Inflation, Economic Woes Eat into Fast-food Majors’ Sales

McDonald's, Domino's & Yum Restaurants post slower same-store sales growth in April-June period Three of the country's biggest quick service restaurant chains — McDonald's, Domino's and Yum Restaurants that operates Pizza Hut and KFC — have reported slower growth in same-store sales during April-June than earlier quarters, signalling that inflation and weak economic sentiments have begun to impact the eating-out segment. The three chains together operate over 1,000 stores in the country. Jubilant FoodWorks, which operates the Domino's Pizza chain, on Wednesday reported same store sales growth of 22.3% for April-June, down from 36.7% in the year-ago quarter. "Consumers are getting more discreet as far as spends in the QSR (quick service restaurant) format are concerned, but on a standalone basis and in the current economic environment, our numbers are very robust," Domino's CEO Ajay Kaul said.  Kaul said Domino's has introduced entrylevel products at . 25 for its dine-in restaurants. "We don't feel the need to drop prices, but we are looking at multiple ways to increase consumer offtake," he said. Jubilant's standalone net profit rose 39.6% year-on-year to . 32.3 crore for the quarter. The company posted a net profit of . 23.2 crore.  Last week, Yum Restaurants India, which operates Pizza Hut and KFC restaurants in India, reported same-store sales at 7% in the April-June quarter, compared to 8% in the January-March quarter this year. And burger-and-fries chain McDonald's north and east restaurants are dropping prices by anywhere between 6% and 15% for entry-level products to spur consumption, starting next month, after same-store sales growth dropped to high single digits in the April-June quarter compared to double-digit growth last year. "There is pressure on consumption and people are beginning to hold back spending," McDonald's India (North & East) MD and JV partner Vikram Bakshi told ET. "The objective of our price rationalisation is to give them more reasons to come to our stores," he added.  Smaller restaurant chain operators such as Lite Bite Foods and Global Franchise Architects too are facing slowing growth. "High inflation is hitting the low-cost sector," said Amit Burman, chairman of Lite Bite Food. Global Franchise Architects said the pizza chain's same-store sales grew 15% in the second quarter and 18% in the first quarter.  ratna.bhushan@timesgroup.com

S&P Negative on India, but Moody’s Fine Some Good, Some Bad S&P lowers outlook on worsening fiscal nos, but rival livens up hopes

 Ahassled government has just come under more pressure. Along with bad press, angry corporates and disillusioned foreign investors, it has to now deal with a 'negative outlook' tossed by the world's largest credit rating agency, Standard & Poor's (S&P). 

The saving grace is that an hour before the S&P announcement, rival rating agency Moody's said the Indian economy is "growing solidly, but below potential". 

The divergence of views between the two agencies is a reminder of the US downgrade last August when Moody's had countered Standard & Poor's to say America was still a triple-A economy. On Tuesday morning, S&P, while retaining India's 'investment grade' rating, revised its outlook from 'stable' to 'negative' due to worsening fiscal numbers. It's a veiled threat that the sovereign rating may be downgraded from BBB-, which is the lowest-rung investment grade, to speculative grade if New Delhi fails to pull up its socks. But, the finely-timed Moody's statement helped allay fears that a downgrade was imminent. 

An Unwarranted Step, says Ranga 

PMEAC Chairman C Rangarajan, in an interview to Deepshikha Sikarwar, says S&P's decision to cut India's outlook to negative from stable was not warranted. 

•

•13 Governance is the key 

A rating downgrade from S&P is not the end of the world for India's economy or policymakers. After all, this is the same agency that stamped AAA ratings on worthless mortgagebacked securities in the US, leading to the great recession. India's low exposure to global credit markets means that the effect of the downgrade on interest rates will be minimal. But policymakers can't be complacent. This is as good a time as any to step on the reforms pedal. For that to happen, the Singh administration must stop squabbling and start working together as a team. Some Reason for Optimism: Moody's 

According to S&P credit analyst Takahira Ogawa, "The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting." 

However, Moody's livened up hopes as it said there was some reason for optimism due to interest rate cuts and prospects of a good monsoon. India's economy is "now growing below potential as a combination of bad luck and poor economic management weighs on sentiment", said Moody's. 

Bankers and economists ET spoke to said the outlook change would not raise overseas borrowing costs of Indian companies, particularly wellperforming ones. But the government, according to one of them, may have to think of programmes like a special NRI deposit scheme to bring in foreign capital to tackle the balance of payments problem. Partly due to Moody's and possibly because of the reduced aura of rating agencies, jumpy traders covered their short positions in the afternoon after overreacting to the morning news. The Sensex, which slipped 180 points moments after the S&P release, closed at 1,751.29, down just 56 points. The rupee ended 12 paise higher at 52.53/54 against the dollar. 

"I m concerned but I don't feel panicky because I'm confident that our economy will grow at 7%, around 7% if not plus. We will be able to control fiscal deficit and it will be around 5.1%," Finance Minister Pranab Mukherjee told reporters. He also said the government will be able to enact the Direct Taxes Code in the next session of Parliament. According to Brinda Jagirdar, head of SBI's economic research, a revision in outlook was not warranted as there was no particular event to trigger it. S&P, however, is not so bullish on India's growth forecast. It expects gross domestic product to grow at 5.3% in 2012-13 – significantly lower than IMF's forecast of 7.1% and Moody's 6.1%. The Indian government has targeted a GDP growth of 7.6% in 2012-13 as against 8.35% achieved last year. "The outlook revision may weigh down the rupee but the impact won't be much," said Rashesh Shah, chairman, Edelweiss Financial Services. Interest cost may go up marginally for tier-II companies, according to Joiel Akilan of Spanish bank BBVA, which arranges foreign currency borrowings of Indian companies. Parthasarthy Mukherjee, president treasury and international banking at Axis Bank, said while the rating revision can be a cause for concern in future, borrowing cost will not rise unless there is an actual downgrade. Investors, however, will closely track the rupee in the coming days due to widening current account deficit, lower foreign exchange reserves and possible BoP shocks due to stock selling by foreign portfolio managers. Some like Indranil Sengupta, chief economist-India, BofA-Merrill Lynch, feel since it's difficult for government to dramatically improve fiscal deficit in the short term, it should look for avenues to bring in more foreign capital, particularly with FIIs holding back investments. "A scheme to attract NRI deposits will help. It may appear expensive, but the benefits may far outweigh the costs as forex reserves will rise," said Sengupta. S&P has also revised outlooks on 11 Indian financial institutions, including SBI, ICICI, and HDFC Bank.

India Inc’s funding costs to soar After Sovereign Rating Assessment, S&P Revises Outlook On 11 Indian Banks, 4 FIs, 3 IT Cos & 3 PSUs To Negative

Mumbai: Indian corporates could see their overseas borrowing costs shoot up should Standard & Poor's negative outlook result in an actual downgrade. A downgrade would hit overall funding and would inevitably end up being a self-fulfilling prophecy by hurting the economy rather than merely providing an opinion on its creditworthiness. 

    "A downgrade would have huge implications for the economy. India is at the lowest rung of the investment grade and a downgrade would result in the country falling to the junk category. This will result in certain allocation for India going away and a rise in the funding costs of corporates. This will also have implications for funding of the country's growing balance sheet/ funding requirements," said Ashish Vaidya, head fixed income currency and commodities at UBS India. 

    Besides revising its outlook on the sovereign, S&P has also put on its negative list three IT companies—Infosys, TCS and Wipro. Similarly three public sector entities NTPC, NHPC and Steel Authority of India have had their outlook revised to negative. Bankers say that international investors mandated to put their money in only investment grade paper will be wary of investing in bonds issued by PSUs because of the downgrade possibility. 

    For corporates a significant portion of funding comes from the external route. The global plans of Indian companies also depend on the availability of international finance. All the bigticket acquisitions by large business houses have been on the back of financing from multinational banks. "We expect spreads to be under pressure in the near term with an overhang of a potential downgrade should there be no improvement in the macroeconomic conditions or growth prospects, but issuances from strong Indian companies and institutions will continue to see investor interest," said Sunil Agarwal, head, institutional clients group, Deutsche Bank, India. 

    According to Gautam, Triveri, MD & head-equities, Religare Capital Markets, the outlook revision is incrementally negative for the rupee and capital flows (portfolio and direct). "We believe the rating remaining at investment grade contains the damage. Had a rating downgrade (to non-investment grade—Junk) happened, it would be far more negative, since it would escalate funding costs for Indian firms abroad, and preclude some FIIs to access local debt and equity markets." But several bankers see the downgrade as a clear and present danger. "I think that there are chances of a downgrade if there is no improvement in the current account or there is no reform and fiscal consolidation," said Vaidya. S&P has indicated that it will wait a few months to see if there is any improvement in the fiscal position or the direction of reforms. However, the rating agency has made it clear that it could take a downgrade decision at any time if there is deterioration in any of the macroeconomic parameters. 

    According to Deutsche Bank, a key risk to India's ratings outlook in the coming year or two is that the fiscal adjustment envisaged in the budget is not accomplished due to unfavorable macro developments like a further slowdown in growth and policy slippages such as a rise in subsidies. "More crucially, if the slippage also reflects no medium term movement toward expanding the tax base and expenditure restraint, the ratings outlook would invariably worsen," the bank said in a research report. 

    Corporates and banks will also find it tough to raise funds through international bond issues. A large number of funds that invest in these securities are mandated to put money only in investment grade paper while there are risk taking investors who buy "junk" bonds they demand a high rate of interest. 

    "The negative outlooks on the 11 financial institutions reflect the outlook on the sovereign credit rating on India. We could lower the ratings on these financial institutions if we lower the sovereign rating or the stand-alone credit profiles of these financial institutions deteriorate sharply or we believe that such deterioration is unlikely in most cases. We could revise the outlook to stable if we take a similar action on the sovereign rating," S&P said in a statement. 

DOWNGRADE FEARS 

• S&P has put Infosys, TCS and Wipro on its negative list 

• Outlook of three state-run entities, NTPC, NHPC and SAIL, has been also revised to negative 

• Fearing downgrades, international investors will be wary of investing in bonds issued by PSUs

S&P cuts India outlook to negative, sees no big reforms before ’14 poll Sensex, Re Slide; Borrowing Abroad May Get Costlier

New Delhi: Global ratings agency Standard & Poor's on Wednesday revised the outlook on India's long term sovereign rating to 'negative' from 'stable'—a thumbs down that could adversely affect the way foreign investors view India. 

    The S&P decision questions the India growth story by citing its sliding growth numbers. It also cites the high fiscal deficit, a growing debt burden and the government's inability to push through economic reforms. 

    The agency clarified that the action was not a downgrade but a revision in the outlook based on the current economic situation. It said India's rating of BBB (minus) is the lowest investment grade rating. 

    S&P's announcement immediately hurt sentiment in the financial markets and tripped shares, the rupee and bonds. Experts say the revision in the rating outlook will hit investor sentiment, increase overseas borrowing costs for Indian companies and add another element of risk for Asia's third largest economy. 

    Finance minister Pranab Mukherjee intervened to calm jittery markets, saying the government would overcome the difficult phase. "There is no need for panic. The situation may be difficult, but we will be surely able to overcome," the finance minister told reporters. 

    The revision also comes at a time when growth is slowing, business sentiment is down and the government is battling a string of issues from corruption, questionable laws like retrospective taxation to stinging criticism over stalled reforms. The Union Budget unveiled in March failed to boost sentiment and economists raised doubts about the government's ability to reduce subsidies and meet the Budget targets. 

FROM STANDARD TO POOR What Does It Mean? 

Business & investment sentiment may be hit; cost of borrowing for Indian companies may go up; foreign money into stock market may slow down; rupee & bonds may be hit; fear of India becoming noninvestment grade (junk grade) lurks 

Market Impact 

Sensex closes 56 pts down at 17,151, after plunging 190 pts 

Rupee falls 26 paisa before recovering to close at 52.50/$ How Can India Avoid A Downgrade? 

Basically, India has to reduce its fiscal deficit – that is, lower the gap between govt spending and its income 

Steps that might help prevent a downgrade are: 

Cut fuel, fertilizer subsidy Allow FDI in banking, insurance & retail Roll out GST quickly Tackle high inflation 

Countries With Same Rating As India Azerbaijan, Barbados, Colombia, Croatia, Iceland, Montserrat, Panama, Morocco and Tunisia Funding worry for corporates 

    Indian corporates could see their overseas borrowing costs shoot up should S&P's negative outlook result in an actual downgrade. Their global plans, hugely dependent on international finance, could also take a hit. The rating agency also put three IT companies (Infosys, TCS and Wipro) and three public sector entities (NTPC, NHPC & SAIL) on its negative list. Bankers say international investors will be wary of investing in bonds issued by PSUs because of the downgrade possibility. P 19 

No respite for UPA from allies, oppn 

    On a day S&P identified rising fuel subsidy as one of the reasons for its loss of confidence in India, UPA allies Trinamool and NCP said they would not allow decontrol of diesel prices, even as the government said it was committed to getting on with reforms. The S&P downgrade also gave the opposition a handle. "It is the policy paralysis of the last few years...that is responsible for this mess," BJP's Arun Jaitley said. P 19 Reforms have stopped, says Moody's Analytics 

    The outlook revision reflects our view of at least aone-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting," said S&P's credit analyst Takahira Ogawa. 

    Analysts say the announcement should serve as a wake-up call for the UPA gov. 

    The ratings agency said it expects only modest progress on fiscal and overall economic reforms before the 2014 general elections. 

    "High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle—with the next elections to be held by May 2014—and the current political gridlock," S&P's Ogawa said. Moody's Analytics, a division of Moody's Corporation, said India's economy is now growing below potential as a combination of bad luck and poor economic management weighs on sentiment. "The single biggest factor weighing on the outlook is the Indian government. In all economies it is impossible to separate the economic from the political outlook, and that is particularly the case in India...The wave of government reform and opening up through the 1990s lifted GDP growth above 8%. But these reforms have stopped," Glenn Levine, senior economist at Moody's Analytics, said in a statement.

1-in-3 likelihood of downgrade if external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow... 

Takahira Ogawa | S&P CREDIT ANALYST

No need for panic. The situation may be difficult, but we will be surely able to overcome 

Pranab Mukherjee | FM

India is likely to have normal monsoon in 2012

(Reuters) - India is likely to have normal monsoon in 2012 and the government will give a detailed region-wise forecast on Thursday, Farm Secretary P.K. Basu said on Monday.

The June-September monsoon, vital for agricultural output and economic growth, irrigates around 60 percent of farms in India, the world's second-biggest producer of rice, wheat, sugar and cotton. Agriculture accounts for about 15 percent of India's nearly $2 trillion economy, Asia's third biggest.

Last week a top weather official told Reuters that monsoon is likely to have average rainfall in 2012 despite fears the El Nino weather pattern may emerge in the second half of the season.

According to the state-run India Meteorological Department classification, rains between 96-104 percent of a 50-year average of 89 centimetres is considered normal.

India could Lose World Bank Soft Loans Middle-income tag to make it ineligible for IDA funding

World Bank has informally told India that its rapidly-growing economy may soon make it ineligible for soft loans, prompting the government to lobby for concessional lending for a few more years. 

India stands to lose over $2 billion in lowinterest funds for many of its welfare schemes, besides missing out on social initiatives spearheaded by the Washingtonbased lender over the previous decade. 

"We expect India to move into the middleincome category of countries in the next two years. This will mean that the IDA ( International Development Association) funding India got last year was the last cycle of such funding for the country," said a senior World Bank official. 

The bank lends to developing countries under two arms — IDA and International Bank of Reconstruction and Development (IBRD). IDA funds are highly concessional or interest-free loans and grants aimed at improving living conditions of the poorest. India is Currently a Blend Country 

IBRD funds infrastructure projects in middle-income and creditworthy lowincome countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies. 

India is currently classified as a "blend" country — defined as one in transition from lower middle-income to middle-income — and is creditworthy for lending from both IDA and IBRD. In 2010, India's per capita national income stood at $1,330, which is higher than the operational eligibility cut-off of $1,175 per capita income. 

The finance ministry, which is lobbying with the bank, has argued that though per capita income has risen, India has the highest number of poor and should, therefore, continue to get IDA support, an official said. According to official estimates, India has more than 350 million people below the poverty line. Last July, the World Bank board approved $1 billion for the National Rural Livelihood Mission (NRLM) — an ambitious livelihood guarantee scheme launched in 2011 under the rural development ministry. The bank is helping 13 poorest Indian states in building institutional systems before the scheme is scaled up at a national level in the next three-five years. "We tried hard to get the funding for NRLM as we knew that getting IDA funding will not be possible after this. There is a huge demand for concessional lending from poorer countries, particularly in Africa," the official said.

Economists See India’s GDP Growth Near 7.6% in Apr-Jun

Q1 growth, expected to be lowest in six quarters, would also be hit by base effect

    India's gross domestic product during April to June is expected to increase at its slowest pace in six quarters as interest rate hikes, inflation and global slowdown begin to impact growth, according to an ET poll. The country's quarterly GDP is likely to grow at a median 7.65%, says a survey of 14 economists, most of whom expect the annual growth to range between 7.5% and 8%. The RBI has pegged the full year's growth rate at 8%. 

"Growth prospects in India look fairly steady," said Madan Sabnavis, chief economist, CARE Ratings, but cautioned against risks from the external environment. Growth is expected to decelerate in the coming two quarters with a possible pick-up in the last three months of the current fiscal. "Domestic demand is expected to slow appreciably over the coming quarters as the full impact of the monetary and fiscal tightening takes hold. That said, we expect some uptick in the private investment cycle later in the fiscal as capacity constraints are increasingly binding," said Sajid Chinoy, India Economist at JP Morgan. Besides, Q1 growth would also be affected by the negative base effect as last year the economy had expanded by 9.3%, according to Kaushik Das, India economist at Deutsche Bank. 
GLOBAL UNCERTAINTY 
Most economists are cautious in their outlook as the external environment had become very uncertain in the last few weeks. 
While the US growth in the first quarter has been revised sharply down to 0.4% from 1.9%, the second quarter figure for the world's largest economy is pegged at 1.3%, below street estimates of 1.8%. In Europe, the sovereign debt crisis shows little signs of resolution as consensus on a single fiscal authority looks difficult. Besides, upcoming elections in Germany and France, the two strongest euro-zone nations, have also added to the uncertainty. The future trajectory would be dictated by global events and would test our resilience in the second half of the year," said DK Joshi, chief economist, Crisil. While some respondents raise the possibility of a double-dip recession in the US, most economists said the probability of such an event was low. "Our base case scenario is not for recession in the US," said Samiran Chakraborty , chief economist, Standard Chartered. 
There is one silver lining, though. Exports earnings in April to July have reached $108.3 billion, up 54%, while imports have risen 40% to $151 billion, compressing the trade deficit to $42.7 billion. "Exports have diversified and we do not expect the growth to completely fall off, though some moderation would be likely," said Shubhada Rao, chief economist, Yes Bank. 
RATE HIKE IMPACT IN Q2, Q3 
In the coming days, rate-sensitive sectors, such as automobiles and construction, could bear the brunt as the full effect of the Reserve Bank's rate hikes is yet to play out. As it is, car sales contracted in July while overall industrial growth has also been subdued at 6.6%. "We will see some dampening effect of the rate hikes in the first quarter but there can be a potentially pronounced effect in the coming two quarters,'' said Siddhartha Sanyal chief economist, Barclays Capital Economists expect another rate hike in the next monetary review on September 16, as commodity prices have not retreated and overall growth trajectory still seems stable. Agriculture is expected to pick up the slack in the first quarter as some economists estimate the sector to grow in high single digits.

Market Shows Tantrums in Love Affair with RIL

CAG REPORT, D6 WEIGH HEAVY ON STOCK

Investors wary, but analysts retain buy rating due to strong fundamentals

These are unsettling times for Reliance Industries, the poster child for Indian entrepreneurial derring-do founded by Dhirubhai Ambani more than five decades ago. For long a darling of retail investors, who saw it as a one-way ticket to prosperity, the company has suffered the ignominy of being dislodged by Coal India at the top of market value charts as the monopoly state-run miner trades close to its highest level since listing. Last week, even its number-two position in market capitalisation was challenged by staterun Oil and Natural Gas Corp. On Tuesday, the stock bounced back, gaining 3.4%, though it failed to overturn CIL's lead. 
But more embarrassments could lie ahead. A report by the Comptroller and Auditor General (CAG) is widely expected to criticise the company's operation of the KG-D6 gas fields and accuse it of causing losses to the government. 
The company and petroleum ministry have vigorously contested the CAG's version of events, but RIL's brass is said to be bracing itself for the worst. Reliance is getting on with its business and most analysts and brokerages have a "buy" rating for the stock as they see its strong fundamentals. The company is enjoying strong refining margins and is expected to gain strongly from BP's $7.2-billion bet on its oil and gas blocks. But the market sentiment continues to be weak on concerns of low and stagnating gas output, regulatory issues and selloff by foreign institutional investors, who are reviewing their portfolios due to global factors. 
The oil and petrochemicals giant has borne the brunt of adverse publicity from a draft CAG report, which alleged RIL had inflated capital expenditure in its flagship D6 field. Reliance Industries officials have told the CAG that companies ordinarily strive to minimise costs, and unless there are allegations of taking kickbacks from vendors, there is no way any corporation would deliberately raise development costs. The company challenged the CAG's thinking in a recent "exit meeting" with the national auditor and questioned many of its findings. Sources close to the company said some of the points raised in the draft report suggest the auditor may have prejudged the matter. 
The exit meeting gave an opportunity to companies to provide their point of view before the CAG finalised its report. Sour Mood Infects Company 
The CAG report is likely to be placed before Parliament later this session. 
The CAG debacle, if it came to pass, would add to the perception that India's largest private sector company no longer enjoys the sort of clout it once reportedly had with regulators and the government . The clout, or at least the perception of it, along with the ability to execute big projects such as the world's largest refinery at Jamnagar have contributed to the Ambani mystique. But there have been questions about execution also, with the company's output stagnant at under 50 mmscmd, well short of earlier projections of 80 mmscmd. 
"RIL has lately been in the news for all the wrong reasons," said Arun Kejriwal, director at Kejriwal Research and Investor Services. The sour mood seems to have infected the company. There are dark mutterings about negative coverage and the 'inability' of the media to appreciate the magnitude of the company's KG-D6 discovery, India's largest petroleum discovery post-Independence besides Bombay High. Instead of appreciation, insiders feel, there is only carping from regulators, which gets amplified in this season of alleged largescale corruption. 
Not everyone has such a gloomy take. Brokerage CLSA said in a note last week that the government and Reliance Industries had presented strong arguments to defend their case and the final report of the CAG was likely to be diluted, which can trigger a rally in the market. Oil ministry officials believe they have presented a strong case. 
Though RIL declined to comment for this story, people familiar with the company's think said the strategy was simply to implement existing plans and hope the market took notice. 
These include plans to develop 21 oil and gas blocks in which BP has picked up a 30% stake. RIL also plans to double capacity in petrochemicals and roll out a nationwide network to enable faster wireless access. 
In the five years since Mukesh Ambani, the company's chairman, split with brother Anil, the RIL has built a . 6,000-crore retail business, though this has had no impact on the stock. 
Mukesh Ambani told ET in May that the company was looking at investments of $10-12 billion in the chemicals business, and also had plans to start a rubber business that would meet the Asian tyre industry's demand. 
REFINING MARGINS TO RISE 
Ironically, the sharp fall in the market's perception comes at a time Asian refiners, including Reliance, are expected to make big gains in the international fuel market that is short supplied since Asia's fifth-largest refinery, Formosa in Taiwan, has been shut after a fire in July. This has lifted the demand for refined products, and the premium of diesel over Dubai crude has soared to more than $20 a barrel, significantly higher than last year. The premium, called crack spread, will boost earnings of refiners. Sources close to the company said even without the unexpected boost from a rival refinery's shutdown, the world is in the midst of a golden age for refining that will continue for about three years. "The first golden age for refining was from 2005 to 2008. The second golden age is from 2010. Refining is going to be very strong for the next three years unless there is a serious global recession," said a person close to the company. 
JPMorgan said in a recent report that catalysts for the stock — market-speak for factors that could cause a stock to rise — include earnings delivery aided by rupee depreciation, road map to ramp up D6 production and stable E&P earnings. "We believe the stock is attractively priced and reiterate our overweight rating," it said. Industry officials said the stock was being beaten down by foreign institutional investors, who are responding to their own perception about the global and Indian economy. "I don't think Indian institutions are getting out of Reliance. It is these foreign institutions. Generally, because of the economic situation, they want to pull out of a country. It has a lot to do with the FII perception of the world and India," an industry source said. 
Some FIIs said there was a "conglomerate discount" on its shares, which means some foreign shareholders prefer to invest in companies that are focused on a particular sector and are willing to pay a premium. But for conglomerates, they want a discount. The people close to the company argue that FIIs take investment decisions based on global considerations and then cite fundamental reasons for exit from a stock. "Based on your perception of a country and world economy, you are trying to move money from one market to another, and then they have to find a rationale for it," he said. 
INVESTORS SEEK CLARITY ON D6 
But many in the market argue the company should give a clearer picture about its D6 field, where gas output has fallen and there is no indication when it would rise. Ambani in his interview to ET had said the company would observe data from the gas reservoir for a few quarters and take remedial action along with BP. 
"RIL should give clarity on when the decline in production from KG-D6 can be arrested, that is the key information that the market is looking out for," said market expert SP Tulsian. The people close to the company said BP's $7.2 billion bet on Reliance's oil and gas blocks is a strong endorsement of the company's upstream business. 
"BP would have done its due diligence. There is tremendous upside, but the nature of the business is such that it takes time to delver results," an industry source said. Investors are also eagerly awaiting Reliance's plans to deploy its growing cash kitty. "With inflow of $5.2 billion on conclusion of the BP deal, RIL will have $15 billion of cash. Uncertainty on deployment of the cash has been an overhang, but significant cash balances do give RIL dry powder to weather a downturn, explore inorganic opportunities," JPMorgan said. Reliance's own approach has been to be cautious and make sure it doesn't overpay for big-ticket acquisitions.
RETAIL, TELECOM PLANS 
Reliance Industries has also been reticent about its plans in the retail and telecom businesses, making investors wonder what is in store for them. Sources close to the company said investors should not be too impatient. "Even established telecom companies, which entered the 3G domain a little after Reliance bought spectrum, are still rolling out their services. Reliance is a greenfield project in telecom," one source said. In its retail business, the company has taken significant strides to become one of the top players in the field although its contribution to Reliance's enormous profits is relatively small. 
Reliance's shares recently touched a 52-week low of . 721.60 and down significantly from its pastyear peak of . 1,187 last November. They have bounced back on Monday and many analysts are upbeat. 
"We maintain our overweight rating and SOTP-based Mar-12 price target of Rs 1,200. Key risks to our estimates stem from further margin compression in the refining/petchem businesses, and harsh regulatory action on the E&P business," JPMorgan said. 
With inputs from Shuchi Srivastava

India Pledges $5b Credit to Africa

Manmohan Singh announces extra $700m for education, skill development at India-Africa summit

Prime Minister Manmohan Singh unveiled a slew of initiatives to help African nations build local capabilities, continuing the Indian strategy of treading softly on a continent where there is a scramble for natural resources. India pledged a $5 billion line of credit for development initiatives and an additional $700 million for education and skill development in Africa, Singh said at the plenary session of the second India-Africa summit here. India has traditionally adopted a lightfooted approach to economic diplomacy in Africa and there have been concerns that the Indian engagement lacked consistency and is not as effective as that of China. Officials accompanying the prime minister insisted that India's is not being outsmarted by the Chinese, pointing to the Indian initiatives to build local institutions and capacity in agriculture, education and training. "The Chinese are absent in many of these areas. We don't agree that China has outflanked us here. There is enough place to do what we are good at,'' said a senior official. Africa, with a population of 1 billion, is being wooed by developed and emerging powers because of its potential as a huge market and a continent with vast mineral and oil resources. China, in particular, has pursued an aggressive strategy of acquiring oil and mineral concessions while building large infrastructure projects. The $5 billion line of credit will be for three years, Singh said at the summit, attended by 15 African nations. A substantial chunk of the credit line -- $300 million -- will be to support the development of a new Ethio-Djibouti railway line linking Addis Ababa and the port of Djibouti. To boost engagement in the agriculture and allied sectors, the prime minister announced the formation of an India-Africa food processing cluster. "This would contribute to value addition and the creation of regional and export markets," he said. Furthermore, an India-Africa Integrated Textile Cluster will support the cotton industry and the processing of the raw material into high-value products. India, which is looking at close coordination with the Africans in climate change negotiations, has also pledged support for weather forecasting technology. "This will harness satellite technology for the agriculture and fisheries sectors as well as contribute towards disaster preparedness and management of natural resources,'' Singh said. India had announced a $5.4 billion line of credit in 2008 at the first India-Africa summit in New Delhi but much of it remains unutilised. India-Africa trade, which is about $45 billion now, is expected to reach $75 billion by 2015. Nigeria, from where India imports more than a tenth of its crude, and South Africa, are the two main trading partners. But neither attended the summit. China's trade with Africa is expected to double from its present level to $300 billion by 2015. Indian investment in Africa is driven by the private sector in contrast to China, where state-run enterprises dominate. Many Africa analysts complain that while China is unwavering in its focus on Africa at the highest level, India has been fitful. The Chinese premier or the president visit Africa every year but Indian prime ministers' visits are few and far between. Prime Minister Singh, in his address, also spoke about the need for better connectivity between India and Africa. "One of the biggest gaps in our interaction is that of insufficient air connectivity. To begin with, India would be too happy to increase the access of African airlines to Indian cities in a significant manner over the next three years," he said. With Somalia pirates becoming a major security concern, Singh said India would back African capacities in the maintenance of peace and security. "As a token of our commitment to supporting Africa's endeavours for seeking African solutions, India will contribute $2 million for the African Union Mission in Somalia." He announced the setting up of a formal arrangement for better interaction between businesses in India and Africa. "I propose that we jointly establish an India-Africa Business Council which will bring together CEOs of major corporation from both sides," he said. Among the major business groups with operations in Africa are mobile phone service provider Airtel, the Tata group, the Essar group, Reliance Industries, BHEL and software training company NIIT. India Pitches for UN Reforms at Africa Summit ADDIS ABABA India on Tuesday made a strong pitch for reform of global political and economic institutions, including the UN Security Council, as it began a second summit with Africa here. "The current international economic and political system is far from favourable, specially for developing countries. The world faces new challenges in assuring food and energy security," Prime Minister Manmohan Singh told African leaders at the African Union headquarters in the Ethiopian capital. "The global institutions of governance are outmoded and are working under stress," he said. "We, therefore, need a new spirit of solidarity among developing countries." The two-day India-Africa Forum Summit began on Tuesday morning with a rendition of the anthems of the African Union and India. PRR