Property rates going south, slowly

Property rates going south, slowly
Hindustan Times, April 8, 2009, Page 1

Real estate prices are set to fall the same way they went up over the past few years.

Residential property prices have already corrected by over 25 per cent in the last eight months but have failed to enthuse buyers. This will pull prices down further.

Property prices in key Indian cities will decline by another 35 per cent in the next three years, a report by brokerage firm Edelweiss Capital noted. “Property prices increased sharply over the past six to seven years, rising 3.4 times in normal term (quoted price) and 2.5 times in real term (transaction price) over 2001 prices. We expect a price correction of 48 per cent in normal term and 58 per cent in real term,” the report said.

“Appetite for real estate has diminished significantly with foreign investors; developers are highly leveraged and their inability to serve the debt obligation raises a threat,” it said.

“Prices have fallen 25-30 per cent and have bottomed out in most places,” said Anuj Puri, chairman, Jones Lang LaSalle Meghraj. “Over the next 12 months, expect another 10-15 per cent drop in markets where there’s excess supply and where prices are too high.”

“Prices have corrected by 10-25 per cent,” said Aditi Vijayakar, executive director (residential services), Cushman & Wakefield India. “In high-end properties, it would correct by another 5 per cent and by 5-10 per cent in suburban markets over the next 12 months."

Property brokers are feeling pessimistic. Gurgaon has seen a drop of 25 per cent in prices of ready-to-move properties and brokers say there’s no demand for under-construction properties either. It’s no better in Delhi, Noida and Faridabad.

DLF eyes 900 cr from plot sales

DLF eyes 900 cr from plot sales
The Economic Times, April 8, 2009, Page 1

ITC, Accor, Hyatt, Park Hotels & Duet Group In Race For 8-9 Hotel Plots

Sanjeev Choudhary NEW DELHI

INDIA’S largest real estate developer, DLF, expects to raise around Rs 900 crore in the next three months by selling at least eight hotel plots across the country, a senior company executive said.

The company is talking to several hotel companies, including ITC, Accor, Hyatt and Park Hotels, and buyout fund Duet Group for sale of these plots, he added, requesting anonymity.

The plots put on the block are located in Mumbai, Kolkata, Bangalore, Gurgaon, Baroda, Lucknow, Kasauli (Himachal Pradesh) and Sikkim.

“We are in advanced stages of negotiations with several hotel chains to sell 8-9 land parcels that were marked for hotel projects. We have necessary government approvals in place, but don’t intend to build hotels there immediately,” he said.

DLF is selling these plots to raise funds for other hotel projects that are due to begin construction soon. The company may close 4-5 deals in a month and the balance by June-end, he added.

Real estate consultants say there are a large number of incomplete hotel projects up for sale across the country as realty companies, faced with cash crunch, are losing interest in these capital-intensive projects. The official spokesman at DLF declined to comment on the hotel plot negotiations. “We do not comment on market speculation,” he said. Hotel business not attractive any more.

WHILE announcing December 2008 quarter earnings, DLF vice-chairman Rajiv Singh had said the company wanted to raise around Rs 2,000 crore by selling its assets, but didn’t mention hotel plots specifically. DLF had nursed ambitious plans to build over 25,000 hotel rooms in more than 40 cities and tourist destinations across India. But the global downturn made capital scarce and expensive, forcing it to slow down plans.

The terror strikes in India and belt-tightening overseas further hit visitor arrivals. Lower occupancy forced hotels to cut room rates, making the business less attractive. DLF’s joint venture with international hotel chain Hilton too was reworked after the latter was taken over by the world’s largest buyout fund, Blackstone Group, globally.

The joint venture company is now expected to build only four hotels against the much larger number planned earlier. Exact numbers were never disclosed. The joint venture company will build hotels in Kolkata, Chennai, Mysore and Trivandrum. DLF has obtained government clearances for all hotels except in Mysore, but hasn’t achieved financial closure for any of the projects. Two of DLF’s hotels are ready and likely to open by the monthend in south Delhi. Several real estate developers, which entered the hotel business in the past few years, are now looking for an exit or trying to moderate their ambition. Delhi-based Parsvnath Developers has put its four hotel projects on the block while Unitech has sold one hotel in Gurgaon and looking for buyers for the rest.

Rally may sustain, say market players

Rally may sustain, say market players
Business Standard, Money & Markets, April 7, 2009, Section II, Page 1

BS Reporter / Mumbai

The equity market is expected to see some more improvement going forward as market players believe that the $1.1 trillion G-20 stimulus package will have a definite positive impact.

The stimulus has raised hopes of recovery in global economies and funds that had been sitting on huge cash piles have already started putting money in potentially strong markets.

Most markets had already risen by nearly 20-25 per cent on hopes of some G-20 stimulus – a trend that continued on expected lines after the package was announced. The current uptrend is being viewed as the first signs of a revival in the real economy as the stock market recovery always comes first.

The Indian market at present is dancing to global tunes but it also has its own issues. Macroeconomic data such as shrinking exports and widening current account deficit have had negative impact on the market.

“Historically, macroeconomic data reflect a grim picture but the market always precedes an economic recovery,” said Kamlesh Kotak, Senior Vice President, Asian Market Securities. Even foreign institutional investors (FIIs) have turned positive on equities, he added.

Jigar Shah, Research Head, Kim Eng India, a leading South Asian FII brokerage house, said, “The recent rally may sustain as it is based on the optimism globally. Also, some investments have been coming back to emerging markets.”

However, he said, it was too early to think that the worst was over and corporate earnings that were expected in coming weeks might not be good. Political uncertainty was also there, he added.

Derivative market indicators also suggest that some more steam is left in the current rally. “Implied volatility, based on trading in options, has come down, indicating that volatility has reduced and the market will continue to move in the direction in which it has been moving since last few days,” said Sidharth Bhamre, Head, Derivatives and Investment Advisory, Angel Broking.

Real Estate Intelligence Report, Tuesday, April 07, 2009

Banks have not responded as warranted by rate cuts: RBI

Banks have not responded as warranted by rate cuts: RBI
The Financial Express, April 7, 2009, Page 1

fe Bureau, Mumbai, Delhi

RBI governor D Subbarao has convened a meeting of top industrialists on Thursday in Mumbai to review the liquidity and interest rate scenario in the backdrop of commercial banks parking Rs 1,21,910 crore—the largest amount in a single day—on Monday with the central bank instead of lending to industry.

The government has been pushing public sector and even private sector banks to cut their lending rates. The amount parked by banks with RBI, or reverse repo, is more than double the usual daily amount. The sum earns a risk-free 3.5% rate of interest. Speaking at an industry conclave organised by Ficci, the governor said banks had enough room within the sectoral ceilings to lend more for investment in stock markets.

“There is no (need for) further relaxation of the ceiling by RBI, but for banks to feel confident about lending to corporates for investment in equities. There is room even within the existing regulatory regime for this demand to be met,” he said. The meeting of industry leaders with the RBI governor follows their meeting with Prime minister Manmohan Singh at the end of March.

Subbarao acknowledged that bank lending rates to industry have not fallen as much as the reduction in key policy rates by RBI warranted. He said this was due to the high interest rate paid on bank deposits. He also blamed the equally high rates on small savings schemes administered by the government. Only last week, ICICI Bank MD & CEO KV Kamath said high bank deposit rates and high yields on government paper made it difficult for most banks to cut lending rates.

“There are some issues that can be addressed by the new government such as an adjustment in small savings. Small savings and bank rates have to be comparable,” the RBI governor reiterated. According to RBI data, while banks pay interest of between 7.5% and even 9.6% for different types of deposits, the government pays an average of 8.5% on small savings schemes like Public Provident Fund, which has the added sweetener of tax exemption. Banks are wary of a flight of deposits if they slash rates too far below government rates.

Subbarao told the Ficci national executive committee meeting he would not prefer RBI to buy government bonds—or, monetising the fiscal deficit—to give the Centre the money it needed to finance public expenditure. At present, the government borrows from banks by selling them its bonds, which reduces the banks’ ability to lend to industry.

“Around the world, people are printing money. The Fed, ECB, Bank of England, Bank of Japan—everybody is doing it,” Subbarao said. But the Indian economy cannot print money without the backing of real resources, or else high inflation would return, he warned.

“Yes, we (do) print money for short-term requirements. But the issue is where the real resources are coming to us for doing the job. If you print money, it must be backed by real resources, and real resources can only come from two sources. Either you raise taxation, which you and we all of us have to pay, or through inflation.”

Talking about the government’s borrowing programme, Subbarao said that the final figure and possible implications would have to wait for the full Budget of a new government. “No matter what the new government is, no matter what the new Budget is, it is quite clear that the borrowing for 2009-10 is going to be substantially higher than 2008-09.”

FII buying may resume at D-St: study

FII buying may resume at D-St: study
The Financial Express, April 7, 2009, Page 2

In what could be a good news for market, the foreign institutional investors are likely to get into a strong buying mode in the coming days that may lead to a rally on the Dalal Street, a study says.

"The rise in confidence level simultaneously with high level of cash with High Networth Individuals, FIIs and Domestic Institutional Investors (DIIs) could create a situation where buying could be more serious than selling in coming days," capital market research firm CNI Research report stated.

According to the analysis by the research firm, there exists a direct co-relation between FII buying and selling and the movement of the domestic stock market.

The report revealed that in the last 15 months, when major selling by FIIs took place, the stock market had crashed vertically.

Similarly, FII buying was visible in the months in which the Nifty and the Sensex had closed in positive zone.

After witnessing the continuous selling by FIIs, the stock market is now seeing some inflows which may lead to an upward movement for the stock market.

Before March, the FIIs were sellers and only after March 17, the flows started becoming positive (huge selling had started from FIIs from January 21, 2008). FIIs have been net buyers in equities worth Rs 2,368.3 crore in last two weeks of March.

According to the net positions of FII from January 2008 to March 31, 2009, their selling and buying were directly linked to the movement of the benchmark indices — the Bombay Stock Exchange's Sensex and the National Stock Exchange's Nifty.

The highest selling by the FIIs of USD 3.80 billion was in October, 2008 when the Sensex had dropped 41 per cent, while the Nifty fell by 42.55 per cent.

The major selling happened in the months of January, May, June, September, October 2008 and January 2009. In these six months selling was almost USD 14 billion.

The study revealed that the only four months in the reviewed period in which the FIIs net positions were positive include --February (inflow of 725 USD million), April (USD 266.2 million), December (USD 433 million) and March, 2009 (USD 247 million).

In the same months, Sensex and Nifty had also closed in the positive territory.

Bureau Report "From the last two weeks there are positive trends from FIIs and one should expect the upward movement of market," the research report stated.

Rupee recovers on strong equity markets, capital inflow hopes

Rupee recovers on strong equity markets, capital inflow hopes
The Financial Express, April 7, 2009, Page 2

Mahalakshmi Hariharan, Mumbai

Backed by stronger equity markets and expectations of increased capital inflows, the rupee has started showing some signs of improvement against the dollar.

On Monday, the rupee closed at 50.04/05 against the dollar, after touching an intra-day high of 49.88, its strongest since late February, stronger than Thursday’s close of 50.33/35. However, demand for dollar from oil refiners pared early gains.

Markets were shut on Friday and will be shut again on Tuesday owing to a pious festival. Dealers said that an upswing in the stock markets have raised optimism on continued capital inflows into the equity markets. “We don’t believe there would be a very high level of appreciation of the rupee against the dollar. In the next few days, we think rupee would touch 49.8 levels against the dollar, but may not go below this level. It may not breach 50.50 levels against the dollar,” said RVS Sridhar, head of markets at Axis Bank.

Amar Singh, analyst with Angel Broking said that for the week, resistance is seen at 50.90/51.74 whereas support is seen at 49.65/49.22. “We expect the rupee to reverse its gains this week, if it is unable to breach the 49.70 mark on the downside,” he noted.

“One month non deliverable forwards (NDF) are trading at premium to spot market, indicating that gains in rupee can be limited. Traders will keep an eye on RBI’s pre-credit policy meeting on 8th April. Overall the rupee is likely to remain range bound in this holiday shortened week,” added Singh. On Monday, the Indian benchmark Sensex ended higher by 186.04 points or 1.80% while Asian indices also finished higher between 0.48% and 3.11%.

The Sensex has gained nearly 967 points or 10.10% in four sessions of gains, mainly giving support to the rupee.

Global crude oil was trading near $53 a barrel in Asian trade on Monday.

“In case equities keep showing a positive trend, rupee will keep strengthening against the dollar,” noted Sridhar. This could evidently lead to more capital inflows and in turn help the rupee. Foreigners have sold a net $1.4 bln of shares so far this year, after dumping more than $13 bln in 2008.

We are sensing recovery, but it could be fragile

We are sensing recovery, but it could be fragile
The Financial Express, Corporates & Markets, April 7, 2009, Section II

Harsh Pati Singhania, president, Federation of Indian Chambers of Chambers of Commerce and Industry (Ficci) and MD, JK Paper Ltd, , in an interview with MG Arun of The Financial Express, said that the recent signs of recovery can be fragile, and the downturn in October-November was exaggerated. Excerpts:

The three stimulus measures seem to be working. Automotive sales is picking up, and so is demand for cement and steel. What kind of growth do you see for the Indian economy?

In 2008-09, we are likely to see a growth of around 6.5%. If I were to hazard a guess, growth in 2009-10 could be even lower. We would like to see a growth of 7% plus, but this would also depend on international factors.

We are sensing some kind of a mood of recovery. But this can be very fragile. March is the year-ending for most Indian corporates. So, there would be a tendency to push up sales. The quarter is also the time for the budget reallocation of spends for the government. There is a further spend due to the elections.

I also think that the October-November downturn was a little exaggerated. There was a huge inventory or pipeline correction that was happening. It was not that the demand was not growing at the same pace, but supply was cut to correct excess inventory. There is a downturn, but I would read the recovery with a little bit of caution.

What are the specific measures that need to be taken now?

There is further room for rate cuts in the low inflation environment. We need to bring down interests in actual terms. The RBI has cut rates by 400 basis points, from 9% to 5%. That is not commensurately captured in the actual lending rates of banks. Those rates have come down by 150 or 170 basis points. What we want to see is interest rates in single digits, in terms of effective lending rates.

Now it is 11-12% for large corporates, 15% plus for SMEs. Internationally, the interest rates are at 3-5%. This is unusual and needs to be brought down.

We need two measures. One is investment-led growth. Projects have to be viable, and if interest is not brought down, this is not going to happen.

Secondly, interest rates have to come down on the consumer credit side. China is going heavily on investment led growth.

Which areas are showing signs of optimism?

The FMCG sector is doing alright, so is auto. There is some demand in steel and cement. But exporters continue to be affected, despite the devaluation of the rupee by over 25% over the last year. The SME sector is hurt too, since many are involved in exports, and have a problem of finance. Restructuring of their loans is not happening fast enough. We have raised this issue with policy makers.

Do you think corporates need to take a hard look at their organisations, and even at compensations for top executives?

There are different solutions for different people. Corporates will have to look at restructuring or shed some portion, but other companies that have sound finances, will look at acquisitions, maybe. Companies have to be more innovative than conventional.

Regarding pay packets, there is already a big difference between India and the West. At the same time, we have to be socially sensitive. People have taken views individually on this. For instance, I’ve taken a decision that I will not take any increment in my company specifically.

Parsvnath directors resign

Parsvnath directors resign
The Financial Express, Corporates & Markets, April 7, 2009, Section VIII

MUMBAI

Parsvnath Developers Ltd has informed BSE that Mrs. Nutan Jain and Mr. Subhash Chander Kathuria have ceased to be the directors of the company from March 30, 2009 consequent upon their resignation from the board of directors of the company.

ICAI begins scanning books of cos seeing director resignations

ICAI begins scanning books of cos seeing director resignations
The Hindu Business Line, April 7, 2009, Page 5

Eye on ‘intention’ behind quitting; to seek more powers for auditors.

Shashi Ashiwal

Mr Uttam Prakash Agarwal, President, Institute of Chartered Accountants of India, addressing a press meet in Mumbai on Monday. —

Our Bureau

Mumbai, April 6 The Institute of Chartered Accountants of India (ICAI) has initiated the process of scrutinising the accounts of companies that have seen an exodus of independent directors post-Satyam.

“More than anything else, the intention behind the quitting of the independent directors would be looked into,” the ICAI President, Mr Uttam Prakash Agarwal, told newspersons on the sidelines of a press meet here on Monday.

If the ICAI finds faults in the company’s numbers, it will write to the regulator, Mr Agarwal said, adding that the entire process will be financed by the institution itself.

ICAI was set up by an Act of Parliament; it is the apex body of chartered accountants in India.

After the Rs 7,000-crore fraud at Satyam came to light, more than 75 companies had reported the resignation of their directors, many of them independent ones. Separately, the ICAI is planning to seek more powers for auditors.

If the auditors find serious discrepancy in a company’s financial numbers, they should be empowered to call for restatement of accounts (by the company management), said Mr Agarwal.

Auditors’ notes

As per existing stipulations, auditors capture their observations about a company’s financials under ‘auditors notes’; they do not have powers to ask the company management to restate the accounts. A committee set up by the ICAI had recently interrogated Satyam’s ex-Chief Financial Officer, Mr Vadlamani Srinivasa, ex-Price Waterhouse auditors, Mr S. Gopalakrishnan and Mr Srinivas Talluri.

Satyam’s ex-chairman, Mr Ramalinga Raju, was forced to confess the fraud after investment banker DSP Merrill Lynch — which was hired by the Hyderabad-based company to evaluate various stake sale opportunities — found discrepancies in the company’s financials, Mr Vadlamani had told the committee.

Satyam had hired DSP Meril Lynch after the company had announced the possible dilution of stake by Mr Raju, following the failed bid to acquire Maytas Infrastructure and Maytas Properties.

Mr Vadlamani has said that neither the auditors nor the independent directors were aware of the scam, according to Mr Agarwal. “The ex-CFO also mentioned that no pecuniary benefits were derived by the auditors and that it was not true that the auditors had confessed to their alleged role, as was reported earlier in the media,” said Mr Agarwal.