Real Estate Intellgence Service, Thursday, September 10, 2009

Inflation to turn positive soon

Inflation to turn positive soon
The Times of India, September 10, 2009, Page 21

Reserve Bank May Roll Back Easy Money Policy To Contain Price Rise

Prabhakar Sinha TNN

New Delhi: The annual inflation, based on whole sale price index (WPI) is likely to enter into the positive zone in the next couple of weeks after remaining in the negative territory for last three months. In the last couple of weeks, the whole sale price index has seen a sharp rise due to double digit increase in the prices of food articles.

Finance secretary Ashok Chawla said that the inflation may rise to around 6% by March 2010. A global securities research firm Barclay capital in a report said that the inflation may race up to 5.6% by December 2009 and to around 7% by March 2010. Similarly, Japanese research firm Nomura Financial Advisory and Securities (India) PTE Ltd said that inflation may touch 6.5% by March 2010.

However, the entry of WPI-based inflation into the positive territory is mainly due to the base effect. In fact, the inflation had turned negative mainly because of the rise in the commodity prices including petroleum products during May-September 2008. But as the global economy witnessed a recessionary trend since September 2008, the commodity prices fell sharply.

The fall was so sharp that the prices of the majority of commodities and industrial products remained at the lower level than what they were during May-September 2008. Therefore, despite the rise in food prices during last one year, the average weighted price of the items included in the basket to measure inflation remained in negative. The average weighted price of the items in the basket is known as WPI.

However, September onwards things are expected to change. In 2008, the prices crashed in the second half of September and early October. Therefore, the WPI fell sharply as shown in the chart last year. That means, the base, against which the prices are to be compared this year after mid September to calculate annual inflation is lower than what it was for the last three months.

At the same time, due to the rise in the prices of food products, the WPI this year has increased. Even if the prices do not go up from the present level, the inflation will become positive in the first week of October.

But as the prices are likely to go further up due to weak monsoon, the inflation may rise even sharply. A senior analyst said that it might enter into the positive territory in the next two weeks.

In fact, if the economic recovery starts, the rise in the inflation will be even sharper. Barclays capital said that the situation of the negative contribution to inflation by petroleum products since December 2008 will change soon. Similarly, the prices of other sources of energy like coking coal are also likely to go up.

This might put pressure on RBI to change its easy money policy. Higher food prices will result in an increase in manufactured items. Moreover, the Nomura report said, with input-cost pressure building, excess liquidity and an improving demand outlook can increase output prices with a lag.

In its latest annual report, the Reserve Bank of India noted that inflation expectations have not declined as much as the negative WPI reading suggests, and that the expansionary fiscal stance with accommodative monetary policy may not lead to a sobering of inflation expectation. Therefore, the report said, the RBI may start hiking its repo and reverse repo rates from January.

Change land acquisition

Change land acquisition
The Economic Times, ET Editorial, September 10, 2009, Page 12

People Must Be Made Stakeholders

LAND acquisition procedures need to undergo drastic change — the point has been underlined yet again by developments at West Bengal’s Vedic Village, as if the developments at Nandigram and Singur were not enough. Offering farmers cash compensation for the land from which they are forcibly uprooted is just not enough. Farmers who lose land and others who derive their living from the land being taken away, even if they do not own it, must become stakeholders in the development that takes place on the land lost to traditional use. Many who are required to give up their land often have no other means of sustenance than the income from the land they hold. And therefore, their resistance to surrendering land, however small a patch it may be, is understandable. Yet, it does not make any sense to keep people engaged in marginal farming while pre-empting industry and services. People have to move out of marginal farming for their standard of living to go up. At the same time, it is not quite possible to shift unskilled farm labour directly to modern manufacturing or services — these activities call for sophisticated skill sets. Also, with greater reliance on capital and machinery, fewer people are required to keep factories running. Hence, reskilling those whose traditional occupations are disrupted by modern development, and organising them into new production units that would deliver the numerous peripheral services required by modern infrastructure and activity, must receive due emphasis.

If the farmer were to gain on a sustained basis from the development that would take place on land sold by him and his neighbours, there would be more willingness on his part to surrender land. That can happen only if the farmer were to get a regular income, say in the form of lease income, as part of the compensation. Such an arrangement can be worked out only if farmers are organised into cooperatives or companies, to continue to part-own the land, perhaps along with the project developer. India is industrialising under conditions of democracy and competitive politics; and this calls for altogether new policies for engaging the owners/users of the land that is being put to non-traditional use.

Doing business still not easy in India

Doing business still not easy in India
The Economic Times, September 10, 2009, Page 9

Despite Reforms, Country Slips To 133rd Spot On World Bank-IFC Index

Our Bureau NEW DELHI

INDIA slipped a notch to 133rd position among 188 countries in the Doing Business report for 2010 compiled by the World Bank and International Finance Corp as its consistent economic reforms were overshadowed by better business environment in other countries.

The Indian part of the report was based on regulations in 19 cities, including Mumbai, Ludhiana, Hyderabad, Bhubaneswar and Kochi.

The report highlighted the fact that the country had reformed bankruptcy laws in the year up to June 2009 by appointing more judges in the courts that judge payment defaults.

“India has been a consistent reformer. A country’s rank in the index is an average of 10 indicators, each with 10% weightage. India increased the number of judges in the specialised debt recovery tribunals that led to a major removal of blockages. While India reformed in the area of insolvency, other countries reformed in more than one area,” Dahlia Khalifa, senior strategy adviser at World Bank, told ET.

The annual report ranked Singapore, New Zealand and Hong Kong as the top three economies for the second consecutive year.

The report examines business environment for starting a business, dealing with construction permit, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

Meanwhile, India moved up one position to 49th in the World Economic Forum’s Global Competitiveness Report, 2009-10, which is based on a different set of indicators.

Specialised debt recovery tribunals were assigned more judges in the year up to June 2009, enabling them to pick up the pace of resolving foreclosures. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, has made it easier for courts to handle foreclosure procedures, the report said.

India took steps such as establishing inter-ministerial panels to work with a wide range of state governments for making the environment more friendly for business, Ms Khalifa said.

The report also highlighted the country’s progress in electronic registration of companies, which cut costs.

India needs an efficient administration and easier construction permits, Ms Khalifa said. “In the area of investor protection, India ranks 41st among 183 nations, while it stands at 30th in access to credit. While India can be a role model for many nations in these aspects, it can get inspired from them in other areas,” she said.

India stands at 175th position among 183 countries when it comes to ease of dealing with construction contracts. China and Hong Kong have the best norms in this respect.

The report also highlighted Maharashtra’s progress in reducing the cost of property transactions, which did not affect its revenues. “Switching to lower or fixed fees makes it faster and easier to transfer property while reducing under-reporting of property values. It also means that the capital gains and property taxes collected later will be based on more realistic values,” it said.

REPORT CARD

How did subcontinent fare?

India has slipped one place. All its neighbours better-ranked, except Afghanistan (160). Pakistan ranks 85th, followed by Sri Lanka (105), Bangladesh (119) and Nepal (123)

Why did India slip?

Deterioration in parameters like starting a business, obtaining credit, investor protection, dealing with construction permits & employing people

Easiest places to do business

Singapore, New Zealand, Hong Kong, US, Britain, Denmark, Ireland, Canada, Australia and Norway

How is the ranking done?

It is based on analysis of regulations for starting business, getting credit, paying taxes, registering property, trading across borders, enforcing contracts, protecting investors, employing workers and closing business

Top 10 reformers

Rwanda, Kyrgyz Republic, Macedonia, Belarus, UAE, Moldova, Colombia, Tajikistan, Egypt & Liberia

India slips to 133 spot in doing biz index

India slips to 133 spot in doing biz index
The Financial Express, September 10, 2009, Page 2

Chennai

India’s global ranking in terms of doing business declined to the 133 position in 2010, a notch lower than in 2009, according to the report Doing Business 2010: Reforming through difficult times, published by the International Financial Corporation and the World Bank.

India’s ranking has slipped on account of the deterioration in parameters like starting a business, obtaining credit and investor protection.

It has, however, improved its score on the “closing a business” indicator by taking steps to ease resolution of insolvency cases— a critical area in times of crisis.

On the parameter of starting a business, India fell by 3 positions to 169th position. The parameter is based on time, cost, procedures and paid-in minimum capital.

The economic crisis could not affect reforms in business regulations in South Asian economies with most of them making the process more efficient and creating more opportunities for local firms. Six of the eight economies in South Asia saw reforms.

However, India’s record in the most recent compares favourably when compared to the other Bric countries though it still remains at the last ranking among Bric countries. This is because China fared worse with its ranking slipping 3 rungs to the 89 th position. Russia and Brazil also saw their ranking slip by 2 rungs to the 120 th and the 129 th position respectively.

India’s neighbours, except Afghanistan , have been ranked better in the index. Pakistan has been placed at the 85 position followed by Sri Lanka (105), Bangladesh (119) and Nepal (123). Nepal lowered property transfer costs. Pakistan made it easier to start a business by introducing an e-service registration system. Sri Lanka improved access to credit information to help expand access to finance.

“The quality of business regulation helps determine how easy it is to reorganise troubled firms to help them survive difficult times, to rebuild when demand rebounds, and to get new businesses started,” said Penelope Brook, acting vice president for financial and private sector development for the World Bank Group.

Bangladesh, South Asia’s most active reformer, implemented an online company registration system-cutting start-up time by nearly month-cut corporate income taxes, and expedited trade by introducing an automated customs clearance system at its main port.

On the parameter of getting credit, the India lost 3 notches over the previous year to the 30th rank.

Citing a recent research in India, the report said poor women in the rural sector have difficulty in gaining access to the formal financial system and their chances of engaging in entrepreneurial activity shows a strong increase when they are able to secure a loan.

Further, India showed deterioration on the front of protecting investors and fell by 3 ranks to 41st position.

“The current crisis has made access to equity markets more challenging. In times of uncertainty, investors become even more concerned about corporate governance risks and look for legal protections,” the report said.

Other parameters on which India was seen slipping were dealing with construction permits and employing workers.

When it comes to global scenario, a record 131 of 183 economies carried out business regulations between June 2008 and May 2009.

Singapore occupies the first place in the Doing Business 2010 report, which focused on “Reforming through difficult times.

It is followed by New Zealand, Hong Kong and the United States. Two-thirds of the reforms recorded in the report were in low- and lower-middle-income economies.

India has been a consistent reformer

India has been a consistent reformer
The Financial Express, September 10, 2009, Page 2

P Raghavan

India and China are ranked very low on ‘Doing Business Report’ despite being the fastest growing economies. In an interaction with P Raghavan of FE, Dahlia Khalifa, co author, Doing Business team explains key business regulations and issues, which play a crucial role in attracting investors. Excerpts

Pace of regulatory reform has touched a record high during the last year. Has the quality of reforms also show a substantial improvement by focusing on core areas?

Last year, the reforms recorded were the highest ever. There was a 20% increase in reforms with the number of reforms implemented in 131 countries going up to 287. And two-third of these reforms were in developing countries unlike the scenario in the early years of the decade where the reforms were mostly in the developed countries

A major change that is noticed is that more and more countries are recognising the importance of the small and medium industries and the quality of regulatory measures in 10 areas of the business life cycle. Our study has also focussed on the SME sector as it is the largest sector in most countries. We also notice that the recession has forced the government to focus on this sector.

But the reforms seem to have evaded most of South Asia where ranking has slipped in case of most countries. Why is South Asia lagging?

This is because the ranking are relative. Some countries are naturally reforming faster than the others. So many countries in South Asia, which are reforming at a slower pace see a slippage in rankings. The differences are not just related to the pace of reforms but also the breath of reforms. Each of the 10 indicators which we have identified carries equal weight. So countries like Luanda come to the top as the country has taken up extensive reforms in 7 of the 10 areas. India has been a consistent reformer over the last 5 to 10 years.

But one should also remember that the national ranking in the study are based on the survey carried out in the largest city. In India’s case it is Mumbai, while it is Beijing in China and New York in the United States.

But Mumbai is not the top ranked city when it comes to doing business in India. As our earlier report on doing business in India showed, there are large differences across cities and places like Ludhiana and Hyderabad rank much higher than Mumbai.

India’s ranking in the 10 different areas is very skewed ranging from 30 in the getting credit ranking to 182 in enforcing contracts ranking. Which are the areas that should get top priority in India’s regulatory reform agenda?

Countries set their priorities according to their plans and generally it can be noticed that government normal tend to focus on reforms that can be done through administrative changes which are much easier to push through. Such step can for instance help to make the procedures for starting a business much more efficient like by doing it on line or from a single desk. But other reforms like legal changes are much more long term in nature like in the case of enforcing contracts. But India has a very good record in other areas like the ease of securing credit and protecting investor rights and these are impressive.

How relevant is the Doing Business ranking given that countries like India and China which continue to be among the fastest growing economies are ranked very low?

India and China are attracting investors. This study looks at the issues concerned with business regulations and there are a whole lot of other issues, which play a crucial role in attracting investors like market size, stability, the macroenvironment and so on which plays a equally important role in deciding the investments and overall growth of the economy.

Credit growth drops to 14.1 per cent

Credit growth drops to 14.1 per cent
Business Standard, September 10, 2009, Section II, Page 2

BS Reporter / Mumbai

Loan flow remains low, banks hike g-sec investment.

The credit demand in the country has remained unaffected by stable interest rates and the economy showing signs of revival.

According to the latest data released by the Reserve Bank of India (RBI) this evening, bank credit flow during the fortnight ended August 28, 2009, was estimated at Rs 5,612 crore. In the previous fortnight, bank credit had shrunk by Rs 5,000 crore.

Outstanding bank credit was estimated at Rs 28,07,582 crore as against Rs 24,60,753 crore during the corresponding period last year.

The moderate demand during the last few months is the result of companies putting their expansion plans on hold on account of low demand from households, which are waiting to see definite revival signs before committing expenditure. As a result, credit growth has slowed to 14.09 per cent for the year up to August 28, 2009, as against 25.8 per cent for the year up to August 2008. RBI has projected credit growth of 20 per cent for the current financial year.

Bankers said the situation would improve as there were signs of higher demand. “Demand for home loans has gone up as property prices have stabilised.

There is no further expectation of interest rates coming down. We see demand from both corporate and retail but disbursement is just a matter of time. Retail is contributing to the growth and by the year-end we will substantial participation by them,” said a senior executive of a public sector bank.

“Banks are focusing on retail followed by infrastructure projects and normal working capital requirement. We have seen a good number of projects getting sanctioned. Also, we have demand for crop loans after the revival of monsoon,” said Bank of India Executive Director M Narendra.

Bankers pointed out that segments such as automobiles had recovered, which would further spur demand. But private and foreign players were still reluctant to lend, though they were slowly returning to the market, they said.

An executive at a foreign bank said that with a large part of the bank funds cornered by the government borrowing programme, it was only natural that bank credit flow would be affected.

Despite of rates on deposits falling, banks mobilised Rs 21,616 crore during the fortnight. Bank deposit rates are hovering at 6.5-7.5 per cent at the moment. Also, demand deposits went up by Rs 3,719 crore while deposits with tenures of more than a year saw an inflow of Rs 17,896 crore.

“Although the deposit rates have come down from their peak last year, they are still attractive for retail investors,” said the executive. Deposits went up by 20.51 per cent on a year-on-year basis.

With low credit demand, bank investment in government securities and other approved securities went up by Rs 23,266 crore during the fortnight ended August 28, 2009.

FIIs put 422% more into construction in 6 months

FIIs put 422% more into construction in 6 months
The Financial Express, September 10, 2009, Page 4

Saikat Neogi, New Delhi

Foreign institutional investors are shoring up investment in the country’s construction sector. With the BSE Sensex touching a 15-month high, the market capitalisation of FII investment in construction has gone up a whopping 422% in the past six months. A detailed analysis by FE Research illustrates a return of confidence in the sector, which was missing during 2008 and also in early 2009.

While market cap does not depict an investment, the sum indicates the returns being generated for investors, which, in turn, is a tool for fresh investment. This move will also have a cascading effect on the sum poured into the real estate sector. Till September 8, FIIs have registered a net investment of Rs 40,362 crore in the domestic stock market. The total FII market cap in 13 leading sectors is Rs 4,45,313 crore.

Along with construction, the market cap of FII investment in infrastructure and heavy engineering has also shot up, largely due to higher government spending and leveraged investment by companies in these sectors. In heavy engineering, FII market cap has gone up 202% and in steel it was up 274% in the past six months. But the sectors that have not generated much FII interest are FMCG, PSUs, pharmaceuticals and telecommunications, considered as defensive stocks, as they give returns after a longer period of time.

Sarabjit Kour Nagra, vice-president, research, Angel Broking, said, "India, which is the second fastest growing economy after China, has been a major recipient of FII funds, which is likely to continue, given the strong fundamentals and growth opportunities. FIIs are likely to chase sectors or industries that are linked to domestic demand. Both consumption and investment-led industries, such as auto, banking, capital goods, infrastructure and retail, would continue to attract FII funds."

FIIs that have invested through qualified institutional placements (QIPs), public offers and even buy-backs at cheaper rates have benefited from the market rally and analysts say there would be more participation as others would not like to be left out of the rally. Last year, hit by the credit crunch and global slowdown, FIIs took out nearly $12 billion from the stock markets.

Going by the current market rally, analysts said the current FII holding of 16% in India’s top 500 companies may go beyond the 19% peak in 2007. The late revival of monsoon, upward revision of economic growth from 5.8% to 6.1%, better-than-expected performance of companies in the quarter ended June 30, the new direct taxes code, which promises to put more money in the pocket of the tax payer, and the trade policy with an ambitious target of $200 billion exports for 2010-11 have revived the confidence of FIIs investing in India.

Daljeet S Kohli, head of research at Emkay Global Financial Services, said FIIs have enough liquidity but no alternative market to investment other than India, where the domestic demand for goods and services is buoyant. "With the dollar weakening, FIIs are moving away from dollar denominated assets to emerging markets like India," he said.

India is one of the better performing markets, with the Sensex gaining 63% since January, as compared to China’s 58% in the same period. Within the first 100 days of UPA-II, FIIs have pumped in Rs 23,688 crore into the domestic stock market, the fastest-ever done by them.

PEs homing in on Tata’s low-cost Boisar project

PEs homing in on Tata’s low-cost Boisar project
The Economic Times, September 10, 2009, Page 4

SEQUOIA CAPITAL, ATLANTA EQUITY IN TALKS TO BUY MINORITY STAKES

Sanjeev Choudhary NEW DELHI

TATA Housing is in preliminary talks with Sequoia Capital and Atlanta Equity to raise funds for its hallmark affordable housing projects, signalling a larger recovery in the real estate sector which was shunned by private equity players altogether ever since the onset of the economic slowdown late last year.

The two firms have begun talks with the Tata Sons subsidiary to pick up minority stakes into its existing low-priced housing project in Boisar near Mumbai and around three other affordable housing projects expected to be launched in the next few months, a person close to the development said.

Tata Housing CEO Brotin Banerjee declined to comment for the story.

The two PE players want to pick up stake in Tata’s projects because they are low-risk projects with decent return and the expected returns are up to 30%, the person said requesting anonymity. With the realty downturn setting in early 2007 and risk perception rising, most private equity funds stayed clear of the real estate sector. Private equity players have been waiting for customer demand to return and project valuations to come down. Faced with miniscule sales and huge debt burden, developers’ expectations of valuation have now declined, prompting PE players to take a relook.

Sequoia capital, the venture fund that is known for investing in world’s biggest technology firms including Apple, Google, YouTube and Yahoo, has invested across sectors in India. Its investments include Cognizant Technology Solutions, Cafe Coffee Day, Idea Cellular, Edelweiss Capital and SKS Microfinance. The firm had marked about $1.8 billion out of its total $10 billion to India.

If a deal with Tata Housing goes through, it could perhaps be its first in the real estate. Ditto for Atlanta Equity, an Atlanta-based $109 million fund founded in 2007.

Tata Housing is building 1000 apartments at Boisar, around 100 km from southern end of Mumbai, with a price tag of Rs 3.9 lakh-6.7 lakh. The project got encouraging customer response due to lower pricing. Tata Housing is now readying plans to launch at least seven more projects, which would have a mix of affordable and midincome homes. At least three of its projects could be launched in the next two months, a company official said. Tata Housing was at the moment focusing on just metros and suburbs as it felt tier-II and III cities will take longer to recover from the realty slump, he added.

The realty firm is taking up projects through joint development with landowners and is also on the lookout for outright purchase of land in a downturn, which has depressed property prices.

HOUSE THAT

Move signals a larger recovery in the realty which was shunned by PEs ever since the onset of the economic slowdown

Faced with miniscule sales & huge debt burden, developers’ expectations of valuation have now declined, prompting PE players to take a relook

Tata Housing is building 1,000 apartments at Boisar, around 100 km from southern end of Mumbai, with a price tag of Rs 3.9 lakh-6.7 lakh