Real Estate Intelligence Service, Tuesday, December 16, 2009

ADB raises India’s growth forecast to 7%

ADB raises India’s growth forecast to 7%
The Times of India, December 16, 2009, Page 25

REUTERS, MANILA

The Asian Development Bank raised its growth forecasts for developing economies in Asia on Tuesday, but warned against any hasty withdrawal of stimulus packages, saying they were needed to ensure a solid recovery. It also cautioned governments that restricting the capital flooding Asia's emerging economies carried risks, suggesting that allowing more flexible exchange rates was one way to control the investment flows into the region.

The report showed that the ADB maintained its growth forecasts for China at 8.2% in 2009 and 8.9% in 2010. It raised the 2009 growth forecast for India to 7% from 6%, but kept 2010 at 7%. "Recent data reinforces ADB's impression that developing Asia can expect a V-shaped recovery from the global economic downturn," the ADB said. "For many countries in the region, growth in the third quarter of 2009 has been higher than forecast."

The ADB raised its regional forecast to 4.5% on average in 2009 and 6.6% in 2010 from expectations in September of 3.9% and 6.4%, respectively. "Global recovery is still fragile so Asian countries need to maintain current stimulus packages," ADB Chief economist Jong-Wha Lee said. "The Asian countries' monetary and fiscal policies should remain accommodative but they also need to design exit strategies from these stimulus packages." Asian policymakers have put in place massive fiscal incentives and slashed interest rates to record lows to help their economies cope with the global economic crisis.

Many have paused to assess the impact of easier policy, while others have either begun or signalled they were ready to hike interest rates to keep a lid on infationary pressures as their economies gradually pick up.

Withdrawing stimulus too quickly is a risk, the ADB said. "If done too soon, recovery may be at risk; if too late, fiscal deficits and monetary expansion could become unsustainable and inflationary," ADB said in a separate statement.

It said, however, that inflation remained muted for the moment and was likely to remain so, even while the recovery was taking hold. This had allowed authorities to maintain fiscal and monetary stimulus packages.

"In the medium-term, inflation could pick up in line with the general economic recovery and higher commodity prices," it said.

Risks to Asia's expansion included a short-lived recovery in developed economies and destabilising capital flows, it said. "Faster recovery and higher growth in the region should attract more capital inflows, and limited exchange rate flexibility in the region could also encourage increased capital inflows, speculating on anticipated appreciation," it said.

FC proposes a 12% GST rate

FC proposes a 12% GST rate
The Financial Express, December 16, 2009, Page 1

fe Bureaus, New Delhi

The 13th Finance Commission has come out with a ‘flawless’ goods & services tax (GST) model, which proposes a single rate of 12% and exempts only three sectors: unprocessed food, school & college education and non-government health services. All businesses with an annual turnover of Rs 10 lakh and above would be brought under the tax net. Tax benefits for special economic zones would go, as these would become redundant in the new regime where exports would be zero-rated.

According to the report of the commission’s task force on GST released on Tuesday and first reported by FE on November 26, the real estate sector would be integrated into the GST framework by subsuming stamp duty on immovable property levied by states. This would facilitate input credit and eliminate the cascading effect of the tax. Real estate transactions now attract only stamp duty at the output level, whereas the output incurs input taxes like Vat on construction material and service tax on specified works contracts.

The new tax, the authors of the report say, would have an economic value of 50% of GDP. It would reduce prices of manufactured goods, make house construction less expensive, but farmers would earn more for their produce.

The GST would have two components —central GST and state GST—levied on a common and identical base of transactions, with no differentiation between goods and services. The combined rate of 12% comprises 5% for central GST and 7% for state GST.

“The revenue neutral rate (RNR) we arrived at was 11%--5% for the Centre and 6% for states--but we decided to propose a higher rate of 7% for states with a provision to transfer the proceeds of 2% to local bodies,” one of the report’s authors told FE. To further allay states’ concerns, the task force also proposed that they be allowed to retain stamp duty (revenues from which were Rs 39,000 crore in 2007-08) in the first year of GST before being phased out in the next three years. Further, the Centre would create a compensation fund with a Rs 6,000-crore outlay each year for five years.

Asserting that states would only gain in revenue, the official said, “We are proposing a Rs 1-lakh crore bonanza to states over their current revenue growth--a 16% increase from RNR would fetch them Rs 31,000 crore, the compensation fund would get them Rs 30,000 crore and the stamp duty proceeds in first year another Rs 39,000 crore or so.” The new GST, which the Task Force wants to implement from October next year, would not take away the autonomy of any tax jurisdiction, except for capricious exercise of discretion. “On the other hand, the right to taxation of both the Centre and states would increase,” said the source.

By turning the tables on the empowered committee of state finance ministers, which has proposed a ‘compromise GST model’, the task force recommended inclusion of all the levies that the state committee wanted outside the GST framework. Besides stamp duty, GST would also subsume state taxes on vehicles, passenger transport, electricity and all cesses and surcharges. Octroi and entry tax would go.

The commission also wants to integrate all existing taxes on petroleum, tobacco and alcohol into the GST network, but proposes a dual levy of GST and excise on these so-called ‘SIN goods’. So, there will be a GST component that offers full input tax credit and an excise component for which no input credit would be available. Financial services would be comprehensively taxed. Inter-state transactions will be effectively zero-rated, which means they won’t be a burden on businesses. “Prices of agricultural goods would increase 0.61-1.18%, whereas overall prices in the manufacturing sector would decline 1.22-2.53%,” said the report. Farmers would benefit as the terms of trade would shift from manufacturing to agriculture by 1.9-3.8%, said the source.

Fin panel moots dual rate for GST, end to all sops

Fin panel moots dual rate for GST, end to all sops
The Economic Times, December 16 2009, Page 9

ET Bureau, NEW DELHI

A task force on GST set up by the Thirteenth Finance Commission has recommended the tax on all goods and services be dropped to 5% at the Centre and 7% at the state level, and that all exemptions be scrapped. It does not, however, recommend a concessional rate for essential items, as is the norm at present with the central excise and state value-added tax.

The task force recommendations need not form the basis of any decision on GST framework made by the Centre and states, both of which are at an advanced stage of finalising their proposals for a dual GST. However, it would serve as an input for the Finance Commission to work out the formula for sharing Centre’s tax revenues with states.
Tax experts, however, doubt whether the recommendations would be acceptable to states, even though revenue gains from implementing the proposals of the task force could be Rs 70,000 crore.

The report suggests that states as well as the Centre completely give up their discretion to effect any changes to tax rates unilaterally.

The changes will have to be approved by a council of ministers, which would have the state finance ministers and the Union finance minister as members. States would see this as an encroachment on their fiscal autonomy. The council is to be a constitutional body, unlike the empowered panel of state FMs which is a toothless body.

The panel has recommended that exemptions given to SEZs be scrapped, and instead all goods and services exports be zero-rated . Only public services provided by all levels of government, unprocessed food covered by the PDS, education and health are to be exempt.

Other far-reaching recommendations include bringing real estate into the ambit of GST. Thirteenth Finance Commission chairman Vijay Kelkar had been keen on this, and said as much at various fora. GST on real estate would benefit homebuyers. Prices would fall as developers would get credit for taxes paid on all inputs.

Said KPMG India executive director (indirect tax & regulatory services) Pratik Jain: “The overall perspective and direction of the recommendations are good—tax rates can be moderate only when the tax base is broadbased.”

The impact of broadbasing the tax and dropping the rate would be mixed. At one level, tax rates on most items will plummet, translating into lower prices for buyers. The report suggests the transition to the “flawless GST” would result in a 1.22-2 .53% drop in the prices of most manufactured goods.

Conversely, a host of items that are currently outside the tax net or enjoy concessional rates—such as agri commodities and services —may become slightly expensive.

Inflation: Banks to feel the heat

Inflation: Banks to feel the heat
Business Standard, December 16, 2009, Section II, Page 1

Vishal Chhabria & Sunaina Vasudev / Mumbai

Credit-dependent sectors such as real estate and automobiles may also be hit by a rise in interest rates.

Rising food prices pushed the annual inflation rate for November 2009 to 4.78 per cent compared with 1.34 per cent in September 2009. This, coupled with robust industrial production and a relatively hawkish Reserve Bank of India (RBI) indicating a calibrated exit from its accommodative monetary policy, has led to expectations of policy tightening soon.

However, RBI has also indicated its concern over the impact of a premature exit on growth. So, the timing and extent of the tightening are key to gauging the impact on interest-rate sensitive sectors such as banks, real estate, cement and auto.

Most analysts feel that RBI is unlikely to take any dramatic step given that the credit off-take is slow (10 per cent as of November 2009 and 5 per cent year-to-date). Equity has been relatively easy to raise and several entities have used the route to boost balance-sheets. Lower expenses and cost-cutting have driven operational performance without significant top-line growth. And, working capital needs have largely been funded by debt, given low short-term rates backed by liquidity.

The rise in the inflation rate is seen mainly due to supply-side pressures and therefore the impact of the monetary policy is limited. The sense is that while a token 50-basis-point cash reserve ratio (CRR) rise is imminent, interest rates will not be increased soon. Monetary tightening will reduce liquidity and money market rates will harden. With input costs also increasing and growth optimism returning, credit off-take may increase.

Some banks have slashed home loan rates by 50-75 basis points, besides pushing auto loans aggressively. Analysts expect that banks have a margin cushion given the recent re-pricing of high-cost deposits. Going ahead, if monetary policy hardening increases cost of funds, it may impact margins. This aggressive push (lower interest rates) is unlikely to be impacted by the expected CRR rise, feel analysts.

Markets, however, have been spooked by the spectre of higher inflation and the possibility of monetary hardening. The Sensex dipped 1.3 per cent after announcement of inflation numbers. Interest rate-sensitive sectors led the fall — BSE Bankex was down 3 per cent, auto index was down 2 per cent and BSE iealty index was down 1.2 per cent. Overall, banking will be the principal sector to feel the heat of the tightening, which will then flow to other credit-dependent sectors such as real estate and auto.

Export growth turns positive after 13 months

Export growth turns positive after 13 months
Business Standard, December 16, 2009, Page 5

BS Reporter / New Delhi

After falling continuously for 13 months, the country’s merchandise exports registered a growth of 18 per cent in November, at $13.2 billion (Rs 61,800 crore) against $11.16 billion (Rs 52,250 crore) in the same month last year. However, cumulative growth since the beginning of the current financial year continues to show a decline.

Total exports for April-November 2009 were $104.25 billion (Rs 4.9 lakh crore), a fall of 22.3 per cent from the $134.2 billion (Rs 6.3 lakh crore) in the corresponding period of last financial year, indicated official data released today by Union commerce secretary Rahul Khullar.

Khullar said the low base in November last year (when the economic crash had begun) was mainly responsible for the growth this November. It does not, he emphasized, indicate a surge in demand for Indian goods in international markets.

Some major sectors that did well during the month were petro products, gems and jewellery, basic chemicals, iron ore, readymade garments, manmade fibre and leather products. Exports of petroleum products reached $2.4 billion (Rs 11,240 crore) in November against $1.3 billion (Rs 6,100 crore) in the same month last year, whereas gems and jewellery exports topped $2.15 billion (Rs 10,070 crore) from $1.6 billion (Rs 7,500 crore) in November 2008.

Some sectors are still facing severe problems and the government is carrying out a sector-wise review. Exporters fear withdrawal of present stimulus measures. According to A Sakthivel, president, Federation of Indian Export Organisations, “The sops should continue at least till the end of 2010-2011, as the current scenario is not all comfortable.”

Some of the measures were extension of interest subvention, additional funds allocation for certain schemes, enhancing duty drawback rates on specific products and abolition of fringe benefits tax.

Besides, the RBI also increased liquidity to banks for better credit flow by reducing the key policy rates, selling of foreign exchange through banks to augment supply in domestic forex markets and enhancing the period of pre-shipment and post-shipment rupee export credit by 90 days each.

High tax mop-up shows recovery

High tax mop-up shows recovery
Hindustan Times, HT Business, December 16, 2009, Page 25

Hopes for a broad-based corporate recovery have sprung anew with strong advance tax collections from the country’s leading firms, but rising inflation could apply the brakes on a nascent recovery as policy makers grapple with options to sustain growth amid rising prices.

A slew of recent data has shown strong signs of an economic recovery in recent months. The economy grew 7.9 per cent during the July-September period — its strongest in six quarters — on the back of higher consumer spending and private investment.

At 10.3 per cent growth in October, the country’s industrial output has grown at a pace second only to China where factory output grew at 19.2 per cent in November. But food prices in India have accelerated by 19 per cent in a year stung by a supply crunch in staple items following one of the worst droughts in the last 40 years.

The drought-related surge in food prices has been the key driver for inflation over the last few months.

The government will have to carefully walk the wedge between the spectre of rising prices and the green shoots of economic recovery.

“Prices are a major area of concern. We shall have to address it and we are doing it,” Finance Minister Pranab Mukherjee said in the Rajya Sabha replying to a debate on the Appropriation Bill for supplementary demands for grants.

The economic downturn had forced the RBI to cut interest rates to record lows but economists say the surge in inflation could prompt central bank to shift to a tighten monetary policy.

“The emerging growth-inflation trade-off is an important input in deciding the pace, nature and timing of exit strategies,” said Rajeev Malik of Macquarie Securities.

Industry has been unequivocal in stating that any withdrawal of the stimulus package could upset growth.

“Any reversal of soft interest rate stance will hit the growth momentum and bring down industrial performance,” said Harshpati Singhania, president of industry chamber Federation of Indian Chambers of Commerce and Industry (Ficci).

All eyes are on the RBI now on when it announces measures to suck out liquidity from the system as focus shifts to controlling inflation.

“We expect the policy rate hiking cycle to start in January,” said Sonal Varma, of Nomura Financial Advisory and Securities.

Corporates shell out 36% more as advance tax in Q3

Corporates shell out 36% more as advance tax in Q3
The Hindu Business Line, December 16, 2009, Page 1

Collections put at Rs 10,700 cr; about 2,800 cos paid higher amounts.

Our Bureau, Mumbai

The early signs of economic revival seem to have emerged from the increase in advance tax payments made by most of the Mumbai-based corporate houses and banks in the third quarter of 2009-10.

Advance tax revenue from major companies rose 36 per cent to Rs 10,700 crore in the third quarter of the current fiscal against Rs 7,900 crore in the same period last fiscal.

There were about 2,800 companies that paid higher tax in the quarter under review , while about 700 companies paid less.

The total tax payment for the three quarters of the fiscal 2010 increased by 32 per cent to Rs 27,200 crore (Rs 20,600 crore). There were 6,500 companies which paid higher tax, while 1,500 reduced the outgo.

Mumbai, the financial capital of the country, accounts for nearly 45 per cent of country's tax revenue.

Although the tax collection was good in the Mumbai region during the third quarter, the Government may miss the overall growth target of 26 per cent for the fiscal, as collections in the first two quarters were below expectations, said an analyst.

Top tax payers in the current quarter include SBI, Reliance Industries, Tata Steel, LIC and HDFC Bank.

SBI paid Rs 1,795 crore as advance tax in the third quarter of FY'10 against Rs 1,700 crore paid in the same period last year. The bank's tax outgo for the fiscal till the third quarter stood at Rs 4,695 crore (Rs 3,923 crore). HDFC Bank paid Rs 400 crore (Rs 250 crore), Bank of Baroda Rs 355 crore (Rs 220 crore), Union Bank of India Rs 271 crore (Rs 205 crore), Central Bank of India Rs 138 crore (Rs 168 crore) and Deutsche Bank Rs 160 crore (Rs 80 crore). Among the banks which have reduced their payment in the quarter under review were Bank of India Rs 102 crore (Rs 307 crore) and ICICI at Rs 301 crore (Rs 625 crore).

LIC raised its tax payout by 13 per cent to Rs 981 crore (Rs 871). The state-owned insurance company has shelled out Rs 2,389 crore as tax till the December quarter. SIDBI paid Rs 180 crore (Rs 84 crore).

Indian Oil Corporation and HPCL skipped advance tax in the quarter. IOC had paid Rs 1,230 crore as tax till the December quarter, while HPCL paid Rs 102 crore.

Tata Steel nearly trebled its tax payment to Rs 650 crore (Rs 250 crore) in the December quarter, while TCS increased payment marginally to Rs 177 crore (Rs 129 crore). Engineering major L&T paid a lower tax of Rs 270 crore (Rs 312 crore).

"Though the corporate tax collection from other than banks was lower, one should wait till the next quarter before coming to any conclusion. L&T was a surprise as its collection was lower than expected; this may be because of the global recessionary conditions," said Mr. Alex Mathew, Head of Research at Geojit BNP Financial Services.

Aditya Birla Group company Grasim Industries, which had hived off its cement business for a merger with the group company UltraTech Cement, has doubled its advance tax payment to Rs 150 crore from Rs 75 crore. The company 's total advance tax payment till the third quarter of FY'10 rose 86 per cent to Rs 410 crore (Rs 220 crore).

FIIs go slow on India in last quarter of ’09

FIIs go slow on India in last quarter of ’09
The Financial Express, December 16, 2009, Page 4

fe Bureau, Mumbai

Foreign Institutional Investors (FIIs) may have picked up stocks worth around Rs 80,000 crore so far in 2009, but their purchases appear to have slowed down in the past three months. While foreign investors bought equities worth Rs 18,300 crore in September, in October that amount came down to around Rs 9,000 crore. In November, FIIs shopped for stocks worth Rs 5,500 crore. However, in December they bought equities worth Rs 6,975 crore.

The lack of any major positive triggers on the domestic or the global front prompted profit booking in key index heavy weights on Tuesday, pulling down both the benchmark equity indices for the second consecutive day. The 30-share Sensex fell 220.39 points or 1.29% to end the trading session below the psychological 17k level at 16,877.16 points. The broader 50-share Nifty closed the day lower by 1.42%, at 5,033.05 points.

Clearly, 2009 will end with the inflows topping the Rs 73,703 crore reported in 2007. Last year, of course, FIIs were sellers of Indian stocks. The huge appetite for Indian stocks has seen the benchmark indices soar. The BSE Sensex has risen from the lows of 8,047.17 points in March to a high of 17,493.17 points in October. On Tuesday, the Sensex closed at 16,877.16 points. Market watchers point out that valuations are no longer cheap and may have priced in a part of the 2010-11 earnings. Besides, there is anxiety that interest rates could go up in wake of the higher than expected inflation of 4.78% for November. Investors stayed on the sidelines ahead of the meeting of the US Federal Reserve.

Banking stocks were weak for the second consecutive session, with BSE Bankex losing 2.95% and BSE Auto index closing lower 1.93%. "The sharp surge in inflation, especially food prices, has come as a surprise for the market, dampening sentiments,” said Saikiran Pulavarthi, banking analyst at Centrum Broking.

Take your time for Parsvnath entry

Take your time for Parsvnath entry
The Economic Times, December 16, 2009, Page 15

Supriya Verma Mishra, ET Bureau

Delhi-based builder Parsvnath Developers has been in the news after the company sold off a 50% stake in one of its premium residential projects in Gurgaon in Haryana. Private equity fund Sun Apollo has invested Rs 75 crore in the special purpose vehicle (SPV) executing the project. The stock did not react much after the sale announcement on Friday, as it had already gained around 15% that week. Due to a weak market on Tuesday, the scrip dropped 3.55%. The stock has gained around 160% year-to-date compared to the 74% gain in the Sensex and 76% in the ET Realty index.

Parsvnath has a major presence in North India with an area of over 193 million sq ft. Close to 80 million sq ft is now under construction, out of which about 85% is residential. Out of this, 35 million sq ft is already pre-booked and will generate revenues of Rs 6,500 crore. The company has already recovered half of this amount and the balance is expected over the next two years. It is yet to incur construction expenses of Rs 1,400 crore. The company is now looking at delivering approximately 30 million sq ft within 24 months.

The realty firm reported a 22% drop in revenue for the quarter ended September 30, 2009 at Rs 173.1 crore as compared to Rs 221.5 crore in the same quarter last year. However, net profit during the quarter rose 160% to Rs 55.4 crore from Rs 21.2 crore a year ago. After four years of negative cash flow, the company was able to generate Rs 140 crore from its operating activities due to pre-sales in the residential segment. The company expects to increase its net margins significantly from the current 25% in the coming quarters.

With this deal, Parsvnath Developers has raised Rs 358 crore in the past six months through private placement of shares and stake sales at project level. The fund-raising exercise is meant to cut its debt-equity ratio of 0.8x as on March 31 to 0.6x. This will result in savings on interest outflow and thus improve profitability.

At a trailing 12-month (TTM) EPS of Rs 4.9 and the current price of Rs 120.7, the company is valued at 24.6 times its earnings. At an annualised EPS of Rs 10, the stock is trading at a 12.1x forward P/E for FY10. Though the company is getting its act together, it makes sense for new investors to wait and watch for the next few quarters. Promoters have pledged 10.36 crore shares representing 53.68% stake of the company as on November 13, 2009. Total promoter shareholding in the company is 80.33% as on September 30, 2009.