Real Estate Intelligence Service, Thursday, July 16, 2009

Positive cues drive up Sensex

Positive cues drive up Sensex
The Financial Express, July 16, 2009, Page 1

The Sensex surged for the second day on Wednesday on strong local and global cues. The advancing monsoon, renewed reform signals from the government and hopes of robust earnings by American banks buoyed the stock market.

The Sensex gained 399.54 points or 2.88% at14,253.24 points. The Nifty closed thedayat4,233.50points, up2.97 % or122.10points. Overseas, a better than expected earnings from Goldman Sachs triggered a strong rally in the global markets. All the key Asian equity indices extended their gain by 1 % to 3.5 %. Back home, the finance minister's announcement on Tuesday after market hours that the government would return to fiscal prudence and not monetise debt allayed market concerns about India's growing fiscal deficit.

Stimulus packages now bearing fruit, sectors reviving: Pranab

Stimulus packages now bearing fruit, sectors reviving: Pranab
The Economic Times, July 16, 2009, Page 8

ET Bureau, NEW DELHI

Finance Minister Pranab Mukherjee on Wednesday underscored his intention to continue stimulating the economy than trimming the mounting fiscal deficit now. The government is betting on an economic revival for higher tax receipts later.

"What is required right now is to achieve high growth in the shortest possible time," Mr Mukherjee said in Parliament, where the budget for 2009-10, the largest ever with expenditure proposals exceeding Rs 10 lakh crore, was approved by the Lok Sabha and Rajya Sabha on Wednesday.

The minister added that four stimulus packages, including this year's budget, amounting to Rs 2.18 lakh crore have started bearing fruit in many crucial sectors of the economy.

Output of major steel producers grew 13% in June this year, cement production increased by 13.1% and automobile sales rose 17.4%, the minister said in the Upper House of Parliament.

"It (stimulus measures) has started yielding results and I must say it is visible but it is slow," he said.

"In absolute terms, the first three fiscal stimulus amounted to Rs 1.86 lakh crore and the fourth one also will add an additional sum of Rs 35,000-36 ,000 crore and will almost total to Rs 2.18 lakh crore," he added.

The first stimulus package was announced in December last year, followed by two more in January and February this year prior to this year's full budget announced last week. The government expects 7% economic growth this fiscal after the economy expanded at the rate of 6.7% last fiscal, sharply slower than 9% or more in previous three years.

The minister said priority is given to betterment of the poor over satisfying credit rating agencies, although he was concerned over the projected fiscal deficit of 6.8% of the GDP. The government plans to trim deficit to 5.5% of GDP by March 2011 and to 4% in the following 12 months.

"Yes, (given) this high level of fiscal deficit, some international rating agencies S&P, Moody's and others can think of downgrading the rating, but the question is what would be the first priority of an Indian finance minister—to take care of the Indian poor or to adhere to satisfy the requirements of a rating agency?" Mr Mukherjee asked Parliamentarians.

"I am deeply concerned. My officers are in touch with them, but please remember you will say that these are extraordinary situation... it demands extraordinary solution and extraordinary steps," he said.

Ratings of 34 countries, including UK, have been downgraded by many such organisations , he added. Earlier, global rating agency Standard and Poor’s had downgraded the outlook on India's ratings after the interim Budget, which had pegged fiscal deficit at 5.5% of GDP in the current fiscal.

Markets rally for second day on strong local, global cues

Markets rally for second day on strong local, global cues
The Financial Express, July 16, 2009, Page 1

fe Bureau, Mumbai

A combination of positive cues from domestic and overseas markets helped the Indian equity bourses extend its rally for the second consecutive day. Cues from overseas market that corporate earnings, especially in the banking sector, would be better than expected and signals from the government in India that it would continue on the reforms route resulted in renewed buying by foreign institutional investors (FIIs) and domestic institutional investors (DIIs).

According to provisional figures released by stock exchanges, FIIs bought net equities worth Rs 255.46 crore on Wednesday while domestic mutual funds and insurance companies bought equities to the tune of Rs 272.97 crore. As a result, the 30-share Sensex of the Bombay Stock Exchange (BSE) closed the day, gaining 399.54 points, or 2.88%, at 14,253.24 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) closed at 4,233.50 points, up by 2.97%, or 122.10 points.

Better than expected earnings from investment bank Goldman Sachs triggered a strong rally in the global markets. All key Asian equity indices extended their gains by 1% to 3.50%. Goldman Sachs bettered analyst forecasts by reporting a 33% rise in quarterly earnings with revenue of $13.6 billion against an estimate of $10.6 billion. On the domestic front, finance minister Pranab Mukherjee’s announcement on Tuesday after market hours that the government aims to return to fiscal prudence and not just depend on monetization allayed fears regarding India ’s growing fiscal deficit among market followers. It was also seen as a signal that there would definitely be a disinvestment programme in the offing. There was reassurance from the minister about the government's continuing dialogue with various ministries for identifying public sector undertakings for shedding the centre's holding.

Meanwhile, a survey conducted by ‘ING Investor Management’ shows that India enjoys the highest level of investor optimism across Asia-Pacific region. The survey states, “63% of Indian investors feel that the Indian economy is growing. Hence the proportion of investors taking aggressive strategy for ‘capital appreciation’ increased from 10% in first quarter of 2009 to 21% in second quarter of 2009. Further 84% of the Indian investors considered that the government policy on investment in second quarter 2009 was favourable compared to 47% in the previous quarter.”

"Markets were, technically, in an oversold position. So a combination of feel good factors from global and domestic markets like better earnings reported by Goldman Sachs and expectations of monsoon advancing to other parts of the country triggered a rally in the equity market”, said, Arun Kejriwal, MD, Kejriwal Research and Investment Services. For the second consecutive day, BSE small and mid cap index managed to outperform the benchmark Sensex by gaining 4.56% and 4.15%, respectively. The market breadth, which indicates the overall health of the market, remained robust throughout the trading session with 2,038 stocks edging higher in BSE compared to 557 stocks declining.

Among the sectoral indices BSE realty lead the pack gaining 7.98% while BSE metal and power index posted a gain of 5.67% and 4.77% respectively on Wednesday.

Experts argue that the stocks that had been battered heavily throughout last week post budget disappointment are witnessing value buying at lower levels. The stock of DLF Ltd, one of the largest realty players in India rose by 7.18% or Rs 21.55 to end the day at Rs 300.10. On the other hand among the metal sector Hindalco and Jaiprakash associates lead the rally posting a gain of 8.22% and 7.74% respectively.

Sensex rises 2.88% on FM pep talk, global cues

Sensex rises 2.88% on FM pep talk, global cues
Business Standard, Money & Markets, July 16, 2009, Section II, Page 1

BS Reporter / Mumbai

Intel, Goldman Sachs results help improve sentiment.

Stock market indices surged for the second consecutive day on the back of Finance Minister Pranab Mukherjee’s statement that the economic stimulus was showing intended results. Also, better-than-expected results from Intel and Goldman Sachs and rise in metals prices improved sentiments.

The Bombay Stock Exchange Sensitive Index, or Sensex, surged 399.54 points or 2.88 per cent to close at 14,253.24, thereby recovering 6.36 per cent during the week. Last week, it fell by 9.45 per cent. The S&P CNX Nifty added 122.10 points or 2.97 per cent to 4,233.50.

The BSE Mid-cap and Small-cap indices outperformed the broader market. The former added 4.15 per cent to 4,978.64, while the latter gained 4.56 per cent to 5,523.80.

“The market responded positively to the long-term investment plan mentioned in the Finance Minister’s Budget. Today’s sharp rise signalled a secular and core buying support,” said Rajesh Jain, CEO, Pranav Securities.

Asian markets ended with big gains, buoyed by good sentiments in the international markets. The Straits Times and Jakarta Composite rallied 3.41 per cent and 3.24 per cent, respectively. The Hang Seng was up 2.09 per cent.

US markets closed flat yesterday after good results from Goldman Sachs and Intel. Both the Nasdaq and the Dow Jones closed up by 0.36 and 0.33 per cent, respectively.

The market breadth was positive with 3,164 stocks closing in the green, just 697 fell and 103 remained unchanged.

All the BSE sectoral indices were in the green, led by yesterday's top gainer - realty index. The index soared 7.98 per cent. Metal (5.67 per cent), power (4.77 per cent) and capital goods (4.72 per cent) were the other top gainers among indices.

Jaiprakash Associates and DLF gained 7.74 per cent and 7.18 per cent, respectively. Sensex heavy-weight Reliance added 3.52 per cent to Rs 1,875.

Rating agency Moody's said today that though there had been capital inflows into the stock market, it expected “India to record gradual recovery in foreign direct investments in the coming months, especially since the Indian authorities were keen to promote public-private partnerships in supporting growth initiatives.”

Sterlite Industries, the nation's biggest copper producer, rose 4.2 per cent to Rs 629.5. Tata Steel added 6.5 per cent to Rs 380.9. Hindalco jumped 8.2 per cent to Rs 79.6.

Copper rallied to a two-week high in Shanghai on speculation that demand for the metal in China may accelerate as the country's economy strengthens. Copper for October delivery on the Shanghai Futures Exchange rose 2.3 per cent to 40,600 yen ($5,942) per tonne, extending yesterday's 2.1 per cent advance. Three-month delivery copper on the London Metal Exchange jumped for a third day, adding 0.5 per cent to $5,068 a tonne.

A measure of six metals traded on the London Metals Exchange, comprising copper, aluminum, lead, tin, zinc and nickel, leapt 3.4 per cent yesterday.

Realty counters hog limelight

Realty counters hog limelight
The Hindu Business Line, July 16, 2009, Page 10

Our Bureau, Chennai

Turnover moved up a bit to Rs 57,969 crore in the F&O segment on the NSE on Wednesday. The Nifty July future ended with a minor premium at 4,236.9 against the spot close of 4,233.5. Among the options, 4,000 puts added 20.19 lakh shares in open interest. This suggests that 4,000 could act as strong support of Nifty due to the strong emergence of put writers. On the other hand, 4,100 call shed open interest indicating that traders squared off their lower strike and rolled it over to higher strikes such as 4,300 and 4,400.

Stock futures

Today belonged to realty counters. Even, Indiabulls Realestate and Lanco Infratech entered the active zone in today’s trading. Suzlon continues to see accumulation; it added 42.78 lakh shares in open interest. While DLF shed open position, Lanco and Indiabulls added 9.38 lakh shares and 13.67 lakh shares. Aban Offshore, which is surging quite sharply in the last few days, also shed open interest and also ended in discount at Rs 819.2 against the spot close of 822.9.

FII activity

Overseas investors maintained their buying. They were net buyers by Rs 965.25 crore in F&O on Wednesday

Budget housing to leave little room for profit margins

Budget housing to leave little room for profit margins
The Economic Times, July 16, 2009, Page 8

Supriya Verma Mishra , ET Bureau

The real estate sector, which has been languishing for some time, appears to have found its feet with focus on affordable housing and this may reflect in the June quarter results of the companies. The move has led to higher sales for many companies, but on the flip side, it has also impacted the margins negatively. The reason being that the mid-segment housing is a high volume, low margin business.

The June quarter results, therefore, may be a tad better on a quarter-on-quarter basis. But much lower than those reported in the corresponding period of the previous year. The average of estimates of ET Intelligence Group and eight brokerage houses shows that the overall industry sales are expected to decline 30% on a year-onyear (YoY) basis. On a quarter-on-quarter (QoQ) basis, industry sales would grow at an average 30%.

It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress.

Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown 5% increase in sales. With a 70% YoY decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold noncore assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.

Many companies have launched new residential projects in affordable housing segment. Though construction costs would be low, EBIDTA margins would decline by 5-10 % average due to sharper decrease in prices. However, companies like Unitech, DLF, HDIL, and Sobha that have raised funds have improved their balance sheet positions and thus lowered their overall finance cost. Average EBIDTA margin for June’ 09 would be 39% as against 43% for March’ 09. Peninsula Land is expected to show positive margin, as the number of projects was very limited, hence leverage was also low.

Despite all the gloom, realty sector is seen to show some improvement in margins. The overall PAT margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40 %. However as alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers like Mahindra Lifespaces, IBREL and Peninsula Land are expected to report PAT margins upward of 30%.

Realty slump hits home retail biz

Realty slump hits home retail biz
HT Business, July 16, 2009, Page 1

The real estate slump, triggered by the financial crisis is seeing a rub-off effect on organised retailers in home retailing and home furnishing Pantaloon Retail, for instance, logged a 34.36 per cent fall in its June same-store sales, though its value and lifestyle retailing registered 8.07 per cent and 8.19 per cent growth respectively — the seventh monthly fall in a row Mahesh Shah, CEO, Home Town, told Hindustan Times: “There was a phase of real estate slump that we have seen, which has affected our business.”

He added that things were looking better, and the company opened its 8th Home Town store in Kolkata in June Nilkamal group, which runs the ‘@home’ home furnishing and retailing stores, has also seen a decline in business over the past few months. Gautam Khedekar, general manager, project and logistics, @home said the company saw a 15 per cent fall in business in the second half of 2008-09 Things may be on the verge of a recovery, though. Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, a real estate service firm, said demand for housing has picked up over the past one or two months.

Do the math: deficit won’t push up rates

Do the math: deficit won’t push up rates
The Financial Express, July 16, 2009, Page 6

Mahesh Vyas

The gross fiscal deficit of the central government is projected to be 6.8% of the gross domestic product in 2009-10. This is higher than most expectations. The finance minister’s speech was categorical in ruling out privatisation of PSUs and also ruling out the divestment of its ownership in banking and insurance. The minister did not announce any “reforms” as the markets understand them.

As a result, the markets were punishing. Equity valuations dropped precipitously. CMIE’s COSPI (it includes all actively traded stocks) dropped by 7.5% from 4 July, the eve of the budget, to 14 July. The Nifty dropped 7% in the same period.

The question worth considering is ,will this high fiscal deficit cause high interest rates? I have stated earlier in this column that the fiscal deficits seen in the past two decades in India bear no statistical relationship with interest rates or inflation. Now, we work out some simple arithmetic to see how 2009-10 would pan out.

The 6.8% GFD/GDP ratio is derived from the central government’s plan to borrow Rs 4.5 lakh crore from the financial markets. But Rs 1.62 lakh crore has already been borrowed. Thus, more than one-third of the total annual borrowing was actually completed in the first quarter. This did not lead to a stiffening of interest rates. On the contrary, PLRs of banks declined during this period.

Back to the arithmetic. Rs 0.5 lakh crore is to be repaid on account of maturing government securities. Thus, the government has to effectively borrow only Rs 2.4 lakh crore in the remaining nine months of the year. This is a lot less daunting than what the Rs 4.5 lakh crore figure conjures.

Further, there is ample liquidity to meet the demands of the government and the private sector. Banks have consistently parked more than Rs one lakh crore with the reverse repo window of the Reserve Bank since April 2009. As of July 3, 2009, the amount outstanding in this account was Rs 1.6 lakh crore. Banks only park their excess liquidity in this account as it offers a mere 3.25% returns.

The statutory liquidity requirements on bank deposits is another source of funding the deficit. Banks are expected to mobilise Rs 7.7 lakh crore by way of deposits during 2009-10. These are expected to yield another Rs 1.5 lakh crore to the government as SLR during the July 2009 to March 2010 period.

Thus, the SLR investments of banks in the remaining months and the reverse repo investments of banks together can comfortably meet deficit requirements in the remaining months of 2009-10.

But, will all this funding of the government deficit hurt the availability of funds to the private sector through the banking system. Again, some simple arithmetic should help. RBI expects deposits to grow by 20%. We accept this assessment and thus estimate that Rs 7.7 lakh crore of deposits would be mobilised. Of this, 24% will be appropriated for SLR and 5% towards CRR. This leaves Rs 5.4 lakh crore of deposit money to meet credit disbursement. This is much more than the projected Rs 4.4 lakh crore of credit demand in 2009-10.

Credit demand is projected to drop in 2009-10. In the first quarter of 2009-10, outstanding bank credit declined from Rs 27.8 lakh crore as of March 28 to Rs 27.7 lakh crore as of June 20. Bank credit is thus expected to grow by 16% in 2009-10 as against a growth of 17.5% in 2008-09. This lower growth of 16% implies that credit deployment will be of the order of Rs 4.4 lakh crore in 2009-10.

Thus, banks’ deposit-credit gap will widen to Rs 3.2 lakh crore in 2009-10 from Rs 2.2 lakh crore in 2008-09. Banks will thus have additional liquidity. This additional liquidity will fund government borrowing.

The various computations discussed above make it clear that the large deficit of the government can be easily funded without straining the financial markets; without raising interest rates or starving the private sector of funds during the year. This does not justify the large deficit. It merely explains its implications for interest rates without debating its larger merit or demerits.

Recent press statements by bank leaders indicate that they expect interest rates to rise in the second half of the year. Implicitly, they do not expect them to rise around now. But, the calculations made above show that they are unlikely to rise during the entire year. The excess liquidity on the contrary imply that interest rates may even decline further during the year.

The question now is: why did the markets tank after the budget? Is the deficit going to hurt growth this year? Unlikely. The concern is elsewhere—will there be a normal monsoon. We discuss that another time.

—The author heads the Centre for Monitoring Indian Economy

HOUSES MOST AFFORDABLE SINCE ’05

HOUSES MOST AFFORDABLE SINCE ’05
The Times of India (Delhi edition), July 15, 2009

Prabhakar Sinha

Buying your own home is more affordable now than it has ever been in the last four years. The average price of a house is around 4.5 times of the buyer’s average annual income, against 4.6 times in 2005.

In 2007, the affordability factor had widened to 5.1 percent due to a sharp increase in real estate prices. However, with the prices of new houses dropping by around 30 percent, the number of years’ income required to buy a house has come down to 4.5 years.

Developers have realized the need to introduce affordable housing and are reducing dwelling size and omitting amenities, which drive up cost in a bid to cater to the untapped demand.

HDFC, India’s largest housing finance company, calculates the ‘‘affordability factor’’ based on data of its home loan borrowers. At 4.5 times of annual income, the average EMI would be about 50 percent of a house buyer’s income on a 15-year loan. In the home loan market, this is considered affordable.

With interest rates softening in the last six months, demand has got a further boost. Bankers expect interest rates to stay stable, with a downward bias, for the next six to nine months.

DEMAND FOR HOME LOANS PICKING UP

DEMAND FOR HOME LOANS PICKING UP
The Times of India (Delhi edition), July 15, 2009

With affordability factor of buying a house is increasing, senior officials of banks like ICICI Bank and State Bank of India said on Tuesday that demand for home loans has picked up.

In 2003 and 2004, when the housing boom had picked up, the situation was almost similar with the affordability factor down to around 4.5 and interest rates on home loans at 8 percent. A senior banker in ICICI Bank said that if the economic slowdown is arrested and interest rates retained at the present level, there would be a boom for demand of affordable houses in the range of Rs 20 lakh-30 lakh. This, bankers feel, may push the price up in the medium term of six to nine months.