Thursday, April 30, 2009
Core sectors rebound to hit 6-mth high growth of 2.9%
Core sectors rebound to hit 6-mth high growth of 2.9%
The Economic Times, April 30, 2009, Page 7
The economy is firmly on the recovery track. Infrastructure growth, which was lagging for the past six months, has bounced back. ICRA has forecast a 7.5% growth for FY10 while Mastercard sees a revival in H2
Our Bureau NEW DELHI
CORE sector growth is back on track. The index for six core industries—crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel—has turned in a growth of 2.9% in March 2009 over March last year. This has been the highest growth rate in the last six months, and higher than the average of 2.7% for 2008-09 as a whole.
Economists pointed out that a recovery might be round the corner. “These are some positive signals. Benign cues from the global economy might add to the speed of recovery. But I will wait for another couple of months before taking a call on the strength of the recovery,” said DK Joshi, principal economist at ratings agency CRISIL.
The biggest surprise in the basket of core sectors was electricity generation, which touched a 13-month high. ”The availability of coal has improved and the units that were commissioned last year are working well, resulting in higher generation of power,” said Central Electricity Authority chairman Rakesh Nath. G
iving further strength to Cabinet secretary KM Chandrashekar’s assessment that the economy is beginning to respond to the booster shots administered by the government, cement production surged 10.1% in March. JK Cement group executive president RG Bagla said, “Increased government spending on infrastructure led to higher demand for cement in March.”
Coal production grew 5.2% in the year and showed a cumulative growth of 8.1% for the fiscal. Annual growth in finished carbon steel production contracted 2.6% in March, raising concerns. But this is expected to pick up in the coming months. According to Naveen Vohra, partner at Ernst & Young, steel consumption and production is expected to pick up. ”Demand in the auto sector has also started looking up on the back of a marginal improvement in the credit situation,” he added. The steel industry staged a smart recovery in the first three months of 2009 on account of a revival in the auto, rural infrastructure and housing sectors, and is expected to gather further momentum hereon.
Petroleum refinery products recovered to grow 3.3%— the highest in last 5 months—while the drop in crude oil production recovered from a low of 8.1% in January to 2.3% in March.
The Economic Times, April 30, 2009, Page 7
The economy is firmly on the recovery track. Infrastructure growth, which was lagging for the past six months, has bounced back. ICRA has forecast a 7.5% growth for FY10 while Mastercard sees a revival in H2
Our Bureau NEW DELHI
CORE sector growth is back on track. The index for six core industries—crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel—has turned in a growth of 2.9% in March 2009 over March last year. This has been the highest growth rate in the last six months, and higher than the average of 2.7% for 2008-09 as a whole.
Economists pointed out that a recovery might be round the corner. “These are some positive signals. Benign cues from the global economy might add to the speed of recovery. But I will wait for another couple of months before taking a call on the strength of the recovery,” said DK Joshi, principal economist at ratings agency CRISIL.
The biggest surprise in the basket of core sectors was electricity generation, which touched a 13-month high. ”The availability of coal has improved and the units that were commissioned last year are working well, resulting in higher generation of power,” said Central Electricity Authority chairman Rakesh Nath. G
iving further strength to Cabinet secretary KM Chandrashekar’s assessment that the economy is beginning to respond to the booster shots administered by the government, cement production surged 10.1% in March. JK Cement group executive president RG Bagla said, “Increased government spending on infrastructure led to higher demand for cement in March.”Coal production grew 5.2% in the year and showed a cumulative growth of 8.1% for the fiscal. Annual growth in finished carbon steel production contracted 2.6% in March, raising concerns. But this is expected to pick up in the coming months. According to Naveen Vohra, partner at Ernst & Young, steel consumption and production is expected to pick up. ”Demand in the auto sector has also started looking up on the back of a marginal improvement in the credit situation,” he added. The steel industry staged a smart recovery in the first three months of 2009 on account of a revival in the auto, rural infrastructure and housing sectors, and is expected to gather further momentum hereon.
Petroleum refinery products recovered to grow 3.3%— the highest in last 5 months—while the drop in crude oil production recovered from a low of 8.1% in January to 2.3% in March.
ICRA pegs growth at 6.5-7.5% for FY10
ICRA pegs growth at 6.5-7.5% for FY10
The Economic Times, April 30, 2009, Page 7
Reuters NEW DELHI
THE Indian economy is likely to grow 6.5-7.5% in FY10, if the global economy comes out of the slump later this year and as government stimulus starts working, rating agency ICRA said in a report.
Last week, the Reserve Bank of India (RBI) forecast a 6% expansion in Asia’s third-largest economy but private analysts have pegged growth lower than that, as uncertainties linger across the globe even after a raft of rate cuts and fiscal stimulus measures.
“It is our view that the Indian economy will likely grow by 7% plus/minus 0.5% in the fiscal year 2009-10,” it said. “This is based on the assessment that the US economy will start to show signs of growth in the third quarter of 2009, which will strengthen overall global activity.” ICRA also assumes a normal monsoon and a “coherent and supportive” policy from the next government at the Centre. ICRA said India’s economic growth could be a modest 6.5% in the first half of FY10, with a 4% expansion in industrial output and close to a 9% growth in services sectors. The economy could later accelerate to a 7.5% growth in the second half of FY10, it added.
Earlier, the government estimated gross domestic product to have grown 7.1% in FY09, slowing from 9% or more in the previous three years as high borrowing costs and later a global slump trimmed output. Prime Minister Manmohan Singh has, however, reiterated FY09 growth could fall short of 7% after final figures are collated.
The Economic Times, April 30, 2009, Page 7
Reuters NEW DELHI
THE Indian economy is likely to grow 6.5-7.5% in FY10, if the global economy comes out of the slump later this year and as government stimulus starts working, rating agency ICRA said in a report.
Last week, the Reserve Bank of India (RBI) forecast a 6% expansion in Asia’s third-largest economy but private analysts have pegged growth lower than that, as uncertainties linger across the globe even after a raft of rate cuts and fiscal stimulus measures.
“It is our view that the Indian economy will likely grow by 7% plus/minus 0.5% in the fiscal year 2009-10,” it said. “This is based on the assessment that the US economy will start to show signs of growth in the third quarter of 2009, which will strengthen overall global activity.” ICRA also assumes a normal monsoon and a “coherent and supportive” policy from the next government at the Centre. ICRA said India’s economic growth could be a modest 6.5% in the first half of FY10, with a 4% expansion in industrial output and close to a 9% growth in services sectors. The economy could later accelerate to a 7.5% growth in the second half of FY10, it added.
Earlier, the government estimated gross domestic product to have grown 7.1% in FY09, slowing from 9% or more in the previous three years as high borrowing costs and later a global slump trimmed output. Prime Minister Manmohan Singh has, however, reiterated FY09 growth could fall short of 7% after final figures are collated.
Economy to recover by 2nd half: Mastercard
Economy to recover by 2nd half: Mastercard
The Economic Times, April 30, 2009, Page 7
Our Bureau MUMBAI
INDIA’S economy will revive by the second half this year driven by a series of rate cuts by the Reserve Bank of India (RBI), a recovery in the Chinese economy, and strong growth in the outsourcing sector in the post-crisis period. “The spate of rate cuts will have a lag effect on the Indian economy and subsequently the country should witness healthy growth in 2010-11. Even China is rebounding faster than expected. These factors will fuel the recovery process of the Indian economy,” said MasterCard Worldwide economic advisor Yuwa Hedrick Wong.
A study by MasterCard shows that the policy rate in India has been higher than in China between 2000 and 2008, proving better quality of investments in India. This is because RBI has been vigilant in controlling inflation and the setting of commercial interest rates in India is more market-driven. Real interest rates in India, as a result, are more consistent with market conditions. However, the impact of the global credit crisis on India has been felt through capital flows, which turned negative as early as February 2008 despite the country’s low dependency on exports. Even remittances by Indian workers overseas, especially in Gulf Council Countries (GCC), shrank, affecting the country indirectly, the study stated.
It also indicated that prices of services such as management consulting, legal, computer consulting, healthcare and education were rising in the US despite the recession there. This implies severe supply constraints in such services. At the same time, India’s IT outsourcing sector is best positioned to supply, the study noted. “In spite of the increasingly shrill political rhetoric of protectionism, service outsourcing will become more of a necessity than a nice-to-have option for many American businesses once they have survived the global crisis.”
The Economic Times, April 30, 2009, Page 7
Our Bureau MUMBAI
INDIA’S economy will revive by the second half this year driven by a series of rate cuts by the Reserve Bank of India (RBI), a recovery in the Chinese economy, and strong growth in the outsourcing sector in the post-crisis period. “The spate of rate cuts will have a lag effect on the Indian economy and subsequently the country should witness healthy growth in 2010-11. Even China is rebounding faster than expected. These factors will fuel the recovery process of the Indian economy,” said MasterCard Worldwide economic advisor Yuwa Hedrick Wong.
A study by MasterCard shows that the policy rate in India has been higher than in China between 2000 and 2008, proving better quality of investments in India. This is because RBI has been vigilant in controlling inflation and the setting of commercial interest rates in India is more market-driven. Real interest rates in India, as a result, are more consistent with market conditions. However, the impact of the global credit crisis on India has been felt through capital flows, which turned negative as early as February 2008 despite the country’s low dependency on exports. Even remittances by Indian workers overseas, especially in Gulf Council Countries (GCC), shrank, affecting the country indirectly, the study stated.
It also indicated that prices of services such as management consulting, legal, computer consulting, healthcare and education were rising in the US despite the recession there. This implies severe supply constraints in such services. At the same time, India’s IT outsourcing sector is best positioned to supply, the study noted. “In spite of the increasingly shrill political rhetoric of protectionism, service outsourcing will become more of a necessity than a nice-to-have option for many American businesses once they have survived the global crisis.”
US housing still has a way to fall
US housing still has a way to fall
Business Standard, April 30, 2009, Money & Markets, Section II, Page 1
Robert Cyran
Is the US housing market approaching bottom? The rate of decline in US house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities. That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.
Better isn’t synonymous with good. The decline is less dramatic than January’s 2.6% fall, but it’s still an awful figure. Prices have fallen 18.8% over the past year, according to the index.
But let’s be optimistic and say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that’s to say a 2.1% decline instead of a 2.6%). Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower – worse than the baseline case under the stress tests.
And while the idea that price falls are moderating makes sense – prices cannot fall to zero – the evidence they are is feeble.
ONE month doesn’t make a trend, even for a journalist or desperate realtor. Spring is also the busiest time for selling homes, so prices tend to be a bit stickier than they are at other times of the year. Finally, the worst declines in February predominantly took place in cities where prices have fallen the most. For example, home prices in Phoenix have already fallen by more than half from their peak. They fell another 4.5% in February, according to Case-Shiller. That seems to point to a trend that hasn’t yet petered out. Home prices will eventually reach bottom. But it’s not yet in view.
Business Standard, April 30, 2009, Money & Markets, Section II, Page 1
Robert Cyran
Is the US housing market approaching bottom? The rate of decline in US house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities. That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.
Better isn’t synonymous with good. The decline is less dramatic than January’s 2.6% fall, but it’s still an awful figure. Prices have fallen 18.8% over the past year, according to the index.
But let’s be optimistic and say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that’s to say a 2.1% decline instead of a 2.6%). Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower – worse than the baseline case under the stress tests.
And while the idea that price falls are moderating makes sense – prices cannot fall to zero – the evidence they are is feeble.
ONE month doesn’t make a trend, even for a journalist or desperate realtor. Spring is also the busiest time for selling homes, so prices tend to be a bit stickier than they are at other times of the year. Finally, the worst declines in February predominantly took place in cities where prices have fallen the most. For example, home prices in Phoenix have already fallen by more than half from their peak. They fell another 4.5% in February, according to Case-Shiller. That seems to point to a trend that hasn’t yet petered out. Home prices will eventually reach bottom. But it’s not yet in view.
US growth slumps to 5-decade low
US growth slumps to 5-decade low
The Financial Express, April 30, 2009, Page 1
Washington: The US economy plunged again in the first quarter, capping its worst performance in five decades, reflecting a record slump in inventories and further declines in housing. GDP dropped at a 6.1% annual pace after contracting at a 6.3% rate in the last three months of 2008, the commerce department said on Wednesday.
The performance marks the weakest six months since 1957-58. Smaller stockpiles may set the stage for a return to growth in the second half of the year amid signs Fed efforts to reduce borrowing costs and unclog lending are starting to pay off.
The Financial Express, April 30, 2009, Page 1
Washington: The US economy plunged again in the first quarter, capping its worst performance in five decades, reflecting a record slump in inventories and further declines in housing. GDP dropped at a 6.1% annual pace after contracting at a 6.3% rate in the last three months of 2008, the commerce department said on Wednesday.
The performance marks the weakest six months since 1957-58. Smaller stockpiles may set the stage for a return to growth in the second half of the year amid signs Fed efforts to reduce borrowing costs and unclog lending are starting to pay off.
Zoom Developers back in Vizhinjam port bid
Zoom Developers back in Vizhinjam port bid
The Financial Express, April 30, 2009, Page 2
fe Bureau
Thiruvananthapuram: Kerala Cabinet on Wednesday decided to include the bid of Zoom Developers for participating in the tender process of the Rs 5,348-crore Vizhinjam port project, which is slated to come up on a BOT basis. This is in deference to the Supreme Court verdict on Zoom Developers’ petition. “The letter given by Lanco Kondapally will be under consideration, till Zoom Developers’ bid is also examined. This is the State Government’s directive to the Bid Evaluation Committee,” Chief Minister VS Achuthanandan told reporters after a meeting of the State Cabinet here.
However, no deadline has been fixed for vetting the bids submitted by the companies including Zoom Developers and Lanco Kondapally. After getting the Central clearances, Kerala Government had awarded the contract to Lanco. Zoom Developers had promptly challenged this award dragging Kerala Government to court for rejecting its bid.
Congress-led Opposition United Democratic Front (UDF) had alleged that Zoom was kept out of participation, despite it offering to pay the government Rs 447 crore after ten years of operations. Lanco, they pointed out, offered only Rs 115 crore for the same period. On Tuesday,the State Secretariat of the main ruling party CPI(M) had directed the Government to re-examine Zoom’s bid.
Vizhinjam port project, set on world’s deepest natural port location at 24 metre depth, is envisaged to handle 4.1 million containers annually. Built close to a busy international shipping route, the proposed port is to be handed over to Kerala Government after the 30 years once the concession period is over.
Kerala Cabinet, which met here, also approved the guidelines for starting IT parks in private sector in the state. A minimum of 30,000 sq feet land was necessary for starting an IT park, according to the State’s IT policy. As much as 70% of the land available must be used for IT-related purposes, Chief Minister, who holds the IT portfolio, said.
The Cabinet also decided to celebrate the third anniversary of the LDF government’s rule by launching welfare and development works. Achuthandan said that the Rs 2 per kilo rice scheme for BPL families would be inaugurated, in the State capital, on May 18. In other districts, the scheme would be effective from May 19.
The Financial Express, April 30, 2009, Page 2
fe Bureau
Thiruvananthapuram: Kerala Cabinet on Wednesday decided to include the bid of Zoom Developers for participating in the tender process of the Rs 5,348-crore Vizhinjam port project, which is slated to come up on a BOT basis. This is in deference to the Supreme Court verdict on Zoom Developers’ petition. “The letter given by Lanco Kondapally will be under consideration, till Zoom Developers’ bid is also examined. This is the State Government’s directive to the Bid Evaluation Committee,” Chief Minister VS Achuthanandan told reporters after a meeting of the State Cabinet here.
However, no deadline has been fixed for vetting the bids submitted by the companies including Zoom Developers and Lanco Kondapally. After getting the Central clearances, Kerala Government had awarded the contract to Lanco. Zoom Developers had promptly challenged this award dragging Kerala Government to court for rejecting its bid.
Congress-led Opposition United Democratic Front (UDF) had alleged that Zoom was kept out of participation, despite it offering to pay the government Rs 447 crore after ten years of operations. Lanco, they pointed out, offered only Rs 115 crore for the same period. On Tuesday,the State Secretariat of the main ruling party CPI(M) had directed the Government to re-examine Zoom’s bid.
Vizhinjam port project, set on world’s deepest natural port location at 24 metre depth, is envisaged to handle 4.1 million containers annually. Built close to a busy international shipping route, the proposed port is to be handed over to Kerala Government after the 30 years once the concession period is over.
Kerala Cabinet, which met here, also approved the guidelines for starting IT parks in private sector in the state. A minimum of 30,000 sq feet land was necessary for starting an IT park, according to the State’s IT policy. As much as 70% of the land available must be used for IT-related purposes, Chief Minister, who holds the IT portfolio, said.
The Cabinet also decided to celebrate the third anniversary of the LDF government’s rule by launching welfare and development works. Achuthandan said that the Rs 2 per kilo rice scheme for BPL families would be inaugurated, in the State capital, on May 18. In other districts, the scheme would be effective from May 19.
Stimulus results in Apr-May: Montek
Stimulus results in Apr-May: Montek
The Financial Express, April 30, 2009, Page 2
Press Trust of India, New Delhi
Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday said the stimulus packages to revive the economy would start showing results in the data for April-May and definite signs of recovery would become manifest in the second half of the fiscal.
“By April-May we should begin to see the impact but the data (are) not with me ... I am quite sure the stimulus will impact but we need to see the hard numbers,” he said while talking to reporters here.
In order to boost the economy facing the heat of the global financial meltdown, the government came out with a stimulus package on December 7 and followed up with more steps in January and February.
As per indications from industry, Ahluwalia said, “There are signs of recovery in different segments but industry-wise numbers are still to come.” “In the second half of this year you’ll see distinct signs of recovery,” he added.
The country, Ahluwalia had said earlier in Washington, was expected to record a gross domestic product growth rate of 6% this fiscal, and more next fiscal with likely recovery in the global economy.
On the issue of further cuts in interest rates by the RBI, he said there is always scope. “There is always (a scope for further rate cuts). All these matters should be looked at by the Reserve Bank on a day-to-day basis ... so I don’t want to make comments on this,” he said.Earlier on April 21, the RBI had cut its key short-term borrowing and lending rates by 25 basis points.
The Financial Express, April 30, 2009, Page 2
Press Trust of India, New Delhi
Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday said the stimulus packages to revive the economy would start showing results in the data for April-May and definite signs of recovery would become manifest in the second half of the fiscal.
“By April-May we should begin to see the impact but the data (are) not with me ... I am quite sure the stimulus will impact but we need to see the hard numbers,” he said while talking to reporters here.
In order to boost the economy facing the heat of the global financial meltdown, the government came out with a stimulus package on December 7 and followed up with more steps in January and February.
As per indications from industry, Ahluwalia said, “There are signs of recovery in different segments but industry-wise numbers are still to come.” “In the second half of this year you’ll see distinct signs of recovery,” he added.
The country, Ahluwalia had said earlier in Washington, was expected to record a gross domestic product growth rate of 6% this fiscal, and more next fiscal with likely recovery in the global economy.
On the issue of further cuts in interest rates by the RBI, he said there is always scope. “There is always (a scope for further rate cuts). All these matters should be looked at by the Reserve Bank on a day-to-day basis ... so I don’t want to make comments on this,” he said.Earlier on April 21, the RBI had cut its key short-term borrowing and lending rates by 25 basis points.
Nano solution to housing shortage
Nano solution to housing shortage
The Financial Express, April 30, 2009, Page 7
Bimal Jalan, former RBI governor and Rajya Sabha MP, is planning to do a Nano on rural housing. He is bringing together private banks, National Housing Bank, developers and the government to establish a new structure of ‘build-and-go’ homes. Jalan said the new model would work on the lines of the PCOs that changed the way India communicates. In an interview with Sunny Verma & Subhomoy Bhattacharjee of FE , Jalan also said that Indian economy has hit the bottom and GDP growth will be at least 6% this fiscal.
Is the threat of a looming slowdown behind us now?
I think so. I think the general consensus is that the rates of decline have become lower than after September. Now the feeling is that it won’t be as bad, the housing demand is picking up and our situation was not that bad anyway. I hope our growth rate in the worst circumstances will be 5-6%. The government is talking about a little better—it can’t go much more down. Just as there is a peak, there is a bottom. We have hit the bottom.
RBI has said the BPLR system has become irrelevant. What could be an alternative?
The alternative is that BPLR should mean what is says, which can fluctuate 50-100 basis points upward or downward. But you can’t, say, have a prime lending rate and then give 400 basis points higher or below. Your BPLR should be more transparent. So when you are going to a bank as a household borrower or as a corporate sector, you can say that I am a prime borrower and this is the rate and this is what it should mean. It should be somewhere at the bottom.
Your interest in rural housing?
When I was the president of NCAER(1998-2008), we thought a study based on field work should be done on rural housing. That’s how I got involved. This is the interesting thing about NCAER. Very few organisations do sample surveys. This study is based on actual ground level work. From our wider perspective, it is of equal importance because there is a social aspect to Indira Awas Yojna and many other such policies. There is also a banking policy with loans below 4% for certain amount of housing. Government and everybody are interested in rural housing as 65% of our population is in rural areas. If you provide for rural housing, for example infrastructure is very important, it becomes an extremely important input to increase rural employment. That’s how this started.
What is the plan?
I have had preliminary discussion with the NCAER, National Housing Bank, HDFC etc to see in what way we can improve access. The next step is how to accomplish this? This requires a lot of thought. I have been in touch with S Sridhar (former CMD of NHB, currently CMD of Central Bank of India). There are two three things that we need to do together. One is to follow the PCO (public call office) model. In many countries like Mexico and South Africa, you have similar build-and-go houses. The idea is to minimise inventory.
How will the PCO model work?
Say at every ten kilometers there is a ‘home depot’ or housing centre, whatever name one decides. These are just concepts at the moment. There are two-three designs. These are linked with the help of government and NHB, as well and all the banks involved in providing finance. The housing models are available, then we also decide what is the material required for different kinds of housing. And let’s imagine a farmer, he just walks in (to this home depot), there is a franchisee of (such housing). Just think of a concept where there is a one stop shop for housing and somebody walks in, there are 4-5 designs with different level of costs, requiring Rs 2,000 per month to Rs 7,000 per month. You chose the kind of housing that you need. It is built with all pre-fabricated material, not necessarily cement or anything, and it is supplied just-in-time. This happens in the US, in Mexico. There will be an agency that will construct these houses. So the concept is that you bring together so far as the inventories are concerned just-in-time.
Will this idea work?
You take Nano. Why is Nano so exciting? Who would have thought you can produce a competitive design worked out up to the marketing standards. They have done it.
Will these places work as the franchisee arms of the banks?
Not necessarily. That has to be worked out. There will be agents’ shops, also like PCOs. Everything will be brought together in some way, just as your insurance agents are deposit mobilisers for the banks.
Will it require any changes in the Banking Regulation Act or other Acts to permit such a structure?
Very minor. If they are required, they should be brought together. I think it’s more of a concept that has to be actually franchised like insurance policy, health insurance. You have the agent come to your house and give the policy; you pay your premium. There is no subsidy involved.
So the buyer has own his land on which a house will be built?
Yes, of course. But if they don’t have the land, then they can find a place where they can buy the house. Or they can do collective housing. These are all concepts, which have to be worked on. But there is tremendous scope because the pre-fabrication technology has come and we already have these concepts whereby by minimising inventories, and with lower costs, you can minimise the need for architects and so on. Somebody can put it all together and give you a house.
Some time back, NHB has mooted the idea of a Rs 1 lakh house.
We are working on it. The idea is to put it together, to give some traction and to show that it can be done. And it cannot be done in any bureaucratic way. I mean it has to be done through mobilising the resources that we have in rural areas for supply of materials, which can be used by the constructor under the supervision of somebody who knows about them.
But what is the incentive for developers to come forward for this idea?
Why should anybody sell anything? What was the incentive for a person who became an agent of a PCO? It (pricing of houses) would be ‘cost plus’. The idea is to minimise the cost and maximise durability.
Wouldn’t it be a very thin margin game?
For demand there is no problem, as long as there is demand for rural housing. We have estimated that the demand is pretty high and most of the concerned people have their own land or plots.
Can a single agency deliver the kind of rural housing needed in India?
Now we have the National Housing Bank. Earlier NHB was part of the Reserve Bank of India. NHB now is a separate agency and at the moment it doesn’t have the kind of resources which are required. If there is enough will, and everybody is now talking about demand for rural housing, and this can be pooled together and NHB—or those kinds of agencies—can initiate this even on a trial basis, I am sure that everything will come together.
What sort of investment would such a project involve?
I have no idea. On 13th (May), we are launching a discussion.
The Financial Express, April 30, 2009, Page 7
Bimal Jalan, former RBI governor and Rajya Sabha MP, is planning to do a Nano on rural housing. He is bringing together private banks, National Housing Bank, developers and the government to establish a new structure of ‘build-and-go’ homes. Jalan said the new model would work on the lines of the PCOs that changed the way India communicates. In an interview with Sunny Verma & Subhomoy Bhattacharjee of FE , Jalan also said that Indian economy has hit the bottom and GDP growth will be at least 6% this fiscal.
Is the threat of a looming slowdown behind us now?
I think so. I think the general consensus is that the rates of decline have become lower than after September. Now the feeling is that it won’t be as bad, the housing demand is picking up and our situation was not that bad anyway. I hope our growth rate in the worst circumstances will be 5-6%. The government is talking about a little better—it can’t go much more down. Just as there is a peak, there is a bottom. We have hit the bottom.
RBI has said the BPLR system has become irrelevant. What could be an alternative?
The alternative is that BPLR should mean what is says, which can fluctuate 50-100 basis points upward or downward. But you can’t, say, have a prime lending rate and then give 400 basis points higher or below. Your BPLR should be more transparent. So when you are going to a bank as a household borrower or as a corporate sector, you can say that I am a prime borrower and this is the rate and this is what it should mean. It should be somewhere at the bottom.
Your interest in rural housing?
When I was the president of NCAER(1998-2008), we thought a study based on field work should be done on rural housing. That’s how I got involved. This is the interesting thing about NCAER. Very few organisations do sample surveys. This study is based on actual ground level work. From our wider perspective, it is of equal importance because there is a social aspect to Indira Awas Yojna and many other such policies. There is also a banking policy with loans below 4% for certain amount of housing. Government and everybody are interested in rural housing as 65% of our population is in rural areas. If you provide for rural housing, for example infrastructure is very important, it becomes an extremely important input to increase rural employment. That’s how this started.
What is the plan?
I have had preliminary discussion with the NCAER, National Housing Bank, HDFC etc to see in what way we can improve access. The next step is how to accomplish this? This requires a lot of thought. I have been in touch with S Sridhar (former CMD of NHB, currently CMD of Central Bank of India). There are two three things that we need to do together. One is to follow the PCO (public call office) model. In many countries like Mexico and South Africa, you have similar build-and-go houses. The idea is to minimise inventory.
How will the PCO model work?
Say at every ten kilometers there is a ‘home depot’ or housing centre, whatever name one decides. These are just concepts at the moment. There are two-three designs. These are linked with the help of government and NHB, as well and all the banks involved in providing finance. The housing models are available, then we also decide what is the material required for different kinds of housing. And let’s imagine a farmer, he just walks in (to this home depot), there is a franchisee of (such housing). Just think of a concept where there is a one stop shop for housing and somebody walks in, there are 4-5 designs with different level of costs, requiring Rs 2,000 per month to Rs 7,000 per month. You chose the kind of housing that you need. It is built with all pre-fabricated material, not necessarily cement or anything, and it is supplied just-in-time. This happens in the US, in Mexico. There will be an agency that will construct these houses. So the concept is that you bring together so far as the inventories are concerned just-in-time.
Will this idea work?
You take Nano. Why is Nano so exciting? Who would have thought you can produce a competitive design worked out up to the marketing standards. They have done it.
Will these places work as the franchisee arms of the banks?
Not necessarily. That has to be worked out. There will be agents’ shops, also like PCOs. Everything will be brought together in some way, just as your insurance agents are deposit mobilisers for the banks.
Will it require any changes in the Banking Regulation Act or other Acts to permit such a structure?
Very minor. If they are required, they should be brought together. I think it’s more of a concept that has to be actually franchised like insurance policy, health insurance. You have the agent come to your house and give the policy; you pay your premium. There is no subsidy involved.
So the buyer has own his land on which a house will be built?
Yes, of course. But if they don’t have the land, then they can find a place where they can buy the house. Or they can do collective housing. These are all concepts, which have to be worked on. But there is tremendous scope because the pre-fabrication technology has come and we already have these concepts whereby by minimising inventories, and with lower costs, you can minimise the need for architects and so on. Somebody can put it all together and give you a house.
Some time back, NHB has mooted the idea of a Rs 1 lakh house.
We are working on it. The idea is to put it together, to give some traction and to show that it can be done. And it cannot be done in any bureaucratic way. I mean it has to be done through mobilising the resources that we have in rural areas for supply of materials, which can be used by the constructor under the supervision of somebody who knows about them.
But what is the incentive for developers to come forward for this idea?
Why should anybody sell anything? What was the incentive for a person who became an agent of a PCO? It (pricing of houses) would be ‘cost plus’. The idea is to minimise the cost and maximise durability.
Wouldn’t it be a very thin margin game?
For demand there is no problem, as long as there is demand for rural housing. We have estimated that the demand is pretty high and most of the concerned people have their own land or plots.
Can a single agency deliver the kind of rural housing needed in India?
Now we have the National Housing Bank. Earlier NHB was part of the Reserve Bank of India. NHB now is a separate agency and at the moment it doesn’t have the kind of resources which are required. If there is enough will, and everybody is now talking about demand for rural housing, and this can be pooled together and NHB—or those kinds of agencies—can initiate this even on a trial basis, I am sure that everything will come together.
What sort of investment would such a project involve?
I have no idea. On 13th (May), we are launching a discussion.
Wednesday, April 29, 2009
ECONOMY SET TO TURN THE CORNER RIGHT INDICATORS
ECONOMY SET TO TURN THE CORNER RIGHT INDICATORS
The Economic Times, April 29, 2009, Page 1
From rosy investments to vibrant hiring to smooth sailing for ports to fired-up output data,all signs are that the bounce is indeed back for the economy
Anto Antony, NEW DELHI
GROWTH ahoy! A raft of lead indicators, investments that refuse to flag, rejuvenated hiring, sprightly freight movement at major ports and robust data from key manufacturing segments indicate that the downturn has bottomed out and that the economy is poised to regain its vigour.
Nomura’s Composite
Leading Index (CLI), UBS’ Lead Economic Indicator (LEI) and ABN Amro’s Purchasing Managers’ Index (PMI) all point to a pick-up in growth soon. And CMIE’s capex database, which tracks investments by companies, shows no big slowdown in this space.
A lead indicator is a composite of a variety of indices that track activity in vital economic sectors.
And that’s not all. The strong showing of sectors such as auto, cement, steel, capital goods, port traffic along with record telecom subscriber additions supports the strong turnaround thesis of these lead indicators.
After three months of rise on the trot, UBS’ LEI index for India now stands at 2.1; it touched a low of -2.08 last December. The LEI is a composite indicator of variables like government bond yields, M1 money supply, currency risk premium, foreign exchange reserves and stock market gains.
UBS’ economist Philip Wyatt expects a sustained recovery thanks to India’s low levels of excess capacity, private sector indebtedness and non-performing loans. ”With this significant rebound in LEI, we are more confident of a turning point in the industrial cycle by June 2009,” says Mr Wyatt in a research report.
Nomura’s composite leading index (CLI)—used to identify the turning points in the growth rate cycle—rose in the first quarter of 2009 after four consecutive quarterly falls. As the CLI indicates a turnaround in non-agricultural GDP growth rate with a two quarter lead time, the pick-up in the first quarter of 2009 hints at a recovery from June.
ABN Amro’s PMI—an indicator of the country’s manufacturing scene based on a survey of 500 companies—has improved to 49.5 this March from 44 last December. A reading below 50 indicates contraction. The PMI jump to nearly 50 suggests that manufacturing has put the contraction days behind and is poised to enter an expansion phase.
The Economic Times, April 29, 2009, Page 1
From rosy investments to vibrant hiring to smooth sailing for ports to fired-up output data,all signs are that the bounce is indeed back for the economy
Anto Antony, NEW DELHI
GROWTH ahoy! A raft of lead indicators, investments that refuse to flag, rejuvenated hiring, sprightly freight movement at major ports and robust data from key manufacturing segments indicate that the downturn has bottomed out and that the economy is poised to regain its vigour.
Nomura’s Composite
Leading Index (CLI), UBS’ Lead Economic Indicator (LEI) and ABN Amro’s Purchasing Managers’ Index (PMI) all point to a pick-up in growth soon. And CMIE’s capex database, which tracks investments by companies, shows no big slowdown in this space.A lead indicator is a composite of a variety of indices that track activity in vital economic sectors.
And that’s not all. The strong showing of sectors such as auto, cement, steel, capital goods, port traffic along with record telecom subscriber additions supports the strong turnaround thesis of these lead indicators.
After three months of rise on the trot, UBS’ LEI index for India now stands at 2.1; it touched a low of -2.08 last December. The LEI is a composite indicator of variables like government bond yields, M1 money supply, currency risk premium, foreign exchange reserves and stock market gains.
UBS’ economist Philip Wyatt expects a sustained recovery thanks to India’s low levels of excess capacity, private sector indebtedness and non-performing loans. ”With this significant rebound in LEI, we are more confident of a turning point in the industrial cycle by June 2009,” says Mr Wyatt in a research report.
Nomura’s composite leading index (CLI)—used to identify the turning points in the growth rate cycle—rose in the first quarter of 2009 after four consecutive quarterly falls. As the CLI indicates a turnaround in non-agricultural GDP growth rate with a two quarter lead time, the pick-up in the first quarter of 2009 hints at a recovery from June.
ABN Amro’s PMI—an indicator of the country’s manufacturing scene based on a survey of 500 companies—has improved to 49.5 this March from 44 last December. A reading below 50 indicates contraction. The PMI jump to nearly 50 suggests that manufacturing has put the contraction days behind and is poised to enter an expansion phase.
Realty finds room for growth in education
Realty finds room for growth in education
The Economic Times, April 29, 2009, Page 1
Four Realty Firms Plan To Set Up Business Schools Across Country
Abhijit Deb MUMBAI
AT A time when the biggies of real estate are divesting non core businesses, a clutch of mid-level developers are chalking up plans to invest in the ‘recession proof’ education sector. In the last one month, four real estate developers have announced plans of setting up business schools across the country with the combined investment exceeding Rs 500 crore. “It’s a natural progression for a real estate developer to foray into the sector which offers such a tremendous growth potential. There is a shortage of supply in the education sector which we feel we can successfully cater to,” says Pranav Ansal, Chairman, Ansal API. With diminished demand for housing and a cash constraint, it’s a natural progression for many developers with available land banks. The Chennai based R. R Industries, Ahmedabad based Omega Realty, Delhi based Ansal Plaza and Kolhapur based Sanjay Ghodawat group are betting heavily on the `business of education’ to diversify their businesses; a model that has worked successfully in some countries like US and Canada.
The Delhi based Ansal API plans to invest Rs 200 crore in next three to five years for setting up private schools, engineering institute across various centre in the country. The group has already tied up with elearning service provider Educomp and has leased out its three operational schools in Gurgaon to Educomp. The realty major also plans to build school in townships being developed by them.
Similarly, the Ahmedabad based Omega Realty plans to get into business schools - to be named as United World School of Business - with a proposed investment of Rs 105 crores. The three proposed schools in Mumbai, Delhi and Ahmedabad will commence operations in academic session 2009-10.
Another builder to jump into the education bandwagon, the Kolhapur based Sanjay Godhwat Group plans to offer courses in engineering, management and also in the pipeline is an international school. The development of the 150 acre Sanjay Godhwat Institute will happen in three phases with an investment of over Rs 250 crore.
The trend is being seen amongst the builders in south too. Chennai based real estate firm R. R Industries has tied up with National Management School (NMS) which is being set-up by US academics to start 25 business schools across the country with an estimated cost of Rs 9 crore.
Experts say the reason for the rush into education is the burgeoning demand supply gap and also a logical extension into an adjacent category for builders who have the necessary wherewithal. Karan Khemka, principal, of a global strategic advisory boutique explains, “High rate of returns on investment coupled with huge imbalance in demand supply is attracting real estate players towards the sector who will be at ease in setting up the required infrastructure who already have land banks with them”. But the diversification won’t be an easy one, as similar initiatives have flopped in China.
The Economic Times, April 29, 2009, Page 1
Four Realty Firms Plan To Set Up Business Schools Across Country
Abhijit Deb MUMBAI
AT A time when the biggies of real estate are divesting non core businesses, a clutch of mid-level developers are chalking up plans to invest in the ‘recession proof’ education sector. In the last one month, four real estate developers have announced plans of setting up business schools across the country with the combined investment exceeding Rs 500 crore. “It’s a natural progression for a real estate developer to foray into the sector which offers such a tremendous growth potential. There is a shortage of supply in the education sector which we feel we can successfully cater to,” says Pranav Ansal, Chairman, Ansal API. With diminished demand for housing and a cash constraint, it’s a natural progression for many developers with available land banks. The Chennai based R. R Industries, Ahmedabad based Omega Realty, Delhi based Ansal Plaza and Kolhapur based Sanjay Ghodawat group are betting heavily on the `business of education’ to diversify their businesses; a model that has worked successfully in some countries like US and Canada.
The Delhi based Ansal API plans to invest Rs 200 crore in next three to five years for setting up private schools, engineering institute across various centre in the country. The group has already tied up with elearning service provider Educomp and has leased out its three operational schools in Gurgaon to Educomp. The realty major also plans to build school in townships being developed by them.
Similarly, the Ahmedabad based Omega Realty plans to get into business schools - to be named as United World School of Business - with a proposed investment of Rs 105 crores. The three proposed schools in Mumbai, Delhi and Ahmedabad will commence operations in academic session 2009-10.
Another builder to jump into the education bandwagon, the Kolhapur based Sanjay Godhwat Group plans to offer courses in engineering, management and also in the pipeline is an international school. The development of the 150 acre Sanjay Godhwat Institute will happen in three phases with an investment of over Rs 250 crore.
The trend is being seen amongst the builders in south too. Chennai based real estate firm R. R Industries has tied up with National Management School (NMS) which is being set-up by US academics to start 25 business schools across the country with an estimated cost of Rs 9 crore.
Experts say the reason for the rush into education is the burgeoning demand supply gap and also a logical extension into an adjacent category for builders who have the necessary wherewithal. Karan Khemka, principal, of a global strategic advisory boutique explains, “High rate of returns on investment coupled with huge imbalance in demand supply is attracting real estate players towards the sector who will be at ease in setting up the required infrastructure who already have land banks with them”. But the diversification won’t be an easy one, as similar initiatives have flopped in China.
Morgan Stanley buys 5.1% stake in Unitech
Morgan Stanley buys 5.1% stake in Unitech
The Economic Times, April 29, 2009, Page 1
Our Bureau MUMBAI
US-BASED foreign institutional investor, Morgan Stanley, has bought a 5.1% equity stake in realty major Unitech for Rs 400 crore through the QIP route. Unitech has placed 10.4 crore shares with the fund, subsequent to which the latter holds 5.2% stake in the former, according to disclosures filed with the Bombay Stock Exchange (BSE). Before the placement, Morgan Stanley was holding 19.4 lakh shares, or 0.1%, in the Delhi-based company.
Unitech has allotted a total of 42.1 crore shares a price of Rs 38.50 per share, including premium of Rs 36.50, to Rs 44 qualified institutional buyers, raising Rs 1,621 crore to repay part of its debt. The shares have been allotted under the recently closed QIP issue which, according to merchant banking sources, was subscribed more than two times. SSKI was appointed as the main book-running lead manager for the issue. On Tuesday, Unitech shares closed 2% down at Rs 43 on BSE, 12% higher than the QIP price. The stock has risen 20% in the past one month, though it is still quoting at a sharp discount to the peak of Rs 338 recorded on May 5 ‘08.
The placement would substantially dilute promoters’ stake in Unitech. According to the company’s shareholding data available as on March 31 ‘09, promoters held 64.5% stake, while foreign institutional investors owned 8.2% equity.
The Economic Times, April 29, 2009, Page 1
Our Bureau MUMBAI
US-BASED foreign institutional investor, Morgan Stanley, has bought a 5.1% equity stake in realty major Unitech for Rs 400 crore through the QIP route. Unitech has placed 10.4 crore shares with the fund, subsequent to which the latter holds 5.2% stake in the former, according to disclosures filed with the Bombay Stock Exchange (BSE). Before the placement, Morgan Stanley was holding 19.4 lakh shares, or 0.1%, in the Delhi-based company.
Unitech has allotted a total of 42.1 crore shares a price of Rs 38.50 per share, including premium of Rs 36.50, to Rs 44 qualified institutional buyers, raising Rs 1,621 crore to repay part of its debt. The shares have been allotted under the recently closed QIP issue which, according to merchant banking sources, was subscribed more than two times. SSKI was appointed as the main book-running lead manager for the issue. On Tuesday, Unitech shares closed 2% down at Rs 43 on BSE, 12% higher than the QIP price. The stock has risen 20% in the past one month, though it is still quoting at a sharp discount to the peak of Rs 338 recorded on May 5 ‘08.
The placement would substantially dilute promoters’ stake in Unitech. According to the company’s shareholding data available as on March 31 ‘09, promoters held 64.5% stake, while foreign institutional investors owned 8.2% equity.
Parsvnath aims to reduce its debt by a quarter
Parsvnath aims to reduce its debt by a quarter
Business Standard, April 29, 2009, Page 8
Business Standard, April 29, 2009, Page 8
Govt review says stimulus packages spurred growth
Govt review says stimulus packages spurred growth
The Financial Express, April 29, 2009, Page 1
Economy Bureau, New Delhi
Stock taking by the government of its three stimulus packages shows they have nudged up GDP growth, but officials said they would reserve final assessment on the impact until industrial output figures for March come through by early May.
Cabinet secretary KM Chandrasekhar, the country’s senior-most civil servant, met the secretaries of finance, commerce, industry and micro, small & medium enterprises (MSME) to evaluate the implementation of various fiscal measures announced since December. The meeting also reviewed the impact of various rate cuts announced by RBI.
The central bank has estimated the combined value add of the fiscal stimulus packages—including a 4% cut in central excise and 2% in service tax—along with the rate cuts at 3% of GDP. The centre and RBI have between them released Rs 4.62 lakh crore into the economy. Emerging from the secretary-level meeting a senior official said, “Progress and issues related to implementation of various measures were discussed. The meeting also took note of bankers reducing lending rates.”
The index of industrial production fell by 1.2% in February—a 15-year low. IIP grew at just 2.8% between April 2008 and February 2009, compared with a robust 8.8% in the same period of 2007-08. But Macquarie Research said in a note on Tuesday that India’s industrial production is likely to rebound and may post double-digit growth on the back of the fiscal and monetary measures. “March data will probably post a 10% month-on-month gain,” it said.
Ministry of statistics & programme implementation secretary Pronab Sen told FE, “We don’t know what is happening to investments. While cement consumption is going strong, trade data suggests there is not much growth in machinery and equipment. There is a lot of conflicting data. We are still waiting for the IIP (March) and agriculture (third advance estimates) data to come in, so it is difficult to come out with an estimate for GDP at present.”
Tuesday’s meeting is the latest in a series held by the Chandrasekhar with central officials, state chief secretaries, industry chambers and banks to ascertain the progress of various measures.
RBI has cut repo (the rate at which it lends to commercial banks) by 425 basis points since mid-September, while it reduced reverse repo (the rate which banks park their funds with RBI) by 275 basis points in the same period. However, commercial banks have reduced their prime lending rates by only half as much and industry chambers have been demanding single-digit interest rates.
Banks have lent about Rs 8,500-9,000 crore to the MSME sector as a part of the stimulus packages, said MSME secretary Dinesh Rai at an Assocham function on Tuesday. “Of the Rs 7,000 crore refinance facility extended to Small Industries Development Bank of India, Rs 4,300 crore has already been released to commercial banks,” Rai said.
The Macquarie note said some industries like motor vehicles, cement and steel are already showing signs of increased activity, “though India’s structurally broad industrial base suggests that (industrial production) will need a bit more time for the year-on-year growth rates to be firmly in the black, and rising”.
RBI governor D Subbarao said in Washington on Monday that effective implementation of the stimulus packages was a key challenge. “There are several challenges on the way forward: implementing the fiscal stimulus packages, particularly stepping up public investment; revival of private investment demand; unwinding of fiscal stimulus in an orderly manner; maintaining the flow of credit while ensuring credit quality; preserving financial stability along with provision of adequate liquidity; and ensuring an interest rate environment that supports the return of the economy to a high growth path,” he had said.
The Financial Express, April 29, 2009, Page 1
Economy Bureau, New Delhi
Stock taking by the government of its three stimulus packages shows they have nudged up GDP growth, but officials said they would reserve final assessment on the impact until industrial output figures for March come through by early May.
Cabinet secretary KM Chandrasekhar, the country’s senior-most civil servant, met the secretaries of finance, commerce, industry and micro, small & medium enterprises (MSME) to evaluate the implementation of various fiscal measures announced since December. The meeting also reviewed the impact of various rate cuts announced by RBI.
The central bank has estimated the combined value add of the fiscal stimulus packages—including a 4% cut in central excise and 2% in service tax—along with the rate cuts at 3% of GDP. The centre and RBI have between them released Rs 4.62 lakh crore into the economy. Emerging from the secretary-level meeting a senior official said, “Progress and issues related to implementation of various measures were discussed. The meeting also took note of bankers reducing lending rates.”
The index of industrial production fell by 1.2% in February—a 15-year low. IIP grew at just 2.8% between April 2008 and February 2009, compared with a robust 8.8% in the same period of 2007-08. But Macquarie Research said in a note on Tuesday that India’s industrial production is likely to rebound and may post double-digit growth on the back of the fiscal and monetary measures. “March data will probably post a 10% month-on-month gain,” it said.
Ministry of statistics & programme implementation secretary Pronab Sen told FE, “We don’t know what is happening to investments. While cement consumption is going strong, trade data suggests there is not much growth in machinery and equipment. There is a lot of conflicting data. We are still waiting for the IIP (March) and agriculture (third advance estimates) data to come in, so it is difficult to come out with an estimate for GDP at present.”
Tuesday’s meeting is the latest in a series held by the Chandrasekhar with central officials, state chief secretaries, industry chambers and banks to ascertain the progress of various measures.
RBI has cut repo (the rate at which it lends to commercial banks) by 425 basis points since mid-September, while it reduced reverse repo (the rate which banks park their funds with RBI) by 275 basis points in the same period. However, commercial banks have reduced their prime lending rates by only half as much and industry chambers have been demanding single-digit interest rates.
Banks have lent about Rs 8,500-9,000 crore to the MSME sector as a part of the stimulus packages, said MSME secretary Dinesh Rai at an Assocham function on Tuesday. “Of the Rs 7,000 crore refinance facility extended to Small Industries Development Bank of India, Rs 4,300 crore has already been released to commercial banks,” Rai said.
The Macquarie note said some industries like motor vehicles, cement and steel are already showing signs of increased activity, “though India’s structurally broad industrial base suggests that (industrial production) will need a bit more time for the year-on-year growth rates to be firmly in the black, and rising”.
RBI governor D Subbarao said in Washington on Monday that effective implementation of the stimulus packages was a key challenge. “There are several challenges on the way forward: implementing the fiscal stimulus packages, particularly stepping up public investment; revival of private investment demand; unwinding of fiscal stimulus in an orderly manner; maintaining the flow of credit while ensuring credit quality; preserving financial stability along with provision of adequate liquidity; and ensuring an interest rate environment that supports the return of the economy to a high growth path,” he had said.
‘India’s steel demand to beat global trend, consumption to rise by 2%’
‘India’s steel demand to beat global trend, consumption to rise by 2%’
The Financial Express, April 29, 2009, Page 13
London: Bucking the global trend, India’s steel consumption is likely to rise by nearly 2% to 53.5 million tonne in 2009, the World Steel Association has said.
In its short-range outlook for global steel sector, the Association representing 180 steel producers across the world, said that India’s steel consumption is estimated to grow by 1.7 per cent to 53.5 million tonnes (mt) this year against 526 mt in 2008. “India is projected to have a positive growth of (about) 2 % for apparent steel use in 2009,” a statement from the World Steel Association (WSA) said.
It however, did not ascertain the reasons for the growth though experts said it would be mainly on account of improved demand from automobile and construction sectors.
Globally, WSA has forecast steel consumption declining by 14.9 % to 1,018.6 mt as against 1,197 mt a year-ago.
The association, however, expects the demand to stabilise in latter part of 2009, leading to a mild recovery in 2010.
“... (The) improvement in steel consumption for the second half of 2009 will depend on the effects of government packages, the continued stabilisation of financial systems and a return of some consumer confidence,” WSA Economics committee chairman Daniel Novegil said.
The WSA board reviewed the forecast for 2009 at its meeting in London last week. Other than India, the countries that are expected to report a positive growth rate in usage of steel during the year are Egypt and Iran.
The US is likely to report the biggest decline of 36.6% in steel demand at 61.8 million tonnes against 97.5 million a year-ago. Japan and Europe face similar fall.
—PTI
The Financial Express, April 29, 2009, Page 13
London: Bucking the global trend, India’s steel consumption is likely to rise by nearly 2% to 53.5 million tonne in 2009, the World Steel Association has said.
In its short-range outlook for global steel sector, the Association representing 180 steel producers across the world, said that India’s steel consumption is estimated to grow by 1.7 per cent to 53.5 million tonnes (mt) this year against 526 mt in 2008. “India is projected to have a positive growth of (about) 2 % for apparent steel use in 2009,” a statement from the World Steel Association (WSA) said.
It however, did not ascertain the reasons for the growth though experts said it would be mainly on account of improved demand from automobile and construction sectors.
Globally, WSA has forecast steel consumption declining by 14.9 % to 1,018.6 mt as against 1,197 mt a year-ago.
The association, however, expects the demand to stabilise in latter part of 2009, leading to a mild recovery in 2010.
“... (The) improvement in steel consumption for the second half of 2009 will depend on the effects of government packages, the continued stabilisation of financial systems and a return of some consumer confidence,” WSA Economics committee chairman Daniel Novegil said.
The WSA board reviewed the forecast for 2009 at its meeting in London last week. Other than India, the countries that are expected to report a positive growth rate in usage of steel during the year are Egypt and Iran.
The US is likely to report the biggest decline of 36.6% in steel demand at 61.8 million tonnes against 97.5 million a year-ago. Japan and Europe face similar fall.
—PTI
Cartel in steel sector needs to be probed: competition panel
Cartel in steel sector needs to be probed: competition panel
The Financial Express, April 29, 2009, Page 13
New Delhi: Alleging the government of distorting competition in the steel sector, a CCI-sponsored study has suggested that the competition watchdog should investigate the HR coil industry, which is dominated by a few top producers.
The study prepared by Indicus Analytics said, “The CCI should investigate and take a view on how to deal with potential anti-competitive behaviour in one segment of the industry ... the HR coil segment is quite apt since it has high concentration level”.
The study said there is no doubt about the concentration level in certain products market “such as hot rolling coils is significant with the dominance of a few at the top”.
Hot Rolling (HR) coils are a vital steel input for consumer industries like automobiles. The study further added that the Competition Commission of India should also probe in captive mining and priority allocation of mines to some players, which is an indirect means of subsidisation.
“The difficulty with captive mining as a concept lies in the fact that it first creates a dominant position for the mineral and allows non-competitive pricing,” the report said. Though the industry is concentrated in some segments, the study said, setting up an independent steel regulator will be “against the standard philosophy of regulation”.
At present, to informally control the steel price, the government works on the assumption that there are a few steel producers and they can be talked to uniformly cut the prices to fulfill its objective.
however, the study said that this way the government is bringing in more distortions than competition in the steel industry. “Such government intervention related distortions are likely to adversely affect investment plans of incumbents,” the study said.
—PTI
The Financial Express, April 29, 2009, Page 13
New Delhi: Alleging the government of distorting competition in the steel sector, a CCI-sponsored study has suggested that the competition watchdog should investigate the HR coil industry, which is dominated by a few top producers.
The study prepared by Indicus Analytics said, “The CCI should investigate and take a view on how to deal with potential anti-competitive behaviour in one segment of the industry ... the HR coil segment is quite apt since it has high concentration level”.
The study said there is no doubt about the concentration level in certain products market “such as hot rolling coils is significant with the dominance of a few at the top”.
Hot Rolling (HR) coils are a vital steel input for consumer industries like automobiles. The study further added that the Competition Commission of India should also probe in captive mining and priority allocation of mines to some players, which is an indirect means of subsidisation.
“The difficulty with captive mining as a concept lies in the fact that it first creates a dominant position for the mineral and allows non-competitive pricing,” the report said. Though the industry is concentrated in some segments, the study said, setting up an independent steel regulator will be “against the standard philosophy of regulation”.
At present, to informally control the steel price, the government works on the assumption that there are a few steel producers and they can be talked to uniformly cut the prices to fulfill its objective.
however, the study said that this way the government is bringing in more distortions than competition in the steel industry. “Such government intervention related distortions are likely to adversely affect investment plans of incumbents,” the study said.
—PTI
Tuesday, April 28, 2009
Slowdown may continue till 2010, says RBI
Slowdown may continue till 2010, says RBI
The Times of India, April 28, 2009, Page 20
New Delhi: Warning that the worst may not be over yet, Reserve Bank Governor D Subbarao has said the global economic recession may not only continue through 2009 but could prolong to the next year as well.
“Even with current levels of policy intensity, the trough of the global recession is not seen until the end of 2009 and could get pushed out further if the policy responses fail to gain traction,” Subbarao said at the International Monetary Fund-World Bank spring meetings.
Leading the Indian delegation to the International Monetary and Financial Committee meet in Washington, he said India is expected to grow at 6.5% to 6.7% in 2008-09, and the real GDP growth for 2009-10 would be about 6%. A statement by RBI further quoted Subbarao as saying, “The most frequently asked question today is whether the worst is behind us. While there are incipient signs of business confidence and consumer spending trying to gain toehold, rising unemployment, high inventories and financial stress weigh heavily on overall demand conditions,” Subbarao said. PTI
The Times of India, April 28, 2009, Page 20
New Delhi: Warning that the worst may not be over yet, Reserve Bank Governor D Subbarao has said the global economic recession may not only continue through 2009 but could prolong to the next year as well.
“Even with current levels of policy intensity, the trough of the global recession is not seen until the end of 2009 and could get pushed out further if the policy responses fail to gain traction,” Subbarao said at the International Monetary Fund-World Bank spring meetings.
Leading the Indian delegation to the International Monetary and Financial Committee meet in Washington, he said India is expected to grow at 6.5% to 6.7% in 2008-09, and the real GDP growth for 2009-10 would be about 6%. A statement by RBI further quoted Subbarao as saying, “The most frequently asked question today is whether the worst is behind us. While there are incipient signs of business confidence and consumer spending trying to gain toehold, rising unemployment, high inventories and financial stress weigh heavily on overall demand conditions,” Subbarao said. PTI
‘India, China to lead Asian recovery’
‘India, China to lead Asian recovery’
The Times of India, April 28, 2009, Page 20
New Delhi: Driven by India and China, the emerging Asian economies no longer witness slump, which will lead the global recovery, UK financial services major Barclays said on Monday. “The slump in activity in emerging Asia is over. We believe the region returned to positive growth of the aggregate level in the first quarter of 2009 — driven by China and India — and the recovery is broading to the more open industrial economies in 2009,” Barclays Capital, an investment banking arm of Barclays, said.
Barclays capital included 10 Asian economies — India, China, Taiwan, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Hong Kong.Barclays expected the recovery in Asia to arrive slightly earlier than the rest of the world, reflecting stronger balance sheets. PTI
The Times of India, April 28, 2009, Page 20
New Delhi: Driven by India and China, the emerging Asian economies no longer witness slump, which will lead the global recovery, UK financial services major Barclays said on Monday. “The slump in activity in emerging Asia is over. We believe the region returned to positive growth of the aggregate level in the first quarter of 2009 — driven by China and India — and the recovery is broading to the more open industrial economies in 2009,” Barclays Capital, an investment banking arm of Barclays, said.
Barclays capital included 10 Asian economies — India, China, Taiwan, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Hong Kong.Barclays expected the recovery in Asia to arrive slightly earlier than the rest of the world, reflecting stronger balance sheets. PTI
India likely to grow at 6%, says Montek
India likely to grow at 6%, says Montek
The Times of India, April 28, 2009, Page 20
Washington: India is expected to record a gross domestic product (GDP) growth rate of 6% in this financial year (2009-10), which will improve further in the next fiscal with likely recovery in the global economy, Planning Commission deputy chairman Montek Singh Ahluwalia said on Friday.
“Next year they (IMF) expect the global economy to improve. I am hoping that our economy will also be able to improve,” he said on the sidelines of the G-20 ministerial meeting.
Although RBI too projected a growth rate of 6% during the current financial year, many global agencies like IMF and World Bank expect the Indian economy to expand by only 5.25% and 4%, respectively.
Noting that the global economy is passing through a very severe phase, Ahluwalia said, “We are weathering it better than most countries.” The India economy during 2008-09, according to advance estimates for national income released by the Central Statistical Organisation (CSO) in February, was estimated to grow by 7.1%, down from 9% in the previous fiscal. PTI
The Times of India, April 28, 2009, Page 20
Washington: India is expected to record a gross domestic product (GDP) growth rate of 6% in this financial year (2009-10), which will improve further in the next fiscal with likely recovery in the global economy, Planning Commission deputy chairman Montek Singh Ahluwalia said on Friday.
“Next year they (IMF) expect the global economy to improve. I am hoping that our economy will also be able to improve,” he said on the sidelines of the G-20 ministerial meeting.
Although RBI too projected a growth rate of 6% during the current financial year, many global agencies like IMF and World Bank expect the Indian economy to expand by only 5.25% and 4%, respectively.
Noting that the global economy is passing through a very severe phase, Ahluwalia said, “We are weathering it better than most countries.” The India economy during 2008-09, according to advance estimates for national income released by the Central Statistical Organisation (CSO) in February, was estimated to grow by 7.1%, down from 9% in the previous fiscal. PTI
Banks continue to park surplus funds with RBI despite rate cut
Banks continue to park surplus funds with RBI despite rate cut
The Hindu Business Line, April 28, 2009, Page 1
Borrowing at a lower rate under CBLO mechanism, making a tidy spread.
K. Ram Kumar, Mumbai
Parking surplus funds with the Reserve Bank of India continues to be an attractive option for banks despite the 25 basis points cut effected in the reverse repo rate last week.
Banks, particularly Government owned, are borrowing against their surplus holding of government securities at a lower rate under Clearing Corporation’s Collateralised Borrowing and Lending Obligation (CBLO) mechanism and deploying the funds at a higher rate with RBI.
By doing so, banks are making a tidy spread of 50-100 basis points a day.
Consider this: If a bank
had borrowed on Monday against its surplus government securities holding at the weighted average interest rate of 2.72 per cent under CBLO and parked the funds at RBI’s Reverse Repo (R/R) window at 3.25 per cent, it stands to make a gain of 53 basis points (100 basis points equals 1 per cent) in just a day.
CBLO is a discounted money market instrument which enables banks and other market participants to borrow and lend funds via electronic book entry. It imposes an obligation on the borrower/lender to return the money borrowed/receive the money lent, at a specified future date. The underlying charge on securities is held in custody (with CCIL) for the amount borrowed/lent.
According to banking sources, the central bank had cut the reverse repo rate on April 21 with the express intention of pushing banks to lend to the productive sectors of the economy. However, due to slack credit offtake, banks with surplus Statutory Liquidity Ratio (SLR) portfolio are making the most of the arbitrage opportunity thrown up by the interest rate differential between CBLO and RBI’s R/R window.
Notwithstanding the reverse repo rate cut, during the last four working days after the RBI’s rate cut, banks, on an average, have parked around Rs 1 lakh crore daily with the RBI.
As of March-end 2009, scheduled commercial banks’ investment in Statutory Liquidity Ratio (SLR) securities — the slice of net demand and time liabilities (NDTL) that banks necessarily have to park in government securities — increased to 28.1 per cent from 27.8 per cent a year ago.
Banks, according to RBI, as of March-end 2009, were holding excess government securities worth Rs 1,13,817 crore or 2.7 per cent over the prescribed SLR of 24 per cent of NDTL.
Considering that at the beginning of April CBLO has seen rates as low as 0.50 per cent, banks would have made a killing, earning a clean return of 3 per cent in just a day.
“Feeble credit offtake coupled with the fear of bad loans going up in the current scenario of economic slowdown is prompting banks to park their surplus funds with the RBI. Not many bankable loan proposals are coming our way. So, it’s a Hobson’s choice for us,” said a senior public sector bank official.
As per RBI’s statistics, scheduled commercial banks have collectively lent Rs 1,429 crore in the fortnight ended April 10, 2009. This, according to bankers, is an indication of a slowdown.
Pointing out that banks continue to flood the central bank’s reverse repo window with surplus liquidity despite the cut in the interest rate, market players feel that the regulator may move to curtail the tendency of banks to park surplus funds by imposing a cap.
The Hindu Business Line, April 28, 2009, Page 1
Borrowing at a lower rate under CBLO mechanism, making a tidy spread.
K. Ram Kumar, Mumbai
Parking surplus funds with the Reserve Bank of India continues to be an attractive option for banks despite the 25 basis points cut effected in the reverse repo rate last week.
Banks, particularly Government owned, are borrowing against their surplus holding of government securities at a lower rate under Clearing Corporation’s Collateralised Borrowing and Lending Obligation (CBLO) mechanism and deploying the funds at a higher rate with RBI.
By doing so, banks are making a tidy spread of 50-100 basis points a day.
Consider this: If a bank
had borrowed on Monday against its surplus government securities holding at the weighted average interest rate of 2.72 per cent under CBLO and parked the funds at RBI’s Reverse Repo (R/R) window at 3.25 per cent, it stands to make a gain of 53 basis points (100 basis points equals 1 per cent) in just a day.CBLO is a discounted money market instrument which enables banks and other market participants to borrow and lend funds via electronic book entry. It imposes an obligation on the borrower/lender to return the money borrowed/receive the money lent, at a specified future date. The underlying charge on securities is held in custody (with CCIL) for the amount borrowed/lent.
According to banking sources, the central bank had cut the reverse repo rate on April 21 with the express intention of pushing banks to lend to the productive sectors of the economy. However, due to slack credit offtake, banks with surplus Statutory Liquidity Ratio (SLR) portfolio are making the most of the arbitrage opportunity thrown up by the interest rate differential between CBLO and RBI’s R/R window.
Notwithstanding the reverse repo rate cut, during the last four working days after the RBI’s rate cut, banks, on an average, have parked around Rs 1 lakh crore daily with the RBI.
As of March-end 2009, scheduled commercial banks’ investment in Statutory Liquidity Ratio (SLR) securities — the slice of net demand and time liabilities (NDTL) that banks necessarily have to park in government securities — increased to 28.1 per cent from 27.8 per cent a year ago.
Banks, according to RBI, as of March-end 2009, were holding excess government securities worth Rs 1,13,817 crore or 2.7 per cent over the prescribed SLR of 24 per cent of NDTL.
Considering that at the beginning of April CBLO has seen rates as low as 0.50 per cent, banks would have made a killing, earning a clean return of 3 per cent in just a day.
“Feeble credit offtake coupled with the fear of bad loans going up in the current scenario of economic slowdown is prompting banks to park their surplus funds with the RBI. Not many bankable loan proposals are coming our way. So, it’s a Hobson’s choice for us,” said a senior public sector bank official.
As per RBI’s statistics, scheduled commercial banks have collectively lent Rs 1,429 crore in the fortnight ended April 10, 2009. This, according to bankers, is an indication of a slowdown.
Pointing out that banks continue to flood the central bank’s reverse repo window with surplus liquidity despite the cut in the interest rate, market players feel that the regulator may move to curtail the tendency of banks to park surplus funds by imposing a cap.
JP Associates to raise Rs 4k cr
JP Associates to raise Rs 4k cr
Financial Express – Corporates & Markets, April 28, 2009, Page XVI
Agencies, Corporate Bureau, Mumbai
Construction firm Jaipraksh Associates Ltd on Monday said its board had approved raising Rs 4,000 crore through private placement/public issue of non-convertible debentures in one or more tranches.
The company, in a statement to the BSE, said, “The funds are to be used for capital expenditure and working capital needs.”
JP Associates shares on Monday were up 3.58% or Rs 4.50 to close at Rs 130.30 on the Bombay Stock Exchange. Meanwhile, the company also announced that it has reported a growth of 83.12 % in its net profit to Rs 385.32 crore for the fourth quarter ended March 31, 2009 against Rs 210.41 crore in the corresponding quarter last year.
The company’s total income from operations jumped 59.94 % during the quarter at Rs 2,151.67 crore. Total income from operations for the corresponding quarter last fiscal was Rs 1,345.28 crore. For the fiscal 2008-2009, the company’s net profit increased 44.54 % at Rs 881.22 crore as compared with Rs 609.67 crore recorded in 2007-2008.
Total income from operations for the last fiscal went up 44.54 % at Rs 6,015.26 crore, compared with Rs 4,161.38 crore in the previous financial year. JP Associates’ FY09 earning per share, EPS stood at Rs 7.44.
The company has also announced that the board of directors of the company at its meeting held on April 27, 2009, inter alia, declared the second interim dividend of Re 0.30 (15%) per equity share of Rs 2/- for the year 2008-2009. Manoj Gaur, executive chairman of Jaiprakash Associates, said the company is guiding Rs 11,000 crore revenues for financial year 2010. This will be distributed among the three divisions; viz;, cement, which would contribute almost Rs 5,500 crore; engineering and construction (E&C), comprising hydropower and expressway construction division, will contribute almost Rs 4,800 crore while real estate will give about Rs 1,000 crore.
Gaur added that the company expects to maintain profitability of about 29-31% on a gross operating margin (GOP) basis.
The company expects FY 2010 revenues to jump more than two-third, driven by growth in all of its three business segments of construction, cement and real estate, Its executive chairman said.
“We are on way for 70 % -plus growth in FY10,” Gaur told reporters. JP Associates in December last year said it will merge Jaypee Hotels, Jaiprakash Enterprises, JP Cement, and Gujarat Anjan with self.
Jaiprakash Associates said its board approved amalgamation of Jaypee Cement, Gujarat Anjan Cement, Jaypee Hotels and Jaiprakash Enterprises with the flagship company. As per the amalgamation plan, Jaiprakash Associates would issue one share of Rs 2 each to the shareholders of Jaypee Cement for every 10 shares of Rs 10 each held in the company. Also, Gujarat Anjan Cement shareholders would be offered one share of Rs 2 each in Jaiprakash Associates for every 11 shares of Rs 10 held in the subsidiary.
Financial Express – Corporates & Markets, April 28, 2009, Page XVI
Agencies, Corporate Bureau, Mumbai
Construction firm Jaipraksh Associates Ltd on Monday said its board had approved raising Rs 4,000 crore through private placement/public issue of non-convertible debentures in one or more tranches.
The company, in a statement to the BSE, said, “The funds are to be used for capital expenditure and working capital needs.”
JP Associates shares on Monday were up 3.58% or Rs 4.50 to close at Rs 130.30 on the Bombay Stock Exchange. Meanwhile, the company also announced that it has reported a growth of 83.12 % in its net profit to Rs 385.32 crore for the fourth quarter ended March 31, 2009 against Rs 210.41 crore in the corresponding quarter last year.
The company’s total income from operations jumped 59.94 % during the quarter at Rs 2,151.67 crore. Total income from operations for the corresponding quarter last fiscal was Rs 1,345.28 crore. For the fiscal 2008-2009, the company’s net profit increased 44.54 % at Rs 881.22 crore as compared with Rs 609.67 crore recorded in 2007-2008.
Total income from operations for the last fiscal went up 44.54 % at Rs 6,015.26 crore, compared with Rs 4,161.38 crore in the previous financial year. JP Associates’ FY09 earning per share, EPS stood at Rs 7.44.
The company has also announced that the board of directors of the company at its meeting held on April 27, 2009, inter alia, declared the second interim dividend of Re 0.30 (15%) per equity share of Rs 2/- for the year 2008-2009. Manoj Gaur, executive chairman of Jaiprakash Associates, said the company is guiding Rs 11,000 crore revenues for financial year 2010. This will be distributed among the three divisions; viz;, cement, which would contribute almost Rs 5,500 crore; engineering and construction (E&C), comprising hydropower and expressway construction division, will contribute almost Rs 4,800 crore while real estate will give about Rs 1,000 crore.
Gaur added that the company expects to maintain profitability of about 29-31% on a gross operating margin (GOP) basis.
The company expects FY 2010 revenues to jump more than two-third, driven by growth in all of its three business segments of construction, cement and real estate, Its executive chairman said.
“We are on way for 70 % -plus growth in FY10,” Gaur told reporters. JP Associates in December last year said it will merge Jaypee Hotels, Jaiprakash Enterprises, JP Cement, and Gujarat Anjan with self.
Jaiprakash Associates said its board approved amalgamation of Jaypee Cement, Gujarat Anjan Cement, Jaypee Hotels and Jaiprakash Enterprises with the flagship company. As per the amalgamation plan, Jaiprakash Associates would issue one share of Rs 2 each to the shareholders of Jaypee Cement for every 10 shares of Rs 10 each held in the company. Also, Gujarat Anjan Cement shareholders would be offered one share of Rs 2 each in Jaiprakash Associates for every 11 shares of Rs 10 held in the subsidiary.
Monday, April 27, 2009
IMF, World Bank meet as signs of recovery seen
IMF, World Bank meet as signs of recovery seen
The Hindu Business Line, April 26, 2009, Page 4
WASHINGTON (AFP) – Top IMF and World Bank officials hold annual meetings Saturday and Sunday in the shadow of the worst global slump since the 1930s but with perhaps the first signs of recovery peeping through.
A banking crisis that started in the United States in mid-2007 has spread like wildfire to push the world deep into a recession which the IMF said earlier this week would see the global economy contract 1.3 percent this year.
The IMF forecast marked a dramatic downgrade of previous estimates and set the tone for the meetings of the top steering committees of the 185-member International Monetary Fund and its sister institution the World Bank.
But on Friday, the Group of Seven major economies said the worst might finally be over -- although the outlook remained clouded and difficult.
"Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging," a G7 statement said.
"Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist."
The G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- said they were "committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again."
US Treasury Secretary Timothy Geithner, the G7 host, said that "without underestimating the challenges we still face, there are signs that the pace of deterioration in economic activity and trade flows has eased."
He too cautioned against any simple optimism that the worst global slump since the 1930s would be over quickly.
"We are right to be somewhat encouraged but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy (in September)," he said in a statement.
A subsequent meeting of the Group of 20, which includes the G7 and developing countries such as Brazil, China, India and Russia, ended without a statement.
The financial crisis was sparked by a credit boom based on the US subprime or higher risk home loan market which collapsed in mid-2007 as weaker borrowers could not keep up payments when the economy began to slow.
Many banks were heavily exposed and in order to limit their losses, cut lending, causing the economy to slow.
An already bad situation turned much worse with the collapse of giant US investment bank Lehman Brothers in September, tightening the screw in a global credit crunch which has plunged the world economy into recession.
The more positive G7 tone follows data showing that the downturn is easing but many officials remain reluctant to give the all-clear, warning that more bad news is to come which could blight any "green shoots" of recovery.
Others also warn that recovery or not, the human cost of the crisis is very high, still rising and should not be forgotten.
On Friday, a World Bank/IMF report said the crisis means up to 90 million more people will remain trapped in extreme poverty this year while the chronically hungry could top one billion.
The Hindu Business Line, April 26, 2009, Page 4
WASHINGTON (AFP) – Top IMF and World Bank officials hold annual meetings Saturday and Sunday in the shadow of the worst global slump since the 1930s but with perhaps the first signs of recovery peeping through.
A banking crisis that started in the United States in mid-2007 has spread like wildfire to push the world deep into a recession which the IMF said earlier this week would see the global economy contract 1.3 percent this year.
The IMF forecast marked a dramatic downgrade of previous estimates and set the tone for the meetings of the top steering committees of the 185-member International Monetary Fund and its sister institution the World Bank.
But on Friday, the Group of Seven major economies said the worst might finally be over -- although the outlook remained clouded and difficult.
"Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging," a G7 statement said.
"Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist."
The G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- said they were "committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again."
US Treasury Secretary Timothy Geithner, the G7 host, said that "without underestimating the challenges we still face, there are signs that the pace of deterioration in economic activity and trade flows has eased."
He too cautioned against any simple optimism that the worst global slump since the 1930s would be over quickly.
"We are right to be somewhat encouraged but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy (in September)," he said in a statement.
A subsequent meeting of the Group of 20, which includes the G7 and developing countries such as Brazil, China, India and Russia, ended without a statement.
The financial crisis was sparked by a credit boom based on the US subprime or higher risk home loan market which collapsed in mid-2007 as weaker borrowers could not keep up payments when the economy began to slow.
Many banks were heavily exposed and in order to limit their losses, cut lending, causing the economy to slow.
An already bad situation turned much worse with the collapse of giant US investment bank Lehman Brothers in September, tightening the screw in a global credit crunch which has plunged the world economy into recession.
The more positive G7 tone follows data showing that the downturn is easing but many officials remain reluctant to give the all-clear, warning that more bad news is to come which could blight any "green shoots" of recovery.
Others also warn that recovery or not, the human cost of the crisis is very high, still rising and should not be forgotten.
On Friday, a World Bank/IMF report said the crisis means up to 90 million more people will remain trapped in extreme poverty this year while the chronically hungry could top one billion.
Cos go for mini perms to beat credit squeeze
Cos go for mini perms to beat credit squeeze
The Financial Express, April 27, 2009
Sunny Verma, Arun S
Amidst the ongoing credit squeeze, the financial community in India has found a novel way to fund infrastructure projects that need long-term loans, going up to 20 years. A clutch of leading institutional financiers has started offering ‘mini perms’, short for mini permanent loans, to finance infrastructure and commercial real estate development projects. In such a project-finance arrangement, a financier provides loans up to a particular duration, say seven years, with an understanding that at that stage the loan will get refinanced.
The idea is at the time of refinance, the strength of the cash flows of a project would be adequate for a new financier to step in, Anita Marangoly George, director (infrastructure), International Finance Corporation (IFC), told FE.
While companies can easily get refinance based on their balance sheet strength, lenders are reluctant on the project side — which are mostly executed through special purpose vehicles — until the project and its cash flows are adequate.
Mini perms help to bridge this gap in sectors such as power, commercial real estate, airports and ports. “We are starting to see that Indian companies are reluctant to tie themselves in, for example, at high rates. So they are taking five-year loans and then refinancing,” George said. Ultra mega power projects (UMPPs) that need financing for upwards of 18 years will particularly benefit from this structure.
Experts, however, note that the success of mini perms would depend on interest costs at the time of refinance. “We all need huge credit and are keen on long-term credit at competitive rates from a good source. But if mini-perm is about refinancing, not many would be keen if the interest rate is high at that particular point of time,” said NTPC Ltd CMD RS Sharma. Pointing out that NTPC has gone for refinancing earlier too, Sharma, however, said the company only goes for balance sheet-financing and not project-financing.
A UMPP requires an investment of Rs 16,000-20,000 crore. The government has so far awarded three projects—to Tata Power at Mundra in Gujarat and to Reliance Power at Sasan in Madhya Pradesh and Krishnapatnam in Andhra Pradesh.
It took almost a year for both Sasan and Mundra projects to achieve financial closure.
IFC, which loaned $450 million to Tata’s Mundra project, says it is not keen on financing any more UMPPs. Along with SBI and Macquarie, IFC has recently set up a $1-billion infra fund to pick up stakes in projects, which will also bid for greenfield projects, George said.An official of PFC, which is offering a 20-year loan with a 15-year repayment period, said the manner of servicing the debt was crucial for mini perms. The repayment period on PFC’s loan starts from six months after the completion of construction, while the interest period starts from the day the loan is approved.
According to Jaidit Brar of McKinsey & Company, it is interesting to explore new financing options but they should not adversely affect the return profile of a developer undertaking the project. Funding needs of India’s infrastructure sector are estimated at $500 billion until 2012, of which the power sector alone requires $150 billion.
The Financial Express, April 27, 2009
Sunny Verma, Arun S
Amidst the ongoing credit squeeze, the financial community in India has found a novel way to fund infrastructure projects that need long-term loans, going up to 20 years. A clutch of leading institutional financiers has started offering ‘mini perms’, short for mini permanent loans, to finance infrastructure and commercial real estate development projects. In such a project-finance arrangement, a financier provides loans up to a particular duration, say seven years, with an understanding that at that stage the loan will get refinanced.
The idea is at the time of refinance, the strength of the cash flows of a project would be adequate for a new financier to step in, Anita Marangoly George, director (infrastructure), International Finance Corporation (IFC), told FE.
While companies can easily get refinance based on their balance sheet strength, lenders are reluctant on the project side — which are mostly executed through special purpose vehicles — until the project and its cash flows are adequate.
Mini perms help to bridge this gap in sectors such as power, commercial real estate, airports and ports. “We are starting to see that Indian companies are reluctant to tie themselves in, for example, at high rates. So they are taking five-year loans and then refinancing,” George said. Ultra mega power projects (UMPPs) that need financing for upwards of 18 years will particularly benefit from this structure.
Experts, however, note that the success of mini perms would depend on interest costs at the time of refinance. “We all need huge credit and are keen on long-term credit at competitive rates from a good source. But if mini-perm is about refinancing, not many would be keen if the interest rate is high at that particular point of time,” said NTPC Ltd CMD RS Sharma. Pointing out that NTPC has gone for refinancing earlier too, Sharma, however, said the company only goes for balance sheet-financing and not project-financing.
A UMPP requires an investment of Rs 16,000-20,000 crore. The government has so far awarded three projects—to Tata Power at Mundra in Gujarat and to Reliance Power at Sasan in Madhya Pradesh and Krishnapatnam in Andhra Pradesh.
It took almost a year for both Sasan and Mundra projects to achieve financial closure.
IFC, which loaned $450 million to Tata’s Mundra project, says it is not keen on financing any more UMPPs. Along with SBI and Macquarie, IFC has recently set up a $1-billion infra fund to pick up stakes in projects, which will also bid for greenfield projects, George said.An official of PFC, which is offering a 20-year loan with a 15-year repayment period, said the manner of servicing the debt was crucial for mini perms. The repayment period on PFC’s loan starts from six months after the completion of construction, while the interest period starts from the day the loan is approved.
According to Jaidit Brar of McKinsey & Company, it is interesting to explore new financing options but they should not adversely affect the return profile of a developer undertaking the project. Funding needs of India’s infrastructure sector are estimated at $500 billion until 2012, of which the power sector alone requires $150 billion.
Low-cost switch is paying off: Unitech
Low-cost switch is paying off: Unitech
Sunday Business Standard, April 26, 2009, Page 3
Neeraj Thakur / New Delhi
Unitech Ltd, the country’s second-biggest property developer, says its strategy to focus on affordable residential housing for mid-income consumers is getting an encouraging response.
It launched its second mid-income housing project in Gurgaon early this week after closing sales of an earlier one on the nearby Sohna Road. It said it sold over 500 apartments at its planned township, called North Town, in Chennai two weeks earlier.
“We have launched the project after getting a good response for the recently launched projects in Gurgaon and Chennai. The launch of new mid-income residential housing projects has improved the operating cash flow of the company,” said an official who did not wish to be identified.
Due to cash crunch and almost no demand for some of its luxury projects, Unitech had stopped the launch of new projects for about five months. It has now changed its strategy.
The company says it is also planing to launch projects in the range of Rs 5-10 lakh an apartment in Gurgaon, Chennai and Kolkata, among other places.
Earlier this month, Unitech raised $325 million (Rs 1,625 crore) from selling new shares to institutions. It plans to use a part of the money to develop its affordable housing segment. The developer plans to launch 40 such projects during the fiscal year ending 2010, aggregating 30 million sq ft.
The company is trying to keep prices in the range of Rs 30-50 lakh, which calls for a price of close to Rs 3,000 per sq. ft. The new project, ‘The Residencies’, is located in Sector 33 of Gurgaon and offers two and three-bedroom apartments at a basic price of Rs 3,295 a sq ft.
The cost of a two-bedroom apartment with a “super area” of 1,100 sq ft would be a little over Rs 36 lakh, while a three-bedroom apartment of 1,535 sq ft would cost a bit over Rs 50 lakh.
Without disclosing the number of apartments to be launched, the official said, “We are testing the market with a soft launch and will decide the apartments to be developed in a few days”.
Sunday Business Standard, April 26, 2009, Page 3
Neeraj Thakur / New Delhi
Unitech Ltd, the country’s second-biggest property developer, says its strategy to focus on affordable residential housing for mid-income consumers is getting an encouraging response.
It launched its second mid-income housing project in Gurgaon early this week after closing sales of an earlier one on the nearby Sohna Road. It said it sold over 500 apartments at its planned township, called North Town, in Chennai two weeks earlier.
“We have launched the project after getting a good response for the recently launched projects in Gurgaon and Chennai. The launch of new mid-income residential housing projects has improved the operating cash flow of the company,” said an official who did not wish to be identified.
Due to cash crunch and almost no demand for some of its luxury projects, Unitech had stopped the launch of new projects for about five months. It has now changed its strategy.
The company says it is also planing to launch projects in the range of Rs 5-10 lakh an apartment in Gurgaon, Chennai and Kolkata, among other places.
Earlier this month, Unitech raised $325 million (Rs 1,625 crore) from selling new shares to institutions. It plans to use a part of the money to develop its affordable housing segment. The developer plans to launch 40 such projects during the fiscal year ending 2010, aggregating 30 million sq ft.
The company is trying to keep prices in the range of Rs 30-50 lakh, which calls for a price of close to Rs 3,000 per sq. ft. The new project, ‘The Residencies’, is located in Sector 33 of Gurgaon and offers two and three-bedroom apartments at a basic price of Rs 3,295 a sq ft.
The cost of a two-bedroom apartment with a “super area” of 1,100 sq ft would be a little over Rs 36 lakh, while a three-bedroom apartment of 1,535 sq ft would cost a bit over Rs 50 lakh.
Without disclosing the number of apartments to be launched, the official said, “We are testing the market with a soft launch and will decide the apartments to be developed in a few days”.
DLF launches initiative to pacify retailers
DLF launches initiative to pacify retailers
Business Standard, April 27, 2009, Page 5
Business Standard, April 27, 2009, Page 5
REAL REPORT - Investment in real estate picking up in metros
REAL REPORT - Investment in real estate picking up in metros
Hindustan Times, HT Estates, April 25, 2009, Page 5
HT Estates Correspondent
The metro rail projects have been the key drivers of infrastructure investment in Indian cities with projects worth Rs 34,000 crore, says a report
Despite the real estate sector having been the worst victim of a high cost economy, especially after the meltdown, it's share in the total private sector infrastructure investment in the metros in the last six months works out to be 12 per cent, followed by 10.26 per cent in the hospitality segment, according to an assess ment of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
However, metro rail projects accounted for the maximum of 27 per cent share in the total amount injected in metro cities for infrastructure development under Central, state and the local government, including corporates.
Sewerage and solid waste management investment in Tier I cities constituted the major chunk of investments, specifically via the government mode. Mumbai (Rs. 16694.672 crore), Chennai (Rs. 1588 crore) and Bangalore (Rs. 1354.92 crore) are the major recipients of sewerage related investment. In percentage terms, it worked out to be 16.90 per cent of the total infrastructure investment.
Indian metros continue to be the favourite destination for real estate development. The real estate projects constituting residential as well as commercial projects, have pocketed investment worth Rs. 15,710.5 crore, said Sajjan Jindal, president, ASSOCHAM.
The metro rail projects have been the key drivers of infrastructure investment in the cities with projects worth Rs.34,000 crore, he added.
The southern twin cities of Bangalore and Hyderabad have attracted maximum attention of real estate developers. Bangalore is the frontrunner in terms of real estate projects planned for the metros with an investment of Rs. 7990 crore. Hyderabad is at second place with projects worth Rs.4050 in the realty space.
Hindustan Times, HT Estates, April 25, 2009, Page 5
HT Estates Correspondent
The metro rail projects have been the key drivers of infrastructure investment in Indian cities with projects worth Rs 34,000 crore, says a report
Despite the real estate sector having been the worst victim of a high cost economy, especially after the meltdown, it's share in the total private sector infrastructure investment in the metros in the last six months works out to be 12 per cent, followed by 10.26 per cent in the hospitality segment, according to an assess ment of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
However, metro rail projects accounted for the maximum of 27 per cent share in the total amount injected in metro cities for infrastructure development under Central, state and the local government, including corporates.
Sewerage and solid waste management investment in Tier I cities constituted the major chunk of investments, specifically via the government mode. Mumbai (Rs. 16694.672 crore), Chennai (Rs. 1588 crore) and Bangalore (Rs. 1354.92 crore) are the major recipients of sewerage related investment. In percentage terms, it worked out to be 16.90 per cent of the total infrastructure investment.
Indian metros continue to be the favourite destination for real estate development. The real estate projects constituting residential as well as commercial projects, have pocketed investment worth Rs. 15,710.5 crore, said Sajjan Jindal, president, ASSOCHAM.
The metro rail projects have been the key drivers of infrastructure investment in the cities with projects worth Rs.34,000 crore, he added.
The southern twin cities of Bangalore and Hyderabad have attracted maximum attention of real estate developers. Bangalore is the frontrunner in terms of real estate projects planned for the metros with an investment of Rs. 7990 crore. Hyderabad is at second place with projects worth Rs.4050 in the realty space.
Friday, April 24, 2009
Dearer food prices push inflation to 0.26%
Dearer food prices push inflation to 0.26%
The Financial Express, April 24, 2009, Page 2
Press Trust of India, New Delhi
Inflation rose to 0.26% but remained around a three-decade low, even as essential food articles like vegetables and cereals turned costlier, something that is likely to become an issue in the Lok Sabha elections, which are under way. Wholesale price-based inflation rose by 0.08 percentage points during the week ended April 11 from 0.18% in the previous week.
“Some commodities are pressurising inflation. These are primary articles, especially food items like cereals and pulses,” said Crisil principal economist DK Joshi. Even as pulses varieties were cheaper by 0.3% over the previous week, they were expensive by 9.81% year-on-year.
Joshi said now there is enough stock of rice and wheat. But food prices are high as the minimum support prices are up and the production of coarse cereals and pulses has been low. Even on a weekly basis, prices of raw food as a whole rose by 0.5% due to tea turning expensive by 5%, bajara by 3%, vegetables by 2.6%, and mutton and maize by 1% each.
Political parties, including both the ruling Congress and the main opposition BJP, have promised a concessional supply of wheat and rice to the poor through the price distribution system.
On a yearly basis, food prices rose by 7.07%. Specifically, processed tea was costlier by 42.75%; sugar, khandsari and gur by 18.21%; common salt by 13.03%; cereals by 9.81%; and fruit and vegetables by 8.52%.
On Tuesday, the Reserve Bank cut two short-term key rates by 25 basis points each, but economists said there is no link between monetary policy and food prices. Joshi expects the RBI to cut key policy rates further by 25 basis points in the next policy in July.
The Financial Express, April 24, 2009, Page 2
Press Trust of India, New Delhi
Inflation rose to 0.26% but remained around a three-decade low, even as essential food articles like vegetables and cereals turned costlier, something that is likely to become an issue in the Lok Sabha elections, which are under way. Wholesale price-based inflation rose by 0.08 percentage points during the week ended April 11 from 0.18% in the previous week.
“Some commodities are pressurising inflation. These are primary articles, especially food items like cereals and pulses,” said Crisil principal economist DK Joshi. Even as pulses varieties were cheaper by 0.3% over the previous week, they were expensive by 9.81% year-on-year.
Joshi said now there is enough stock of rice and wheat. But food prices are high as the minimum support prices are up and the production of coarse cereals and pulses has been low. Even on a weekly basis, prices of raw food as a whole rose by 0.5% due to tea turning expensive by 5%, bajara by 3%, vegetables by 2.6%, and mutton and maize by 1% each.
Political parties, including both the ruling Congress and the main opposition BJP, have promised a concessional supply of wheat and rice to the poor through the price distribution system.
On a yearly basis, food prices rose by 7.07%. Specifically, processed tea was costlier by 42.75%; sugar, khandsari and gur by 18.21%; common salt by 13.03%; cereals by 9.81%; and fruit and vegetables by 8.52%.
On Tuesday, the Reserve Bank cut two short-term key rates by 25 basis points each, but economists said there is no link between monetary policy and food prices. Joshi expects the RBI to cut key policy rates further by 25 basis points in the next policy in July.
Moody’s forecasts 5% growth this fiscal
Moody’s forecasts 5% growth this fiscal
The Financial Express, April 24, 2009, Page 2
The Financial Express, April 24, 2009, Page 2
Lending rates head into single digits
Lending rates head into single digits
The Financial Express, April 24, 2009, Page 1
Sunny Verma, New Delhi
In a likely pointer to lower lending rates, a clutch of Indian companies has borrowed medium-term funds at single digit interest rates. A large private bank has lent one-year funds to a big private company at a very attractive rate of close to 8%, while a public sector company borrowed 30-day money at 5.25% from the same bank, according to a senior executive at the bank, who said he was not authorised to speak to the media.
Other bankers and infrastructure companies expressed surprise at the 8% rate, but said early signs of cheaper credit are visible now.
A medium-sized infrastructure company, GMR, said rates have to fall into single digits. According to Subbarao Amarthaluru, group CFO of GMR, “Lending rates are now down to less than 11% from 13%, but we want them to drop below 10% for projects to become viable.”
Lending rates for top-notch companies are now close to single digits, though benchmark prime lending rates are still holding up. “Downside risks have clearly come down. Some stability is coming back into the system”, said G Ramachandran, head-global research group, ICICI Bank.
The spread that AAA-rated corporate borrowers have to pay over government bond yields has fallen to the pre-crisis level of 150 basis points from 400 basis points in December 2008. The spread on two-year AAA corporate bond is about 135 basis points. Yields on benchmark 10-year government bond are at about 6.2%. This means, a top-notch corporate actually borrowed at less than 8%.
Amarthaluru said the situation has improved a lot after September. “Getting funds is not as difficult now as it was in the last six months, especially after February.”
To prod the banks to pare lending and deposit rates, RBI had on Tuesday cut repo and reverse repo rate by 25 basis points each.
A senior bank official said discounts on loans below PLR have risen sharply in the past few weeks, with banks trying to lend their surplus funds.
Awash with funds, banks deposited over Rs 1,00,000 crore a day with the Reserve Bank in the last three weeks. “There is no dearth of funds now. Our credit growth is around 27-28%,” said Punjab National Bank chief general manager LP Agarwal.
PNB is charging around 10-11% for a one-year loan to top-rated companies, he said. He, however, said lending rates cannot fall sharply unless deposits rates tumble. RBI deputy governor Rakesh Mohan said in London on Thursday that banks were still saddled with high-cost deposits and so their lending rates would soften only gradually.
Noting that nearly 70% bank lending was at rates below benchmark PLR, RBI on Tuesday decided to set up a working group to review the BPLR system to make credit pricing more transparent.
GMR’s Amarthaluru said he expects interest rates to drop a bit more since the rates of bulk deposits have crashed. Between October 2008 and April 18, 2009, public sector banks have reduced term deposit rates by 125-250 basis points, while the reduction in bulk deposits have been much steeper. The weighted average lending rate fell from 12.3% in 2007-08 to around 10.9% in 2008-09, RBI said in its annual review of the monetary policy on Tuesday.
The Financial Express, April 24, 2009, Page 1
Sunny Verma, New Delhi
In a likely pointer to lower lending rates, a clutch of Indian companies has borrowed medium-term funds at single digit interest rates. A large private bank has lent one-year funds to a big private company at a very attractive rate of close to 8%, while a public sector company borrowed 30-day money at 5.25% from the same bank, according to a senior executive at the bank, who said he was not authorised to speak to the media.
Other bankers and infrastructure companies expressed surprise at the 8% rate, but said early signs of cheaper credit are visible now.
A medium-sized infrastructure company, GMR, said rates have to fall into single digits. According to Subbarao Amarthaluru, group CFO of GMR, “Lending rates are now down to less than 11% from 13%, but we want them to drop below 10% for projects to become viable.”
Lending rates for top-notch companies are now close to single digits, though benchmark prime lending rates are still holding up. “Downside risks have clearly come down. Some stability is coming back into the system”, said G Ramachandran, head-global research group, ICICI Bank.
The spread that AAA-rated corporate borrowers have to pay over government bond yields has fallen to the pre-crisis level of 150 basis points from 400 basis points in December 2008. The spread on two-year AAA corporate bond is about 135 basis points. Yields on benchmark 10-year government bond are at about 6.2%. This means, a top-notch corporate actually borrowed at less than 8%.
Amarthaluru said the situation has improved a lot after September. “Getting funds is not as difficult now as it was in the last six months, especially after February.”
To prod the banks to pare lending and deposit rates, RBI had on Tuesday cut repo and reverse repo rate by 25 basis points each.
A senior bank official said discounts on loans below PLR have risen sharply in the past few weeks, with banks trying to lend their surplus funds.
Awash with funds, banks deposited over Rs 1,00,000 crore a day with the Reserve Bank in the last three weeks. “There is no dearth of funds now. Our credit growth is around 27-28%,” said Punjab National Bank chief general manager LP Agarwal.
PNB is charging around 10-11% for a one-year loan to top-rated companies, he said. He, however, said lending rates cannot fall sharply unless deposits rates tumble. RBI deputy governor Rakesh Mohan said in London on Thursday that banks were still saddled with high-cost deposits and so their lending rates would soften only gradually.
Noting that nearly 70% bank lending was at rates below benchmark PLR, RBI on Tuesday decided to set up a working group to review the BPLR system to make credit pricing more transparent.
GMR’s Amarthaluru said he expects interest rates to drop a bit more since the rates of bulk deposits have crashed. Between October 2008 and April 18, 2009, public sector banks have reduced term deposit rates by 125-250 basis points, while the reduction in bulk deposits have been much steeper. The weighted average lending rate fell from 12.3% in 2007-08 to around 10.9% in 2008-09, RBI said in its annual review of the monetary policy on Tuesday.
Three-day slide ends, Sensex surges 317 pts
Three-day slide ends, Sensex surges 317 pts
The Financial Express, April 24, 2009, Corporates & Markets.
fe Bureau, Mumbai
The markets finally snapped the three-day negative streak and closed the day with some smart gains on the back of strong cues from the Asian and European markets coupled with better-than-expected quarter results of HDFC Bank and strong buying in the benchmark indices.
The 30-share Sensex of the Bombay Stock Exchange (BSE) added 317.45 points or 2.93% and closed the day at 11,134.99 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) ended the day at 3,423.70 points, gaining 93.40 points or 2.8%.
The wholesale price index rose 0.26% for the week ended April 11. The domestic market opened marginally up and turned choppy, tracking mixed cues from US markets. The volatility remained throughout the trading session due to political uncertainty along with earning concerns. However, during the final hours of trading benchmark indices gained some ground on good buying witnessed in benchmark heavyweight and finally closed the day with huge gains.
Amitabh Chakraborty, president, equities, at Religare Securities, said, “The major reason for the markets to end in green was only due to the better-than-expected quarter results of Reliance Industries and HDFC Bank. Till now, results have been better then predicted, I think that markets are likely to go upward in the coming days also.”
Barring consumer durables, all sectors in the BSE ended the day on positive terrain, with IT and metal being the top performers of the day. The breadth of the markets remained strong as out of 2,600 stocks traded on BSE, 1,441 advanced, 1,056 declined while 103 remained unchanged. Among Sensex stocks, 27 ended in green while remaning three stocks closed below the dotted line.
“On Thursday, foreign institutional investors (FII) were net buyers which also had some positive impact on the markets. However since, stocks have rallied in the past few weeks and it will not be surprising if some profit booking can be witnessed in the markets at this level,” added Chakraborty.
The Financial Express, April 24, 2009, Corporates & Markets.
fe Bureau, Mumbai
The markets finally snapped the three-day negative streak and closed the day with some smart gains on the back of strong cues from the Asian and European markets coupled with better-than-expected quarter results of HDFC Bank and strong buying in the benchmark indices.
The 30-share Sensex of the Bombay Stock Exchange (BSE) added 317.45 points or 2.93% and closed the day at 11,134.99 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) ended the day at 3,423.70 points, gaining 93.40 points or 2.8%.
The wholesale price index rose 0.26% for the week ended April 11. The domestic market opened marginally up and turned choppy, tracking mixed cues from US markets. The volatility remained throughout the trading session due to political uncertainty along with earning concerns. However, during the final hours of trading benchmark indices gained some ground on good buying witnessed in benchmark heavyweight and finally closed the day with huge gains.
Amitabh Chakraborty, president, equities, at Religare Securities, said, “The major reason for the markets to end in green was only due to the better-than-expected quarter results of Reliance Industries and HDFC Bank. Till now, results have been better then predicted, I think that markets are likely to go upward in the coming days also.”
Barring consumer durables, all sectors in the BSE ended the day on positive terrain, with IT and metal being the top performers of the day. The breadth of the markets remained strong as out of 2,600 stocks traded on BSE, 1,441 advanced, 1,056 declined while 103 remained unchanged. Among Sensex stocks, 27 ended in green while remaning three stocks closed below the dotted line.
“On Thursday, foreign institutional investors (FII) were net buyers which also had some positive impact on the markets. However since, stocks have rallied in the past few weeks and it will not be surprising if some profit booking can be witnessed in the markets at this level,” added Chakraborty.
IMF says policy rates in India still high
IMF says policy rates in India still high
The Economic Times, April 24, 2009, Economy, Finance & Markets.
WASHINGTON: The International Monetary Fund on Wednesday said that policy rates of the Reserve Bank are high, even as the central bank had cut the short-term lending and borrowing rates by 25 basis points each yesterday.
"Policy rates remain high in real terms in India and further rate cuts would help bolster credit growth," IMF said in its latest World Economic Outlook.
There is room for additional monetary easing in a number of economies, it said.
The RBI had yesterday slashed short term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 4.75 per cent and 3.25 per cent respectively.
The Economic Times, April 24, 2009, Economy, Finance & Markets.
WASHINGTON: The International Monetary Fund on Wednesday said that policy rates of the Reserve Bank are high, even as the central bank had cut the short-term lending and borrowing rates by 25 basis points each yesterday.
"Policy rates remain high in real terms in India and further rate cuts would help bolster credit growth," IMF said in its latest World Economic Outlook.
There is room for additional monetary easing in a number of economies, it said.
The RBI had yesterday slashed short term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 4.75 per cent and 3.25 per cent respectively.
Goldman Sachs CEO sees hopeful signs of US recovery
Goldman Sachs CEO sees hopeful signs of US recovery
The Hindu Business Line, April 24, 2009, Page 17
Our Bureau, Hyderabad
There are some `hopeful signs' of the recovery of the US economy, according to Mr Lloyd Blankfein, Chairman and Chief Executive Officer, Goldman Sachs Group.
"The decay in asset prices has slowed down and there are hopeful signs in the capital markets,'' he said while interacting with the students at Indian School of Business (ISB) here on Wednesday.
When asked about the likely duration of recession, he replied: "I don't know''.
He, however, observed that the feeling of completely falling off the cliff had gone and some dire concerns were removed.
On the performance of Goldman Sachs' group, Mr Blankfein said the business environment was not `ordinary' and he would remain optimistic.
"The investment banking activity is much lower while our transaction activity is above average.
"There are risks and backpeddlers. In general, I think we have gone through the crisis,'' he said.
Addressing students and some participants of `10, 000 Women' programme, launched by Goldman Sachs to train women in entrepreneurship by partnering with ISB last year, he said there was a link between growth and empowering women in business.
"Investing in women would increase the standard of life and ensure sustainable growth," said Mr Blankfein, who flew in his corporate jet, especially to participate in the two-hour programme, which is part of Goldman Sachs global initiative, focussed on the developing countries.
Stating that only 36 per cent of labour force in India was women (compared with 60 per cent average in Brazil, Russia, India and China - BRIC nations), he said higher women workforce would increase the gross domestic product by one per cent.
India was a vibrant economy with strong trends in demography, he said.
"We continue to invest in strong investment banking, securities and asset management presence here.
"Opportunity and growth in India remain as attractive as ever, '' he added.
The Hindu Business Line, April 24, 2009, Page 17
Our Bureau, Hyderabad
There are some `hopeful signs' of the recovery of the US economy, according to Mr Lloyd Blankfein, Chairman and Chief Executive Officer, Goldman Sachs Group.
"The decay in asset prices has slowed down and there are hopeful signs in the capital markets,'' he said while interacting with the students at Indian School of Business (ISB) here on Wednesday.
When asked about the likely duration of recession, he replied: "I don't know''.
He, however, observed that the feeling of completely falling off the cliff had gone and some dire concerns were removed.
On the performance of Goldman Sachs' group, Mr Blankfein said the business environment was not `ordinary' and he would remain optimistic.
"The investment banking activity is much lower while our transaction activity is above average.
"There are risks and backpeddlers. In general, I think we have gone through the crisis,'' he said.
Addressing students and some participants of `10, 000 Women' programme, launched by Goldman Sachs to train women in entrepreneurship by partnering with ISB last year, he said there was a link between growth and empowering women in business.
"Investing in women would increase the standard of life and ensure sustainable growth," said Mr Blankfein, who flew in his corporate jet, especially to participate in the two-hour programme, which is part of Goldman Sachs global initiative, focussed on the developing countries.
Stating that only 36 per cent of labour force in India was women (compared with 60 per cent average in Brazil, Russia, India and China - BRIC nations), he said higher women workforce would increase the gross domestic product by one per cent.
India was a vibrant economy with strong trends in demography, he said.
"We continue to invest in strong investment banking, securities and asset management presence here.
"Opportunity and growth in India remain as attractive as ever, '' he added.
Unitech postpones Rs 500 cr mutual fund debt repayment
Unitech postpones Rs 500 cr mutual fund debt repayment
The Economic Times, April 24, 2009, Page 19
Notwithstanding its successful Rs 1,620-crore Qualified Institutional Placement (QIP) issue, troubled real estate company Unitech has postponed the repayment of a large part of the Rs 500-crore debt it had to pay back to mutual funds by April 19. According to a person familiar with the development, Unitech has repaid a fifth of this amount and rolled over 80% by another 12 months.
When contacted, the company refused to comment. However, a top executive, on condition of anonymity, told ET NOW: “We have restructured most of the debt and paid off some in such a way that all mutual funds have been paid proportionately, but none of their debt has been completely paid off.”
The company has restructured the debt for one year at an interest rate of 13%, much lower than the earlier 18%, said the person with knowledge of the situation. Unitech owed over Rs 500 crore to mutual funds of Reliance, HSBC, Sundaram BNP Paribas, SBI, UTI, Kotak and ING Vysa.
The debt restructuring has taken place at the same time as the company closed its QIP last week. On Wednesday, it formally informed the stock exchanges that it had placed over 420 million shares to 44 QIBs (Qualified Institutions Buyers) at Rs 38.50 a share. A JP Morgan report last week said the issue will result in a 26% dilution of the pre-issue share capital. Company executives told ET NOW that Unitech plans to use the proceeds from the QIP for reducing its debt and launching new projects.
Last week’s successful closure of Unitech’s QIP issue had raised expectations that the real estate company will be able to repay the Rs 500-crore debt on time. But, the company has decided to follow a strategy of postponing the bulk of the repayment by another 12 months.
The Economic Times, April 24, 2009, Page 19
Notwithstanding its successful Rs 1,620-crore Qualified Institutional Placement (QIP) issue, troubled real estate company Unitech has postponed the repayment of a large part of the Rs 500-crore debt it had to pay back to mutual funds by April 19. According to a person familiar with the development, Unitech has repaid a fifth of this amount and rolled over 80% by another 12 months.
When contacted, the company refused to comment. However, a top executive, on condition of anonymity, told ET NOW: “We have restructured most of the debt and paid off some in such a way that all mutual funds have been paid proportionately, but none of their debt has been completely paid off.”
The company has restructured the debt for one year at an interest rate of 13%, much lower than the earlier 18%, said the person with knowledge of the situation. Unitech owed over Rs 500 crore to mutual funds of Reliance, HSBC, Sundaram BNP Paribas, SBI, UTI, Kotak and ING Vysa.
The debt restructuring has taken place at the same time as the company closed its QIP last week. On Wednesday, it formally informed the stock exchanges that it had placed over 420 million shares to 44 QIBs (Qualified Institutions Buyers) at Rs 38.50 a share. A JP Morgan report last week said the issue will result in a 26% dilution of the pre-issue share capital. Company executives told ET NOW that Unitech plans to use the proceeds from the QIP for reducing its debt and launching new projects.
Last week’s successful closure of Unitech’s QIP issue had raised expectations that the real estate company will be able to repay the Rs 500-crore debt on time. But, the company has decided to follow a strategy of postponing the bulk of the repayment by another 12 months.
Discounts help DLF sell W Delhi project
Discounts help DLF sell W Delhi project
Business Standard, April 24, 2009, Page 5
Business Standard, April 24, 2009, Page 5
BS Reporters / Mumbai
DLF Ltd, the country’s largest property developer, has sold an entire housing project in West Delhi by offering flats for as much as 32 per cent less than the market rate.
The New Delhi-based developer, which launched a residential project at Shivaji Marg (better known as Najafgarh Road) on April 7, managed to sell all the 1,400 apartments on offer.
The project is being developed on a 38-acre lot for which DLF paid Rs 1,675 crore in a 2007 auction, making it the biggest land deal of that time. Each apartment will be between 1,200-1,525 sq ft.
The developer had priced the West Delhi project at Rs 6,000-7,000 a sq ft (basic selling price) and offered an initial discount of Rs 1,000 a sq ft, besides an additional one of Rs 500 a sq ft on timely payments. It also offered an 8.5 per cent discount if a customer paid the entire amount within a month of the initial booking, bringing down the effective price to Rs 4,075 per sq ft.
However, in addition to the basic price, customers have to pay preferential location charges varying between Rs 500 and 1,250 per sq ft, depending on what they chose and parking charges varying between Rs 300,000 and Rs 675,000.
Brokers who spoke to Business Standard said those still wishing to buy would be added to the waiting list. A DLF spokesperson confirmed the sale of all apartments but declined to say anything further.
Though brokers in Delhi say the price is good compared with current prices in the area, they say developers are cutting prices to clear their stock quickly, to create liquidity. According to data from property consultant Cushman & Wakefield, the current market price in the nearest comparable residential area is Rs 6,000 a sq ft.
“Apartments are not getting sold easily today. If they have to sell immediately, they have to sell at cheaper rates,” said Anil Singhal, a property broker based in New Delhi.
DLF has been forced to drop prices of some projects after facing opposition from customers. In the past month, it has reduced prices in some of its Chennai, Bangalore and Gurgaon projects by 10-20 per cent.
Thursday, April 23, 2009
World output expected to fall 1.3% in ’09: IMF
World output expected to fall 1.3% in ’09: IMF
The Economic Times, April 23, 2009, Page 14
PTI WASHINGTON
WITH the global economy reeling under recession, the International Monetary Fund (IMF) on Wednesday said world output is projected to decline by 1.3% in 2009, indicating that the slump is the deepest since World War II.
However, it is expected to recover only gradually in 2010, growing by 1.9 per cent, the IMF said in its World Economic Outlook report released at its headquarters in Washington.
“Achieving this turnaround will depend on stepping up efforts to heal the financial sector, while continuing to support demand with monetary and fiscal easing,” it said.
The IMF said advanced economies experienced an unprecedented 7.5 per cent decline in real GDP during the fourth quarter of 2008, and the output is estimated to have fall during the first quarter of 2009.
It is not only the US which has experienced a sharp downfall, but also other economies of the world too have had the same fate, including the western Europe and advanced Asia, it said. Emerging economies too are suffering badly and contracted four per cent in the fourth quarter in the aggregate.
While there have been some encouraging signs of improvement since the G-20 Summit in London early this month, the report said confidence in financial markets is still low, weighing against the prospects of an early economic recovery.
The April 2009 Global Financial Stability Report (GFSR) estimates write-downs on US-originated assets by all financial institutions over 2007-10 will be USD 2.7 trillion, up from the estimate of USD 2.2 trillion in January 2009. This is largely a result of the worsening prospects for economic growth. Total expected write-downs on global exposures are estimated at about USD 4 trillion, of which twothirds will fall on banks and the remainder on insurance companies, pension funds, hedge funds, and other intermediaries, it said.
An important side effect of the financial crisis, the report said, has been a flight to safety and return of home bias, which have had an impact on the world’s major currencies. Since September 2008, the US dollar, euro, and yen have all strengthened in real effective terms.
As the World Economic Outlook (WEO) projections assume that financial market stabilisation will take longer than previously envisaged, even with strong efforts by policymakers, the IMF said financial strains in mature markets are projected to remain heavy until well into 2010.
IMF lowers India's growth estimate to 4.5% for 2009
IMF lowers India's growth estimate to 4.5% for 2009
Business Standard, April 23, 2009, Page 2
BS Reporter / New Delhi
Within a span of three months, the International Monetary Fund (IMF) has reduced India’s growth projection by 0.6 percentage points to 4.5 per cent in 2009, saying that the Asia’s third largest economy has “less room to ease macroeconomic policies”.
However, in 2010, the multilateral agency predicts growth rate to recover to 5.6 per cent.
“The slowdown is primarily a result of weaker investment, reflecting tighter financing conditions and a turn in the domestic credit cycle,” the IMF said in its latest World Economic Outlook (WEO) report.
Saying that room to manoeuvre in terms of fiscal expansion is limited because of high public debt, the IMF said, “Policy rates remain high in real terms in India, and further rate cuts would help bolster credit growth.”
The Reserve Bank of India (RBI), in its latest credit policy, had reduced key interest rates by 0.25 percentage points. But repo rate — the rate at which it lends to commercial banks — is still at 4.75 per cent.
However, the report said, “China and India will see growth dropping sharply, but are still expected to achieve solid rates of growth by the standards of other countries, given the momentum of domestic demand.”
The world output, as per the latest projection, is expected to contract by 1.3 per cent in 2009, the weakest performance by far of the whole post-war period. In January, the IMF had predicted world economy to expand by 0.5 per cent.
IMF pegs India's growth at 4.5%
IMF pegs India's growth at 4.5%
The Economic Times, April 23, 2009, Page 14
NEW DELHI: IMF on Wednesday scaled down In-dia's growth projections for 2009 to 4.5% from the earlier estimate of 5.1%. The Indian economy is also expected to register a slower growth rate at 5.6% next year, down from 6.5% estimated earlier, the IMF said in its latest World Economic Outlook. The IMF's estimates are quite pessimistic compared to the Reserve Bank's projections, which too are seen as conservative. The RBI in its annual policy has pegged India's economic growth at 6% this fiscal, which comprises the last nine months of the calendar year 2009. RBI governor D Subbarao on Wednesday said that India's growth going below 6% this fiscal is a remote possibility.
Oil Firms set to Lead in Q4
Oil Firms set to Lead in Q4
The Financial Express, India Inc, April 23, 2009, Page I
Viveat Susan Pinto
This results season is likely to be a trial by fire for corporate India. The question is: can companies keep their heads above water when recession is threatening to eat into quarterly numbers? Signs suggest that it is likely to be a tough battle for most this season.
Traditionally, fourth quarter results have been the better of the lot in a financial year. That’s primarily because the Jan-Feb-March quarter is the early part of the calendar year and companies land up with fresh orders from customers on the back of an aggressive push in products and services by them. Consumer sentiment also tends to be high around this time, so the propensity to spend is more, which means that demand is also high. Companies obviously stand to gain from this.
But the fourth quarter of the financial year 2008-09 may see none of this because it was the first full quarter that bore the brunt of the economic slowdown triggered by the financial meltdown in September 2008. It is believed that many companies are unlikely to announce their audited results for the financial year anytime soon because of the painful quarter.
Fast moving consumer goods, oil marketing companies, telecom and cement etc are likely to post decent numbers, on the other hand. “Overall,” says Manish Sonthalia, fund manager at Mumbai-based Motilal Oswal Securities Ltd, “there is likely to be an earnings’ degrowth on a year-on-year as well as quarter-on-quarter basis for the benchmark BSE-Sensex companies. These companies are drawn from a number of industries. The decline in net profit in my view could be as steep as 15% year-on-year for these players. But I do see a divergence in results across companies and sectors.”
Sectors such as metals, real estate, auto components, retail, gems & jewellery etc are likely to feel the pressure considerably in the fourth quarter.
* Oil & Gas
Oil marketing companies are expected to show a stellar performance in the fourth quarter because of falling crude price globally, which has declined significantly from $140 per barrel in June to around $35 per barrel in December last year and remained at around $40 a barrel in January-February 2009. Under recoveries of oil companies have come down significantly and cost of petrol and diesel was lowered by Rs 2 and Rs 5 respectively in the domestic market. In fact, gross refining margin had softened during the September-December 2008 quarter and it has witnessed marginal improvements. For public sector oil companies, inventory loss was a major reason for weakening numbers in quarter ended December 2008, but that has been minimised in the quarter ended March 2009.
* Cement
Cement companies are likely to gain this quarter on the back of increased demand coming from the infrastructure sector.
Projects are normally pushed aggressively in this period, resulting in a higher offtake of cement at this time, says Rajan Kumar, a cement analyst at Centrum Broking in Mumbai. Dispatches, for instance, are likely to grow by about 10% this quarter. Production, on the other hand, could grow by 10.7%, he says. Most of the cement companies, for the record, have also managed to increase their price by 1.5-1.7% this quarter, implying better realisations for these players.
* Steel
Steel companies, like cement players, are likely to do well on the back of robust demand in the Jan-Feb-March quarter from sectors such as infrastructure and automobiles. At times, during the quarter, say analysts, companies such as Tata Steel and Ispat Industries have even attempted to realign production to the prevailing demand, thereby attempting to bring down mismatches in supply and demand. Volume growth, say analysts, is likely to be over 40% for these companies. Earnings growth is also likely to be high.
* Telecom
This sector, say analysts, is likely to post good numbers on account of new subscriber additions to the tune of about 15 million in the fourth quarter. When most players were scaling back on expansion, telecom operators were actively launching services, in contrast. Reliance, for instance, launched its GSM services in 14 circles this quarter. Clearly, telecom is an active sector. But the increased competition is likely to keep average revenues per user (ARPU) under pressure for companies. By some accounts, ARPUs are likely to decline by 6-10% quarter-on-quarter for most companies.
* FMCG
A defensive sector, FMCG is likely to register good growth on the back of sustained consumer demand. Prices, for instance, were dropped by about 10-15% in the fourth quarter. This is likely to impact margins, say analysts. But decent volume growth in the range of about 7.5-8% during the quarter, savings on account of lower input prices and the duty cuts announced by the government during its various stimulus packages is likely to mitigate the pressure on margins to a certain extent. “FMCG is one sector that remains relatively unaffected during a downturn. That works for it,” says Amitabh Chakraborty, president, equity, Religare Hitchens Harrison.
* Capital goods & engineering
This sector is likely to see moderate growth despite the fact that industrial production has actually shrunk in the last few months. A key reason for this is the buoyancy in the production of capital goods. Output of capital goods, for instance, increased by 10.4% in the month of February, when industrial production actually came down by 1.2%. In January, industrial production was marginally up by 0.5%.
Year-on-year, say analysts, topline growth for companies in the sector is likely to be about 10-15%. Bottomline, on the other hand, is likely to grow by about 5-6% only.
Companies such as Bharat Heavy Electricals Ltd and Larsen & Toubro may show an above-average performance on the back of good order books. But since the times are rather tough, analysts are wondering whether these players will be able to sustain the momentum going forward.
Companies such as Suzlon, Siemens and Crompton Greaves, for instance, have seen their order books stagnate over the last few months. The fourth quarter is not likely to be any different for these companies. In fact, analysts fear that increased competition between players for orders could put pressure on margins. There is also a danger that existing project pricing could be renegotiated by customers putting further pressure on margins.
* Information technology
IT bellwether Infosys set the ball rolling for this sector with the announcement of its Q4 results on April 15. The company registered a decent 24% and 29% growth in topline and bottomline year-on-year. Net profit, interestingly, was higher than analysts’ estimates, who had pegged it to be in the region of about 25-26%. Topline estimates were also similar. Infosys therefore seemed to have performed marginally below analysts’ expectations on the parameter of net revenue at least. Sequentially, the IT major had nothing much to show predictably. This, in fact, is likely to be the trend for most companies this quarter. As the economic slowdown weighs down on companies, most will not have much to show sequentially.
For instance, archrival TCS could post a decline of about 2-3% in net profit sequentially. Wipro, on the other hand, may see a decline of about 1-2% in net profit quarter-on-quarter, while HCL Technologies may post a decline of about 12-13% respectively.
On the metric of operating profit margin, companies are likely to show a decline of 1-3%, say analysts. This could have been worse, if companies had not initiated cost-cutting measures in earnest. Most were quick to react to the financial crisis at the start of the third quarter by trimming wage bills and improving operational efficiency. Lateral inductions have come down though companies such Infosys have stuck to their commitments on campus recruitment.
* Pharmaceuticals
Sales growth in the pharmaceutical sector during the quarter ended March was driven by strong performance in mid-cap generic companies, though some companies would face MTM losses on outstanding foreign currency loans and hedges. Analysts are expecting sales growth at Q4 around 20% YoY because of strong demand and revenue growth from companies in mid-generic and contract research and manufacturing services. The 3% depreciation of the rupee against the dollar in the quarter is likely to push up topline growth of pharma companies. Analysts expect that in the long-run, the sector is likely to face some headwinds as the pipeline for development of blockbuster drugs is drying up and the generics market is facing extreme competition. In the domestic pharma market, analysts say there are chances of consolidation as there were reports that Glaxosmithkline Pharma and Sanofi Aventis were interested in acquiring a stake in Piramal Healthcare in spite of strong management denial.
* Auto
In auto, two-wheeler and passenger-vehicle manufacturers are likely to gain from a pick-up in demand in the fourth quarter, thanks to a drop in product prices as well as a drop in interest rates by banks. All of this came about following the stimulus packages of the government between December ’08 to February '09 when monetary and fiscal measures such as a 4% cut in excise duty, cut in bank rates etc were announced. This, say analysts, was successful in brining consumers to the marketplace, who were deferring purchases otherwise.
Commercial-vehicle makers, in contrast, especially, medium and heavy-commercial vehicle manufacturers, are not likely to gain much in the quarter ending March on account of the economic slowdown that has brought down transportation of goods. Besides, non-banking finance companies are also facing a fund crunch at the same time. By some accounts, almost 90-95% of the purchase of a commercial vehicle is externally financed, primarily by NBFCs. With a credit crunch, sales of commercial vehicles have obviously suffered, say analysts.
* Banking
This sector, say analysts, is likely to underperform quarter-on-quarter mainly on account of a marginal growth in credit in the Jan-Feb-March months. Year-to-date credit growth up to March 13, 2009, for instance, was merely 14.8% as against a stated target of 24% by the Reserve Bank of India. This is likely to pull down both topline and bottomline of banks, say analysts. Topline, they say, is likely to be flat this quarter, while net profit could decline by about 10-12%. Says Chakraborty of Religare, “Banks are likely to make a higher provision for non-performing assets (NPAs) as well as mark-to-market losses on investments this quarter. This is likely to eat into their profits.”
* Metals (non-ferrous)
Demand hasn’t been very firm for allied metals in the fourth quarter. This is likely to put pressure on both topline and bottomline of firms. The price of base metals has also fallen at the same time by over 10-20%, say analysts. This is likely to exert even more pressure. Metal companies, they say, are likely to see an earnings degrowth of over 60% this quarter. This hardly makes the picture rosy for these companies.
* Textiles
This sector like most export-oriented industries has suffered enormously in the wake of the financial meltdown. The October to March period is generally considered to be a hectic one for textile companies. But the financial meltdown has resulted in a worldwide contraction of demand. As a result, the third quarter as well as fourth quarter has been a bad one for these firms. It doesn’t help that the minimum support price of cotton has increased by over 30-40% in the period making Indian cotton steeper by over 15-20% to international cotton. This has put added pressure on company margins. Year-on-year and quarter-on-quarter margins, for the record, could decline by over 40-50%, say analysts.
Tougher steps needed to spur recovery: IMF
Tougher steps needed to spur recovery: IMF
The Financial Express, April 23, 2009, Page 1
Economy Bureau, New Delhi
Notwithstanding determined and concerted policy action by central banks and governments around the world, global GDP is now projected to decline by 1.3% in 2009, according to the World Economic Outlook of the International Monetary Fund. A January update had projected more optimistic 0.5% growth. However, the report now expects the downtrend to bottom out only by the end of this calendar year, although unemployment will take longer to turn around.
The report, released on Wednesday, expects growth to recover by 2010 to a positive 1.9%. “World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year,” said IMF chief economist Olivier Blanchard.
Projections show that India’s growth will slip to 4.5% in calendar 2009 and recover to 6.5% next year. China will see expansion dropping sharply 6.5% this year and then rebounding to 7.5% in 2010. On Tuesday, the annual policy statement issued by RBI forecast India’s GDP growth in 2009-10 at 6%. Speaking to FE recently, HDFC chairman Deepak Parekh said the IMF projections are “unacceptably low”.
The forecast by IMF remains especially bleak for advanced economies, where output is projected to contract by 3.8% in 2009, against 0.9% growth in 2008. Rates will stabilise at near zero only in 2010, it said. Worst hit in 2009 will be Japan (6.2%), Germany (5.6%), Italy (4.4%), France (3%) and the US (2.8%). This means sectors that depend on exports to Europe and the US can expect very little recovery this year.
The IMF has cautioned that economies would need wide-ranging efforts to deal with the financial strains. In emerging economies, the corporate sector is at considerable risk, the report says. It therefore suggested direct government support for corporate borrowing. India, for instance, has extended sops to exporters for their bank debt. The report says measures to help trade finance through various facilities would keep trade flowing and limit damage to the real economy.
The report notes that though India is less exposed to the decline in global demand as, compared to China, the economy has been hit by difficult external financing for both firms and banks. India’s slowdown is primarily due to weaker investment reflecting tighter financing conditions and a turn in the domestic credit cycle. Pointing out that policy rates remain high in real terms, the IMF argues that further rate cuts would help bolster credit growth. But India’s room to manoeuvre on the fiscal front is limited because of large debts.
However, a significant gain for India would be the steady deceleration in consumer price increases, from 8.3% in 2008 to 6.3% in 2009 and further to 4% in 2010.
However, the current account deficit will remain on the high side, moving from 2.8% of GDP in 2008 to 2.5% in 2009 and then to 2.6% in 2010.
Despite India and China, aggregate growth in emerging and developing economies will slip from 6.1% in 2008 to 1.6% in 2009 then recover to 4% by 2010. But the IMF has acknowledged that these are still solid rates of growth. It says China is better placed, as there were some signs of a turnaround in the first quarter of 2009. Among major developing countries, the worst affected would be Russia and Brazil, with their output shrinking by 6% and 1.3%, respectively in 2009.
The World Economic Outlook’s dismal projections are based on the assumption that financial market stabilisation will take longer than previously envisaged, even with strong efforts by policymakers. Thus, financial strains in the mature markets are projected to remain heavy until well into 2010, improving only slowly as greater clarity over losses on bad assets and injections of public capital reduce insolvency concerns, lower counter-party risks and market volatility, and restore more liquid market conditions.
Fiscal deficits are expected to widen sharply in both advanced and emerging economies, as governments are assumed to implement fiscal stimulus plans in G20 countries amounting to 2% of GDP in 2009 and 1.5% of GDP in 2010. The projections also assume that commodity prices remain close to current levels in 2009 and rise only modestly in 2010, consistent with forward market pricing
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