked up smartly the
bigger surprise was services. Here, however, one can question the
quality of the improvement as growth in "community, personal and
social services" all but doubled to 12.7% from 6.8%. This is
typically related to government spending.
Financial services actually saw growth slip to 7.7% from 8.1%,
while "trade, hotels, transport and communication" registered 8.5%
growth, up modestly from 8.1% previously.
Today's release will inevitably lead to a raft of upward revisions both
to this year's growth forecast and perhaps those for 2010/11 as well.
Our own 6.2% number for the current fiscal year is certainly looking on
the low side (we estimate quarter-on-quarter GDP would have to be flat
in both fiscal Q3 and Q4 to achieve it), but we will retain our top-end
number for the following fiscal year of 8.5%.
India impact of Dubai Debacle
There are a few observations to make in connection with the developments
in Dubai, which could impact both remittance and trade flows:
Indians living in the Gulf remitted USD27bn in 2007
Roughly 4.5 million Indians live and work in the Gulf of which 2
million are in the UAE
If we assume that 1.5 million of those are based in Dubai then in the
absolute worst case scenario, where all remittances stopped, about
USD 9bn of inflows would be lost (1.5/4.5*USD27bn). This is
equivalent to 0.7% of GDP
Remittances from the Middle East are estimated to account for about
25% of the Indian State of Kerala's economy
USD17.5bn of India's exports went to the UAE in 2008/09 (10% of the
country's total merchandise exports). This compares with USD19.5bn
which went to the US in the same year, making the UAE India's second
most important export destination.
Apart from food items, where demand is unlikely to be impacted that
much (although India's ability to exports such products will be
effected by the drought), the other major export to the UAE from
India is, slightly strangely, "mineral fuels and oils". These
amounted to USD4.7bn in 2007/08 (the latest data available).
Overall, there is likely to some direct impact of the Dubai debacle on
remittances into India as well on exports but, in our judgment, a fairly
small one - certainly within the margin of forecasting error.
were looking for a 6.3% year-on-year rise, GDP jumped 7.9% (up from 6.1%
in April-June). This is the strongest figure since the January-March
quarter of 2008 and consistent, on our calculations, with a seasonally
adjusted quarter-on-quarter rise in GDP of 3.3% (13.9% annualised). We
believe this to be the biggest rise the Indian economy has seen since
the quarterly data began in 1996! An extraordinary result and one which
will no doubt make the RBI sit up and take notice. We can safely say
that the chances of a rate move before the end of December have risen
(although we are sticking with the January call for now).
The breakdown of the release showed agricultural GDP rising 0.9%
year-on-year, which in turn implies that ex-agricultural GDP was
up 9% from 6.9% in the previous quarter.
The improvement in ex-agricultural growth was driven both by
manufacturing, where growth leapt from 3.4% to 9.2%, as well as
services (9.3% from 7.8%). Given we already knew from the monthly
numbers that the industrial sector had picked up smartly the
bigger surprise was services. Here, however, one can question the
quality of the improvement as growth in "community, personal and
social services" all but doubled to 12.7% from 6.8%. This is
typically related to government spending.
Financial services actually saw growth slip to 7.7% from 8.1%,
while "trade, hotels, transport and communication" registered 8.5%
growth, up modestly from 8.1% previously.
Today's release will inevitably lead to a raft of upward revisions both
to this year's growth forecast and perhaps those for 2010/11 as well.
Our own 6.2% number for the current fiscal year is certainly looking on
the low side (we estimate quarter-on-quarter GDP would have to be flat
in both fiscal Q3 and Q4 to achieve it), but we will retain our top-end
number for the following fiscal year of 8.5%.
India impact of Dubai Debacle
There are a few observations to make in connection with the developments
in Dubai, which could impact both remittance and trade flows:
Indians living in the Gulf remitted USD27bn in 2007
Roughly 4.5 million Indians live and work in the Gulf of which 2
million are in the UAE
If we assume that 1.5 million of those are based in Dubai then in the
absolute worst case scenario, where all remittances stopped, about
USD 9bn of inflows would be lost (1.5/4.5*USD27bn). This is
equivalent to 0.7% of GDP
Remittances from the Middle East are estimated to account for about
25% of the Indian State of Kerala's economy
USD17.5bn of India's exports went to the UAE in 2008/09 (10% of the
country's total merchandise exports). This compares with USD19.5bn
which went to the US in the same year, making the UAE India's second
most important export destination.
Apart from food items, where demand is unlikely to be impacted that
much (although India's ability to exports such products will be
effected by the drought), the other major export to the UAE from
India is, slightly strangely, "mineral fuels and oils". These
amounted to USD4.7bn in 2007/08 (the latest data available).
Overall, there is likely to some direct impact of the Dubai debacle on
remittances into India as well on exports but, in our judgment, a fairly
small one - certainly within the margin of forecasting error.
My Seven Big Thoughts for the Rural Markets
1. Rural Boom: By 2012 it is expected that every village will be connected by an all weather road, every village will have internet connectivity, and almost every home will have electricity and possess a mobile phone. This significant improvement in rural infrastructure coupled with agriculture reforms already under way we can expect rural markets to reach inflexion point. This will lead to an explosion in demand the way it happened in the urban markets in the mid 90s as a result of easy consumer finance, a boom in the IT sector and steep increase in corporate salaries. Companies are not anticipating this boom and many will be taken by surprise when it happens.
2. Reverse Innovation: Ever since the BoP (Bottom of Pyramid) concept was introduced at the turn of the century many companies have tried to transform their business models through single serve sachets, low cost production, extended mom and pop distribution and NGO partnerships. But in the rush to capture the fortune at the base of the pyramid, something may have been lost-the perspective of the poor themselves. In my view most such initiatives have failed to hit the mark. Pushing the company’s reformulated or repackaged products into villages may indeed produce incremental sales in the short term. But in the long term, this strategy will almost certainly fail because the business remains alien to the communities it intends to serve.
For decades, MNCs have sold modified products in India, a process widely recognized as glocalization. This strategy worked reasonably well with the more affluent urban consumers whose behavior is somewhat similar to Western consumers. With growing rural purchasing power and the three times larger population than urban, companies will need to develop appropriate products for this market. The glocalization or minor modification will not work as rural consumers are very different. This will call for a reverse innovation approach, totally opposite to the glocalization approach. This will involve a bottom up, community embedded process of co-invention and business co-creation. Such an approach will bring the company into close, personal business partnership with BoP communities. While creating enduring value for the community, it will establish a foundation for long-term corporate growth and innovation.
3. New price-performance paradigm: What the rural market requires of products is delivery of decent performance at very low cost. My advise to companies is to aim for 75% performance at 25% cost. Nirma or Ghadi washing powders are excellent lower performance-low cost products compared to the global Surf and Ariel brands. Rural consumers are interested in deriving core benefit from the product and these low priced brands essentially clean clothes adequately. Users are not worried if these powders don’t have a softener or whitener. The sachet as a solution of making the offering more affordable will not work in the long term as the price still continues to remain high.
4. Innovative rural distribution: The biggest challenge in rural remains reaching your product to 600,000 villages compared to 5,000 odd towns in urban. A few new rural distribution and procurement models have been innovated by ITC e-choupal and HUL Project Shakti. But much more needs to be done in this area. One possibility is the use of the social infrastructure being created by government. For example there are over 5 million women’s micro-finance groups in existence and by 2011 the number of groups is expected to jump to 15 million. Thus 150 million rural women or 150 million of the 200 million total households in rural would be linked to self help groups. Can this channel be used innovatively to reach products and services to rural homes?
5. Dedicated Rural teams: Companies will need to shift power to where the growth is by dedicating empowered teams for the rural markets so that they can develop their own strategies and products. A separate sales force is also desirable as the regular force will avoid covering the more difficult and small off-take rural markets. MBAs from B grade small town institutes should be hired. Not only will they work at much lower salaries but will stick around as they belong to the local areas.
6. Inclusive marketing: This is a new concept I have created which goes much beyond BoP. Inclusive marketing looks at the poor not only as consumers but also as producers/suppliers of goods and services. This approach offers promise to add economic value to goods and services contributed by the poor. It can therefore impact poverty positively. ITC’s E-choupal is a perfect example of inclusive marketing. The business model ensures that farmers as producers get better value for their produce. Once their incomes are enhanced the model then uses the same channel that was created for procuring produce to push relevant goods and services needed by the farmers as consumers. Government and the private sector need to come together to promote inclusive marketing and grow the size of the rural pie through the development of reverse distribution channels rather than companies fighting with each other to grab share of the limited pie.
7. New Opportunities; Rural markets now offer a number of new opportunities.
Healthcare: Total rural spending on health care currently is Rs 700 billion and expected to reach Rs 3.5 trillion by 2025, an impressive fivefold increase. Despite the launch of the National Rural Health Mission 80% of health spending will be in the private sector.
Durables consumer financing: In the 90s consumer finance became available easily which led to high growth in sale of durables. Rural consumer finance has become a big opportunity only now with rapid electrification of rural households
Banking: According to a World Bank study bankable people in rural India is 185 million.
Construction and Housing: Currently there is shortage of 40 million houses in rural India.
In conclusion I would say the next growth will come from the rural market and companies that ignore this segment will do so at their own peril.
2. Reverse Innovation: Ever since the BoP (Bottom of Pyramid) concept was introduced at the turn of the century many companies have tried to transform their business models through single serve sachets, low cost production, extended mom and pop distribution and NGO partnerships. But in the rush to capture the fortune at the base of the pyramid, something may have been lost-the perspective of the poor themselves. In my view most such initiatives have failed to hit the mark. Pushing the company’s reformulated or repackaged products into villages may indeed produce incremental sales in the short term. But in the long term, this strategy will almost certainly fail because the business remains alien to the communities it intends to serve.
For decades, MNCs have sold modified products in India, a process widely recognized as glocalization. This strategy worked reasonably well with the more affluent urban consumers whose behavior is somewhat similar to Western consumers. With growing rural purchasing power and the three times larger population than urban, companies will need to develop appropriate products for this market. The glocalization or minor modification will not work as rural consumers are very different. This will call for a reverse innovation approach, totally opposite to the glocalization approach. This will involve a bottom up, community embedded process of co-invention and business co-creation. Such an approach will bring the company into close, personal business partnership with BoP communities. While creating enduring value for the community, it will establish a foundation for long-term corporate growth and innovation.
3. New price-performance paradigm: What the rural market requires of products is delivery of decent performance at very low cost. My advise to companies is to aim for 75% performance at 25% cost. Nirma or Ghadi washing powders are excellent lower performance-low cost products compared to the global Surf and Ariel brands. Rural consumers are interested in deriving core benefit from the product and these low priced brands essentially clean clothes adequately. Users are not worried if these powders don’t have a softener or whitener. The sachet as a solution of making the offering more affordable will not work in the long term as the price still continues to remain high.
4. Innovative rural distribution: The biggest challenge in rural remains reaching your product to 600,000 villages compared to 5,000 odd towns in urban. A few new rural distribution and procurement models have been innovated by ITC e-choupal and HUL Project Shakti. But much more needs to be done in this area. One possibility is the use of the social infrastructure being created by government. For example there are over 5 million women’s micro-finance groups in existence and by 2011 the number of groups is expected to jump to 15 million. Thus 150 million rural women or 150 million of the 200 million total households in rural would be linked to self help groups. Can this channel be used innovatively to reach products and services to rural homes?
5. Dedicated Rural teams: Companies will need to shift power to where the growth is by dedicating empowered teams for the rural markets so that they can develop their own strategies and products. A separate sales force is also desirable as the regular force will avoid covering the more difficult and small off-take rural markets. MBAs from B grade small town institutes should be hired. Not only will they work at much lower salaries but will stick around as they belong to the local areas.
6. Inclusive marketing: This is a new concept I have created which goes much beyond BoP. Inclusive marketing looks at the poor not only as consumers but also as producers/suppliers of goods and services. This approach offers promise to add economic value to goods and services contributed by the poor. It can therefore impact poverty positively. ITC’s E-choupal is a perfect example of inclusive marketing. The business model ensures that farmers as producers get better value for their produce. Once their incomes are enhanced the model then uses the same channel that was created for procuring produce to push relevant goods and services needed by the farmers as consumers. Government and the private sector need to come together to promote inclusive marketing and grow the size of the rural pie through the development of reverse distribution channels rather than companies fighting with each other to grab share of the limited pie.
7. New Opportunities; Rural markets now offer a number of new opportunities.
Healthcare: Total rural spending on health care currently is Rs 700 billion and expected to reach Rs 3.5 trillion by 2025, an impressive fivefold increase. Despite the launch of the National Rural Health Mission 80% of health spending will be in the private sector.
Durables consumer financing: In the 90s consumer finance became available easily which led to high growth in sale of durables. Rural consumer finance has become a big opportunity only now with rapid electrification of rural households
Banking: According to a World Bank study bankable people in rural India is 185 million.
Construction and Housing: Currently there is shortage of 40 million houses in rural India.
In conclusion I would say the next growth will come from the rural market and companies that ignore this segment will do so at their own peril.
India Stocks Advance to Highest in a Month; Reliance Climbs
Dec. 1 (Bloomberg) -- India’s benchmark stock index climbed to its highest in more than a month as Morgan Stanley and Kotak Mahindra Bank Ltd. raised their growth estimates after the country’s economy expanded at the fastest pace in 1 1/2 years.
Reliance Industries Ltd., the nation’s most valuable company, advanced 3.4 percent. Sterlite Industries (India) Ltd., India’s largest copper producer, gained 3 percent.
“India’s GDP growth was way above market expectations and will prompt an upward revision of full year fiscal 2010 growth closer to 7 percent,” said Ashutosh Datar, a Mumbai-based strategist at IIFL Ltd. “The underlying economic momentum has picked up strongly and it will get stronger over the next two to three quarters as global economic recovery builds and domestic demand gets stronger.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 273.54, or 1.6 percent, to 17,199.76, its highest since Oct. 20. The S&P CNX Nifty Index on the National Stock Exchange rose 1.8 percent to 5,121.90. The BSE 200 Index added 1.8 percent to 2,143.95.
Morgan Stanley expects India’s gross domestic product to expand 6.7 percent in the year ending March 2010, more than its earlier estimate of 6.4 percent, while Kotak increased its forecast to 6.9 percent from 6 percent.
Reliance Industries Ltd., the nation’s most valuable company, advanced 3.4 percent. Sterlite Industries (India) Ltd., India’s largest copper producer, gained 3 percent.
“India’s GDP growth was way above market expectations and will prompt an upward revision of full year fiscal 2010 growth closer to 7 percent,” said Ashutosh Datar, a Mumbai-based strategist at IIFL Ltd. “The underlying economic momentum has picked up strongly and it will get stronger over the next two to three quarters as global economic recovery builds and domestic demand gets stronger.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 273.54, or 1.6 percent, to 17,199.76, its highest since Oct. 20. The S&P CNX Nifty Index on the National Stock Exchange rose 1.8 percent to 5,121.90. The BSE 200 Index added 1.8 percent to 2,143.95.
Morgan Stanley expects India’s gross domestic product to expand 6.7 percent in the year ending March 2010, more than its earlier estimate of 6.4 percent, while Kotak increased its forecast to 6.9 percent from 6 percent.
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