Rating Change to Hurt India Inc & Banks: RBI

Act Now! Central bank underscores the big risks facing Indian economy even as PM's statements in past two days spur action on policy front

Dollar-borrowing costs for Indian companies and banks could soar, straining their already-fragile finances, if rating companies downgrade India's sovereign rating that is just a notch above junk. 
"A rating change could have some 'cliff effects'," the Reserve Bank of India (RBI) said in its Fifth Financial Stability Report, referring to the consequences of a possible rating cut. "This could affect both availability and cost of foreign currency credit lines for Indian corporates further. The impact is also being felt by Indian banks as they are the primary source of foreign currency-denominated funding for Indian firms like buyer's credit." 
Standard & Poor's has said India could be the first among the so-called BRIC nations to get downgraded to junk status and become a 'fallen angel' if it does not set its fiscal house in order. Fitch and Moody's have also expressed their concerns about deteriorating macroeconomic fundamentals. 
The worsening economic climate could bloat the banking sector's bad loans, though available capital buffers could help them withstand a shock, the RBI said. Bad loans may rise to 4.6% of total loans in March 2013 in the most severe risk scenario, up from 2.9% at the end of March 2012. Under normal scenario, it could range between 3.3% and 3.5%. Banks' increasing reliance on mutual funds and insurance companies for funds is an indication of rising risk in the system, which could amplify the instability of the financial system during times of stress, the half-yearly report said. 
"Banks with higher credit deposit ratio are running short of resources," said JP Dua, chairman and managing director of Allahabad Bank. "Sectors like steel, realty and infrastructure are the most vulnerable now as the economy's growth is slowing. Credit risk can be higher in these sectors, but it all depends on how one manages the portfolio. There are banks with high exposure to the infrastructure sector, but without any issues over asset quality." The central bank also called for an overhaul of regulations across the financial spectrum consisting of banks, insurance companies and mutual funds since trouble for one could spell trouble for the entire system. Credit Risk Bigger Worry 
"A complete macro-mapping of all kinds of credit intermediation activities would be warranted in the light of international reforms in this area," the report said. "There are concerns posed by the degree of interconnectedness of these entities with the banking system, which could pose credit and liquidity risks. The disproportionate slowdown in deposit growth vis-à-vis credit growth led to increased reliance of banks on borrowed funds, which may translate into liquidity risks." Credit risk will remain a bigger worry for banks than interest rate risk as bad loans grew nearly three times faster than credit in the last fiscal, it said. Bad loans have to be monitored closely since a combination of declared bad loans and restructured loans provides an ugly picture, given that 15% of the latter category of loans may also turn bad. "The muted economic backdrop and global headwinds could lead to further deterioration in asset quality," the report said. "The position is not alarming at the current juncture and some comfort is provided by the strong capital adequacy of banks, which ensures that the banking system remains resilient." 
In the past year, the potential loss to banks' capital from the failure of the 'most connected' banks has risen to 16% of the total capital, from 12% in March 2011, the report said. 
The rising short-term borrowings of banks at 27% of the total and the sector's reliance on mutual funds and insurance worry the RBI. "The largest net lenders in the system were insurance and asset management companies while banks were the largest borrowers," it said. "This renders the lenders vulnerable to the risk of contagion from the banking system."

Sebi pushes tax sops for equity MFs

New Delhi: A day after PM Manmohan Singh spoke about reviving mutual funds, the Securities and Exchange Board of India (Sebi) on Thursday said it would pitch for additional tax sops for investment of up to Rs 50,000 in equity schemes by individuals, instead of reintroducing entry load that will hit consumers hard. 

    Officials said the tax benefit could be added to the Rajiv Gandhi Equity Scheme announced in the budget, which is targeted at those who buy shares and stay locked in for three 
years. For new retail investors with taxable income of up to Rs 10 lakh, the Centre has allowed up to 50% tax deduction on investment of up to Rs 50,000. 
    Although Sebi had made the plea to ex-finance minister Pranab Mukherjee, no decision was taken. There is a perception that retail investors are not well equipped to deal with direct investment in shares and will be better off using the MF route—an argument that has not found favour with the finance ministry. Sebi wants PAN scrapped for foreign retail investors 
New Delhi: Sebi, which favours additional tax sops for investment of up to Rs 50,000 in equity mutual fund schemes, is arguing that expanding the scope of the Rajiv Gandhi Equity Scheme to mutual funds will not just boost retail participation but also help it emerge as a segment that can counter the might of foreign institutional investors. 
    Identifying revival of investor sentiment as a key focus area, PM Manmohan Singh had on Wednesday asked the finance ministry to work on two areas of investment — mutual funds and insurance. Sources said apart from boosting mutual funds, the market regulator and the economic affairs department in the finance ministry are pitching to do away with the requirement for foreign retail investors to get a PAN card from local authorities. "Will an Indian invest in Brazil if he or she is first asked to register with the tax authorities there?" said an official. 
    Sources said Sebi was also making a case for imposition of levy on commodities trading, on the lines of the securities transaction tax — it feels this will shift some money parked in another market to equities.

New Launches Take a Backseat as Realty Cos Look to Clear Inventory

Cos feel new projects could put pressure on pricing in a market already saddled with a lot of inventory

Real estate developers have cut back sharply on new project launches, preferring instead to first try and sell pricier unsold inventory and, in the process, also prevent prices from collapsing in a sagging market. 
Analysts tracking the property market say developers across India have realised that launching new projects could put pressure on pricing in a market already saddled with inventory. "If they launch at a lower price today, their existing unsold inventory will get hit," says Vineet Chandak, real estate analyst with IDFC Securities. Property prices rose sharply in the last one year even though sales volumes fell more than 50%, hit by double-digit interest rates, high property prices and an overall economic slowdown. 
Research firm PropEquity estimates that residential project launches in key centers such as Delhi-NCR, Mumbai and Bangalore have dropped by 30-50% in a year. The firm estimates that new residential project launches fell 49% y-o-y in the Delhi NCR region in the January-March quarter, outpacing a 31% drop in the Mumbai Metropolitan Region. The numbers for Bangalore, Chennai, Pune and Hyderabad stood at 45%, 42%, 44% and 77% respectively. "Developers across the country are delaying project launches to maintain pricing and clearing their unsold inventory that was launched at higher prices," says Samir Jasuja, CEO at PropEquity. Developers, many of whom managed to increase prices in the last year to pass on increased costs of steel, cement and labour, also concede that new launches are being delayed. 
"Slow sales are forcing developers to go slow on launches. Unfortunately, because of high costs, developers do not want to drop prices, which will be the cases with some new launches," says Shakti Nath, managing director of Logix Group. Lalit Kumar Jain, president of the Confederation of Real Estate Developers' Association of India (Credai), the apex body for private real estate developers, also blames delays in getting project approvals for the drop in new project launches. Developers are also having to grapple with delays in the construction of projects already underway because of liquidity issues and these are also affecting new launches. 
Experts say developers have managed to hold on to pricing levels so far, but that could change. "Lesser project launches will keep future supply of homes in check and reduce pressure on prices. But if the market situation continues in the same way, it will surely have an impact on pricing," says Anshuman Magazine, chairman and managing director of property advisory firm CBRE South Asia. "Nobody wants prices to come down as recovering those prices quickly is difficult." 
ravi.sharma4@timesgroup.com 

Day 1 as FM, Manmohan Has His Task Cut Out

Prime Minister Manmohan Singh has set himself the task of reviving the animal spirits of businessmen, attracting capital flows to prop up the rupee, revisiting aggressive tax enforcement, and turning around the fortunes of the mutual fund and insurance sectors as he attempts to put the economy back on the rails. "Reverse the climate of pessimism... revive the animal spirits in the country's economy," the prime minister was quoted as directing finance ministry officials.  Singh, who has taken charge of the finance portfolio after Pranab Mukherjee resigned to contest the presidential elections, said "problems on tax front" had contributed to the sharp dip in sentiments, an apparent reference to the tax travails of Vodafone Plc and aggressive anti-avoidance measures aimed at foreign investors.  The finance ministry under Mukherjee faced widespread criticism from foreign governments and overseas business lobbies after it changed the laws to retrospectively tax global deals involving Indian assets, an action widely seen as targeted at Vodafone.  An attempt to introduce a law targeted at tax avoidance, known as the General Anti-Avoidance Rules, the implementation of which has been postponed, had also rattled overseas investors in stocks and bonds. Further, many Indian businesses and local units of MNCs have complained about aggressive application of transfer pricing rules.  "Harassment by tax officials and corruption loom large. Things need to be black and white and not in grey as they are today," said HDFC Chairman Deepak Parekh, who has been a vocal critic of the policy paralysis widely perceived to have set in during the term of UPA II.  "On the external front, I am concerned about the way the exchange rate is going. Investor sentiment is down and capital flows are drying up," the PM said, indicating initiatives to attract overseas capital were on the cards.  Singh also asked the finance ministry mandarins to look into the problems of the mutual fund industry, seemingly a reference to the sharp slowdown in inflows into mutual funds after market regulator Sebi banned the payment of commissions to distributors. Subsidy Reforms on the Anvil  While most experts believe that the Sebi decision is conceptually correct, the ban is seen as one of the factors contributing to a 1.6% dip in assets managed by fund houses. The prime minister, who also referred to the insurance sector, did not get into specifics on mutual funds and it is not clear if a reversal of the Sebi decision, taken during the tenure of previous Sebi chairman CB Bhave, would be considered by policymakers.  "There are issues about the mutual funds industry which need to be resolved. The insurance sector has seen a slowing down which is not normal in a country with large unmet insurance needs. This needs to be looked into," Singh was quoted as saying in a statement issued by the PMO.  According to an official, in the near term, the quickest way to revive the MF industry could be to extend tax concessions to investments in equity mutual funds too.  The Rajiv Gandhi Equity Saving Scheme introduced in the budget this year provides tax breaks to first-time investors in equities.  "Allowing first-time investors to invest through the new tax-saving equity scheme can help bolster funds flow to the industry," said an official.  Sebi has already recommended this to the finance ministry, which is yet to take a view on it.  The new dispensation will also focus on cutting subsidies and reviving investments in infrastructure and manufacturing, say officials familiar with the prime minister's agenda.  Reforms on the anvil include charging more from commercial and bulk users of diesel and restricting the subsidy on cooking gas to four to six cylinders per household.  Not all populist measures will be junked. The food security bill, which seeks to give right to food for large sections of the population and strongly favoured by Congress President Sonia Gandhi, is also likely to be given final shape over the next few weeks.  Infrastructure growth and investments in manufacturing are other key areas on Singh's radar. "There are a number of issues like inflation, stagnating agricultural growth, lack of logistical infrastructure, slowdown in manufacturing that need immediate attention," Parekh said. Countries like China, Malaysia and Vietnam are busy attracting investors with speedy clearances and special tax incentives, he said.  CORE TEAM  While the PM himself will drive the economic agenda and coordinate with his cabinet colleagues, the bureaucracy will be spearheaded by his principle secretary Pulok Chatterji, who will be aided by his batchmate and Cabinet Secretary Ajit Seth.  A long-time colleague and advisor, C Rangarajan, who heads the PM's Economic Advisory Council and enjoys cabinet rank, could be coopted into various cabinet committees to enable effective coordination between the PMO and finance ministry, a source familiar with the developments told ET.  Planning Commission Deputy Chairman Montek Singh Ahluwalia, who holds the rank of a cabinet minister and is a key aide of Singh, is a regular at cabinet meetings.  The PM spent most of Wednesday in meetings with his core team. Says Bimal Jalan, a close aide and former governor of the Reserve Bank of India, "This is the best decision that could come at this time. The country needs more action and less words." While the PM met Rangarajan in the morning, he held separate meetings with Ahluwalia and all key secretaries of the finance ministry late in the evening. In the last few days, finance ministry officials have prepared details of pending policy decisions in their respective areas and action plan for the future. "It was more like a briefing meeting where discussions were held on the state of the economy," a person who attended the meeting said.  The PMO had been preparing for the transition ever since Mukherjee's name was announced as UPA's presidential candidate. "Some key decisions and meetings had been rescheduled so that the PM could take decisions on them directly," a government official in the know said.  "Our fundamentals are strong, but we need clarity and stability in our policies to get the economy going," Jalan said.  The core team, with distinct job responsibilities for key officials, will include Rangarajan, Ahluwalia and four secretaries — revenue, department of economic affairs, banking and expenditure — in the finance ministry. Investor sentiment is down & capital flows are drying up... Reverse the climate of pessimism...revive the animal spirit in the economy  MANMOHAN SINGH Prime Minister with Additional Charge of Finance Ministry

Cut stake in bank to 20%, RBI tells Kotak

Mumbai: Kotak Mahindra Bank has been asked by Reserve Bank of India to bring down its promoter stake from existing 45.21% to 20% by March 31, 2018.      RBI has also said that it might ask the bank to bring down promoter equity further from 20% to 10% or any other level depending on the new guidelines that it comes up with. Although, in the past RBI had indicated that private banks should bring down promoter stake to 40% and subsequently to 20%, Kotak Bank had a special dispensation as the banking licence it received was upon conversion of a non-banking finance company. As a result of the conversion and consolidation of the group, the promoter continued to hold a large chunk of equity.      Of the 45.21% promoter stake, 41.35% is directly held by Uday Kotak, the bank's promoter, and the remaining shares are held by his family members. Given that the bank currently has a market capitalization of around Rs 43,000 crore, the value of the shares to be offloaded would be over Rs 10,000 crore.

‘Low-cost Blue Chips may be a Value Trap’

Investing in select stocks may be a better strategy than value hunting, suggest analysts     The economy may be facing uncertain times. But even such period of uncertainty throws up a few opportunities for investors: some of the blue chips, for instance, are going at mouth-watering prices.  Large cap stocks such as Tata Steel, Sterlite Industries (India), Punjab National Bank, JSW Steel, Reliance Infrastructure, Reliance Communications and HPCL are trading cheap on the bourses based on a comparison between their market capitalisation and net assets as local and foreign investors remain extremely skeptical in a highly volatile domestic equity market.  With rising uncertainty over economic growth and lack of policy initiatives, market capitalisation of some of the blue-chip stocks has fallen below their net asset values. One out of every five companies in the BSE 200 index currently trades below its total equity, which includes paid-up capital and retained earnings, shows an analysis by the ET Intelligence Group.  There are over 1,100 companies in our sample from across sectors that met the criteria based on the latest market cap and FY12 total equity. The number is astoundingly large given that only 27 of these companies were trading below their net assets five years ago when market was in the middle of a bull phase.  While this reflects how cheap some stocks have actually become, analysts warn against rushing into bargain hunting. Instead, they recommend a much more selective approach to enhance portfolio. This is because the higher net assets compared to the market cap may be the result of increased amount of intangible assets such as goodwill, which lacks economic value. Also, lack of future prospects may be another reason for some of the stocks to go cheap.  In a well informed securities market, market capitalisation of companies, which is the stock's worth in the equity market, tends to either equal or exceed the net assets (total assets less total liabilities), represented by equity capital and retained earnings. When this no more holds true, there's an opportunity to earn profits by investing in stocks which have net assets in excess of their market cap.  Ambit Capital's equities head Saurabh Mukherjea wants to avoid what's considered as a "value trap," while acting on inferences drawn from such value parameters. "In cases, where net assets tend to exceed market capitalisation, one must inquire about the extent of intangible assets reported on the balance sheet." When assets are inflated by net intangibles, the valuation parameters would give skewed results," he feels.  Mukherjea draws attention to Tata Steel which has been reporting a significant amount of goodwill following its overseas acquisitions of Corus and Jaguar Land Rover. Regarding acquisitions, goodwill reflects the excess of purchase price over the fair market value of acquired assets.  In FY11, Tata Steel had recognised . 15,298 crore in goodwill, which was more than one-third of its total equity of . 35,563.9 crore. While its FY12 annual report is awaited, the company has reported . 52,621.4 crore in shareholders' funds or total equity. Though this is lower than its current market cap of around . 40,659 crore, the difference can be largely attributed to the presence of goodwill.  Apart from Tata Steel, other metal players in our list include Sterlite Industries (India), SAIL and JSW Steel. A relatively lower valuation of these players compared to their net assets is indicative of market's cautious approach towards commodity players. "Of late, valuations of commodity-driven stocks have taken a beating due to an expectation of slower global economic growth and increased volatility in prices of major commodities," says Sonam Udasi, head of research, IDBI Capital. Another reason for metal companies and players from other capital-intensive sectors to have lower valuations is the discount given to their capital work in progress, says Dhananjay Sinha, co-head of institutional research at Emkay Global Financial Services. "You need to consider a gestation period of around five years for new capacity to come on stream, which creates uncertainty about these assets and, hence, requires some discounting while arriving at the final valuation." On the flip side, this also means that investors should have a longer investment horizon and the ability to wait until the next uptick in the business cycle to take advantage of the current lower valuations. Udasi of IDBI Capital thinks that long-term investors can consider investment in select counters. "Many public sector banks are trading below their net asset values. We do not expect the valuation of these banks to surpass their book values till the global economic environment remains gloomy," he says.  There are as many as 15 banks in the list of BSE 200 companies that have higher net assets compared to market caps. "For banks, the main concern now is rising non-performing assets (NPAs). Markets have factored that in valuation of banks," reasons Sinha of Emkay Global. He points out that for State Bank of India, the country's largest lender, NPAs are 20% of net assets, thereby reducing the amount of worthy assets by that much. SBI is not featured in our list.  ranjit.shinde@timesgroup.com

Cos Shun Ads, Come Knocking at Your Door

Ground events and promotions gain share over conventional advertising spends     PepsiCo is organising seven-aside soccer tournaments in neighbourhoods, LG is showcasing its durables in residential complexes, Cadbury is standing outside super markets with its cookies, Hindustan Unilever is standing with a shampoo to assess the state of your scalp…These are some of the biggest companies, with hefty advertising budgets. Yet, to market their wares, they are increasingly looking beyond conventional, passive advertising and spending more on marketing activities where the connect with the target consumer is active and direct.  In marketing lingo, such on-theground events and promotions are called 'brand activation', and they generally form the largest chunk of a company's non-advertising activities. Spurred by brand activation spends, such non-advertising spends, called below-the-line (BTL), are gaining share over advertising spends at several leading consumer companies.  According to LK Gupta of LG Electronics, 60% of the company's marketing budget is going towards BTL activities, against 35-40% three years ago. "With increasing choices, the consumer has become more discerning," says Gupta, vice president–marketing. "Therefore, ground activations are gaining traction due to the added impact they give beyond the media clutter."  Elsewhere, Homi Battiwalla, category director, PepsiCo India, labels the increase in his company's BTL spends as "significant". "Today, consumers have started saying, 'show me something real'," he adds. In April, in its advertising, PepsiCo India switched from cricket to soccer, and launched a campaign, 'change the game'.  Alongside, it hit neighbourhoods with 'T-20 Football' -- a seven-a-side, 20-minute soccer tourney. "We realised plain advertising wasn't enough," says Battiwalla. "We wanted to build the idea, and create an experiential engagement that is grassroots with our target audience."  All this is translating into more business for firms like New Delhibased Candid Marketing, which helps companies with their brandactivation strategies. Its managing director Atul S Nath says its business is growing 25% a year. "Clients are questioning the delivery from plain advertising," he says. "Delivery from brand activation is almost immediate, though the latter has its limitations." Nath predicts that, in the      next five years, the split between      BTL and ATL (above-the-line, or advertising) spends will be equal. Currently, companies spend more on mass-media advertising than on events and promotions. He, however, feels, advertising budgets will not fall in absolute terms, but more of the incremental allocation will be to BTL activities. "Overall spends on BTL will significantly rise as people begin to see its impact," he says.  Gupta of LG agrees, and attributes it partly to the rise of online marketing and social media, which conveys details of a product quicker than conventional advertising. "The influencing touch points are shifting," he says. "The customer comes armed with his own research. So, conversion with demo and explanation has become an area of great focus."  It's also the current tight business environment, says brand consultant Harish Bijoor, who sees advertising symbolising 'theme' and BTL representing 'sales'. In a tough market, cash flows are an imperative. "So, they are putting their big bucks on BTL, and money is certainly moving from theme to scheme," he says.  Mayank Shah of Parle Products says the idea is to engage with the consumer despite the higher costs. "In case of traditional advertising on television or print, cost per contact is very low," says Shah, group product manager. "BTL activation is costlier, but it's the quality of engagement with the consumer that makes a lot of sense. He feels, it is very important to generate trials in food products, which is the company's main product category. "Sometimes it's necessary to make consumer sample your products," says Shah. "And where there's a big rural and semi-urban opportunity, we need to go BTL."  Dabur India too has been relying heavily on BTL activities in tier-II and tier-III towns. "With rural consumers increasingly moving towards branded products, just leveraging mainstream media is not enough to connect with them," says George Angelo, executive director–sales, Dabur.  The company has the Dabur Amla 'banke dikhao rani pratiyogita', a rural beauty and talent hunt where rural women are groomed by trained beauticians. Another of its recent BTL activity was the Dabur Gulabari Miss Rose glow contest -- a regional model hunt from state capitals, with the eventual winner receiving a wildcard to the Femina Miss India contest. "A BTL initiative involving Vanya Mishra (a wildcard who was one of the winners at the Miss India contest) resulted in Dabur Gulabari reporting its highest ever monthly sales in April," says Angelo.  bhanu.pande@timesgroup.com

FM Manmohan, Once More!

Will He Do Another 1991? Indian economy is hoping for a fresh lease of life as the champion of reforms takes charge at North Block and chooses a few good men to steer the country out of the current mess  Raghuram Rajan may get key role in policymaking while Sumit Bose could replace Gujral as fin secy OUR BUREAU NEW DELHI      Prime Minister Manmohan Singh, who took charge of the finance portfolio on Tuesday following the resignation of Pranab Mukherjee, may ring in changes at the ministry as he seeks to revive economic growth, arrest the rupee's fall and deal with the fallout of a possible breakup of the euro zone. Some bureaucrats who played a key role during the tenure of Mukherjee, widely considered the front-runner to become India's next President, may have to move to new assignments.  Expenditure Secretary Sumit Bose may become the seniormost bureaucrat at the ministry succeeding RS Gujral, the revenue and finance secretary, say people familiar with the matter. Gujral had been vocal in defending a controversial retrospective amendment taxing overseas deals involving Indian assets. The amendment, widely believed to be aimed at Vodafone Plc, has become a lightning rod for criticism of Mukherjee's last months at North Block, as the finance ministry is often referred to. Singh was reportedly unhappy with the amendment because of its negative impact on investor sentiment, though he never publicly commented on the matter.  Singh may also turn to Raghuram Rajan, professor of finance at the University of Chicago and currently advisor to him, to assume an influential position in economic policymaking.  Two people with knowledge of the matter said Rajan had been approached by the Indian government. PM may Look to Induct Fresh Blood  The former chief economist with the International Monetary Fund could become chief economic advisor in the finance ministry, with incumbent Kaushik Basu set to return to his teaching job at Cornell University, they said. They, however, cautioned that Rajan was yet to accept the offer and no final decision had been taken.  Rajan, who three years ago authored a report commissioned by the Planning Commission suggesting a slew of reforms in the financial sector, is now on an honorary assignment as advisor to the prime minister.  While Singh is expected to run the ministry with the help of his key aides, former RBI governor C Rangarajan and Planning Commission Deputy Chairman Montek Singh Ahluwalia, he may be looking to induct fresh blood.  The names of 1987-batch IAS officers Arvind Mayaram and Vivek Ray, serving as special secretaries in the rural development and defence ministries, are doing the rounds for leading the charge at the department of economic affairs, which is expected to spearhead the task of reviving the economy. R Gopalan, secretary in charge of the department of economic affairs, retires on July 31.  Singh, who introduced economic reforms in 1991, is expected to use this opportunity to usher in some key structural changes on the policy front. The country's macroeconomic fundamentals do not make a pretty picture. GDP slid to a nine-year low of 6.3% in 2011-12 and the rupee fell to a lifetime low below 57 to a dollar. Speaking to journalists after stepping down, Mukherjee conceded that he may have made mistakes but asserted his decisions were taken in public interest. "Measures are urgently needed to boost domestic investment sentiment… It is time to act... Anytime there is a change of guard people expect lot of changes…We will wait and watch," said DK Joshi, chief economist, Crisil. Some doubt if the change of guard would make much difference. "I do not think that a new FM would change the sentiment as Pranab Mukherjee had pretty good standing as the FM and it is unlikely that a person at the finance ministry can bring about much change," said Madan Sabnavis, chief economist, Care ratings.

‘India Inc’s Q1 revenue growth to hit 6-qtr low’

May Drop To 14% From 17.5% A Yr Ago: Crisil Mumbai: India Inc is expected to see a sharp slowdown in revenue growth during the current quarter, growing at 14%, the slowest in the last six quarters, compared to 17.5% during April-June 2011. The main reasons for the slowdown are the moderation in demand during the current quarter, the general slowdown in the economic activity and also in gross fixed investments, a report by Crisil Research noted.      "EBITDA (earnings before interest, taxes, depreciation, and amortization) margins are projected to decline by 100-150 basis points (bps) on a yearon-year basis to around 19-20%, but remain flat compared to Jan-Mar 2012 (Q4 FY12)," the report pointed out.      The revenue outlook for the full year 2012-13 (FY13) is also not so good as there are indications that it would grow at a pace slower than what was witnessed in FY12, that is lower than 16.7%, unless investments pick up. On the margin front, however, export-driven sectors like pharmaceuticals and IT companies would see some margin expansion, along with the telecom sector, which is purely domestic market focused.      Crisil Research also noted that there is a sharp deceleration in investment cycle, as investments in fixed assets are currently at the lowest level in the last five years. "At about 13%, growth in capex is the lowest in the last five years, reflecting investment slowdown. Deceleration in investment has lowered depreciation charges to a 10-year low," the report pointed out. Crisil analysts also are not expecting the investment cycle to pick up soon because of three reasons. These are the current economic uncertainty and the flux inthe Eurozone, continued policy logjam, delays in approvals and clearances, land acquisition related issues etc, and some likely delay in moderation of interest rates due to high fiscal deficit and inflation.      India Inc's interest coverage, the ratio of EBIDTA to interest expenses, is also at the lowest level in the last three years, because of high interest rates and margin pressures.  E-voting must for resolutions: Sebi  Mumbai: Market regulator Sebi on Tuesday said that e-voting should be mandatory for top 500 companies by market capitalization on the BSE and the NSE, making it cost effective for these companies and easier for their shareholders to participate in some of the decisions which were earlier done through postal ballot. The decision came as a follow-up to the Budget proposal to make e-voting mandatory for listed entities. Sebi said that the decision to move to e-voting would be implemented in a phased manner, and listed companies may choose any one of the agency which is currently providing the e-voting platform. TNN

WHEN PM WAS FM

Undertook two rounds of currency devaluation on July 1 and July 3, 1991 

This was followed by opening up several sectors to private sector and doing away with licences in several areas 
Also permitted up to 51% FDI in several sectors and set up Foreign Investment Promotion Board 
Trade policy was changed and import duties cut 
Deregulated lending and deposit rates in consultation with RBI Ushered in stake sale in PSUs 
Sebi was set up as an independent regulator for capital markets, Controller of Capial Issues disbanded 
National Stock Exchange was incorporated in Nov 1992 and it launched debt and equity trading two years later 
In 1992, private airlines were allowed to fly resulting in the entry of several players such as Jet, Air Sahara and Modiluft 
FIIs were allowed to trade 
in 1993

Mill workers to get nearly 7k houses in Mhada lottery

Mhada will allot 6,925 houses to mill workers through a lottery on Thursday. Each tenement costs Rs 7.5 lakh and will be handed over to the workers during Diwali. TNN

Moody’s retains stable rating outlook for India

Slowdown Has Been Factored In Baa3 Status New Delhi: Moody's Investors Service said on Monday it was maintaining its stable outlook on India's rating despite slowing growth, high inflation and an uncertain investment policy environment. Moody's said these challenges have already been factored in their Baa3 rating and slowing growth, investment and poor business sentiment are unlikely to be permanent or medium term features of the Indian economy.      The announcement should come as a relief for policymakers, who have been battling severe criticism after two global ratings agencies Standard & Poor's and Fitch revised their outlook on India's rating to negative from stable, citing slowdown in growth, weak public finances, lack of economic reforms and stalled policies.      In fact S&P had cautioned that India could be the first country among the BRIC (Brazil, Russia, India and Chi na) group to lose its invest ment grade rating.      "Moody's Investor Service says it is maintaining its stable outlook on India's rating as various credit chal lenges — such as weak fiscal performance, tendency to wards inflation and an uncer tain investment policyenvironment — have charac terized the Indian economy for decades, and are already incorporated into the current Baa3 rating," the ratings agency said in a statement.      But Moody's said global and domestic factors, includ ing potential shocks in agri culture, could keep India's growth below trend for the next few quarters. Growth in the January-March quarter of 2012 slowed to a nine-year low of 5.3%, while overall growth in 2011-12 slowed to 6.5%, below the initial esti mate of 6.9%, raising alarm bells and prompting calls for urgent action to revive growth. "Moody's notes that its ratings express a view on medium-term sovereign creditworthiness and do not generally change with fluc tuations in growth related to the direction of the business cycle at a particular point, if Moody's believes growth will recover and sustain over time," the ratings agency said. It said the impact of lower growth and still-highinflation will deteriorate credit metrics in the near term, but not to the extent that they will become incom patible with India's current rating. Inflation is running well above the central bank's comfort level and in May stood at 7.55%, while retail inflation has been in double digits for three consecutive months. Food inflation is al so running in double-digits and the stubborn inflation ary pressures have prompt ed RBI to leave interest rates unchanged in its latest poli cy review earlier this month Moody's said the Indian gov ernment's debt and fiscal deficit ratios have always been worse than those of similarly rated peers.      On the issue of rupee's depreciation, Moody's said as the government's foreign currency debt comprises only 5.3% of its total debt and is equivalent to 3.8% of GDP, the rupee's decline does not raise the govern ment's own debt service bur den significantly.

Mhada gets only 2 bidders for Dharavi pilot project

Mumbai:A year after it was given the mandate to redevelop Sector V,Mhada has got bids from only two firms in response to its advertisement inviting contractors to build 344 flats as part of a pilot project in Dharavi. The two bidders are Shirke Constructions and Neptune Group.      However, even before the bids are finalized, Congress MP Eknath Gaikwad has warned against opening them. "Three years ago, the state government cancelled bids saying there was inadequate competition despite seven companies showing interest. If the government found seven bids insufficient, then on what grounds can Mhada claim good competition and open the bids when it has received only two responses?'' he argued.      Gaikwad further said: "When the government asked Mhada to redevelop one sector, we were reassured that slumdwellers would be rehabilitated in buildings constructed by bigger developers. None of these contractors has bid and it appears that the conditions have been framed to favour one bidder. We will not allow this to happen. The government will have to call for fresh bids."     If the poor response was not enough, a group of housing societies led by Gaikwad and his legislator daughter, Varsha, sat on a one-day hunger strike recently to protest against the delay in implementation of the Dharavi redevelopment project.      Sachin Ahir, minister of state for housing, said though they have received only two bids, the government would ensure quality work by the successful bidder. "This is just a pilot project. Our aim is to counter claims that the Dharavi project will not take off. We are confident that once the pilot project takes off, we will see reputable companies participate in the bid for the balance area in Sector V. I will try to explain this to Gaikwad,'' said Ahir.

RBI has Put the Pressure Back Where it Should Be

JIM WALKER MANAGING DIRECTOR, ASIANOMICS Indian cos & the country are an excellent long-term investment, it's the policy U-turns and general lack of direction in reforms that are at the root of India's problems, says Asianomics MD Jim Walker The Reserve Bank of India's move to keep policy rates unchanged last week demonstrates why it is labeled as Asia's best central bank, said Jim Walker, managing director of Hong Kong-based Asianomics. In an interview with Nishanth Vasudevan, Walker, who is known for accurately forecasting the US slump in 2008, said India is a good trading bet now but it is not a fundamental buy as he is yet to see concrete evidence of the government getting serious about addressing its fiscal deficit and the overall debt. Edited excerpts:  The favourable Greek election result does not seem to have eased concerns among investors going by the way the market is attacking Spain. What are your thoughts?  The Greek election result did not reduce uncertainty (it would almost have been better if the leftists had won and a Greek exit all but assured). Instead, there will now be a Greek coalition which will have difficulty in agreeing over anything, but which must attempt to renegotiate the terms of the bailout. This will be watched very closely by Ireland and Portugal which will also want to benefit from any easier terms offered to Greece. That leaves the political mess worse, not better. As for Spain, again, the Greek election makes no difference here. Spain has a bust banking system because it is so closely related to a bust property market. The last plan was to bail out Spanish banks — through lending to the Spanish government — to the tune of 100 billion euros. That would have increased sovereign debt by 10% of GDP but why would anyone think that 100 billion euros was enough? Spain's GDP is just over 1 trillion euros. Its corporate debt-to-GDP is 193% while its household debt-to-GDP is 91%, which is 284% altogether. Even if just 10% of that is bad it would require 284 billion euros to support the Spanish banks. The reason the markets have not settled is that they now recognise how big the problem is.  There is a feeling in the market that the eurozone break-up is inevitable. Do you agree?  Yes. It is the only quick way to get growth up and running again in the peripheral European economies. Their currencies have to devalue. Large chunks of wealth have to be wiped out and huge swathes of debt have to be defaulted on. That is the only way to solve the problem quickly — economic growth would move into the 5-10% range within 18 months (of course, after the GDP has fallen by around 25%). The alternative is to do what the Europeans are currently trying to do — adjust a misallocated system via depression and deflation. The problem there is that it takes many years to adjust in this way which means many elections that might end up overturning the whole process.  The US economy is showing signs of faltering with jobs data showing a downward trend as you predicted earlier this year. What are the chances of a QE3? Will this be enough to revive growth?  The QE programmes have done nothing for growth or even addressed the core problem. There is still too much leverage in the system and economic growth will be subdued until people and companies feel happier about their balance sheets. The US monetary policy just ensures that the process will be more like Japan's than the experience of the Asian Crisis in 1997-98. Bear in mind that part of Bernanke's whole plan, keeping interest rates at near zero, is deeply flawed. First, it signals to business that there is no growth coming and, therefore, signals that they should not expand. Secondly, it distorts the price of capital — which was the problem in the first place — and makes it impossible to calculate whether an investment is truly likely to make money or not. That again freezes the system. QE3 will not help in this respect at all.  What is your outlook on India? Is the fall in the fourth quarter GDP growth to 5.3% worrisome?  Worrisome, yes, but predictable. I am looking for 4-6% real GDP growth in FY13. The investment pipeline is already weak. RBI is being forced to keep rates high because of government's incompetence on the fiscal front. Without a credible medium-term fiscal consolidation plan India will suffer ratings downgrades and excess inflation, underpinning interest rates. It will also be subject to the possibility of capital flight as 'risk-off' periods become more frequent. Indian companies and the country as a whole are an excellent long-term investment. Unfortunately, the government is keeping foreigners and locals on the sidelines as it plumps for populism over long-term economic common sense.  What are your thoughts about the Reserve Bank of India's move to keep rates steady? The market criticized it saying it is time to shift to growth.  Excellent move. It puts the pressure back fairly and squarely where it should be, on the government in Delhi. Its policy U-turns, spending programmes and general lack of direction in economic reform are at the root of India's current problems. The expanding fiscal deficit has more to do with the structural inflation problem than monetary policy. Yet again the RBI demonstrated this week why we have labeled it the best central bank in Asia.  Would you recommend buying Indian stocks at this juncture?  I would recommend buying Indian market ETFs priced in US dollars. The rupee is undoubtedly oversold at these levels and is, therefore, attractive. More than that the weak currency will diminish the appetite for imports and help correct the current account deficit. The improving trend, which I expect to be clear within the next six months, will underpin the rupee and that will underpin the market. However, this is just a trade. We will not be comfortable recommending Indian stocks as a fundamental buy again until we see concrete evidence that government is getting serious about addressing its fiscal deficit and the overall debt load.  Are you still optimistic about gold?  Yes. This is because I am pessimistic about the people who are in charge of global monetary policy except for Mr (Masaaki) Shirakawa at the Bank of Japan. He is doing the best job of all by still printing very little money despite the political pressures to the contrary. For as long as we have people like Bernanke, King and Draghi promising to do more on the monetary front,(the whole issue is a problem of too much accumulated debt, not too little) then we will be long on gold. Not because we expect inflation; we do not. Instead we expect deflation, as the common sense of the overindebted private sector overcomes these monetary cranks. However, they will all continue to try to debase their own paper money. That is good for gold and all other hard assets in short supply.

Watch Out Walmart, India’s Got LanMark

The retail chain, which brought together 160 small dealers of white goods under a single brand in Kerala, debuts in Tamil Nadu, to now expand footprint in south India     A novel experiment in retail that began in Kerala is catching on in Tamil Nadu, holding out hope that this hybrid model could be just what small traders require to compete effectively against Big Retail.  LanMark, which has brought together 160 small dealers of white goods in Kerala under a common brand, has quietly made its debut in Tamil Nadu with 12 stores under its fold. It is now ready to expand to the rest of south India.  LanMark was started seven years ago when a group of retail professionals saw an answer to the problems of scale-challenged small retailers. In Chennai, learning that some small stores were on the verge of closing down, the brand studied the city market and found their problems were the same as in Kerala: absence of proper accounting, poor staff attitudes and a lack of professionalism.  "We sensed early that retail hinges not only on scale of operations, but also on financial discipline and a professional approach. And we could impress these on individual store-owners over the past seven years," said Jerry Mathew, MD of LanMark.  Jerry Mathew owns 53% stake in Kochi-based LanMark. The combined turnover of LanMark stores is now . 108 crore, surely just a fraction of that of the big boys of retail. But then it has 160 stores, almost as many as Tata Croma and Reliance Digital put together.  The model is kept simple: retail outlets can join the brand by branding their shops LanMark, but retaining their individual status for accounting purposes, including sales tax registration. Lan-Mark takes care of bulk sourcing of products, their transportation to individual stores, and more importantly, the publicity. "Individual shops hardly had any publicity budgets, but over these years we have spent . 10 crore in print advertising alone," said Mathew, who cites pan-European Euronics network to be the only comparable model of independent retailers. "This is a good development, an exciting thing to do, and perhaps the first of its kind in the country," said Shubhranshu Pani, managing director (retail), Jones Lang LaSalle in India.  Pani said group buying is key in retail and that it is a "phenomenal thought for a group of retailers to come together in co-branding, in contrast to the regular franchisee model.  LanMark has invested in setting up accounting and transportation logisticspractices that are now leveraged for the 160 stores in the group, complete with SAP-based operations for the brand and Tally systems for individual stores. Products are transported to stores in GPS-enabled trucks that can even provide information on the time spent on unloading at a particular store.  The brand also cleared a seemingly insurmountable obstacle in retail trade: getting paid for deliveries on time. Member stores have to strictly abide by the cash-and-carry norm. "If any store delays payment or fails in accounting discipline, we show them the door," said KA Felix, a consultant for the brand. LanMark also takes care of professionalising staff behaviour, providing a formal, syllabus-oriented training module for staff drawn from different stores in batches of 40, and is mulling the option of organising training programmes in association with IIM-Ahmedabad.  Those who have joined the brand have no regrets, having found a new way to compete with bigger chains.  "In the early years, it was alright being a one-store business, but when larger showrooms came along, and manufacturers gave incentives and foreign jaunts only to the bigger players, business started flagging," said Mathew Maliekal, a store owner at Kaduthuruthy in Kottayam district, who started 26 years ago and joined LanMark when it came into being.  "Since joining the LanMark network, my business has grown two-and-a-half times, and the training and advice I get is a bonus." Mathew said getting stores on board was not easy. "But what we discovered was that a number of proprietors did not even know whether they were making profits or losses, owing to loose accounting practices. Once store owners realised that dealer profitability was our abiding concern, they signed up."  Twist in Retail  LANMARK HELPS  scale-challenged small traders overcome disadvantages  IT BRINGS  together white goods dealers under a common brand  MORE STORES  under umbrella than Croma, Reliance Digital  LANMARK IS  in charge of sourcing, logistics & publicity for all dealers  POPULAR IN  Kerala, it has just entered Chennai. Rest of South India on horizon

HUL Tests its ‘Magic’ Formula to Reduce Water Usage for Laundry

Magic's the first product to have emerged from India as part of Unilever's global sustainable living initiative

Hindustan Unilever (HUL) is test-marketing an after-wash laundry brand known as Magic liquid that the company claims will reduce water usage by twothirds. Magic is used for rinsing clothes and is the first product to have emerged from India as part of an initiative called the global sustainable living plan launched by parent company Unilever. It also becomes the second indigenous brand launched by HUL in the past seven years, the first being water purifier Pureit launched in 2005. 

"It is estimated that by 2030, the supply of water in India would be half of the demand for it. Laundry is the easiest area to reduce water usage," Priya Nair, vice-president-laundry category at HUL, said. "We have launched Magic in the test market in the water-scarce state of Andhra Pradesh." 
Globally, the parent company, Unilever, has so far launched a dry shampoo that doesn't need water, a hair conditioner that doesn't need to be washed away and detergents that clean at room temperatures — doing away with the need for hot water at 70 degree Celsius in washing machines — all part of the Anglo-Dutch firm's commitment to halve the water associated with the consumer use of its products by 2020. An analysis by Unilever shows that around 38% of its water footprint comes from the laundry process – and a significant proportion of this on account of hand-washing clothes, a practice widely prevalent in the developing world. Unilever has set itself a target to reduce the water required in the laundry process by making rinsing products more widely available and by providing 50 million households in water-scarce countries with products that deliver cleaning but use less water. 
Corporate social responsibility is not the only motivation driving the country's largest consumer products company. HUL's largest business — soaps and detergents — is fast reaching maturity in terms of penetration, forcing it to drive up trading — or persuading consumers to buy more expensive or new products — within these segments for a longterm growth, say analysts. 
"Penetration in the core detergent segment is as high as 90%. HUL is trying to create newer consumption opportunities in the laundry portfolio in the post and pre-wash space and expand the consumption spends," said Anand Mour of Ambit Capital. 
Per capita consumption of laundry products in India is just $2, almost half of China. India's laundry market is the largest category in the home and personal care basket with annual sales of over . 13,000 crore. Companies such as Procter & Gamble and Henkel compete with HUL. 
Within the detergent segment, HUL has recently added newer categories such as fabric conditioner Comfort and Rin Perfect Shine, which was launched earlier this month. 
In fact, HUL has significant exposure to highly-penetrated and low-usage categories. Hence, the company has been adding newer products that it claims provide enhanced benefits. At the same time, HUL has been introducing more expensive products to earn higher margins. A case in point is the sharp growth of liquid soap, shower gel, skin cleanser, fabric and hair conditioner products in its portfolio. 
sagar.malviya@timesgroup.com 

The Curious Case of Indian Realty

Home prices stay stubbornly high even as demand slumps Gautam Belwal is not much of a movie buff. But these days, he spends most Sundays at his rented home catching some action flick or the other. His weekly searches for a twobedroom house in Noida (in Delhi NCR) have come to an end due to soaring realty prices. And as if to add insult to injury, the youngster suffered a double whammy some weeks ago. The multinational IT company he works for doled out a below-par increment, dashing his hopes of buying a permanent home.  Sumit Joshi, director of Noida-based Real Credit Consultancy, a small firm that helps home buyers get loans from the big banks, reminisces about the days he would be flooded with calls from customers and bankers. Now, he is the one doing the chasing as buyers stay away and a banker client refuses payment due to unfulfilled targets.  Joshi and Belwal have little in common apart from being members of India's increasingly harried middle-class striving to either buy a home or make a living in the fractious, disorderly real estate market. But as prices rise, thanks to inflation and attempts at cartelisation by real estate barons in some parts of the country, and banks turn stingy and overcautious, people like Joshi and Belwal are finding their carefully laid out plans being blown away by this perfect storm.  "Our payments from banks are linked to certain disbursement targets we are struggling to meet because of very slow home sales. Where is the business today?" asks Joshi. Home Loan Growth Slows to 12%  Joshi has seen a 40% crash in business in the past eight months.  But he is not the only one. Across the country, home loan bankers are seeing a sharp drop in business as buyers rebel against high prices by staying away. According to a recent Knight Frank report, Indian real estate prices rose 12% in the past year, the third highest in the world. Reserve Bank data shows housing loan growth slowed to 12.1% for the year ended March 2012 from 16% in the previous year. Also, before real estate prices peaked in 2008, big lenders were managing to grow their home loan portfolio at an annual average of 25%.  "Demand in metros has slowed down in April-May. This is mainly due to high interest rates, which have made buyers hesitant to buy property. There are also very few new projects being announced as builders' communities have been affected by high interest rates too," said VK Sharma, CEO of LIC Housing Finance, the country's third-largest housing finance company.  Loan growth at LIC Housing Finance slipped to 17% in 2011-12 from 28% a year ago, forcing the company to set a lower target of 20% for the current fiscal.  State Bank of India's housing loan disbursement grew 15% in 2011-12 against its target of 20%. The country's largest lender sanctioned Rs 28,000-crore of housing loans last fiscal.  "During January-March, there were hopes of business picking up, but April-May has been slack. Typically, this period is slower, but this time around it was slacker than last year. FY2013 has been quite disappointing due to both local and macro-level issues," said a senior official of SBI.  He also highlighted that there are markets like Mumbai, NCR and Bangalore that have unabsorbed supply, and in some cases, it is close to two years' oversupply.  But what is surprising in all this is that prices are showing no signs of coming down. Though consumers are shying away and there is enough evidence of this and volumes have dipped, debttrapped developers are still not ready to reduce prices of apartments.  For the quarter-ended March, prices in the National Capital Region rose 33% while Mumbai and Bangalore posted 17% and 8% jump, a recent report from Liases Foras Real Estate Rating & Research showed.  "Demand has slowed down, number of transactions is falling. In the top 10 cities, sales volume has dropped 10% in the last one year. Mumbai is the worst-affected market with a 40% decline in transactions, but prices have remained more or less stable across these regions," said Binaifer Jehani, director, CRISIL Research.  Some Mumbai-based developers such as Kalpataru Group, Oberoi Realty, Lodha Developers, Wadhwa Group and Nirmal Lifestyle have actually raised prices in the last few months by more than 10% in Mumbai's central and western suburbs as well as in south Mumbai.  Although the hottest property market has an inventory level of over 120 million sq ft, equivalent to 40 months' average sales volume here, not much of this is available for immediate possession. This is helping developers with projects that are close to delivery and resale flat owners seek premium for their units.  The NCR, being the largest residential market, faces challenges at unsold inventory levels. However, the market has shown stability and there has been no drastic dip in the sales velocity in 2011-12.  In the most stable property market of Bangalore, too, buyers are either deferring their decisions or looking at suburbs to buy properties.  "There's a demand-supply mismatch. Only 20-25% of the properties in Bangalore are in the price range of Rs 35-70 lakh category while the current demand is driven by this segment. Around 70% of the buyers are looking to purchase properties in this bracket," said BM Poonacha, head-land and special projects, LJ Hooker Project Marketing India.  While apartment sales in the price range of Rs 35-70 lakh have grown 20-25% in Bangalore, there's a drop in demand for property priced over Rs 1 crore, he said.  Builders are blaming the civic and urban development authorities for delay in approvals. "Most of the launches are not taking place as there are no approvals coming from the civic authority. Once approvals gain momentum, we can expect project launches to increase, and that can lead to some softening in housing prices. There's no possibility of any cartelisation among developers as each one is incurring huge interest cost for any delay in project launch," said Paras Gundecha, president of Maharashtra Chamber of Housing Industry.  Others agree, but what Gundehca is not saying here is that builders are also unwilling to bring down prices and are either delaying launches or selling noncore businesses in order to raise cash and build a cushion for themselves.  "Reducing prices might not help in reviving the demand beyond a point, as buyers would expect further drop in prices and defer their buying decisions. Rather, developers are going slowly with their launches," Jehani said.  According to her, developers prefer to ease their debt burden by selling land parcels or non-core assets rather than directly reduce prices of their projects. They also feel there's no scope for any price reduction in the first place.  By going slow with their launches, builders might open themselves to charges of cartelisation. But so far, very little has been proved and the Competition Commission of India (CCI) did not respond to an ET query on whether a probe was underway on alleged cartelisation by builders.  "All input costs have gone up, including government taxes like property tax and development charges. Labour cost has shot up nearly 60%; cement and steel prices have also increased over 30% in the last one year. There's a limit up to which developers can take the hit," said Lalit Kumar Jain, national president of the Confederation of Real Estate Developers Association of India (CREDAI).  "It's impossible to expect prices to soften hereon, but at the first opportunity, prices should move up 10-15% to compensate developers against the input cost rise," said Jain.  "Developers' margins are clearly under pressure due to rising costs. Operating margins are now around 30-35%. This is a reasonable number to be in the business, but if we remove the rental income some of the developers are earning from their commercial properties, it would move a lot lower," said Aashiesh Agarwaal of Edelweiss Securities.