Real Estate Intelligence Report, Monday, July 20, 2009

FIIs’ investment in QIPs exceeds secondary market purchases

FIIs’ investment in QIPs exceeds secondary market purchases
The Hindu Business Line, July 20, 2009, Page 1

Interest in realty sector drives investments.

BL Research Bureau

Chennai, July 19 Foreign institutional investors may have poured more money into Qualified Institutional Placements (QIPs) of companies than into the secondary markets, over the past two months.

While QIP offers have raked in Rs 11,900 crore since May, net FII purchases of Indian stocks stand at just Rs 9,500 crore in the same period, according to turnover data from the stock exchanges. What is more, the bulk of QIP money was raised in June and July, a time when FIIs turned net sellers of stocks in the secondary markets.

So what drew institutional investors to the select set of companies issuing QIPs, even as they grew more wary of the Indian stock market? Market players advance reasons ranging from a fancy for the Indian realty sector to the prospect of short-term gains, to explain this preference.

Realty recovery

Realty companies − prominent among them Indiabulls Real Estate, Unitech and Housing Development & Infrastructure Ltd (HDIL) − have together soaked up nearly two-thirds of the above sums raised through QIPs. “Investors see latent demand in the Indian realty sector. There may have been a temporary slowdown; but there is confidence that demand will revive at the right price,” explains one fund manager.

Mr A. Balasubramanian, Chief Information Officer of Birla Sun Life Mutual Fund, believes that the outlook for the realty sector has improved after the slump last year. “There have been signs of residential demand picking up in recent months. In Mumbai for instance, wherever developers have significantly reduced prices, the projects have been sold out quickly,” he says.

However, he believes that the appetite for QIPs has been quite selective. Offers priced at or below prevailing market prices have sailed through, while others have struggled.

But why did institutional investors choose to buy these stocks after such a big run-up in their valuations? One explanation is that investors hoped for some quick gains from significant sops to the infrastructure and housing sectors in the Budget. This is supported by the fact that bulk of the issues were made before July 6 (Budget day).

Hedging their bets?

Other market players assert that the rush for QIPs was driven largely by short-term considerations. The Head of Financial Services with a consulting firm, who did not wish to be named, confided that some QIP investors hedged their bets by taking short positions in the issuers’ stock even as they bought into the offers. Reiterating this point, the Chief Executive Officer of an investment bank points to the selling pressure on some of the stocks immediately after the offers closed.

A recent Credit Rating and Information Services of India Ltd (Crisil) study pointed out that 75 per cent of the QIPs made this year have delivered negative returns to their investors. Stocks of some of the QIP issuers such as Bajaj Hindustan or Network 18 have steadily lost ground from the day the offer closed and now trade over 20 per cent below the offer price.

These market players believe that the record mop-ups by QIPs are not an indication of long-term FII interest in the India story.

“Let us wait for the large initial public offerings (IPOs) that are set to hit the market later this month. It is the response to these offers which will signal genuine investor appetite,” says one fund manager.

Realty Inc may get to keep all foreign funds for 3 yrs

Realty Inc may get to keep all foreign funds for 3 yrs
The Economic Times, July 20, 2009, Page 1

Centre May Interpret FDI Rule In Local Cos’Favour

Sugata Ghosh MUMBAI

HECTIC lobbying is on to bring about a small change in the way a rule on foreign investment in property is interpreted—a change that could backfire on overseas investors but rescue several Indian realtors.

It will not require a Cabinet decision or a new Press Note issuance by the government. All it calls for is a simple government clarification—one that could make or break many players in the local property market that has attracted around $20 billion in the last five years.

According to the foreign direct investment (FDI) regulations, a foreign investor has to bring in a minimum $5 million to participate in a JV with an Indian developer while the rest of the money can be brought in at a later stage, may be in tranches.

Incidentally, the March ‘05 Press Note 2, which spells out the FDI rules, says: “Original investment cannot be repatriated before a period of three years from completion of minimum capitalisation.”

Till date, the interpretation has been that the 3-year lock-in applies only to ‘original’ or ‘minimum’ investment of $5 million and not the entire money that the foreign investor puts in.

For instance, if a foreign fund invests $100 million, the interpretation has been that it can recover and repatriate up to $95 million before 3 years while the balance $5 million can be repatriated only after 3 years.

But not any more, something the government would soon specify.

“We are expecting a change....There have been representations to the government to clarify that the repatriation rule and the lockin should apply to the entire investment and not just the initial capitalisation of $5 million,” said a large shareholder of a top property firm.

The change could mean a boom to at least 30 Indian real estate groups, large and small, which had sold put options to foreign investors to bring in FDI through fancy deals.

But grappling with a cash crunch, slow demand and soft property prices, these developers are today not in a position to honour these options. And even if they can cough up the amount, they want to avert a large payout.

Under the circumstances, if the government spells out that the entire investment of the foreign investor is locked in for 3 years, the foreign investor will not be able to exercise the option immediately. This will give several cash-strapped property developers the time to organise money.

PRESENT SCENE

The 3-year lockin clause is being extended only to the ‘original’ or ‘minimum’ investment of
$ 5 million in a realty JV, and not the entire amount a foreign investor brings in

THE DEMAND

Indian realty cos now want the govt to clarify that the repatriation and lock-in rule should apply to the foreign entity’s entire investment

THE IMPACT

At least 30 Indian realty groups stand to gain. If total investment is locked, a foreign investor will be unable to exercise the put option sold to it. Also, Indian cos will get time to raise funds & avoid distress sales

FUTURE LOCK

Many experts think the new interpretation must not be applied retrospectively.

PPP projects in Bengal run into land hurdle

PPP projects in Bengal run into land hurdle
Business Standard, July 20, 2009, Page 4

The West Bengal govt. has adopted a “hands off” approach on acquiring farmland for industry or public purpose.

Sub-contractor not covered by arbitration clause

Sub-contractor not covered by arbitration clause
Business Standard, July 20, 2009, Page 10

The Supreme Court has ruled that an arbitration clause in a contract between the principal employer and the contractor could not be extended to subcontractors. The sub-contract in this case provided that it "shall be carried out on the terms and conditions as applicable to the main contract." The main contract carried an arbitration clause. When a dispute arose between the Kerala PWD department, the main contractor and the sub-contractor, the latter invoked the arbitration clause in the contract between the PWD department and the main contractor. The arbitrator did not allow this. Therefore, the subcontractor appealed to the Supreme Court. It dismissed the appeal (M.R. Engineers & Contractors vs

Som Datt Builders), stating that Section 7(5) of the Arbitration and Conciliation Act could not be interpreted to mean that sub-contractors could also be covered by the arbitration agreement between the main parties.

Investors back in action: Rs 16k cr raised in Indian capital mkt in Q 1

Investors back in action: Rs 16k cr raised in Indian capital mkt in Q 1
The Economic Times, July 19, 2009, Page 3

Anand Rawani NEW DELHI

IF YOU think investors are still shying away or companies have faced problems to raise funds, you must do a reality check. During the April-June quarter, more than Rs 16,000 cr has been raised from the capital markets, a SundayET analysis reveals. This massive amount is about eight times the average daily turnover in the spot market of the Sensex.

When compared to the previous quarter, there is a 218% increase. The SundayET analysis is based on data provided by SMC Capitals.

Out of the total funds, major chunk of the money has been raised through qualified institutional placements (QIPs). Corporates raised Rs 11,258 crore through QIP route. Private investors (PE) were not behind. They also invested a little more than Rs 5,000 crore, which is almost 17% higher than their investment in the previous quarter. Also, India Inc raised around Rs 455 crore through initial public offering (IPO), follow on public offer (FPO), right issue and ADRs/GDRs together.

According to Prithvi Haldea, chairman, Prime Database, QIPs are instruments of bull market. The pricing process and the absence of lock in period of buyers make QIPs attractive for institutional buyers. The pricing of QIPs are based on the average price of the last two weeks, which means in a rising market the price of a QIP will generally be lower than the current market price, which help institutional buyers to make short term gains.

According to Jagannadham Thunuguntla, equity head at SMC Capitals, the mood in the market has changed post the Lok Sabha polls. Going forward, the trend is expected to continue unless there is any global or local shocker.

In fact, funds raised through IPOs have also shown a considerable up side during the quarter ending June from the previous quarter. During April to June, around Rs 278 crore has been raised through IPOs against Rs 24 crore raised during January to March.

However, there has been a dip in the fund raised through right issues and ADRs/GDRs in the quarter ending June 2009 from the previous quarter. Companies raised around Rs 640 crore through right issues and another Rs 208 crore by way of ADRs/GDRs during January-March, whereas, during the quarter ending June, only Rs 154 crore was raised through these instruments.

The sentiments have not just improved in the capital markets but also among the mutual fund investors. The net inflow from mutual fund investors have also gone up. According to the data provided by Value Research, during April-May, mutual fund investors made a net purchase of Rs 184,388 crore, which is more than the asset under management (AUM) of Reliance Mutual Fund, the largest fund house with an AUM of Rs 102,730 crore as on May 29. In the previous quarter — January to March — there was a net inflow of only Rs 2,135 crore.

According to Sanjay Sinha, CEO of DBS Chola Mandalam AMC, investors had moved away from equity earlier as markets were not doing well. Now, as the markets have begun to do well, many such investors are coming back, he said. “The trend should continue. There may be, however, some limitations which may come due to the recent Sebi guideline on variable cost,” he said.

Developers in profit-sharing pact with retailers

Developers in profit-sharing pact with retailers
The Financial Express, July 20, 2009, Page 4

Mona Mehta, Mumbai

Competition has started hotting up in the real estate industry with realty developers entering into new revenue sharing agreements with organised retailers in Q2 2009-10. This is also apart from developers launching innovative concepts in retailing so that retailers are able to share the profit that they have earned from the property.

According to Navin Raheja, managing director, Raheja Developers, the firm has recently signed new revenue sharing deals with Ginger Hotels (a Tata Enterprise), Café Coffee Day, Subway and Yo China. We have recently signed the agreements with many retailers for our commercial properties at Manesar, Gurgaon and Panipat.”

“In the present market scenario, retailers are a little hesitant to enter into fix lease amount as the sales are low,” said Raheja. “The rationale behind this move is that the developer will get better value if the property is doing good and retailer s will be happy to share the profit that they have earned from the property. Second, these kinds of arrangements are win-win situation for both the parties. The developer will also focus on increasing the footfall in the mall and retailer will also not be under pressure to pay the fixed overhead. We are focusing on a revenue sharing model for all our commercial/ retail properties that the company is developing or planning to develop,” added Raheja

In India, over 600 malls will be ready to be sold or leased and around Rs 30,000 crore have already been invested in the malls, although these are not taken by retailers due to higher rents and common area maintenance (CAM) cost.

Entertainment World Development Private Limited, an Indore-based leading real estate group is in advanced stages of entering revenue sharing agreement in Nanded for our upcoming mall apart from fix rental agreement with Big Bazaar and Pantaloon in Indore, Manish Kalani, managing director, Entertainment World Development Private Limited, said. According to Kalani, “Besides, as part of the revenue sharing agreement, we are evaluating plans to bring in innovative concepts in our upcoming retail malls such as a seamless mall within a mall.”

As part of the revenue sharing pact, seamless mall provides benefits to emerging brands in terms of no rent, no CAM and no electricity charges. Seamless mall functions as a retail enabler, believes industry experts.

Volatility to persist in mkts

Volatility to persist in mkts
The Financial Express, July 20, 2009, Page 4

fe Bureau, Mumbai

Indian equity indices witnessed a strong rally, last week following strong cues from the global markets and government announcement on initiatives on disinvestment, led the markets to close with huge gains. However, announcement of quarter results from various benchmark heavyweights and court hearing on Reliance Industries (RIL) and Reliance Natural Resources (RNRL) in the coming week, markets might remain volatile.

On Friday, last trading day of previous week, the 30-share Sensex of Bombay Stock Exchange (BSE) added 494.67 points, or 3.47%, to close at 14,744.92 points. The broader 50-share Nifty of National Stock Exchange (NSE) ended at 4374.95 points, up 3.39%, or 143.55 points.

Anita Gandhi, head of institutional at Arihant Capital market said, “Volatility is likely to remain in the markets, however, we might witness some upward rally. Apart from various announcement of quarter results in the coming week, will have some impact on the markets.”

The benchmark Sensex ended last week with a gain of 9.19%, while the Nifty rose 9.27%. Dealers in the market also added that, monsoon and foreign institutional investors (FII) will play the important role in the coming days.

“With the strong results of TCS on Friday, we might witness buying in the technology stocks on Monday. Also hearing on RIL-RNRL issue will have significant impact on the markets in the coming days,” added Gandhi.

In the month of July, FII have been net buyers at Rs 4,079.66 crore and domestic institutional investors (DII) have brought stock worth Rs 5,814.92 crore in July alone. However with flat closing of US markets on Friday, little impact will be seen in the domestic markets when it opens on Monday. “If Nifty can sustain the 4,400 mark then we can witness upward rally in the markets in the coming days. Apart from that, the major issue will be quarter results and performance of the FII’s which will lead the markets,” said and analyst from a leading broking house.

Sensex up 495 pts on financial reform hopes

Sensex up 495 pts on financial reform hopes
Business Standard, July 18, 2009, Page 1

BS REPORTER Mumbai

Finance Secretary Ashok Chawla’s statement that the government would introduce seven Bills in Parliament, including pension and banking reform proposals, ensured that the markets ended the week on a high note.

The Bombay Stock Exchanges Sensitive Index, or Sensex, surged 494.67 points, or 3.47 per cent, to 14,744.92, its highest weekly rise since May. The S&P CNX Nifty added 143.55 points, or 3.39 per cent, to 4,374.95.

Together with gains earlier this week, today’s rise marks asharp reversal of last week’s fall, when the Sensex slipped 9.45 per cent after Finance Minister Pranab Mukherjee’s Budget statement that contained little or no mention to key economic reforms.

Overall, the Sensex recovered sharply this week by 9.19 per cent — the highest in Asia —on better monsoon prospects, better-than-expected results from Goldman Sachs and Intel and several statements by key ministers, including the finance minister, on the fiscal deficit and economic reforms.

“Last week’s fall was a result of traders taking short positions because of the government’s borrowing programme and Indian Meteorological Department’s rain forecast review. This led to short-covering when the environment improved,” said Manish Sonthalia, fund manager, Motilal Oswal Securities.

US markets also moved up sharply during the week. The Dow Jones gained 6.94 per cent while Nasdaq jumped 7.35 per cent this week. In Asia, the Hang Seng surged 6.20 per cent and the Straits Times edged up 5.33 per cent.

“Foreign Institutional Investors have started operating in the last two or three days leading to a rise in the markets. Yet, it may not go beyond 4,450 and will find support at 4,200 levels,” said Deven Choksey, managing director, KR Choksey.

All the sectoral indices closed in the green for the week. The realty index rose the highest by 17.62 per cent. The bankex, auto and metal indices were up over 10 per cent.

DLF gained the most at 19.47 per cent. Reflecting the bullishness in the financial sector, ICICI Bank and HDFC were among the top five gainers at 18.05 and 14.41 per cent, respectively.

Motilal Oswal’s Sonthalia added: “With RBI’s policy review and FIIs’ expiry in the next two weeks, auto, bank and metals should be in focus.” Besides the monetary policy review on July 28, market players would be looking forward to announcement of the government’s disinvestment plans, key corporate results and global cues.

Realty rebound, gains by leading indices signal early revival

Realty rebound, gains by leading indices signal early revival
The Financial Express, July 20, 2009, Page 14

Bloomberg

Home resales in the US probably rose in June and a gauge of the economic outlook improved, signaling the recession may soon be over, economists said before reports this week.

Purchases of previously owned homes climbed to an annual rate of 4.83 million, the highest level since October, according to the median of 57 estimates in a Bloomberg survey before the National Association of Realtors' report on July 23. Figures on Monday may show the index of leading indicators climbed for a third consecutive month.

Mounting evidence that housing is stabilising is bolstering forecasts that government stimulus efforts will gain traction in coming months and lift the economy from the worst slump in five decades. Other reports may show rising joblessness is weighing on Americans' moods, tempering optimism about any rebound.

"The end of the recession could be pretty close," said Scott Brown, chief economist at Raymond James & Associates Inc in St Petersburg, Florida. "We're getting near the bottom in housing.

It'll still be a very gradual recovery for the economy, with a labour market that's very weak."

Reports last week corroborated that the housing slump, now in its fourth year, is dissipating. Housing starts unexpectedly jumped in June to the highest level since November as construction of single-family dwellings climbed by the most since 2004. Building permits, indicating future construction, rose the most in a year.

The National Association of Home Builders/Wells Fargo index of builder confidence increased this month to the highest level since September.

One reason for the projected increase in home resales is that prospective buyers are taking advantage of the plunge in prices caused by the foreclosure crisis. Filings reached a record in the first half of 2009, according to RealtyTrac Inc, an Irvine, California-based seller of default data. More than 1.5 million properties got a default or auction notice or were seized by banks in the six months through June.

The New York-based Conference Board's leading index, which points to the direction of the economy over the next three to six months, rose 0.5% last month after a 1.2% increase in May, according to the survey median.

The jump in building permits was probably one of the biggest contributors to the predicted gain in the leading index, economists said. Fewer jobless claims and higher stock prices were also likely drivers.

Stocks have gained on optimism an economic recovery is at hand. The Standard & Poor's 500 Index is up 39 percent since reaching a 12-year low on March 9.

A July 24 report may show the Reuters/University of Michigan final index of consumer sentiment fell in July after four consecutive gains, economists predicted. A preliminary reading dropped to the lowest level since March.

The US has lost about 6.5 million jobs since the recession began in December 2007. Economists in a separate survey taken by Bloomberg this month predicted the jobless rate will reach 10% by year-end from 9.5% in June.

Federal Reserve officials thought the economy was "still quite weak and vulnerable to further adverse shocks," according to minutes of their June meeting released last week. Even so, the report also said "the economic contraction was slowing and that the decline in activity could cease before long."

Companies seeing an improvement include CSX Corp., the third-largest US railroad. Jacksonville, Florida-based CSX reported second-quarter profit that topped analysts' forecasts, and said demand for hauling most freight is stabilising. Railroad traffic is considered an economic bellwether.

"We're seeing pretty good stabilization in our markets," CEO Michael Ward said in an interview last week. "We don't see any further deterioration, and we see some incremental improvement in the near future."

US housing starts at seven-month high

US housing starts at seven-month high
Business Standard, July 18, 2009, Page 8

RBI to ensure stable interest rate regime

RBI to ensure stable interest rate regime
Business Standard, July 18, 2009, Page 11

BS Reporter / Mumbai

Even as former Reserve Bank of India (RBI) Governor C Ranngarajan said the huge borrowing plan of the government might push up interest rates, the RBI on Friday stressed on ensuring a stable interest rate regime to support economic growth.

Besides, the central bank would work to ensure adequate liquidity, said Deputy Governor KC Chakrabarty.

“RBI’s stance will be to ensure that rates remain stable and benign. It will depend on market forces and the global market. There are signs of revival in the debt market,” Chakrabarty said on the sidelines of summit here.

“Enabling government borrowing when private borrowing is not high should not impact rates. Since private borrowing may not be large in the first half, it may facilitate large public borrowing,” said Chakrabarty.

About the current trend of subdued credit offtake, he said RBI would revisit its credit growth estimates in the quarterly monetary policy review of on July 28.

On a year-on-year basis, bank credit grew 15.1 per cent in the first quarter as against 26 per cent a year ago. The central bank has indicated 20 per cent growth in credit for 2009-10, down from its estimate of 24 per cent for 2008-09. However, Chakrabarty said credit demand would pick up in the coming quarters.

He said it was better to borrow in the remaining half of the financial year when the demand for credit was likely to be low.

Since public banks have reduced rates by 100 basis points in this financial year (2009-10), private banks may also have to lower rates to expand their credit base. “Private sector banks will have to reduce rates to lend in a competitive environment,” he said.

But if the cost of funds went up, banks might increase (lending) rates, he said. Moreover, deposit rates might rise if the demand for credit was three times the deposits mobilised and they were unable to mop up funds, he said.

On banks restructuring their loan books, he said RBI was examining the matter and might extend the deadline depending on individual cases. He insisted on participation of large IT players in making technology available.

“We want to make banking for the poor a viable and legitimate business. We must establish it as a viable business,” he said.

RBI to ensure benign, stable rate regime: Chakrabarty

RBI to ensure benign, stable rate regime: Chakrabarty
The Hindu Business Line, July 18, 2009, Page 6

Credit growth targets may be revised as banks report lower offtake.

Our Bureau, Mumbai

The Reserve Bank of India’s stance in the upcoming first quarter review of the Monetary Policy on July 28 would be to ensure a benign interest rate regime. It may also lower credit growth targets, given that banks are reporting lower credit offtake in the first quarter, Dr K.C. Chakrabarty, Deputy Governor, RBI, said.

In its annual Monetary Policy in April, the RBI had indicated a credit growth of 20 per cent for the current fiscal. But according to bankers, in the first quarter, credit offtake has been slow.

Dr Chakrabarty was speaking on the sidelines of a seminar on financial inclusion organised by SKOCH.

“Our aim is to maintain stable interest rates. What banks will do would depend on their cost of funds. Our job is to ensure adequate liquidity in the system,” said Dr Chakrabarty.

Economic recovery

Dr C. Rangarajan, former RBI Governor, said that India is likely to see an economic recovery in the second half of the current fiscal, but there will be substantial growth only by next fiscal.

Whether credit growth by banks will reach the target would depend on several factors including the growth momentum and the monsoon, he said.

As the government borrowing programme is four times higher than in 2007-08, there could be some upward pressure on interest rates, Dr Rangarajan said.

According to the schedule of the government borrowing programme, most of the borrowings will be in the first half of the fiscal.

The private sector borrowing may not be very large in the first half and will facilitate the huge government borrowing, Dr Rangarajan said.

On extending the deadline for banks to carry out the restructuring programme for corporates, Dr Chakrabarty said it may be allowed on a case-to-case basis.

Addressing the seminar, Dr Chakrabarty, emphasised on the need for big IT players to be actively involved for achieving greater financial inclusion. At present, the Banking Correspondent model is too restrictive.

The RBI is planning to bring out revised guidelines to make the BC model more flexible, he added.

At present, the model does not allow individuals and non-Section 25 companies to become BCs or Banking Facilitators. RBI may look to revise some of these guidelines.

Paddy sowing down 22% on delayed rains

Paddy sowing down 22% on delayed rains
The Financial Express, July 18, 2009, Page 17

Even though monsoon has shown signs of revival in most parts of the country this month, but its delayed arrival across the country has impacted sowing of some key kharif crops including paddy- the largest foodgrain grown during the season.

As per the latest government data, paddy (de-husked rice) has been sown in around 114.63 lakh hectare till July 17, almost 31 lakh hectare less compared to the same period last year.

The worst affected has been states like Jharkhand where paddy sowing is around 43% less till July 17 this year as compared to the same period last year. In Uttar Pradesh sowing is down by 33.14%, while in West Bengal, the country's largest paddy producing state, sowing has fallen by 35%.

Among others paddy growing states, sowing is almost 36% less in Maharashtra, 30% down in Bihar, 27% less in Andhra Pradesh and almost 35% down in Rajasthan.

However, sowing of paddy in Punjab and Haryana, is just around 8% and 5% less respectively till July 16 as compared to last year.

There is substantial improvement over last week when acreage stood at 74.28 lakh hectare.

"Past experience shows that rainfall deficiency in crop like paddy cause more severe impact on productivity than area. The cumulative effect of decline in area and productivity could result in more than 5% decline in rice output this year," said Ramesh Chand, National Professor, National Centre for Agricultural Economics and Policy Research.

Overall coarse cereals sowing, comprising of jowar, bajra and maize apart from paddy is almost 14.15 lakh hectares less as on July 17, 2009 compared to the same period last year.

Among other crops, oilseeds, the mainstay of millions of farmers' in central and western India has been sown in around 107.10 lakh hectare till July 16. Groundnut has been sown in around 25.69 lakh hectare till July 16, down from 27.63 lakh hectare last year. Soybean has been planted in around 71.36 lakh hectare till July 16.

Pulses have been sown in around 38.38 lakh hectares till July 15 down from around 41 lakh hectare sown during the same period last year.

Among cash crops, sugarcane has been sown in around 42.50 lakh hectare till July 17, down from 43.79 lakh hectare sown during the same period last year. Cotton has been sown in around 68.92 lakh hectare, down from 61.68 lakh hectare sown during the same period corresponding year. Jute has been planted in around 6.89 lakh hectare, down from 7.06 lakh hectare sown last.

Agricultural commodities likely to witness higher price volatility

Agricultural commodities likely to witness higher price volatility
The Financial Express, July 18, 2009, Page 17

Agri-commodities are expected to witness more price volatility following the delayed monsoon affecting kharif prospects as well as rabi crops this season, a top economist said. There will be more price volatility in agri-commodities as uncertainty is going to increase not only for kharif but also rabi crops due to delayed monsoon, stated Mr Madan Sabnavis National Commodity & Derivatives Exchange (NCDEX) chief economist. Things won't be as bad as expected if the monsoon revises, but there is likely to be a distortion in terms of production numbers of individual agri-products. The six-week delay in monsoon may force farmers to switch over to crops which require less rain, Mr Sabnavis added. The overall agri-production may not be affected significantly but there could be a problem in procurement this season.

It is also expected that the harvest chain would get affected. Due to the six-week delay in sowing, harvest will take place only in November instead of October this year. Therefore, sowing of rabi crop will also be delayed as farmers switch to rabi crops after harvest, he added. The delay in monsoon may impact production of pulses, oilseeds, rice, groundnut and soyabean production. Meanwhile, NCDEX has drawn up expansion plans, which includes penetration in the southern market and launch of several agri-and-non-agri contracts in the near future. Most of our business is coming from west, north and central parts of the country. South has not been tapped fully. We are approaching our existing members to open offices in the south, stated Mr Vijay Kumar NCDEX's chief business officer. We need to get a proprietary desk in the south and then figure out how to get more participants, Mr Kumar added. NCDEX is also in advanced stages of finalising the launch of new futures contracts in agri as well as non-agri sectors. Presently, traders are constrained by stock and hedge limits. If these limits are enhanced then volumes will go up, Mr Kumar further added.

Property owners face a double whammy

Property owners face a double whammy
The Hindu Business Line, July 18, 2009, Page 5

Your negotiating skills as a property buyer may be of no use going by the amendments proposed by the Budget to Section 56 of the Income-Tax Act, 1961.

While a property seller will pay long-term capital gains tax on the sale proceeds, from October 1, 2009, the buyer is to be taxed on the difference between the fair market value (as mentioned in the real estate ready-reckoner or set by the district valuation officer) and the lower negotiated sale value.

The amendment to Section 56, according to tax practitioners, presumes that there is a nexus between the buyer and the seller to evade tax even if a distressed seller sells at below market rates (or fair market value) or a buyer manages to drive a good bargain.

The Income-Tax Department has defined property to include immovable property (land, building or both), and movable property such as shares, securities, jewellery, archaeological collections, drawings, painting, sculptures, or any work of art.

Consider this scenario: Suppose a property bought for Rs 20 lakh in 2000 is sold by the owner in an emergency situation at Rs 45 lakh on or after October 1, 2009 against the fair market value of the property of Rs 50 lakh.

According to the existing rules, only the seller has to pay a long-term capital gains tax (at 10 per cent) of Rs 2.5 lakh under Section 50C of the Income-Tax Act, 1961. Capital investments are considered long-term if the holding period is three years or more.

With the proposed amendment, the buyer (if he/she falls in the 30 per cent income-tax slab) would also have to pay the exchequer Rs 1.5 lakh, that is, the difference between the fair market value (Rs 50 lakh) and cost of acquisition (Rs 45 lakh).

Now, should the buyer sell the property after, say, three years, for Rs 1 crore, his/ her acquisition cost will be reckoned as Rs 45 lakh and not Rs 50 lakh, and he/she (as seller) will have to pay long-term capital gains tax on Rs 55 lakh.

Double Whammy

"It's a double whammy for property buyers," said Shravan V Sharma, chartered accountant. The fair market value as determined by the ready-reckoner, according to Sharma, is arbitrary.

It uses the same yardstick to determine property rates for both a dilapidated and a relatively new building in the same locality in a city like Mumbai.

Vaibhav Manek, partner, KAV & Co, said, "Fair market value ideally indicates the willingness of a buyer and a seller to settle a property transaction at a mutually agreed price. If a buyer manages to negotiate the property price at a lower rate then there is no reason why the difference between the fair market value and the lower negotiated price should be deemed his/her income and be subject to tax."

Manek suggested that it would be better if a safe harbour clause was introduced under Section 56 whereby the buyer can prove to the authorities that he/she actually paid a lower price for the property.

Clinton has a carbon message for India Inc

Clinton has a carbon message for India Inc
The Economic Times, July 19, 2009, Page 1

Our Bureau MUMBAI

EVEN though issues such as education, health and accessibility of finance in a slowly reviving global economy occupied the agenda at US secretary of state Hillary Clinton’s meeting with Indian business leaders on Saturday, it was India’s efforts in reducing emission that drew the maximum attention.

In the course of a power-packed breakfast meeting at the Taj Palace hotel attended by the cream of India Inc, Ms Clinton asked Indian business leaders to refrain from treading the high-carbon path and not to repeat mistakes committed by the developed world in contributing to global pollution.

“We acknowledge that we’ve made mistakes in the US and we, along with other developed countries have contributed most significantly to the problem that we face with climate change,” Ms Clinton told the elite audience. “But we are hoping a great country like India will not make the same mistake,” she added.

Ms Clinton’s statements come close on the heels of views recently expressed by US President Barack Obama that the US had “sometimes fallen short” of its responsibilities in controlling carbon emissions.

It was an interesting mix of business leaders who attended Ms Clinton’s talk — Reliance Industries chairman Mukesh Ambani, State Bank of India chairman OP Bhatt, ICICI MD Chanda Kochar, Indian Hotels vice-chairman RK Krishna Kumar, former HLL chairman Ashok Ganguly, Godrej chairman Adi Godrej Piramal group director Swati Piramal and Sudha Murty. The event was hosted by Ratan Tata, chairman Tata Group.

Ms Clinton is on a five-day visit to India and her talks with the government could likely include issues such as climate change, the nuclear deal, the Doha trade talks and India’s relations with Pakistan.

Punjab to get its first energy-efficient building

Punjab to get its first energy-efficient building
The Hindu Business Line, July 20, 2009, Page 13

Press Trust of India, Chandigarh.

To set an example of energy conservation, the Punjab Mini Secretariat here will be developed as the first energy-efficient building in the state.

"National competitive bids have been floated for converting this building through Energy Conservation Company Route and tenders would be opened on August 10," Secretary, Science and Technology, Punjab, Viswajeet Khanna, said on Sunday.

He said, the Chandigarh Administration was also being approached to initiate same energy conservation measures in Punjab and Haryana Civil Secretariats, Punjab Vidhan Sabha buildings and Punjab and Haryana High Courts as these buildings were under their control.

"Similarly, all deputy commissioners, the local government departments had been requested to convert district complexes as energy efficient buildings at the earliest,"

All future government buildings in the state will be designed in such a way that energy consumption level can be brought down by up to 50 per cent.

He said, Energy Audit of 24 industries and important government buildings have indicated a potential annual saving of 11,542 MW, keeping in view the increasing demand of power, the Punjab Government has asked 250 high energy consuming industrial units to become self-sufficient in energy by co-generation.

Gurgaon, Faridabad to be developed as green cities

Gurgaon, Faridabad to be developed as green cities
The Financial Express, July 18, 2009, Page 8

fe Bureau, Chandigarh

Against a backdrop of hectic global parleys to neutralise the effects of climate change, the Haryana government has decided to develop Gurgaon and Faridabad as solar/green cities. These will be the first cities in Haryana to be brought under the development of solar cities programme, launched by the new and renewable energy ministry.

Haryana chief minister Bhupinder Singh Hooda said the objective of the ambitious programme was to empower the urban local government to meet the energy challenges, reduce dependence on fossil fuel, expensive oil and gas for energy and also to promote increased use of renewable energy. In all, 60 cities, having a population of between five lakh and 50 lakh, would be supported for development as solar/green cities under this programme. The project aims at a minimum of 10% of energy consumption of selected cities coming from renewable energy and energy efficiency measures. "The state government would be assisted in preparation of a master plan for increasing energy efficiency and renewable energy supply in these cities, besides having in place institutional arrangements for implementation of the master plan," Hooda said.

The programme also aims at including proposals for carbon financing. The chief minister said the Centre would provide financial assistance to the tune of Rs 48 lakh each for development of Gurgaon and Faridabad as solar/green cities. Of this, Rs 8 lakh would be provided for preparation of the master plan, Rs 10 lakh each for setting up solar cells, its functioning and implementation over five years, while Rs 20 lakh would be given for other promotional activities.

Besides, financial assistance for installation of various renewable energy and energy conservation systems or projects would also be availed from the ongoing schemes of the Centre. Hooda said the first step under the programme was to prepare a five-year master plan having energy baseline for these cities, including sector-wise energy consumption matrix and energy supply mix for the base year for all the sectors, including residential, industrial, commercial, institutional and municipal, and demand forecasting for the next five years.

Omaxe arm in pact with Allahabad Devt Authority for township

Omaxe arm in pact with Allahabad Devt Authority for township
The Economic Times, July 19, 2009, Page 9

New Delhi: A subsidiary of construction firm Omaxe has entered into an agreement with Allahabad Development Authority for the development of a township in Allahabad. Pancham Realcon has entered into a MoU for the development of township in Allahabad on a proposed area of 1,535.12 acres. Around Rs 18 billion is expected to be invested over five to seven years to develop the township. The project is conceived under the grand vision, under Hi-tech Township Policy initiative of the UP government, establishing self-sustained hitech settlements within the state for harnessing the rapid growth of its economy for a balanced development of its hinterland.