CII tells govt to pump in more money

CII tells govt to pump in more money
The Financial Express – Corporates & Markets, April 1, 2009, P VIII

fe Bureau, New Delhi

The Confederation of Indian Industry (CII) on Tuesday urged the government to print more currency notes to bridge the fiscal deficit and keep the economy afloat, which is reeling under the impact of the global financial meltdown.

“If the government is going to borrow from the market to fill the fiscal deficit, then they are going to suck up all the money available in the banks and we will be drained out,” new CII president Venu Srinivasan told reporters at his maiden press conference.

Pitching for monetisation of the Budget deficit, he said, “It means printing notes. Which means you have the risk of increasing inflation but at the same time you will keep the economy afloat.” Srinivasan further said that the government should also amend the Fiscal Responsibility and Budget Management Act, which imposes restrictions on public expenditure.

Raising concerns over the government’s decision to raise an additional Rs 300,000 crore during 2009-10 to fund public expenditure, the CII president said that very little money would be left for the private sector.

Adding off-budget items and state deficits, total government deficit is likely to be in excess of 10% of the GDP, he said, adding revenue deficit accounts for over 70% of the fiscal deficit.

Asked whether monetisation would help or not, Srinivasan said, “Otherwise, with such a high level of deficit, you will find investments drying up in the country.”

He also said that the government should further reduce key interest rates like repo (short-term lending rate) and reverse repo rates. “There is need to reduce repo and reverse repo rates by 50 basis points,” he added.

He said that at the current rates several projects are still not viable.

While ruling out any possibility about the country slipping into deflation, Srinivasan said that the government should not publish the inflation data weekly.

“High borrowing is keeping interest rates from falling in line with inflation,” he said.

Suggesting more fiscal measures, he said that the government should further ease the indirect taxes – excise, service tax for specific sectors.

He also said that to avoid injury to the domestic industry owing to artificially low-priced imports, an aggressive safeguard mechanism needs to be in place.

“This could be supplemented by strengthening anti-dumping directorate,” he said.

To deal with the land acquisition issues to stimulate the manufacturing sector, he said that the government should acquire land systematically and transfer it to industry in a transparent manner.

Organised retail likely to slow down

Organised retail likely to slow down
The Economic Times, April 1, 2009, Page 18

Our Bureau NEW DELHI

THE economic slowdown will hamper the growth of the Indian retail sector for another 12-18 months, with lower sales and increasing liquidity pressure for many domestic retailers. Falling footfalls and poor conversion ratio have led to a decline in sales growth to 11% in December 2008 compared to 35% in December 2007, consulting firm KPMG said in a report.

In a survey conducted by KPMG, 70% of the respondents stated that the slowdown has adversely affected their footfalls. The consulting firm predicts that retailers would shift from lifestyle retailing to value retail in the coming months. This is expected to fuel action in food retailing and other FMCG products as the segment is insulated from the slowdown while home furnishing products are expected to lose favour of retailers.

Organised retail sector was expected to touch penetration levels of 16% by 2012, which has now been revised to 10.5%. Currently, the sector has a penetration level of about 5%. This dip can be largely attributed to the shaken sentiments of retailers. According to the report, many players are likely to close down unprofitable stores and rationalise expenditure in the next few months. Industry players are also expected to opt out of high-cost locations such as shopping malls and opt for low-rent premises. KPMG has suggested that retailers move to rural and remote areas as the metro circles are increasingly getting saturated.

In addition, the investment in the retail sector has also been delayed with several retail real estate development stalled. The organised retail sector was expected to attract investments of $25 billion over the next five years. According to KPMG report, a large number of retailers have not been able to meet their stated expansion plans. With higher cost of fund raising and a slowdown in demand, developers are likely to delay more projects in the future.

Real estate prices set for 20% downward correction

Real estate prices set for 20% downward correction
The Financial Express – Corporates & Markets, April 1, 2009, P VIII

Mona Mehta, Mumbai

Real estate developers are planning another round of price correction – from 15% to 20% – during the second quarter of fiscal 2010 in certain metros. This comes at a time when some top builders are feeling the pressure to sell off their standing inventories as they have no other option left but cut real estate prices further, says industry experts. Recently, the government announced a third stimulus package after which realty bigwigs are striving hard towards affordable housing development and converting them into actual sales by announcing 25% to 40% dip in property prices.

Lalit Kumar Jain, chairman, Kumar Builders, and vice-president, CREDAI, told FE, “We are evaluating plans to reduce prices of affordable apartments by another 15% to 20% before Diwali. Due to the economic slowdown, end buyers are saving more, instead of investing in properties. Hence, we believe interest rates could be reduced further during the next quarter which end-buyers are currently awaiting.”

A top official from Kalpataru Properties, on condition of anonymity, said that developers who have acquired land at least six years back will be able to offer homes at affordable current market rates unlike developers who would have recently bought land during prevailing market rate in fiscal 2009. “We expect huge demand to emerge in the real estate market in the next two to three months once the interest rates are reduced further. We have reduced property prices by 35% in December 2008 in western suburbs and are witnessing huge inquiries,” he added. Anshul Jain, CEO-India, DTZ International Property Advisors, said, “There is a need for high-end residential property prices to drop by 35%, and mid-end to come down by 25% from the peak prices based on the localities. Builders have been offering free gifts, cars, followed by discounting of prices but not to the extent of 35%, especially for new projects. Further discounts is only going to add before the peak prices in general. Hence, builders will move on the right track if they cut property prices further.”

Despite using private equity funds is becoming more expensive for developers, private equity investments are expected to continue as valuations are becoming more realistic, he added.

After DLF, Unitech has restive customers to soothe

After DLF, Unitech has restive customers to soothe
Business Standard, April 1, 2009, Page 5

Joe C Mathew / New Delhi

Unitech Ltd, the country’s second-largest realty player, is having to handle customer ire at one of its premium housing projects in the suburban city of Gurgaon.

This comes right after DLF, the largest property developer, brought out a range of measures to soothe restive customers at a couple of other housing projects at Gurgaon.

The Unitech customer ire is due to alleged delay in completion of World Spa, apartments and villas that carry an average price tag of over Rs 1 crore per unit. “The property was scheduled for delivery in the second half of 2006. Two years later, more than half has not yet been delivered, with no completion date in sight. And the complex is far from finished,” complained a customer.

Customers said their mails and pleas to Unitech had been ignored. World Spa has over 350 apartments in two projects — Spa East and Spa West. While there are 159 apartments in five towers in the East, the Spa West has six towers that house 208 apartments. Customers say Unitech has collected over Rs 450 crore, constituting 90 per cent of the payment.

Unitech officials, however, deny the charges and say the project is on track. “The release of World Spa has started and all six towers in Spa East have been offered for possession. One tower in Spa West has also been released. The rest of the towers will be released progressively in the next few months,” said a spokesperson.

Company officials said the delay in Spa West was caused by customers’ demand for structural changes. “The West towers are structurally complete and finishing touches need some more months. The delay happened after a group of buyers approached us in 2007, asking for major changes in the project. We tried to incorporate the changes, hence the delay,” said the officials.

Unitech added the payments were “construction linked”, which suggested that 90 per cent payment would mean that 95 per cent of the project was complete. The company is planning to meet the customers during the week to clear their apprehensions.

The customers are yet to be convinced. They are hinting at beginning with peaceful public demonstrations to “sensitise” Unitech.

Customers complain that cash-strapped realty majors are delaying the completion of residential projects after taking hefty advance payments. To address such feelings, DLF is in the process of announcing project-specific “relief packages” — including price cuts — for its customers.

Cement prices may go up from today

Cement prices may go up from today
Business Standard, April 1, 2009, Section II, Page 4

BS Reporter / Mumbai

Cement prices could strengthen in the range of Rs 3 to 8 per 50-kg bag in Maharashtra and Gujarat from tomorrow. According to manufacturers, the price hike is likely to be effected in other parts of the country also, depending on market response.

Mumbai-based dealers confirmed the move. Sanjay Ladiwala, president, Cement Stockists and Dealers Association of Bombay, told Business Standard that companies had informed the association of a price hike of Rs 3-8 per bag. It will be effective from April 1.

When contacted, ACC, the largest cement maker, refused to comment. Amrit Lal Kapur, managing director of ACC’s sister company Ambuja Cements, said, “We have not approved any hike in prices in the recent past. Though demand is good, I do not think it will continue for long.”Presently, in Mumbai, cement prices in the trade segment is Rs 262 a bag which will be raised to Rs 265 whereas in the non-trade segment, the prevailing price of Rs 250-253 a bag will rise to Rs 255-258.

Industry analysts pointed out that this price rise may not be restricted to one market. “The eastern market, which is one of the strongest consuming centre, is facing the same situation,” said a city-based manufacturer. Dealers in Kolkata confirmed that there had been a rise of Rs 5-7 a bag in the past one week.

Vinod Juneja, managing director of Binani Cement said, “There has to be an increase in prices. In North too, price rise cannot be ruled out.”

When contacted, Hari Mohan Bangur, president of Cement Manufacturers’ Association and chairman & managing director of Shree Cement, a dominant player in the North, said a decision on price would be taken after a few days.

The northern region has already seen a spate of price increases this year, which has made cement costlier by Rs 10-14 a bag.

Real Estate Intelligence Report, Tuesday, March 31, 2009

Markets snap rally, dip over 4%

Markets snap rally, dip over 4%
The Financial Express, March 31, 2009, Corporates & Markets, P I

fe Bureau, Mumbai

Domestic bourses started the day with huge losses, after witnessing an upward rally during the past few weeks. Indices closed deep in the red on Monday, thereby recording one of the steepest drops in a day during the past two months. Weak global cues, coupled with short covering and renewed fears about the fate of the US auto industry also impacted the markets.

The 30-share Sensex of the Bombay Stock Exchange (BSE) closed at 9,568.14 points, down by 480.35 points, or 4.78%. The broader S&P CNX Nifty of the National Stock Exchange (NSE) was down by 130.50 points, or 4.20%, and ended the day at 2,978.15 points.

The interest rate-sensitive sectors like Realty and Banking took a huge beating on the domestic bourses, as investors booked profits. Dealers in the market said that fund managers also booked profits, as the quarter and fiscal year ends on Tuesday.

Ajay Parmar, research head at Emkay share and stock brokers, said, “We have to wait for a few more days to see how the markets shape up.”

Earlier in the day, Indian equity indices started below the dotted line and continued to trade in a range-bound manner. “Indian markets had reacted sharply to global markets in during the past couple of trading sessions; today was no different. In addition, there was some short covering in the markets during the past few trading sessions, but today, we lacked triggers and the markets ended with losses,” said Anil Advani, head of research, SBI Cap Securities.

Consumer Durables (CD) and Health Care (HC) were the only sectors on the BSE Sectoral indices that closed with some gains on Monday. Realty and Bankex were the worst performers of the day.

Dealers in the market said that investors are treading with caution, as the country’s economy is slowing and there is uncertainty on the political front ahead of the imminent general elections. Further fiscal and monetary policy measures might be needed to boost the economy; it is feared that the economy may fare worse than last year, said dealers.

Foreign institutional investors (FIIs), who, till last week were on the buying side, suddenly were net sellers at Rs 270.70 crore.

“There are chances that till the elections, there will not be much action on the FII front. However, it is quite difficult to predict the market movements and we might witness more volatility in the coming days,” said an analyst from a leading broking house.

The market breadth remained weak on Monday, as out of 2,473 stocks traded on the BSE, only 904 advanced; 1,471 stocks declined while 98 remained unchanged.

Among the Sensex pack, 28 stocks ended in red and the remaining two closed in green.

Dealers in the market said that in the ensuing days too, domestic markets will take the cue from their Western counterparts. They noted that till the quarterly earnings season starts mid-April, domestic markets are likely to remain under pressure.

India will grow 8%-plus as soon as global economy is back on track: Rakesh Mohan

India will grow 8%-plus as soon as global economy is back on track: Rakesh Mohan
The Financial Express, March 31, 2009, Page 4

Voicing his view on the growth of the economy, Reserve Bank of India deputy governor Rakesh Mohan said that while there will be some moderation in growth in the immediate future due to uncertain global market conditions, it is felt that India will return to its trend of 8% plus growth rate as and when global economy returns to normalcy. “This will however depend upon certain critical areas such as agriculture, infrastructure and fiscal consolidation being addressed,” he said.

Addressing the media in Mumbai on Monday while unveiling the report India’s financial sector assessment prepared by the central bank’s committee on financial sector assessment, he said, “Despite the widening trade deficit, the current account deficit has remained modest, largely due to high levels of private transfers and service sector exports. The low debt-to-equity ratio in the Indian corporate sector points to higher internal accrual and buoyancy in their revenues and profitability. Recent times have, however, seen a sharp correction in the valuations of listed firms as also in their profitability, as has happened globally. To that extent, there could be some reversal in the declining debt-to-equity ratio in the Indian corporate sector in the current context.

The global financial turmoil has led to a significant slowdown in net capital inflows in 2008-09 with net portfolio outflows, it is expected that overall India will still record net capital inflows, though modest, this year. Also, the Reserve Bank’s armoury of policy instruments for maintaining liquidity has, however, been effective in managing the current situation. Overall, during 2008-09, the rupee was volatile and the volatility was greatly accentuated from mid-September 2008 onwards. The Reserve Bank and the government have been active in taking a range of measures to meet shortfalls in rupee as also foreign exchange liquidity. It may be noted that among the countries surveyed by the Bank for International Settlements, the Indian foreign exchange market volumes have shown the fastest growth during 2004 to 2007. The foreign exchange market in India has continued to function well even during this time of turmoil.”

However, he added, “Given India’s high exposure to oil imports, coupled with the widespread impact in times of higher oil prices on the economy, a more efficient use of oil products is warranted. Another major concern, both domestically and globally, has been the rise in food prices. However, the recent correction in global prices, along with the series of measures already taken by the government on the supply side, has begun yielding results. There is a need to improve both the forward and backward linkages in agriculture through better credit delivery, investment in irrigation and rural infrastructure, improved cropping patterns and farming techniques, and development of the food processing industry and cold storage chains across the entire distribution system.”

“Going forward, it is essential to continue with focused attention on achieving a balance between financial development and financial stability. Also, for the growth momentum to be sustained, it is necessary to return to the path of fiscal prudence at both the central and state government levels. The key to maintaining high growth with reasonable price stability lies in rapid capacity additions through investments, productivity improvements, removal of infrastructure bottlenecks and amelioration of skill shortages,” he said.

Mixed growth signals

Mixed growth signals
The Hindu Business Line, March 31, 2009, Page 8

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Public spending should be directed at sectors that are finding growth hard to come by.

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February industrial output numbers have brought both good and bad news; the good news is that some core sector drivers are witnessing a revival of sorts. Steel output for instance rose 3.6 per cent following January’s 1.2 per cent growth and after persistently falling the preceding three months. The buoyancy in cement is even more promising since the expansion of 8.82 per cent in February follows the 6-11 per cent growth in output between October 2008 and January 2009. The bad news is that the rest of the core sector does not add up to scratch, with crude oil output declining 6.2 per cent and flat growth in petroleum refinery products; coal output did expand but at half the rate of last February. Usually month-wise data may be treated with caution for their randomness but in this case, given the trends in manufacturing over the last four months, short term fluctuations are vital clues on what needs to be done.

The data reflect well on the private sector, the largest players in cement and steel, and poorly on the public sector. In the latter, the worst performer is electricity with almost no sign of growth despite the heavy emphasis of planners on, and commitments of investments for, augmenting power production. Admittedly the growth of the cement and steel sectors has been predicated on the expansion in demand in semi-urban and rural areas, much of which has been generated by public investments in infrastructure. To that extent, policymakers need to push home the advantages that accrue from effective public spending and the consequent increases in purchasing power. The stimulus that will figure in the full budget later this year must be directed at those sectors that now find growth hard to come by; benefits will surely flow, for instance, from a plan to increase public housing. The most effective way of reaping benefits of Government spending, though, is to make sure that planned projects take off and that they are completed on time. Officials have from time to time aired their views on how much to spend to stimulate demand rather than how well the money can be spent.

Stimulus programs do not come free; the price the economy pays for heavy Government borrowing — Rs 2,41,000 crore over the next six months — keep bond rates high which in turn prevent lending rates from falling, as the RBI has frequently noted. “Crowding out” private investments this way may be necessary to flag off demand but for how long?

DLF to divest its wind power biz

DLF to divest its wind power biz
Business Standard, March 31, 2009, Page 6

Arun Kumar / New Delhi

Had invested around Rs 1,500 crore in the business; may exit at Rs 1,100 crore.

India’s largest real estate developer, DLF Ltd, has decided to divest its windmill power generation business, which it says is non-core. Sources in the company said the management had decided to put the business on the block to raise resources for a more related business. The company has an installed capacity of around 260 Mw.

Sources said after concluding the acquisition of DLF Asset Ltd, a group company owned by DLF promoters’, KP Singh and family, they would start working on divesting the power generation business.

Rajeev Talwar, group executive director, DLF Ltd, refused comment.

The company had invested around Rs 1,500 crore in the business. After taking a depreciation claim of a significant amount, the company is looking at exiting at around Rs 1,100 crore, according to sources close to the development. The company had serious discussions with some private equity players, but there was no deal due to differences over valuation, they added.

The cost of setting up a windmill power plant is Rs 5-6 crore per Mw as against Rs 4-4.5 crore in case of a thermal power plant. Since the company is allowed to take a huge depreciation claim, the profit-making company will save a significant amount on tax obligation.

Another senior official said the company was in the midst of restructuring its businesses, which included buying DLF Asset Ltd. The company would continue to take steps to ensure better returns for shareholders, he added.

Power generation was not a core-business, the official said, adding that in the current environment, it was difficult to invest more in it. Without disclosing the size of the proposed transaction, the official said, “It depends on the offer price for such assets.”

DLF is in an advanced stage of concluding the acquisition of DLF Asset Ltd. According to indications, the company was hopeful of an announcement in the first week of April, the source said. A detailed due diligence by bankers and others is under progress. “Since the valuation of DLF Asset Ltd has come down marginally, investment bankers and legal experts are engaged in structuring the transaction so that the investors in DLF do not lose,” said a source.