Thursday, October 22, 2009
Indian economy seen cruising at 6.5% in ’10
Indian economy seen cruising at 6.5% in ’10
The Economic Times, October 22, 2009, Page 1
Our Bureau NEW DELHI
AKEY economic think-tank has made the most optimistic official projection yet for growth in the fiscal to March 2010, flagged rising food prices as a major concern, and suggested
that tighter monetary and fiscal policies are unlikely in the coming months.
The Prime Minister’s Economic Advisory Council, headed by former RBI governor C Rangarajan, said it sees the gross domestic product (GDP) expanding by 6.5% in 2009-10 as Asia’s third-largest economy keeps a watchful eye on inflation and fiscal deficit while it emerges from a slowdown.
“(It is) unlikely that growth will be lower than 6.25%, but may reach 6.75%,” the panel said in its Economic Outlook for 2009-10 report to the prime minister on Tuesday.
RBI had in July forecast that India’s economy this fiscal would grow by 6%, with an upward bias, and the Planning Commission had said in early September that it sees GDP growth at 6.3%. India’s economy expanded by 6.7% in 2008-09 after growing at over 9% for three years.
The scaling up of growth forecasts is taking place amid strong recovery by the industrial sector, which grew at its fastest pace in 22 months in August, and expectations of a decline in agricultural output.
“In light of the recent resurgence in the non-farm sector, the 6.5% growth rate is quite feasible. The manufacturing sector is bouncing back as is evident from the IIP figures, and due to its strong correlation with the services sector, we can expect the latter to turn around as well,” Yes Bank chief economist Shubhada Rao said.
The improving trend is unlikely to prompt any immediate withdrawal of stimulus measures or a tightening of monetary policy, even though the panel made clear its concern about inflation and fiscal deterioration.
It expects the consolidated fiscal deficit of the Centre and states at 10.09% for 2009-10 and sees inflation, imported and local food inflation, as a significant risk for the Indian economy.
Wholesale price inflation could rise to 6% by the end of March 2010 from 0.92% for the week ended October 3. “The accommodative monetary policy will continue till March 2010,” Mr Rangarajan said at the event where the report was unveiled.
The Economic Times, October 22, 2009, Page 1
Our Bureau NEW DELHI
AKEY economic think-tank has made the most optimistic official projection yet for growth in the fiscal to March 2010, flagged rising food prices as a major concern, and suggested
that tighter monetary and fiscal policies are unlikely in the coming months.The Prime Minister’s Economic Advisory Council, headed by former RBI governor C Rangarajan, said it sees the gross domestic product (GDP) expanding by 6.5% in 2009-10 as Asia’s third-largest economy keeps a watchful eye on inflation and fiscal deficit while it emerges from a slowdown.
“(It is) unlikely that growth will be lower than 6.25%, but may reach 6.75%,” the panel said in its Economic Outlook for 2009-10 report to the prime minister on Tuesday.
RBI had in July forecast that India’s economy this fiscal would grow by 6%, with an upward bias, and the Planning Commission had said in early September that it sees GDP growth at 6.3%. India’s economy expanded by 6.7% in 2008-09 after growing at over 9% for three years.
The scaling up of growth forecasts is taking place amid strong recovery by the industrial sector, which grew at its fastest pace in 22 months in August, and expectations of a decline in agricultural output.
“In light of the recent resurgence in the non-farm sector, the 6.5% growth rate is quite feasible. The manufacturing sector is bouncing back as is evident from the IIP figures, and due to its strong correlation with the services sector, we can expect the latter to turn around as well,” Yes Bank chief economist Shubhada Rao said.
The improving trend is unlikely to prompt any immediate withdrawal of stimulus measures or a tightening of monetary policy, even though the panel made clear its concern about inflation and fiscal deterioration.
It expects the consolidated fiscal deficit of the Centre and states at 10.09% for 2009-10 and sees inflation, imported and local food inflation, as a significant risk for the Indian economy.
Wholesale price inflation could rise to 6% by the end of March 2010 from 0.92% for the week ended October 3. “The accommodative monetary policy will continue till March 2010,” Mr Rangarajan said at the event where the report was unveiled.
India may grow by 6.75% this year: PM's panel
India may grow by 6.75% this year: PM's panel
Business Standard, October 22, 2009, Page 8
BS Reporter / New Delhi
Despite bad monsoon affecting farm sector output.
The Prime Minister’s Economic Advisory Council (PMEAC) today projected that the country’s economy might grow by 6.5 per cent in 2009-10, and even touch 6.75 per cent, despite bad monsoon affecting farm sector output.
The PM’s panel, however, said the growth was not likely to be lower than 6.25 per cent. On Tuesday, Prime Minister Manmohan Singh said the country would clock 6 per cent-6.5 per cent growth during the current year, despite drought.
India’s economic growth slowed to 6.7 per cent during 2008-09, from over 9 per cent recorded in the previous three years, on account of the global financial meltdown.
Though PMEAC has projected the agriculture sector to decline by 2 per cent, against 1.6 per cent growth in the previous year, the 6.7 per cent growth in gross domestic product (GDP) would primarily be led by 8.2 per cent growth in the industry (including construction) that rose only 3.9 per cent in 2008-09.
The services sector would grow by 8.2 per cent, which is lower than 9.7 per cent growth registered last year, PMEAC said in its economic outlook for 2009-10.
PMEAC Chairman C Rangarajan, however, noted that inflation, which is hovering around 1 per cent, was likely to rise to 6 per cent by March 2010, which was a cause of concern for the government.
“In the short-term, managing inflationary risks, particularly food price inflation, is the biggest challenge to be faced by our policymakers,” he said.
The council has estimated foodgrain production to be 223 million tonnes (mt), a shortfall of 11 mt from last year, due to a 22.7 per cent deficiency in the south-west monsoon. It said though there were large acreage losses under kharif foodgrain, mainly rice, the rabi crop was expected to be good.
The PM’s panel also projected a consolidated fiscal deficit of 10.9 per cent. The Central fiscal deficit was 6.2 per cent in 2008-09 and is projected to be 6.8 per cent of the GDP in the current fiscal.
“In 2010-11, some effort will be made to bring it (fiscal deficit) down in a measured way and the process of fiscal consolidation will have to start from next year,” Rangarajan added.
The council said increase in fiscal deficit was not due to the stimulus package but on account of additional outlay on subsidies, pay revision, loan waiver and increased coverage of NREGA.
Govinda Rao, a member of PMEAC, said the government might not exceed its borrowing target for the year as the disinvestment proceeds would give it an additional cushion. The council expected exports and imports to touch $188.9 billion and $306 billion, respectively, this year. It estimated the current account deficit at 2 per cent of the GDP, against 2.6 per cent last year.
Premature to end fiscal stimulus: FM
Premature to end fiscal stimulus: FM
Business Standard, October 22, 2009, Page 8
Press Trust Of India / New Delhi
Finance Minister Pranab Mukherjee today ruled out any immediate plans to end the fiscal stimulus, as the global economy was still to show robust recovery. He, however, expressed optimism about the country’s economic growth.
Ahead of the monetary policy review on October 27 by Reserve Bank of India, he said he would hold discussions with the apex bank and would not like to comment on issues like where interest rates are headed.
“We took that (decision on stimulus). We took some risks, there is no doubt about it. Unless the world economy firmly recovers — signals are strong — perhaps it would be premature to think of exit policy. Therefore, I would like to watch the situation for some more time,” Mukherjee said.
He was asked if fiscal concessions given to the industry to overcome the global financial crisis that started last year would be withdrawn, given the inflationary concerns.
He was optimistic about domestic growth prospects, saying even the Prime Minister’s Economic Advisory Council’s (PMEAC’s) projection was on identical lines. The PMEAC expects the economy to expand by up to 6.75 per cent this financial year, while pegging inflation at near 6 per cent by March 2010.
“There has been more or less the broad outline that he (PMEAC Chairman C Rangarajan) has indicated in the economic outlook for 2009-10. We are also predicting like that,” he said.
On exports, Mukherjee said if there is no robust recovery in Europe and North America there cannot be any substantial growth in India’s exports. Nearly 62 per cent of exports are directed towards Europe and North American markets, he said.
“In my Budget I have given some money to Ministry of Commerce for exploring new markets, which would take time,” he added.
On the inflation concerns and the possibility of the interest rates going up, the finance minister said he would meet RBI Governor D Subbarao before the credit policy review.
“We will have the opportunity of discussing with the RBI Governor... I think before (the review) I will have some discussions,” Mukherjee said.
“We are working in close cooperation (and) the monetary policy and fiscal policy are moving hand-in-hand. Therefore, whatever corrective measures are required at whatever point of time will be taken,” he added.
BALANCING ACT FOR RBI
BALANCING ACT FOR RBI
The Economic Times, October 22, 2009, Page 9
THE PM’s key advisory team on economy believes the government should continue to stimulate the economy, ensure a good rabi harvest and facilitate more private investment in power. While being optimistic about a decent 6.5% growth this fiscal, the PM’s economic advisory council chief C Rangarajan tells ET in an interview that it is vital to have a carefully-calibrated exit plan from the stimulus measures as the large fiscal deficit is unsustainable. Excerpts:
What is the right time to exit the stimulus measures?
Basically, the sign of economic recovery must be sound. If we are getting a growth of 6.5% or exceed this level, in the next year, we can begin to withdraw the additional sops given to specific sectors. Then the sectoral support may not be necessary. What we need to do is to stimulate the economy in general.
Do you expect the abundant liquidity in Western markets to flood India if inflationary pressures prompt RBI to harden the monetary policy, raising the interest rate differential?
As things stand today, capital inflows do not pose a serious problem. It may add around $31 billion to the reserves but will not cause a serious concern. I do not foresee capital inflow rising at the pace it did in 2007-08. But the higher inflow is definitely helping the private sector to maintain investments in the economy. Foreign direct Investment is better than last year’s. Companies are also able to raise external commercial borrowings more comfortably than they could last year. FDI is not volatile, portfolio investments can be. But it adds to the liquidity and strengthens the market. There is no need to change policies unless the inflows shoot up sharply and rapidly.
When do you expect the RBI to move away from the policy?
It depends on the RBI’s assessment of growth and inflationary pressures. If inflationary pressures are not pressing, the RBI may not move away from the accommodative policy. Unless inflation breeches 6%, the monetary authorities may not take action. The RBI has to do a balancing act.
Affordable homes realty’s knight in shining armour
Affordable homes realty’s knight in shining armour
The Economic Times, October 22, 2009, Page 1
Ravi Teja Sharma & Arun Kumar NEW DELHI
EKAM and Roma Bansal’s (names changed on request) dream of owning a home came true last month when they booked a 12th-floor two-bedroom apartment on the Greater Noida Expressway, near Delhi. They will be paying about Rs 30 lakh for the flat, of which some Rs 20 lakh will be financed by a bank loan.
The Bansals are thanking their stars that they failed to seal a deal in the past two years they were looking to buy an apartment. Home prices in the national Capital region (NCR) are currently down a third from their peak at the end of 2007 and the economic slowdown has forced property developers to slash prices and build cheaper, compact homes that fit the budget of people like the Bansals.
Their builder, Unitech, India’s second-biggest real estate company, was down in the dumps earlier this year as real estate prices crashed and buyers disappeared. The property developer is now patting itself on the back after deciding to launch “affordable” homes, the relatively lower-priced apartments that are attracting buyers.
Unitech says it sold 8.16 million sq ft of residential space between March and September out of a total of 10.11 million sq ft, helping it post revenues of Rs 3,913 crore—higher than its top line in the boom years of 2006 and 2007. And all the apartments it sold were in the affordable category, costing less than Rs 30 lakh apiece.
Building affordable homes is paying rich dividends. A survey of India’s top property firms and estimates from industry body Confederation of Real Estate Developer’s Associations of India (Credai) show that over 70 million sq ft of residential space was sold in the first six months (March-September) of the fiscal 2010.
Low-cost home projects may save the day for realty
Low-cost home projects may save the day for realty
The Economic Times, October 22, 2009, Page 14
Sept Show Likely To Be Poor Y-o-Y, But Seen Better Than June Quarter Results
Supriya Verma Mishra ET INTELLIGENCE GROUP
DLF and Unitech, the two biggest real estate developers, are poised to lead the sector in reporting that profits plunged in the September quarter as sales were lower than a year ago due to high prices. But earnings may be better than the June quarter as sale of lowpriced homes brought in hopes of revival, which may fizzle out if developers keep raising prices.
Many real estate firms which were teetering on the brink of collapse a few months ago, have come back to life as they used the record stock market rally last quarter to raise equity funds and cut their debt which almost ruined them during the credit crisis.
“Developers such as DLF and Orbit will gain from the launch of city-centric projects at aggressive price points,” said a report from brokerage Edelweiss Capital. Unitech and DLF have sold over 7 million sq ft and 4 million sq ft of space, respectively, from their new launches during the current fiscal.
DLF may report that its net profit crashed 75% to Rs 491 crore and its cross-town rival Unitech may say earnings nearly halved to Rs 191 crore, analysts’ forecast shows.
“Significant revenue contribution is expected from DLF’s West Delhi project where the company has recorded sales of Rs 16 billion following a 30% q-o-q rise in unit sale prices,” said a CLSA report.
The industry’s focus on buyer affordability with smaller and functional homes helped it cut down inventory and arrest a sharp decline in sales. On a y-o-y basis, however, the industry revenue is expected to shrink 19% during the quarter. But it will be an improvement from declines of 30% and 70% in June 2009 and March 2009 quarters respectively.
Some are also improving their stretched balance sheets by selling non-real estate assets such as wind power and hotel businesses. Those sale of assets also helped them generate enough cash to complete under construction projects at a time when presales had completely vanished.
DLF sold its wind energy business and hotel properties which helped it to improve cash flows. Similarly, Unitech sold a couple of its hotel projects.
“Thus the average debt-to-equity of key real estate companies is expected to decline significantly from 1x in March 2009 to 0.4x in September 2009,” said a report by Motilal Oswal Securities.
Improved liquidity coupled with new launches of low-cost budget homes has lowered construction costs for most developers, reducing EBIDTA margins by as much as 10 percentage points. Some exceptions like Mumbai-based HDIL may report an improvement in operating profit margin, thanks to a 15% gain in transferable development rights. Average EBIDTA margin for September 2009 will be 27% as against 39% for June 2009.
However, net margins will show some gains because of lower debt and fund raising through share sales. This new fund flow has helped many developers to lower their leverage and thus save on interest cost. The overall PAT margins for the September quarter will be 300-350 basis points higher than June 2009 PAT margin of 26%.
Seeing the demand pick up, builders have been quick to increase prices. However, this will have a dampening effect on demand as well as buyer confidence. Out of the three segments, it is only the residential market that has seen a recovery. Commercial and retail segment are still under stress.
Home loan demand zooms
Home loan demand zooms
The Economic Times, October 22, 2009, Page 15
THE bulk of the sales happened in the last 90 days and majority of the homes sold were in the affordable segment. By the end of the fiscal in March 2010, builders hope they will have sold close to the 190 million sq ft they managed in 2007.
Across the expressway where the Bansals plan to shift in about two years, Jaypee is building Wish Town, a 1,162-acre swish golf township with premium homes, malls, school, colleges and hospitals. It originally launched apartments with a view of the golf course and priced these at a minimum of around Rs 1 crore. But it has now launched smaller flats starting at Rs 25 lakh. “In six months, we sold 10,000 affordable homes, while we also managed to sell another 2,000 luxury apartments around the golf course,” says Manu Goswami, head, sales and marketing, Jaypee Greens.
Unlike three years ago, when most developers were not offering affordable houses, everyone is now in this segment, says Hiranandani Group chairman Niranjan Hiranandani. Mumbai, where Hiranandani is based, has seen close to 8.4 million sq ft of housing sold in the last six months.
“Sanctions have picked up and we are at 70% of the peak. We expect home loan disbursals to reach the peak levels of 2007 by the end of this fiscal, subject, of course, to developers not increasing rates further,” says SN Nagendra, senior general manager, HDFC Ltd, one of the country’s biggest housing finance companies.
Developers say enquiries for homes began around March 2009 and conversions started July onwards, with the bulk of the demand in the affordable segment.
There was latent demand but it was not converted into sales due to economic uncertainly, observed Mr Hiranandani. “The sudden spurt in demand due to perceptible change in the economic environment in the last three months, combined with lower interest rates, have bolstered the confidence of the home buyers.”
Among the major developers who have ridden this new real estate wave are Unitech, the Jaypee group, DLF, BPTP and Omaxe, witnessing a sharp rise in demand, particularly for new projects.
Home loan trends bolster this claim. In the first six months, State Bank of India’s disbursements were in excess of Rs 10,000 crore, compared to Rs 3,900 crore in 2007-08 and Rs 4,900 crore in 2008-09 for the April-September period. “We are sanctioning much higher volumes now for home loans. The growth in home loans has been even higher than in 2007,” says P Nandakumaran, head retail banking, SBI.
However, due to lower pricing, average realisations for most real estate players is down 25-30% per sq ft in comparison to 2007-08. Unitech has seen its average sales price coming down from Rs 4,000 per sq ft before September 2008 to Rs 3,234 per sq ft in the last six months.
The profitability of these companies will surely come down due to the decline in realisation, says Aditi Vijayakar, executive director, residential service at real estate consultancy Cushman & Wakefield. “The profit margin of these companies depends on when and at what price these developers bought the land,” she added.
Jaypee, which has sold close to 11.5 million sq ft of residential space in six months, has seen a decline of 25-30% in average basic sale price, primarily because it is selling more affordable homes.
Unlike the last boom period, when developers concentrated solely on luxury housing, the current surge is seeing a mix of both affordable and luxury housing.
“The market was overheated and people were waiting for it to come back to a realistic level. The expectations of developers and buyers were mismatched. Everyone was working on the wrong product, including us,” says Jaypee’s Goswami.
A senior executive of DLF, the largest real estate player in the country, said the company has sold 2.5 million sq ft of space in the last three months. Of this, about 2.1 million sq ft has been sold in the last 30 days.
“The confidence of people is back as the economy is turning around. This has led to robust demand for housing at good locations and affordable prices,” says Rohtas Goel, CMD, Omaxe. The company has sold close to 1.8 million sq ft of housing space over the last three months.
Delhi-based developer BPTP has sold about 6,800 homes across three properties in Faridabad totalling about 7.76 million sq ft.
The Economic Times, October 22, 2009, Page 15
THE bulk of the sales happened in the last 90 days and majority of the homes sold were in the affordable segment. By the end of the fiscal in March 2010, builders hope they will have sold close to the 190 million sq ft they managed in 2007.
Across the expressway where the Bansals plan to shift in about two years, Jaypee is building Wish Town, a 1,162-acre swish golf township with premium homes, malls, school, colleges and hospitals. It originally launched apartments with a view of the golf course and priced these at a minimum of around Rs 1 crore. But it has now launched smaller flats starting at Rs 25 lakh. “In six months, we sold 10,000 affordable homes, while we also managed to sell another 2,000 luxury apartments around the golf course,” says Manu Goswami, head, sales and marketing, Jaypee Greens.
Unlike three years ago, when most developers were not offering affordable houses, everyone is now in this segment, says Hiranandani Group chairman Niranjan Hiranandani. Mumbai, where Hiranandani is based, has seen close to 8.4 million sq ft of housing sold in the last six months.
“Sanctions have picked up and we are at 70% of the peak. We expect home loan disbursals to reach the peak levels of 2007 by the end of this fiscal, subject, of course, to developers not increasing rates further,” says SN Nagendra, senior general manager, HDFC Ltd, one of the country’s biggest housing finance companies.
Developers say enquiries for homes began around March 2009 and conversions started July onwards, with the bulk of the demand in the affordable segment.
There was latent demand but it was not converted into sales due to economic uncertainly, observed Mr Hiranandani. “The sudden spurt in demand due to perceptible change in the economic environment in the last three months, combined with lower interest rates, have bolstered the confidence of the home buyers.”
Among the major developers who have ridden this new real estate wave are Unitech, the Jaypee group, DLF, BPTP and Omaxe, witnessing a sharp rise in demand, particularly for new projects.
Home loan trends bolster this claim. In the first six months, State Bank of India’s disbursements were in excess of Rs 10,000 crore, compared to Rs 3,900 crore in 2007-08 and Rs 4,900 crore in 2008-09 for the April-September period. “We are sanctioning much higher volumes now for home loans. The growth in home loans has been even higher than in 2007,” says P Nandakumaran, head retail banking, SBI.
However, due to lower pricing, average realisations for most real estate players is down 25-30% per sq ft in comparison to 2007-08. Unitech has seen its average sales price coming down from Rs 4,000 per sq ft before September 2008 to Rs 3,234 per sq ft in the last six months.
The profitability of these companies will surely come down due to the decline in realisation, says Aditi Vijayakar, executive director, residential service at real estate consultancy Cushman & Wakefield. “The profit margin of these companies depends on when and at what price these developers bought the land,” she added.
Jaypee, which has sold close to 11.5 million sq ft of residential space in six months, has seen a decline of 25-30% in average basic sale price, primarily because it is selling more affordable homes.
Unlike the last boom period, when developers concentrated solely on luxury housing, the current surge is seeing a mix of both affordable and luxury housing.
“The market was overheated and people were waiting for it to come back to a realistic level. The expectations of developers and buyers were mismatched. Everyone was working on the wrong product, including us,” says Jaypee’s Goswami.
A senior executive of DLF, the largest real estate player in the country, said the company has sold 2.5 million sq ft of space in the last three months. Of this, about 2.1 million sq ft has been sold in the last 30 days.
“The confidence of people is back as the economy is turning around. This has led to robust demand for housing at good locations and affordable prices,” says Rohtas Goel, CMD, Omaxe. The company has sold close to 1.8 million sq ft of housing space over the last three months.
Delhi-based developer BPTP has sold about 6,800 homes across three properties in Faridabad totalling about 7.76 million sq ft.
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