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Thursday, August 30, 2012

For Growth’s Sake, Cut Rate by 1%, Says Kamath

Holding the rate doesn't seem to contain inflation, but could harm growth story, says ICICI chairman


The Reserve bank of India must go bold and big with a 100 basis-point reduction in its main policy rate to spur consumption, KV Kamath said on Wednesday. A sharp cut in the repo rate, he said, is urgently needed if the country's growth prospects are to remain unimpaired. 
"I would think that we need to head towards a 100-basis point cut soon," the chairman of the country's largest private lender ICICI Bank told ET in an interview. 
His call for aggressive rate-cutting by 
the Reserve Bank of India comes on the eve of the release of economic growth data for the April-June quarter which is expected to show gross domestic product expanding at its slowest pace in many years. 
"My only point is that we are not sure that holding the interest rate where it is now is doing anything to contain inflation. And the question is now whether it is doing harm to the growth story of the country," he said in his most forceful argument yet in favour of aggressive ratecutting by the RBI. 
The central bank has been citing concerns about inflation and the fiscal deficit, signalling that it is not in a mood to reduce the repo rate below the 8% at which it stands now. 
In April, governor Subbarao unexpectedly reduced the rate by 50 basis points. But equally unexpectedly in June, he 
left it unchanged. 
Kamath observed that while the fear of inflation is well placed, holding the rate at which RBI lends to banks at the current level has the potential to impact the consumption side of economic momentum. 
"I would think that we could experiment with lowering interest rates and seeing what happens to inflation, and what happens to the economy. And indeed as we see growth figures, the signal is very clear that even with errors and 
omissions growth is slowing down." The prime minister and the RBI expect the economy to expand by around 6.5% during the year to March 2013 but forecasts by private agencies are more pessimistic. A forecast by Citi even pegged growth at below 5%. In the March quarter GDP expanded by 5.3%, it slowest pace in nine years. Around the world central banks are lowering rates and in China there has been a dramatic slowdown in growth, Kamath said. "To me an even bigger worry is that we should not be seen as a complete outlier in what is being done on the interest rate front in the global context … We don't want to be caught in this overall global impact."


L&T Targets 30% Growth in New Hydrocarbon Orders

Orders from this segment are crucial as other verticals see muted growth


Engineering conglomerate Larsen & Toubro expects a 30% growth in new orders from the hydrocarbon sector this fiscal, its chief executive officer and managing director told ET. 
The company hopes to bag . 10,000 crore of orders from upstream, mid- and downstream companies and even fertiliser companies in 2012-13, compared with orders worth over . 7,000 crore it received from the sector in the previous fiscal. "We hope to have robust order 
inflow from hydrocarbon segment this year," K Venkataramanan said, adding: "The year opened with good order booking and we are pre-qualified for significant projects in India and abroad, which gives us reasonable comfort that we would bag at least . 10,000 crore of order by March." 
Although business from the hydrocarbon sector accounts for only 10% of the . 71,000-crore conglomerate's business, order wins from the segment will be crucial for the company as the other sectors it does business with, such as power and infrastructure, continue to see muted capital expenditure and delay in ordering. 
L&T has guided that its order inflow in 2012-13 will be 15-20% higher than the . 70,574 crore reported a year ago. 
"The past two years have been very weak in the hydrocarbon sector, but we see a good pipeline of 
orders from ONGC. 
Also, the steps that we have taken towards expanding our business in the Middle East would yield result this year," Venkataramanan said. 
Venkataramanan, who also heads the group's hydrocarbon business vertical, said L&T is working on forming alliances abroad to be able to participate in projects worth $3 billion or more — a segment dominated by Japanese and Korean engineering companies. The company, so far, has only targetted projects worth up to $1.5 billion in the Middle East. 
Analysts said while some of L&T's pending orders may fructify this year, the company may not find it easy to achieve its targets. "Expectations for the hydrocarbon sector are running high, so misses are most likely here," said brokerage firm CLSA in a report last week.

Under Fire from Govt, CAG Readies More Powerful Bomb Argues loss to exchequer can be pegged 10 times higher

 Undaunted by sustained criticism from the government, the Comptroller and Auditor General of India (CAG) is ready to make things even more difficult for the Congress-led administration by arguing that the value of blocks given away to private companies can be pegged 10 times higher than the controversial estimate of . 1.86 lakh crore. 

The auditor is expected to cite the higher number to the Public Accounts Committee of Parliament if asked to respond to the barrage of attacks from the prime minister and his Cabinet colleagues, sources in the CAG office said.
One source said the value of coal blocks given to private parties was estimated conservatively on the basis of the difference between the cost of production (including financing costs) and selling price of Coal India, which translates into a gain of . 295.41 per tonne. 

"We have been supremely conservative in our calculation. If we had used the price of coal in e-auctions or the landed cost of imports to calculate the gains of private companies, the amount would have been dramatically higher," a CAG source said. 
The auditor has already indicated this in a footnote in the report on ultra mega power projects, where it said the cost of coal from e-auctions amounted to . 1,782 per tonne on the basis of Coal India data for 2010-11. If this price is used to calculate the value of 6,282.5 million tonnes of coal given to private firms, it would amount to . 11.2 lakh crore. 
The report also says based on state-run power utility NTPC's data for November 2009, the landed cost of imported coal is . 2,874 per tonne. This would translate into a staggering benefit of . 18.1 lakh crore. 
CAG sources said they had enough ammunition to respond to attempts by the government to rubbish the audit report. 
'Report Based on Material Given by Govt' 
"One minister says that blocks were given free for the sake of economic growth and because Coal India was not producing enough coal. But another minister says the coal has not been mined, so there is no question of any loss. If coal has not been mined, then it defeats the logic of giving away coal on the grounds that CIL is not producing enough," one of the sources said. "(Further) the asset has been transferred, even if it has not been mined. Is the government admitting that when the coal is mined, there will be aloss?" the source added. CAG sources also disagreed with criticism that the auditor was delving deep into policy matters. The auditor has so far not formally responded to sharp criticism from the government. In a statement on Tuesday, CAG said: "It is hereby stated that the organisation of C&AG would clarify on the report at the appropriate forum, when required. Being a constitutional authority, the C&AG feels that it would be improper on his part to join a public debate on this issue." "We are not saying that the policy is right or wrong. We are merely pointing out that the gov
ernment's own policy has not been transparently implemented," another source in the CAG office said. Responding to the government's view that the Screening Committee route provided a transparent method to allocate coal blocks, the source said there was nothing to show why a particular company was given a coal block in preference over another. 
CAG sources say the entire report on the allocation of coal blocks is 
based on material and documents provided by the government, and the points raised are entirely on the basis of discussions with government officials. "The word 'windfall' was used by the coal secretary," one source said. 
The CAG report has created a furore and disrupted Parliament. BJP is demanding the resignation of Prime Minister Manmohan Singh, who held the coal portfolio for a part of the audit period.




TAXING TIMES Mhada, Cidco, MMRDA may get a VAT blow

Thane: State agencies like Mhada, Cidco and MMRDA may have to shell out crores of rupees towards value-added tax (VAT) for sale of flats over the last six years. 

    The biggest blow will be dealt to Mhada, which has sold over 10,000 tenements across the state since 2006. The law states that builders will have to pay a 5% VAT on sale of properties undertaken between 2006 and 2010. The VAT payable post 2010 will be 1% of the cost of the property. 
    Having constructed tenements and sold them through a lottery draw, thereby recovering administrative, actual land and construction costs from buyers, Mhada qualifies as a builder. "Prima facie it looks like we will have to pay the VAT. We are calculating the amount that we will have to pay. It is going to be huge figure given our volumes of sales," said Satish Gavai,Mhada vice-president. 
    Buyers had been informed at the time of sale that in case of a tax liability in the near future, the authority reserves 
the right to recover the entire amount from the buyer, said Gavai, adding that the agreement betweenMhada and the buyers has a clause, which puts the onus of tax arrears on the purchaser. However, an official said, "Recovering the arrears will be a big worry. There is every likelihood that buyers must have sold off the flats. In such an event, the original owner will be reluctant to pay up and so will the one occupying the place at present." 
    Tenements built under the slum redevelopment scheme will also come under the VAT purview and builders who have constructed them will have to pay the arrears, it is learnt. 
    Cidco, which has constructed homes and shops in Navi Mumbai, Aurangabad and other cities, too will have to pay tax on all flat sales effected post 2006. 
    "MMRDA too will invite the tax if its proposal, pending before the CM, to sell a portion of the flats constructed under the rental housing scheme gets a nod," an official said.

Desi drug cos break into world’s fastest growing list

Mumbai: In yet another instance of India Inc occupying a larger seat in the global league tables, three out of the top 10 fastest-growing generic companies globally are now from India. 

    On the list is Glenmark Pharmaceuticals which, with a growth of 37%, is the fifth fastest-growing generic company globally, followed by Dr Reddy's which grew 34% in FY 2011-12, according to global pharmaceutical research firm, EvaluatePharma. The third domestic company on the list, Sun Pharma witnessed a growth of 29%, occupying the eighth rank, right below its subsidiary Taro which had a 33% growth (Taro reports its own numbers since it's listed in the US, while the domestic company has started combining the Israel-based company's financials since September 2010). 
    The club of the fastest growing generic companies in the world is dominated by US companies, led by USbased Sagent Pharma, which witnessed a huge growth of 106% during the period, according to the research firm's latest analysis. 
    Significant product launches, market exclusivity of drugs going off-patent, and growth in regulated markets have contributed to the development, industry experts say. 

    According to Sujay Shetty, India leader for pharma and life sciences at PwC India, "This shows the growing significance of domestic companies in terms of quality, portfolio strategy and certain significant first-to-file (FTF) products. Strong revenues from regulated markets are another factor which contributed to the huge growth." The growth in domestic companies has also been driven by their robust home businesses. The Indian pharma market is clocking a growth of around 15-20% year-on-year. 
    Commenting on Glenmark's strategy, the company's CMD Glenn Saldanha says, "The growth from markets, particularly Russia, Brazil and the US, has been exceptional. We have invest
ed in these markets for the last six-seven years and we are just beginning to make huge inroads in these markets." The latest prescription audit in the US says that about 74% of drugs sold are generic or copy-cat versions. 
    The strong portfolio devised by Indian companies and exclusivity drug launches are driving growth, feels secretary-general of Indian Pharmaceutical Alliance, D G Shah. 
    The huge growth of Sun Pharma is partly on account of strong organic growth across all business segments (India, US and rest of the world) as well as on account of Taro being represented for six months of the year (September 20, 2010 onwards), says a Sun Pharma official.



Tuesday, August 28, 2012

MMRDA plans elevated road to decongest island city traffic

Mumbai: In the absence of the controversial coastal road between Worli and Cuffe Parade and the Pedder Road flyover, there is relief in sight for peak hour suburban traffic headed to and coming from South Mumbai via the congested Marine Drive and Pedder Road. 

    The Mumbai Metropolitan Region Development Authority (MMRDA) has decided to appoint a developer by the yearend to build a 4.5km elevated road from Sewri to Worli, near the end of the sea link, at a cost of about Rs200crore. 
    The road will be attached to the upcoming eastern freeway, between Princes Dock (towards Colaba) and Chembur. The Chembur end will eventually be connected to the Eastern Express highway in Ghatkopar and Mankhurd on the Sion-
Panvel highway. 
    Similarly, the elevated road will have connectivity with the proposed sea link between Sewri and Nhava, also known as the Mumbai Trans Harbour Link (MTHL). Connectivity will be through a rotary or cloverleaf 
structure, offering entry and exit towards all four ends: Worli, Chembur, Navi Mumbai and Colaba. 
    While the Pedder Road flyover is being opposed by South Mumbai residents and is yet to be approved by the Ministry of Environment & Forests (MoEF), the coastal road will require amendments in the Environment Act itself. Permission for both is expected to take two to three years. In the meantime, MMRDA officials said they can 
build the elevated road. 
    "Instead of taking the traditional Marine Drive-Pedder Road route, traffic on the western corridor, over probably three years, will be signal-free between Worli and Princes Dock through this connector," said MMRDA commissioner Rahul Asthana. 
    "Although railway permission is not yet in to build a bridge above Elphinstone bridge, work will start by January 2013 to avoid delay. The
bridge portion will be built only when permission is given," said another MMRDA official. 
    "The project will decongest Pedder Road in the absence of the 4km flyover and nearly 10km coastal road between Worli and Cuffe Parade," said a senior MMRDA technocrat. While the eastern freeway too will decongest Dr Ambedkar Road, Eastern Express highway and Sion-Panvel road, the sea link will bring Navi Mumbai closer to South Mumbai. 

WORLI-SEWRI CONNECTOR 

    By year-end, developer could be in place 
    Will be attached to eastern freeway from Princes Dock to Chembur and Nhava-Sewri sea link with clover-leaf 
    Railway permission to build 27-metre high bridge above Elphinstone bridge awaited but work will start early 

    Expected to decongest Marine Drive and Pedder Road traffi c as people may prefer signal-free Princes Dock-Freeway-Sewri-Worli route 
    Can serve purpose till coastal road from Worli to Cuffe Parade and Pedder Road flyover is a reality 
    Eastern freeway is expected to start by Jan '13

MMRDA plans elevated road to decongest island city traffic

Chittaranjan Tembhekar TNN 


Mumbai: In the absence of the controversial coastal road between Worli and Cuffe Parade and the Pedder Road flyover, there is relief in sight for peak hour suburban traffic headed to and coming from South Mumbai via the congested Marine Drive and Pedder Road. 
    The Mumbai Metropolitan Region Development Authority (MMRDA) has decided to appoint a developer by the yearend to build a 4.5km elevated road from Sewri to Worli, near the end of the sea link, at a cost of about Rs200crore. 
    The road will be attached to the upcoming eastern freeway, between Princes Dock (towards Colaba) and Chembur. The Chembur end will eventually be connected to the Eastern Express highway in Ghatkopar and Mankhurd on the Sion-
Panvel highway. 
    Similarly, the elevated road will have connectivity with the proposed sea link between Sewri and Nhava, also known as the Mumbai Trans Harbour Link (MTHL). Connectivity will be through a rotary or cloverleaf 
structure, offering entry and exit towards all four ends: Worli, Chembur, Navi Mumbai and Colaba. 
    While the Pedder Road flyover is being opposed by South Mumbai residents and is yet to be approved by the Ministry of Environment & Forests (MoEF), the coastal road will require amendments in the Environment Act itself. Permission for both is expected to take two to three years. In the meantime, MMRDA officials said they can 
build the elevated road. 
    "Instead of taking the traditional Marine Drive-Pedder Road route, traffic on the western corridor, over probably three years, will be signal-free between Worli and Princes Dock through this connector," said MMRDA commissioner Rahul Asthana. 
    "Although railway permission is not yet in to build a bridge above Elphinstone bridge, work will start by January 2013 to avoid delay. The
bridge portion will be built only when permission is given," said another MMRDA official. 
    "The project will decongest Pedder Road in the absence of the 4km flyover and nearly 10km coastal road between Worli and Cuffe Parade," said a senior MMRDA technocrat. While the eastern freeway too will decongest Dr Ambedkar Road, Eastern Express highway and Sion-Panvel road, the sea link will bring Navi Mumbai closer to South Mumbai. 

WORLI-SEWRI CONNECTOR 

    By year-end, developer could be in place 
    Will be attached to eastern freeway from Princes Dock to Chembur and Nhava-Sewri sea link with clover-leaf 
    Railway permission to build 27-metre high bridge above Elphinstone bridge awaited but work will start early 

    Expected to decongest Marine Drive and Pedder Road traffi c as people may prefer signal-free Princes Dock-Freeway-Sewri-Worli route 
    Can serve purpose till coastal road from Worli to Cuffe Parade and Pedder Road flyover is a reality 
    Eastern freeway is expected to start by Jan '13


Friday, August 24, 2012

Govt Takes the Fight to Oppn Chidambaram, Khurshid and Jaiswal rubbish CAG charges

SPLIT IN OPPOSITION RANKS LIFTS UPA HOPES

Top Cabinet ministers launched another attack on the Opposition and the controversial report of the Comptroller & Auditor General on coal, saying there was a conspiracy to tarnish Prime Minister Manmohan Singh's image and derail economic growth, but the principal Opposition party, BJP, renewed its demand for his resignation and stalled Parliament for the fourth consecutive day. 

Law Minister Salman Khurshid said attempts were on to resolve the logjam and a breakthrough could come early next week. The government is banking on a split in the ranks of the Opposition as parties such as BJD have indicated they could be amenable to a discussion. However, they may insist on a vote after the discussion. 
CPM leader Sitaram Yechury told reporters on Friday that his party wants the PM to make a statement and was ready to participate in a dis
cussion on the controversy, a departure from BJP's stand. "We will decide on our next move after hearing what the PM and the government have to say during the discussion," Yechury said. 
Another Cabinet minister said the Opposition could come around by Monday or Tuesday. "There is a softening of stand by both CPI and CPM, and parties such as BJD and 
JD(U) too are not in favour of stalling the House," he said. On Friday, Finance Minister P Chidambaram, Coal Minister Sriprakash Jaiswal and Khurshid led the government's offensive in a joint press conference in which they sought to rubbish the CAG's contentious claim that coal worth . 1.86 lakh crore had been handed over for free to private companies instead of being auctioned. The estimate has sparked demands for Singh's resignation as he held the coal portfolio in the past. Chidambaram said the calculation was faulty. "This presumptive loss is so flawed. If coal is not mined, if it remains buried in mother earth, where is the loss? The loss can arise only once the coal is taken out of mother earth, mined and sold at unacceptable price or value," he said. 
Opposition parties were quick to compare Chidamba
ram's response to the 'zeroloss' comment of Telecom Minister Kapil Sibal, who had said the exchequer lost no money in the 2G scam because it was a policy decision not to auction spectrum. 'Conspiracy to Stall Growth' 
The press conference came shortly after the apex court rejected a plea by Subramanian Swamy to investigate Chidambaram's role in the 2G scam, a term used to discuss the controversial allocation of licences in early 2008 by former telecom minister A Raja. 
Chidambaram, who declined to comment on his exoneration by the Supreme Court, said the government was being blamed for continuing a policy that has been in place before it took charge. "A government that brought about, although after some time, a successful change in policy is being blamed for continuation of a policy that had its origin many years before the UPA came into being. So, if you did nothing, you are not to be blamed. If you try to bring about a change, you are to be blamed. Is that the stan
dard by which we will conduct our public affairs?" he said. 
"We hope the prime minister will be allowed to make a statement in Parliament on Monday. If not, we will find a way to reach out to people," the finance minister said. Jaiswal said of the 57 coal blocks questioned by CAG, only one had begun production. There was a conspiracy to stall the coun
try's growth and tarnish the image of honest politicians such as Manmohan Singh, he said. 
FORMATION OF COAL 
REGULATOR 
The government is working afresh on forming an independent coal regulatory authority, said Chidambaram. The minister, who is heading a GoM on the regulator, said, "We are identifying the aspects that should be with the coal regulator and those that should not be with it. The Bill is being redrafted." "I am confident that it will come back to the GoM shortly and I assure you that in one more meeting of the GoM, we will wrap it up and take it to the Cabinet. We certainly don't want the coal regulator to become the old coal control. I hope all of you agree that you want regulation, not licensing control," he said.

Will the Impasse End Next Week? 
KHURSHID SAYS logjam over Coalgate could end early next week 
OPPOSITION PARTIES 
such as BJD and CPM are open to a discussion 
BJP, HOWEVER, has stuck to its demand for the PM's resignation



Thursday, August 23, 2012

RBI’S ANNUAL REPORT Banks will Need 5 Lakh cr to Comply with Basel III

PSU banks will require . 4.25 lakh cr and pvt banks will need . 75,000 cr to adhere to new norms, RBI says



    The Reserve Bank of India has estimated that private and public sector banks will require capital of . 4.75–5 trillion by 2018 to be compliant with Basel III, the global regulatory standard on bank capital adequacy ratio. 
The banking regulator, in it annual report released on Thursday, said government-owned banks will require capital of . 4.05 lakh crore to . 4.25 lakh crore. They will need . 1.4–1.5 lakh crore in the form of common equity and . 2.65–2.75 lakh crore in form of non-equity capital. These estimates do not include internal accruals — profits earned by banks that are added to the capital earned. 
The capital requirement for private banks is expected to be in the range of . 70,000 crore to . 75,000 crore, which again 
does not include profits they would earn while Basel III is implemented. 
RBI said these projections are based on the conservative assumption that banks will show a uniform growth of 20% per annum. 
RBI has also noted that since banks would anyway have to raise capital to adhere to the Basel II accord, the incremental equity requirement for governmentowned banks to stick to enhanced Basel III capital ratio is expected to be . 750–800 billion. 
Under Basel II, banks have to maintain a capital adequacy ratio (CAR) of 9%, which includes tier-I capital — core capital like equity and reserves — and tier-II capital. Under the Basel III accord, banks have to maintain a CAR of 8% with a minimum 7% of tier-I capital. The RBI has, however, asked banks to maintain a CAR of 9%.



Men Behind the Scenes Low-Profile Sheth Perfect Foil to RJ

Meet the backroom whiz who thrives in the visionary's shadow


The year is 2004. Two top analysts of Rakesh Jhunjhunwala's (RJ) Rare Enterprises are at the headquarters of Titan Industries in Bangalore. After two days of meetings with some 20 senior executives of the watches and jewellery marketer, the duo rushes back excitedly to Mumbai. The same night one of them makes a presentation of their findings to RJ, illustrating the bright prospects he foresaw for Titan, particularly in jewellery. RJ, who has picked up Titan shares over the past couple of years, knows the potential in the company, but he still finds the five-year projections wildly optimistic. "He told me: 'Peeta mein hoon, chadti tere ko hai ('I drink and you get high')," recounts the analyst with a chuckle. 
Five years later, Titan exceeded those projections comfortably (RJ still owns the stock and hasn't sold any of his holding over the years; the Titan stock has appreciated close to 12,000% since RJ first entered in 2002). 
The analyst, Utpal Sheth, who convinced RJ about the company's potential in the jewellery business is more than just a bean-counting, spreadsheet-gazing researcher. 
A Calm & Strategic Thinker 
Sheth, 41, CEO of Rare Enterprises, is the whiz in the visionary's shadow, the man responsible for spotting many of RJ's multi-baggers in the past, from Nagarjuna Construction to Praj Industries. 
Such informed investment calls are the norm today at the firm, which in its initial days had a substantial trading component. Sheth has been at the forefront of the firm's renewed focus on a private equity style of investing. For instance, the most recent investment — at the end of 2011 — in Sterling Holidays was made by Sheth, but only once RJ gave the go-ahead after meeting the management. 
Sheth is a perfect foil to RJ. If the Big Bull is known for his intuitive calls, flamboyant views and volatile temperament, the CEO is a calm and strategic thinker happy to be behind the scenes; and away from the cocktail circuit. 
"We have disagreements, different points of view and different ways of expressing them," says Sheth, to whom RJ has been friend, philosopher and guide for over a decade. "I am the calmer person but am not the calming factor. It takes two to tango and we complement each other 
well." 
RJ says: "Utpal and I complement each other. We believe our synergy makes 1+1 = 11. We seek to invest with promoters and management teams that are conscious of all types of risks, work towards mitigating them and try to evolve their business 
models." It was by chance in 1997 that their paths crossed. RJ and Sheth were waiting to meet Asit Kotecha, founder of ASK Financials, in his office. Sheth, who was then working with Enam Financial's i-banking division, overheard RJ discussing his purchase of liquor stocks and the price at which to sell them. 
Sheth jumped into the conversation with a radical viewpoint: those stocks were ridiculously cheap and alcoholic beverages had all the characteristics for long-term growth and profitability. "I told him to continue holding them for a really long time rather than look for a fair price to sell them at," says Sheth. 
RJ not only took his advice, but also took Sheth along with him to build Rare Enterprises. Sheth accepted the offer because he sensed an opportunity to build an institution from scratch along with a person he considered a genius. "He was kind enough to make me CEO and a partner," says Sheth. 

While RJ, like Sheth, is a clear thinker with a good head for numbers, his CEO complements him with his negotiating skills. "Recognising an opportunity is one thing; and structuring a deal to leverage that opportunity in the best possible manner is a strength I bring, with my investment banking background," says Sheth. In early 2003 — just around the time the stock markets were set for an unprecedented bull run that would last five years — the duo set about building Rare Enterprises. RJ saw the big picture; Sheth laid
the foundation and the bricks of the institution. 
Titan was one of the duo's early successes. "Whilst many did not think jewellery had prospects, we realised it was a scalable business and that the return on capital employed was higher here than in watches," says Sheth. 
Sheth had, of course, done his homework to arrive at these conclusions. 
    Says Rashesh Shah, 
chairman & CEO, Edelweiss Group, who has known Sheth for the past 15-20 years: "He is an astute investor grounded in research. He works like a PE investor and has added that extra dimension to Rakesh through his PE approach in both listed and unlisted companies." 
Like Titan, Sheth has 
been responsible for identifying multibaggers in the past like Praj Industries and Nagarjuna Constructions; more recently, he has sealed deals for investments in Mumbai-based JBCN, a K-12 school chain, and Pipavav Defence, besides Sterling Holidays. 
But it were the glory days of the bull run of the past decade that provided Sheth opportunities to prove himself — a few times, with calls contrarian to those of the man many consider the Indian avatar of legendary value 
investor Warren Buffett. 
In fiscal year 2004, when Sheth had just finished evaluating Praj, the stock price was at Rs 80 levels. The CEO went up to the founder with a proposal to buy into Praj. RJ refused. Sheth went back to the drawing board, did some more work on projections and hypotheses and came back with another attempt to convince RJ about the viability of the investment. By then, the stock had gone up to Rs 100. RJ gave him the go-ahead, although he was still not fully convinced. 
As soon as they bought the stock, the price promptly slipped to Rs 75. 
"He never said anything and that is the greatest quality about him (RJ)…Our investments are made with an 8-10 year horizon, and we need to be patient and have conviction," says Sheth. 

Sheth's call proved to be a masterstroke. In equivalent terms, Praj's stock price spurted from Rs 100 to Rs 5,000 at its peak in fiscal 2008, an appreciation of 50 times; RJ sold 20% of the holding back then, resulting in returns of 10x. 
Sheth has been helping Rare's focus to evolve from trading to investing. In 2003, their trading exposure was about 30% of the portfolio; today Sheth says it has come down into lower single digits. "Two things have happened, the portfolio size has increased and the relative value of investing over trading has become apparent," he opines. Says Kotecha, Sheth's first boss, "Rakesh has brilliant understanding, but Utpal has played the key role of executing his thinking." 
Rafique Malik, founder of Mumbaibased Metro Shoes, reckons Sheth is a rare combination of caution and ambition. "He holds the accelerator as well as the
brakes," adds Malik, who has known Sheth for the past four years since the time Rare Enterprises bought into Metro Shoes. The challenge today, though, for RJ and Sheth is to spot value — the equivalents of what the likes of Titan, Bharat Earth Movers and Praj were a decade ago — in a market in which little palpability exists. There are also those in investing circles who wonder whether Sheth has the freedom to make a distinctive mark when in the shadow of a powerful personality like RJ. Says Motilal Oswal, co-founder of the eponymous financial services firm, who has met Sheth a few times: "He is part of RJ's core team, but I don't know how much independence he would have in decision-making." 
Sheth, for his part, looks up to RJ as his mentor. Sheth's wife Neepa describes him as an idealist, although RJ's practical approach to life has rubbed off on Sheth and he is more realistic in his expectations, she adds. Still, Sheth remains a teetotaller! Sheth agrees about the rub-off, and points to one of RJ's philosophies on closing a transaction that he has absorbed. "Pay a slightly higher price to close a transaction so the other guy does not have time to think 
while negotiating." 
Sheth points out that in the past, he would swear by return on capital employed and cash flows. "He (RJ) believes the opportunity a company is pursuing is more important. We have recognised over time that both those factors are important and our investment approach has evolved," he says. Perhaps that's what RJ means when he says: "We are aligned on our thoughts regarding value drivers and value destroyers."

Utpal Sheth: Away from the Spotlight

GETS 55% Govt takes charge at IFCI


New Delhi: The government on Thursday decided to convert optionally convertible debentures of Rs 923 crore into equity and acquired over 55% stake in IFCI, the country's oldest financial institution. The move, which will expand the Delhi-headquartered company's equity base from Rs 738 crore to Rs 1,661 crore, will also end speculation over the government's plan to rope in a strategic investor, a decision it was forced to abandon a few years ago. 
    IFCI shares fell 0.25% to close at nearly Rs 35 on the BSE on Thursday. In a statement, the government said the transaction was exempted from the scope of 
the Takeover Code. 
    The decision of the Union Cabinet on Thursday brings an end to a government-led equity infusion over a decade ago when the finance ministry got prominent banks and fi
nancial institutions such as Life Insurance Corporation, State Bank of India and IDBI to infuse funds into IFCI, which was on the brink of defaulting on repayments in the wake of a distressed financial position. As part of this exercise, the government put in Rs 400 crore via the debenture route. 
    Again, in December 2002, the government approved financial assistance of Rs 5,220 crore for 

2003 to early 2012, of which its share was Rs 2,900 crore. Within this, Rs 523 crore was given by subscribing to debentures while grants of Rs 2,400 crore were released till 2006-07, when IFCI turned profitable. 
    The government chose to convert the debentures into equity at par or at a face value of Rs 10. 
    Along with other public sector banks, the government will now hold over 68% stake in IFCI.

RADICAL CALL Abolish CRR, says SBI chief

Kolkata: The chairman of the country's largest lender State Bank of India (SBI), 

Pratip Chaudhuri, has called for either a complete abolition of cash reserve ratio (CRR) for banks or, alternatively, a level playing field by imposing the reserve requirement on insurance and finance companies and debt mutual funds. 
    "CRR does not help any body. It is locked up in the vault and not ploughed back into the economy. It is un
fairly applied on banks. If CRR is a liquidity mop-up tool, why not apply it to insurance companies, NBFCs and debt mutual funds, who as well mobilize deposits from the public?" he asked. 
    CRR refers to that portion of deposits that a bank has to mandatorily keep with RBI without earning any interest as part of prudential measures. Along with CRR, banks are required to invest a portion of their deposits in government securities as part of their statutory liquidity ratio (SLR) requirements. 
    Although CRR has come down from its peak level of 15% in 1994 to 4.75% at pre
sent, RBI had some years ago ceased to pay interest on CRR. Following liberalization, RBI has also reduced its SLR prescription from a peak 38.5% to 23%. 
    Speaking to reporters on the sidelines of a banking conclave organized by FICCI, Chaudhuri said: "It 

needs to be phased out as it does not earn any interest income and increases pressure to earn more from remaining resources." He added that this in turn translated into a cost increase which benefits none, unlike SLR which funds the government and contrib
utes to the economy. 
    According to Chaudhuri, the bank has already represented this to RBI which has in recent months brought down the reserve requirement by 125 basis points, perhaps in response to the bank's representation. "If the money released (by the CRR cut) goes for production, then production across sectors will increase and bring down prices," he said. 
    After stressing on the need to phase out the CRR, the SBI chief termed the current norms of classification of a non-performing asset (NPA) as "draconian" and "detrimental".


Pay 5% VAT for flats bought from 2006-10

Mumbai: Thousands of people who bought flats between 2006 and 2010 will have to pay value added tax (VAT) at the rate of 5% of the value with retrospective effect. 

    On August 6, the state's sales tax department issued a circular to developers saying VAT would be levied on flats, shops and bungalows sold by them between June 20, 2006 and March 31, 2010 . 
    Several Mumbai-based developers said they would soon send VAT collection notices to such flat purchasers. 
    The new burden on a customer who bought a flat at Rs 50 lakh works out to a minimum of Rs 2.5 lakh. 
'VAT on flat will hit buyers' 
Mumbai: The state government intends to collect around Rs 1,000 crore from VAT on sale of flats for this four-year period. 
    The Bombay HC recently rejected real estate developers' appeal against the tax. MCHI-CREDAI and CREDAI-Pune Metro, which represented the developers, have now moved the SC with a special leave petition. 
    MCHI-CREDAI said each flat buyer in Maharashtra will have to pay up to 5% additional taxes for flat purchased by them along with interest at 15% per annum and penal interest at 25% that the state government is levying. Flat buyers are already reeling under the pressure of 3.09% service tax which has been implement
ed by the central government. Atul Puranik of the Centre for Fair Business Practices, said: "The cost of living is going up every day. The 5% VAT plus penal interest will further cripple the common man. We appeal to the government to scrap VAT on sale of flats altogether and give much-needed relief to the customer.'' 
    The Maharashtra government had imposed 5% VAT on flat sales following the order of the Supreme Court in the case of K Raheja versus Karnataka government. Property experts said this led to an anomaly as the taxation system followed in Karnataka is totally different from the one prevailing in Maharashtra. "Unlike Maharashtra, Karnataka does not have the 'Ownership of Flat Act' and therefore developers in that state prepare two separate sets of documents—one for the share of land on which 
stamp duty is levied and another on construction on which no stamp duty is paid,'' they said. 
    The Maharashtra government subsequently reduced VAT on sale of flats to 1% from April 1, 2010.

Wednesday, August 22, 2012

Banks, city builder in mega scam?

NewDelhi:The Central Vigilance Commission (CVC) is finalizing disciplinary action against several bank officials allegedly involved in one of the biggest banking frauds in recent times. 

    The CVC is on the verge of recommending first stage advice for action against officials of 26 banks which together provided Rs 2,650 crore to Zoom Developers, a Mumbai-based construction company declared a non-performing account last year. Zoom was largely involved in big industrial constructions. Firm failed to carry out projects in UAE, Europe 
New Delhi: The CVC is set to recommend disciplinary action against officials of 26 banks in the Rs 2,650 crore fraud involving Mumbai's Zoom Developers. A consortium led by Punjab National Bank had provided Rs 2,650 crore of bank guarantees and credit facilities to Zoom for its projects. All those guarantees and facilities were revoked after the firm failed to execute its 

projects that were mostly in the UAE and Europe. 
    The firm was largely engaged in big industrial constructions and infrastructure ventures. The failure of the company's projects led to PNB and Canara Bank making a loss of Rs 537 crore and Rs 88.5 crore, respectively. Last year, the CBI filed separate cases into the two banks being defrauded. A third case of fraud is believed to have been registered 
with the agency by UCO Bank, which had an exposure of Rs 300 crore. Union Bank, too, had an exposure of Rs 300 crore. Over the past year or so, the CBI has questioned several Mumbai officials of these banks. 
    Suspicion abounds that a major criminal conspiracy may be in the works since several banks provided bank guarantees in the projects where the market norm does not require so. A minor part of these bank guarantees are covered with insurance from Export Credit Guarantee Corporation of India. But most of the money is lost. 
    Once the CVC gives its first stage advice for disciplinary action against the officials, the banks concerned will constitute departmental inquiry that will carry out a final examination of the evidence and counter arguments. Based on the findings, the officials could face action up to dismissal from service. The CBI investigation against them will be conducted simultaneously.

Monday, August 20, 2012

Use CAG Reports to Push Reforms: India Inc

Industry captains say inter-institutional fights will further dent investor confidence in India's growth story


    India Inc wants the government to frame a mature response to the three audit reports by the Comptroller and Auditor General of India (CAG) that have severely indicted its policies on allocation of natural resources and public private partnerships in the infrastructure sector, instead of resorting to a blame game and leveling accusations against the country's official auditor. 
Over the long weekend, ministers have accused CAG of "sensationalism", "adding zeroes" to notional loss figures and "crossing its constitutional mandate" after three separate audit reports accused the UPA of giving away national assets at a loss of . 3.8 lakh crore. 
While industry captains admit that the audit findings will further dent an already waning investor confidence about the Indian growth story, they believe the government could use the reports to push through necessary reforms like creating independent regulators and using transparent processes. "These (CAG reports) are about the past, we need to look at the 
future," said HDFC chairman Deepak Parekh, who felt that the numbers cited in the audit reports may be exaggerated and must be examined closely before he could make a more elaborate comment. 
Parekh's call for a forward-looking reaction to CAG findings is strongly backed by Rajya Sabha MP Ashok Ganguly. Both Parekh and Ganguly are members of the Prime Minister's Council on Trade and Industry. "We need a mature, objective and point-bypoint response to the CAG reports instead of the government crying foul and pointing fingers at its auditor. We are constantly lowering growth expectations and this kind of blame game won't help us move forward," Ganguly told ET, warning that India could become a laughing stock in the world if this persists. 
"Investor confidence will dip further, not because the government is right or wrong, but due to the inter-institutional fighting which reflects dissonance in the system and creates uncertainty," said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry (Ficci), who feels 
that denigrating democratic institutions like CAG won't help business sentiment. Kumar warned that decision-making in the government could slow down further after these reports, a fear shared by others. "The PM's office or ministerial groups are now taking decisions that individual ministries should be taking. We will be condemned to the Hindu rate of growth if such paralysis continues," said Ganguly. 
Ganguly also stressed the need to look at the larger picture without condoning the wrong procedures that may have been followed for coal block allocations. "Maybe if these coal supplies were not opened 
up, the permanent power shortages could have got worse," the Rajya Sabha MP said. For instance, the stock market scam in the mid-90s masterminded by Harshad Mehta was used by the Narasimha Rao government to push through capital market reforms with a fully-empowered stock market regulator. "Forget the values, but take the message seriously and push a clean-up reform agenda for the future," suggested Ficci's Kumar. 
Vinayak Chatterjee, chairman of infrastructure consultancy firm Feedback Infra, said though investor sentiment may plummet for some sectors in the short term, the CAG reports could actually boost confidence about the long-term sustainability of India's growth story. 
"CAG's role as a watchdog must be encouraged as it shows that India is not a banana republic, but one with vibrant and fearless regulatory institutions that can put the government and industry on the mat for instances of crony capitalism," Chatterjee said. He, however, added that there's a need for clarity on CAG to pass value judgments on policy matters. 
Videocon group chairman and president of industry body Assocham, Venugopal Dhoot said the CAG reports may impact foreign investors' confidence in the India story to some extent. "… But domestic investors have already discounted these risks and we are confident that the government will be unfazed by this and complete its reform plans over the coming months," said Dhoot.

These (CAG reports) are about the past, we need to look at the future 
DEEPAK PAREKH 
Chairman, HDFC


Investor confidence will dip further, not because the govt is right or wrong, but due to the inter-institutional fighting which reflects dissonance in the system 
RAJIV KUMAR 
Secretary General, Ficci


CAG's role as a watchdog must be encouraged as it shows that India isn't a banana republic, but one with vibrant and fearless regulatory institutions that can put the govt and industry on the mat for instances of crony capitalism 
VINAYAK CHATTERJEE 
Chairman, Feedback Infra

Analysts Go Beyond Nos to Take on Promoters


Equity analysts now put out reports that highlight governance and labour issues in cos

A Mumbai-based financial services company has come out with a research report highlighting the reasons that may have led to industrial unrest at Maruti Suzuki India's Manesar plant. 

In yet another example of research analysts widening their scope of work beyond the profit and loss accounts of companies, two analysts at Fortune Group point to Maruti's practice of using contract — not permanent — workers as the primary reason for a series of violent incidents. These episodes have led to five lockouts at India's largest automaker's western Haryana plant since June 2011; the latest bout of unrest on July 18 led to the killing of an executive. 
"The root problem at Manesar stemmed not from the wages paid, but from perceived distortion created in demand through continued use of contract, rather than permanent labour," analysts Mahantesh Sabarad and Vijay Nara wrote in a report on August 7. They also added that factors like Maruti's lower contribution to the provident/superannuating fund as a percentage to wages, along with the industry's inability to add training infrastructure, are responsible for the conflict between poorly paid workers and the management. 
In the first week of August, Canadabased independent research outfit Veritas published a scathing report questioning corporate governance and accounting practices at the Indiabulls Group. Over the past one year, Veritas, which means truth in Roman mythology, published acerbic reports questioning governance at companies like Reliance Industries, Reliance Communications, Kingfisher Airlines and DLF. 
In the case of Indiabulls, the Veritas analysts Neeraj Monga and Nitin Mangal have gone beyond accounting issues and alluded to the real estate and mortgage finance enterprise's connections with powers that be. Statements like "the association of reputed institutions, individuals and organisations with the company is vexing to say the least" have got the goat of Sameer Gehlaut, chairman & 
group CEO of Indiabulls. 
Gehlaut's short point is that how can analysts who have not bothered to contact the company and who have not visited project sites, like those of the power ventures, sit in judgement of it and give it "a zero rating in corporate governance?" "It's all a bundle of lies," declared Gehlaut. 
Managements are becoming more vocal to counter analyst views — although not with the same ferocity as Indiabulls, which has initiated criminal proceedings. Fortune Group's Sabard says Maruti objected to their report with the plea that it highlighted the cause, but not the real issue behind the violence. Fortune was quick to publish a clarification after three days, saying the issue of contract labour is not sought to be made the primary reason for the violence at the Maruti plant. "The primary purpose of the report was to highlight the skill gap due to inadequate training infrastructure," the report clarified. 
Of late, managements are turning more proactive in countering analyst downgrades. In March, DLF dismissed a Veritas report that cast doubts on its accounts as "mischievous." In June, when a Macquaire report downgraded HDFC, accusing the largest mortgage lender of overstating earnings and return on equity, HDFC CEO 
Keki Mistry reacted saying the language of the Macquaire report was "completely misplaced." And, in July Credit Suisse recanted on its adverse report on JSW Steel by clarifying that the steel company's balance sheet is in line with prudent accounting norms; this was reportedly a result of a series of meetings between the two parties. 
"It may be new to India, but analysts in developed markets have been examining anything and everything related to businesses for long," said Deven Choksey, managing director of K R Choksey Securities. According to Choksey, there's nothing wrong in analysts widening their scope of examination beyond the balance sheet. After all, investors must know the promoters and their practices before putting their hard-earned money into a company, he added. 
"The environment calls for more caution now," said Rashesh Shah, founder chairman of Edelweiss Capital, "particularly because companies are under stress due to high borrow
ing, weakening of the rupee against the dollar and a lacklustre performance." It's important for the brokerages to call a spade a spade now; otherwise, they run the risk of losing investors, he added. 
With no immediate reversal of the stock market in sight, foreign investors are getting impatient as their bets went wrong following the recommendations of their brokerages, said Sudip Bandyopadhyay, MD & CEO, Destimoney Securities. Good brokerages, insisted Raamdeo Agrawal, cofounder and joint managing director of Motilal Oswal Securities, have always been mentioning about the negatives of a company in a report. Now, he added, they are highlighting the negative part as that's what investors want to listen to more. 
Historically, Indian brokerages have been writing 'buy' reports because that helps their business. By and large, their foreign peers do the same, added Agrawal. Also, brokerages tend to keep large corporates in good humour as their investment banking arms get business from them. But with Indian markets becoming more 
mature, domestic brokerages will learn to maintain a Chinese wall between investment banking and broking, hoped Choksey. 
All are, however, not very impressed with the critical reports published mainly by foreign brokerages. "There is a dirty side to it," said head of a domestic financial house. "They unlawfully gain from them by going short before publishing negative reports," he said, requesting anonymity. Indiabulls' Gehault contends there was a pattern of a build-up in short positions in all five listed group companies before the unedited version of the report was circulated. Sometimes analysts are wrong because they don't engage with the management before signing off the reports, said Choksey. But sometimes companies overreact too, added Bandyopadhyay. Large Indian companies are not used to taking flak from the brokerages. "We are in a emerging market where these are new phenomenon. Hopefully, Indian corporates will learn to live with criticism," said Bandyopadhyay. 
lijee.philip@timesgroup.com 



CCI PROBING SEARCH GIANT FOR ANTI-TRUST PRACTICES Google in Crosshairs of Net Businesses


The worldwide debate over the manner in which Google ranks its search results is beginning to resonate in India as e-commerce takes off in Asia's third-largest economy. Some Indian businesses that depend on Internet search for users to discover their services find the search giant's near-monopoly — Google has a 97% share of the Indian search market — worrisome. 
The concerns are largely about the opacity, or at least the perception of it, that shrouds the methodology used by the Mountain View, California-based company to rank search results. 
Further, Google's dominance in Internet advertising makes for potential conflicts of interest, said senior executives at leading Internet and e-commerce companies. 
Vishal Mehta, founder and chief executive at Ahmedabad-based online retailer 
Infibeam, described Google's search ranking as a "bit of a grey area", as there is no transparency on what parameters push up or down certain search results. 
Online businesses fear Google's potential power to indulge in anti-competitive and discriminatory search practices could be affecting a business' ability to reach out to customers in a neutral manner, several senior executives told ET, requesting anonymity as they need to continue to work with Google for advertising and marketing reasons. Google is being investigated by the Competition Commission of India to see if the company has abused its dominance by adopting anti-competitive practices in the country. Google, which faces similar antitrust charges in the US and EU, told ET it would be extending full cooperation to CCI and was confident its products were compliant with the competition law in India. 
Suspicions Persist 
Google declined to comment on specific queries on alleged discriminatory search practices, but a spokesman directed the paper towards the 'frequently asked questions' section on its website, where it says: "We rank search results to deliver the best answers to users, and that is the only consideration — not political viewpoints, and not advertising dollars." On its website, Google, which was set up by Sergey Brin and Larry Page in 1998, says it does not have a monopoly in search and Internet advertising. "Users aren't locked in to using Google search, and the cost of switching to a different search engine is zero." 
Google's search ranking algorithm is designed by IIT-Roorkee alumnus Amit Singhal, a senior vice-president. From its inception, the company has strenuously proclaimed the ethical underpinnings of its business. In early 2010, Google started re-directing all search queries from China to its servers in Hong Kong to bypass attempts at censoring by the government in the world's most populous country. As part of company philosophy, Google says on its website that it can "make money without doing evil". Despite wearing its ethics on its sleeve, the suspicions refuse to go away. "I think they have internal mechanisms that favour large websites which do paid marketing with them," said the founder of a Mumbaibased e-commerce portal. "Google gives them higher ranking for certain keywords even though relevancy may be low, based on their ad spend." Industry body Internet and Mobile Association of India estimates India's e-commerce market to be worth about Rs 56,000 crore (around $10 billion), which is expected to grow to $84 billion by 2016. Online retailers and travel portals such as Cleartrip, Makemytrip, Flipkart and Snapdeal dominate the online landscape. 
The online advertising market in India is estimated at $410 million, or about 7% of the overall market, and is expected to grow four times to $1.6 billion by 2015. The fight for better visibility is resulting in litigation. 

Matchmaking portal BharatMatrimony has sued Google along with its rivalsShaadi.com and Jeevansathi.com in connection with the Google advertising program. In the case that is currently being heard by the Madras HC, BharatMatrimony has accused Google of selling trademarked keywords relating to its portal to rivals such as Shaadi.com and Jeevansaathi.com. Internet portal Craftsvilla.com, which sells Indian handicrafts, recently stopped using Google as its marketing channel for paid campaigns as it was frustrated with what it perceived as lack of transparency, said a person with direct knowledge of the matter. Even those that are not aggrieved say it may be 
a good idea to clear the air. "We have not yet seen any malpractice so far; however, we do see a potential risk," said Gautam Sinha, chief operating officer at e-commerce and entertainment portal Indiatimes.com, which is also a part of the Bennett, Coleman & Company Ltd that publishes The Economic Times. "It would be good to have an assurance that in the future, search results, both paid and organic, will give preference to good quality content, regardless of whether it's a Google property or not." 
Besides the US and Europe, Google faces similar investigations in Argentina and Korea. "The investigations in the US and Europe suggest the issues Google is already facing and put it in a sensitive spot in India," former CCI additional registrar Manas Kumar Chaudhuri said. If violation of local laws is established, CCI could impose a maximum fine of up to 10% of the company's average turnover over the past three years, said Chaudhuri, partner and head of competition law practice at Khaitan & Co. Google, which has received communication from CCI, has submitted its responses and is awaiting further communication from the government body, according to people familiar with the matter.



Two-day strike by banks from tomorrow

 Commercial activities across the country are likely to be hampered on Wednesday and Thursday as employees of the entire banking industry are slated to go on a two-day strike from August 22. "Over a million employees and officers of 27 public sector banks, 12 old-generation private banks and eight foreign banks will take part in the strike," said secretary of All India Bank Employees' Association Vishwas Utagi. 

    Their protest is against the government's move to amend the banking laws bill, presently pending before Parliament and scheduled for discussion on August 23 and 24. 
    Utagi said the proposed amendments in the Banking Regulation Act, 1949, andBanking Companies' Acquisition and Transfer of Undertakings Act are aimed at handing over the Indian private sector banking to multinational banks. "It also aims at increasing the presence of Indian corporate and foreign direct investment in public sector banks," he said. 
    The outcome of these proposed measures will be closure of rural bank branches, resorting to a large number of ultra-small branches, thereby privatising rural banking operations through contractual businesses, he claimed. 
    The strike will also oppose outsourcing of work to outside agencies, and other antilabour policies, jeopardising jobs in the banking sector and aimed at undermining the collective bargaining strength. During the strike, bank employees plan to take out a procession to Azad Maidan in support of their demands.

The protest is against the government's move to amend the banking laws bill

 

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