Thursday, March 12, 2009
World economy to shrink in Great Recession: IMF
World economy to shrink in Great Recession: IMF
The Financial Express, March 11, 2009, Page 1
Agencies
The International Monetary Fund (IMF) expects the global economy to contract this year and the slump will be the worst “in most of our lifetimes”, managing director Dominique Strauss-Kahn said. The global financial crisis that has slashed international trade can now be termed the “Great Recession”, Strauss-Kahn said in a speech to African central bank governors and finance ministers in Dar es Salaam, Tanzania on Tuesday.
“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss- Kahn said. “Continuing deleveraging by world financial institutions, combined with the collapse in consumer and business confidence, is depressing domestic demand across the world.”
The IMF had forecast in January that the global economy would expand 0.5% this year. The World Bank said in a March 8 report that the international economy was likely to shrink for the first time since World War II, and trade will decline by the most in 80 years.
European governments from Dublin to Athens have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and leaders pledged to spend a combined 200 billion euros to try and lift their economies out of the worsening slump. The US is spending $787 billion on an economic stimulus package to revive its economy.
The IMF is aiming to double its resources to $500 billion to better address the crisis, with Japan already pledging an extra $100 billion. Strauss-Kahn said he is “confident” the Group of 20 countries will agree to this goal at a summit in April. He urged better coordination between leading nations to help boost the global economy and called on rich countries to “reject protectionism, both in trade and finance”.
“If one crisis amongst all crises in the world that requires some coordination, it is this crisis,” Strauss-Kahn said. “It’s a global crisis, so the solution can’t be implemented by one country alone.” Poor countries may be worst hit by a slump in economic growth and trade because poverty will increase, the IMF managing director said.
Our Bureau adds: Slowing growth of the world economy will impact India, too. An Axis Bank report on inflation trends released on Monday shows that wholesale price index-based inflation would touch zero per cent by April. This will be a first for the Indian economy in the past 60 years. The low inflation will occur due to the cuts in excise duty, the strong base effect of a high inflation a year ago, plus the impact of a cut in fuel prices. From a peak of 12.82% last year, WPI-based inflation eased to 3.03 % at the end of February 21.
Author of the note, Saugata Bhattacharya, said a revival in demand is unlikely to be strong and inflation could dip further into the negative zone in April--meaning prices at the wholesale level for a range of commodities would start falling, a rarity in India.
However, consumer price index inflation, which is more representative of prices in the household consumption basket, continues to be higher. But those, too, are expected to come off a high as cuts in retail petrol, diesel and LPG prices with effect from January 31 and the 2% services tax cut announced in February 24 “are likely to be reflected in CPI inflation going forward”, the note adds.
The Financial Express, March 11, 2009, Page 1
Agencies
The International Monetary Fund (IMF) expects the global economy to contract this year and the slump will be the worst “in most of our lifetimes”, managing director Dominique Strauss-Kahn said. The global financial crisis that has slashed international trade can now be termed the “Great Recession”, Strauss-Kahn said in a speech to African central bank governors and finance ministers in Dar es Salaam, Tanzania on Tuesday.
“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss- Kahn said. “Continuing deleveraging by world financial institutions, combined with the collapse in consumer and business confidence, is depressing domestic demand across the world.”
The IMF had forecast in January that the global economy would expand 0.5% this year. The World Bank said in a March 8 report that the international economy was likely to shrink for the first time since World War II, and trade will decline by the most in 80 years.
European governments from Dublin to Athens have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and leaders pledged to spend a combined 200 billion euros to try and lift their economies out of the worsening slump. The US is spending $787 billion on an economic stimulus package to revive its economy.
The IMF is aiming to double its resources to $500 billion to better address the crisis, with Japan already pledging an extra $100 billion. Strauss-Kahn said he is “confident” the Group of 20 countries will agree to this goal at a summit in April. He urged better coordination between leading nations to help boost the global economy and called on rich countries to “reject protectionism, both in trade and finance”.
“If one crisis amongst all crises in the world that requires some coordination, it is this crisis,” Strauss-Kahn said. “It’s a global crisis, so the solution can’t be implemented by one country alone.” Poor countries may be worst hit by a slump in economic growth and trade because poverty will increase, the IMF managing director said.
Our Bureau adds: Slowing growth of the world economy will impact India, too. An Axis Bank report on inflation trends released on Monday shows that wholesale price index-based inflation would touch zero per cent by April. This will be a first for the Indian economy in the past 60 years. The low inflation will occur due to the cuts in excise duty, the strong base effect of a high inflation a year ago, plus the impact of a cut in fuel prices. From a peak of 12.82% last year, WPI-based inflation eased to 3.03 % at the end of February 21.
Author of the note, Saugata Bhattacharya, said a revival in demand is unlikely to be strong and inflation could dip further into the negative zone in April--meaning prices at the wholesale level for a range of commodities would start falling, a rarity in India.
However, consumer price index inflation, which is more representative of prices in the household consumption basket, continues to be higher. But those, too, are expected to come off a high as cuts in retail petrol, diesel and LPG prices with effect from January 31 and the 2% services tax cut announced in February 24 “are likely to be reflected in CPI inflation going forward”, the note adds.
Internal auditor cannot be tax auditor for the same company
Internal auditor cannot be tax auditor for the same company
The Hindu Business Line, March 11, 2009, Page 9
K.R. Srivats, New Delhi
Come April 1, an internal auditor of an organisation cannot take up tax audit of the same entity.
The auditing profession regulator — the Institute of Chartered Accountants of India (ICAI) – has now decided to implement this norm in true spirit from this date.
This decision will mainly impact those chartered accountancy firms that were being appointed as internal auditors and also performing tax audits for the same organisation. It also covers those employees who had taken up the role of an internal auditor.
The stipulation that an internal auditor cannot be a tax auditor has been put in place to ensure there is quality of service and auditor independence is maintained, said Mr Uttam Prakash Aggarwal, ICAI President.
“If the same person is getting two assignments from the same management — as an internal auditor as well as tax auditor, the chances are high that this will influence his independence. We do not want this to happen,” Mr Aggarwal told Business Line.
Although the central council had in October 2008 taken a decision to this effect, it was not fully put into practice on account of the representations received on this front. It was submitted that this decision would create “hardship” for those who had already appointed their internal auditor for carrying out tax audit for financial year 2008-09, i.e. assessment year 2009-10.
PPP planned for developing non-metro airports’ city-side
PPP planned for developing non-metro airports’ city-side
The Economic Times, March 11, 2009, Page 7
Nirbhay Kumar & Subhash Narayan, ET Bureau
NEW DELHI: Infrastructure developers, interested in building city-side projects around a non-metro airport, may have to join hands with Airport Authority of India (AAI). The government is considering to make it a pre-condition for a private developer, an official in the government said.
“The government is planning to invite bids for non-metro airport development projects soon. The civil aviation ministry is revising the terms and conditions (for bids) after that request for qualifications (RFQs) from interested parties will be invited. It has identified about a dozen small airports, including Amritsar and Udaipur in the first round,” the official, who didn’t wish to be named, said.
City side work include development of hotels, shopping complexes, entertainment facilities and convention centres around an airport.
The official said the modified document would enable AAI to hold equity in the special purpose vehicles (SPVs) created by private firms for building city-side infrastructure. As per the proposal AAI will have an option to get fixed income from the developer with an escalation clause.
“The presence of public sector AAI will address employees’ concerns,” he said. The city-side works for non-metro airports had earlier hit a roadblock with AAI employee unions opposing the move to allow private developers to undertake commercial operation and maintenance of terminal buildings. Officials of the aviation ministry and AAI had met on Monday to discuss the issue related to the city-side development of non-metro airports by private firms.
The aviation ministry plans to upgrade 35 non-metro airports including various state capitals with a total investment (both public and private) of about Rs 40,000 crore. While it targeted to complete the infrastructural works at 24 airports by 2009 the remaining airports had a deadline of March, 2010.
Airside works at nine small airports such as Trichy, Trivendrum, Udaipur, Ahmedabad and Jaipur have been completed but their city side development is yet to begin, the official said. Airside works include terminal building, runway, taxiway and related infrastructure. “We are expecting that airside works at three more airports would be completed in a month or two,” he said.
The Economic Times, March 11, 2009, Page 7
Nirbhay Kumar & Subhash Narayan, ET Bureau
NEW DELHI: Infrastructure developers, interested in building city-side projects around a non-metro airport, may have to join hands with Airport Authority of India (AAI). The government is considering to make it a pre-condition for a private developer, an official in the government said.
“The government is planning to invite bids for non-metro airport development projects soon. The civil aviation ministry is revising the terms and conditions (for bids) after that request for qualifications (RFQs) from interested parties will be invited. It has identified about a dozen small airports, including Amritsar and Udaipur in the first round,” the official, who didn’t wish to be named, said.
City side work include development of hotels, shopping complexes, entertainment facilities and convention centres around an airport.
The official said the modified document would enable AAI to hold equity in the special purpose vehicles (SPVs) created by private firms for building city-side infrastructure. As per the proposal AAI will have an option to get fixed income from the developer with an escalation clause.
“The presence of public sector AAI will address employees’ concerns,” he said. The city-side works for non-metro airports had earlier hit a roadblock with AAI employee unions opposing the move to allow private developers to undertake commercial operation and maintenance of terminal buildings. Officials of the aviation ministry and AAI had met on Monday to discuss the issue related to the city-side development of non-metro airports by private firms.
The aviation ministry plans to upgrade 35 non-metro airports including various state capitals with a total investment (both public and private) of about Rs 40,000 crore. While it targeted to complete the infrastructural works at 24 airports by 2009 the remaining airports had a deadline of March, 2010.
Airside works at nine small airports such as Trichy, Trivendrum, Udaipur, Ahmedabad and Jaipur have been completed but their city side development is yet to begin, the official said. Airside works include terminal building, runway, taxiway and related infrastructure. “We are expecting that airside works at three more airports would be completed in a month or two,” he said.
Tuesday, March 10, 2009
Global economy to shrink for first time after World War-II
Global economy to shrink for first time after World War-II
The Financial Express, March 10, 2009, Page 3
New York: The global economy is likely to shrink for the first time since World War II, with growth at least five percentage points below potential and is also likely to have long-term implications for developing countries, the World Bank has said.
The World Bank’s projections show that developing countries face a financing shortfall of $270 to $700 billion this year, as private sector creditors shun emerging markets and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty. As many as 94 out of 116 developing countries have experienced a slowdown in economic growth. Of these, 43 countries have high levels of poverty. Till date, the most affected sectors are those that were the most dynamic, typically urban-based exporters, construction, mining, and manufacturing. Cambodia, for example, has lost 30,000 jobs in the garment industry, its only significant export industry. More than half a million jobs have been lost in the last three months of 2008 in India, especially in sectors like gems & jewelry, autos and textiles.
In a paper for next Saturday’s meeting of the group of 20 finance ministers and central bank governors, the World Bank says international financial institutions cannot, by themselves, currently cover the shortfall in public and private debt and trade deficits for these 129 countries, even at the lower end of the range. A solution will require governments, multilateral institutions, and the private sector. Only one quarter of vulnerable developing countries have the ability to finance measures such as job-creation and safety net programmes, to blunt the economic downturn.
“We need to react in real time to a growing crisis that is hurting people in developing countries,” said World Bank group president Robert B Zoellick. “This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest,” he added. The World Bank forecasts show that global industrial production, by mid-2009, could be as much as 15% lower than the levels in 2008. World trade is on track in 2009 to record its largest decline in 80 years, with the sharpest losses in East Asia. The financial crisis will have long-term implications for developing countries, the World Bank says, adding that debt issuance by high-income countries is set to increase dramatically, crowding out many developing country borrowers, both private and public.
Many institutions that have provided financial intermediation, for developing country clients have virtually disappeared. Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future, it opines.
“When this crisis began, people in developing countries, especially those in Africa, were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences,” World Bank managing director Ngozi Okonjo-Iweala says in remarks prepared for delivery on Monday at a conference in London organised by Britain’s department for international development. “We must look at poor people as assets and not liabilities. The new globalisation should mean we adopt new ways of caring for our infants, educating our youth, empowering our women and protecting the vulnerable,” he adds.
Many of the world’s poorest countries, the World Bank says, are becoming ever more dependent on development assistance as their exports and fiscal revenues decline because of the crisis. Donors are already behind by around $39 billion on their commitments to increase aid, made at the Gleneagles Summit in 2005. The concern now is that aid flows will become more volatile as some countries cut their aid budgets while others reaffirm aid commitments, at least for this year, the World Bank projects.
—PTI
The Financial Express, March 10, 2009, Page 3
New York: The global economy is likely to shrink for the first time since World War II, with growth at least five percentage points below potential and is also likely to have long-term implications for developing countries, the World Bank has said.
The World Bank’s projections show that developing countries face a financing shortfall of $270 to $700 billion this year, as private sector creditors shun emerging markets and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty. As many as 94 out of 116 developing countries have experienced a slowdown in economic growth. Of these, 43 countries have high levels of poverty. Till date, the most affected sectors are those that were the most dynamic, typically urban-based exporters, construction, mining, and manufacturing. Cambodia, for example, has lost 30,000 jobs in the garment industry, its only significant export industry. More than half a million jobs have been lost in the last three months of 2008 in India, especially in sectors like gems & jewelry, autos and textiles.
In a paper for next Saturday’s meeting of the group of 20 finance ministers and central bank governors, the World Bank says international financial institutions cannot, by themselves, currently cover the shortfall in public and private debt and trade deficits for these 129 countries, even at the lower end of the range. A solution will require governments, multilateral institutions, and the private sector. Only one quarter of vulnerable developing countries have the ability to finance measures such as job-creation and safety net programmes, to blunt the economic downturn.
“We need to react in real time to a growing crisis that is hurting people in developing countries,” said World Bank group president Robert B Zoellick. “This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest,” he added. The World Bank forecasts show that global industrial production, by mid-2009, could be as much as 15% lower than the levels in 2008. World trade is on track in 2009 to record its largest decline in 80 years, with the sharpest losses in East Asia. The financial crisis will have long-term implications for developing countries, the World Bank says, adding that debt issuance by high-income countries is set to increase dramatically, crowding out many developing country borrowers, both private and public.
Many institutions that have provided financial intermediation, for developing country clients have virtually disappeared. Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future, it opines.
“When this crisis began, people in developing countries, especially those in Africa, were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences,” World Bank managing director Ngozi Okonjo-Iweala says in remarks prepared for delivery on Monday at a conference in London organised by Britain’s department for international development. “We must look at poor people as assets and not liabilities. The new globalisation should mean we adopt new ways of caring for our infants, educating our youth, empowering our women and protecting the vulnerable,” he adds.
Many of the world’s poorest countries, the World Bank says, are becoming ever more dependent on development assistance as their exports and fiscal revenues decline because of the crisis. Donors are already behind by around $39 billion on their commitments to increase aid, made at the Gleneagles Summit in 2005. The concern now is that aid flows will become more volatile as some countries cut their aid budgets while others reaffirm aid commitments, at least for this year, the World Bank projects.
—PTI
Now, declining inflation a cause for concern: economists
Now, declining inflation a cause for concern: economists
Financial Express, March 2, 2009, Page 2
fe Bureau, New Delhi
Cut in excise duty, reducing prices of aviation turbine fuel (ATF) and high base will bring inflation to zero level by the end of March, and prices would begin to fall by the middle of 2009, analysts feel.
“WPI (wholesale price index) inflation will touch 0% by March end 2009, on the back of 2% excise duty cut, 7% cut in ATF prices and a strong base effect,” Axis Bank economist Saugata Bhattacharya said in a research note.
In the middle of last year, inflation rose to 12.93%, way beyond Reserve Bank of India’s preliminary tolerance level of 5-5.5%. This prompted the central bank to tighten its monetary stance and raise key interest rates—repo rate (9%) and reverse repo rate (6%)—and cash reserve ratio (9%) in a series of steps.
The tight money flow in the economy weakened the inflationary pressures, and inflation dropped to its lowest in last six years at 3.03%, in line with RBI expectations. The central bank estimates inflation to go below 3% by the end of the current fiscal.
Consequently, RBI shifted its focus from inflation to growth, which has been hit due to tight credit condition and low demand. Through a flurry of measures since October, the central bank has injected more than Rs 4,00,000 crore. The steps include slashing of repo (overnight lending rate) and CRR to 5% each and reverse repo (overnight borrowing rate) to 3.5%.
“With prices falling rapidly, we expect a period of deflation from the middle of 2009,” Goldman Sachs economist Pranjul Bhandari said in a report titled ‘Asia Economics Data Flash’. Axis Bank expects prices to fall starting April 2009.
The consumer price index (CPI) inflation, which better represents change in price of a household consumption basket, continues to be high, the note read. The CPI (industrial workers) inflation rose to 10.45% in January 2009 from 9.7% in December 2008. “This could possibly be due to higher retail food prices, particularly fruits and vegetables, in January as there was a transporters’ strike,” the bank said.
However, it is likely to come down in the future with the cut in retail petrol, diesel and LPG prices on January 31 and the 2% services tax reduction on February 24 coming into effect, the note read.
Meanwhile, a Reuters Poll has estimated that inflation rate would drop to near seven-year low for the week ended February 28 due to lower prices of manufactured goods and food articles. The poll showed a median forecast of 2.34% rise in the WPI. The data would be released on Thursday.
On June 2002, inflation was 2.18%, while its lowest level is 1.13% on February 2, 2002.
“I am seeing a 0.1% point reduction in primary articles as well as manufactured goods. The fuel and power group will remain steady,” Securities Trading Corporation of India’s analyst (fixed income research) Meghna Patel said.
Financial Express, March 2, 2009, Page 2
fe Bureau, New Delhi
Cut in excise duty, reducing prices of aviation turbine fuel (ATF) and high base will bring inflation to zero level by the end of March, and prices would begin to fall by the middle of 2009, analysts feel.
“WPI (wholesale price index) inflation will touch 0% by March end 2009, on the back of 2% excise duty cut, 7% cut in ATF prices and a strong base effect,” Axis Bank economist Saugata Bhattacharya said in a research note.
In the middle of last year, inflation rose to 12.93%, way beyond Reserve Bank of India’s preliminary tolerance level of 5-5.5%. This prompted the central bank to tighten its monetary stance and raise key interest rates—repo rate (9%) and reverse repo rate (6%)—and cash reserve ratio (9%) in a series of steps.
The tight money flow in the economy weakened the inflationary pressures, and inflation dropped to its lowest in last six years at 3.03%, in line with RBI expectations. The central bank estimates inflation to go below 3% by the end of the current fiscal.
Consequently, RBI shifted its focus from inflation to growth, which has been hit due to tight credit condition and low demand. Through a flurry of measures since October, the central bank has injected more than Rs 4,00,000 crore. The steps include slashing of repo (overnight lending rate) and CRR to 5% each and reverse repo (overnight borrowing rate) to 3.5%.
“With prices falling rapidly, we expect a period of deflation from the middle of 2009,” Goldman Sachs economist Pranjul Bhandari said in a report titled ‘Asia Economics Data Flash’. Axis Bank expects prices to fall starting April 2009.
The consumer price index (CPI) inflation, which better represents change in price of a household consumption basket, continues to be high, the note read. The CPI (industrial workers) inflation rose to 10.45% in January 2009 from 9.7% in December 2008. “This could possibly be due to higher retail food prices, particularly fruits and vegetables, in January as there was a transporters’ strike,” the bank said.
However, it is likely to come down in the future with the cut in retail petrol, diesel and LPG prices on January 31 and the 2% services tax reduction on February 24 coming into effect, the note read.
Meanwhile, a Reuters Poll has estimated that inflation rate would drop to near seven-year low for the week ended February 28 due to lower prices of manufactured goods and food articles. The poll showed a median forecast of 2.34% rise in the WPI. The data would be released on Thursday.
On June 2002, inflation was 2.18%, while its lowest level is 1.13% on February 2, 2002.
“I am seeing a 0.1% point reduction in primary articles as well as manufactured goods. The fuel and power group will remain steady,” Securities Trading Corporation of India’s analyst (fixed income research) Meghna Patel said.
Selling by FIIs may accelerate
Selling by FIIs may accelerate
Business Standard, March 10, 2009, Section II, Page 10
Depreciating rupee causes fall in value of portfolios.
Rajesh Bhayani / Mumbai
Even as foreign institutional investors (FIIs) are rushing out of the Indian equity markets, there are fresh indications that their selling may accelerate in the coming weeks. During the current year, FIIs have sold shares worth Rs 10,772 crore, with the figure for the current month already reaching Rs 2,766 crore.
One of the major factors for this pullout is the depreciation in the value of the Indian currency, which slid by 6.38 per cent against the US dollar from the beginning of this year on selling by FIIs. Basically, FIIs seem to have entered a vicious cycle of a depreciating domestic currency causing a fall in the value of their portfolios, forcing them to sell their holdings which, in turn, further weakens the currency.
Other issues concerning foreign funds include the worsening fiscal situation of the country, the inherent uncertainties related to general elections.
According to Citi group's latest report on ‘Asia Strategy’, “...with emerging capitulation, there is a high probability that we will see additional billions of dollar outflows by Asian funds from now on into the second quarter.”
Many funds are facing further mark-to-market (MTM) losses on their debt portfolios and need to generate cash to provide for such losses. This leads them further into capitulation. Citi group estimates that sell-offs by Asian funds during September and October last year was to the tune of 6.3 per cent of their holdings and, in the last three weeks alone, outflow has reached 2.9 per cent of their total holdings left in the region. In fact, the report added, outflows are estimated to reach October levels.
Commenting on the capitulation, Deven Choksey, managing director, KRC Shares and Securities, said: “Foreign funds are facing a dire need to generate cash to meet their requirements for mark-to-market losses in their portfolios, increasing the selling pressure on them.”
Sherman Chan, an analyst with Moody’s Economic.com, said: “India's appeal to international investors has weakened considerably in recent weeks. Current economic woes, like lower GDP (growth), have confirmed that this emerging powerhouse is not immune to the global turmoil. And with the general elections coming up soon, which makes the government powerless, India has moved from being one of the most favoured investment destinations to one that requires investors to take great caution. These factors are bad enough to discourage investment in this emerging market for now.”
A representative of a leading FII said: “The higher fiscal deficit would put pressure on interest rates and, with the fall in rupee's value, any rise in oil prices would further put pressure on the economy.”
In addition to all these, one major concern why FIIs have accelerated selling in the Indian market, as described by Moody’s analyst Chan, is “...unsustainable fiscal positions."
"Doubts on the serviceability of public debt – which is equivalent to about 80 per cent of the GDP – have resulted in rating agencies warning of downgrades to junk status. Returning to a such a non-investment grade would mean that some fund managers – bound by investment guidelines – can no longer consider India,” she further pointed out.
Rising commodity prices, coupled with the fall in rupee's value, is also emerging as a major concern, and any further fall in rupee's exchange rates could result in a meltdown in the equity markets.
“In that case, the 2,250-level will be breached easily to form a new low. The possibility of that low being below the 2,000 levels on the Nifty spot is fairly high,” said Vijay Bhambwani, a technical analyst.
Business Standard, March 10, 2009, Section II, Page 10
Depreciating rupee causes fall in value of portfolios.
Rajesh Bhayani / Mumbai
Even as foreign institutional investors (FIIs) are rushing out of the Indian equity markets, there are fresh indications that their selling may accelerate in the coming weeks. During the current year, FIIs have sold shares worth Rs 10,772 crore, with the figure for the current month already reaching Rs 2,766 crore.
One of the major factors for this pullout is the depreciation in the value of the Indian currency, which slid by 6.38 per cent against the US dollar from the beginning of this year on selling by FIIs. Basically, FIIs seem to have entered a vicious cycle of a depreciating domestic currency causing a fall in the value of their portfolios, forcing them to sell their holdings which, in turn, further weakens the currency.
Other issues concerning foreign funds include the worsening fiscal situation of the country, the inherent uncertainties related to general elections.
According to Citi group's latest report on ‘Asia Strategy’, “...with emerging capitulation, there is a high probability that we will see additional billions of dollar outflows by Asian funds from now on into the second quarter.”
Many funds are facing further mark-to-market (MTM) losses on their debt portfolios and need to generate cash to provide for such losses. This leads them further into capitulation. Citi group estimates that sell-offs by Asian funds during September and October last year was to the tune of 6.3 per cent of their holdings and, in the last three weeks alone, outflow has reached 2.9 per cent of their total holdings left in the region. In fact, the report added, outflows are estimated to reach October levels.
Commenting on the capitulation, Deven Choksey, managing director, KRC Shares and Securities, said: “Foreign funds are facing a dire need to generate cash to meet their requirements for mark-to-market losses in their portfolios, increasing the selling pressure on them.”
Sherman Chan, an analyst with Moody’s Economic.com, said: “India's appeal to international investors has weakened considerably in recent weeks. Current economic woes, like lower GDP (growth), have confirmed that this emerging powerhouse is not immune to the global turmoil. And with the general elections coming up soon, which makes the government powerless, India has moved from being one of the most favoured investment destinations to one that requires investors to take great caution. These factors are bad enough to discourage investment in this emerging market for now.”
A representative of a leading FII said: “The higher fiscal deficit would put pressure on interest rates and, with the fall in rupee's value, any rise in oil prices would further put pressure on the economy.”
In addition to all these, one major concern why FIIs have accelerated selling in the Indian market, as described by Moody’s analyst Chan, is “...unsustainable fiscal positions."
"Doubts on the serviceability of public debt – which is equivalent to about 80 per cent of the GDP – have resulted in rating agencies warning of downgrades to junk status. Returning to a such a non-investment grade would mean that some fund managers – bound by investment guidelines – can no longer consider India,” she further pointed out.
Rising commodity prices, coupled with the fall in rupee's value, is also emerging as a major concern, and any further fall in rupee's exchange rates could result in a meltdown in the equity markets.
“In that case, the 2,250-level will be breached easily to form a new low. The possibility of that low being below the 2,000 levels on the Nifty spot is fairly high,” said Vijay Bhambwani, a technical analyst.
India can cut interest rates further, says ADB study
India can cut interest rates further, says ADB study
Business Standard, March 10, 2009, Section II, Page 3
BS Reporter / New Delhi
India has room to cut interest rates further, and it should quickly disburse funds related to the fiscal stimulus packages announced recently to cushion economic growth from the impact of the global economic turmoil, Asian Development Bank (ADB) said in a new study published today.
“There is further room for interest rate reductions, particularly in India and Sri Lanka. While most countries have little scope for large stimulus packages, given deficit constraints, India, which has introduced two of them, should disburse the funds swiftly for maximum impact,” the study said.
Titled ‘The Impact of the Global Economic Slowdown on South Asia’, the study also noted that the sub-region had been hit by capital outflows and weaker commodity prices, and faced a sharp slowdown in exports and remittances as global troubles worsened.
“Governments could consider incentives to encourage overseas workers to remit money home, such as special savings instruments, and they should also discuss currency swap arrangements and other measures to keep their financial systems stable,” it added.
A number of short-term measures have been taken to cushion the impact of the crisis, including monetary easing and fiscal stimulus packages. India had announced a Rs 20,000-crore additional planned expenditure in the current fiscal, refund of certain service taxes, interest subsidy to labour-intensive sectors and extended finance support to various sectors, including infrastructure.
Additionally, the Reserve Bank of India had cut repo rate, the rate at which the central bank lends to banks, for the fifth time since October 20, and the overall cut effected since the global credit crisis intensified added up to 400 basis points. Since September, the central bank had also lowered cash reserve ratio requirements, or the proportion of deposits that banks set aside, by another 400 basis points to inject Rs 1,60,000 crore into the system.
“South Asian countries can weather the global financial crisis by taking both short- and long-term measures to stimulate their economies,” the study said.
“In the long term, South Asian countries need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations,” it added.
“While some countries in South Asia have had relatively less exposure to the crisis from the adverse impacts of capital flows, more than half of the 900 million people in developing Asia who survive on US$1.25 a day live in the sub-region, so any tempering of growth is a serious cause for concern,” said ADB President Haruhiko Kuroda.
The study is being presented as a discussion paper at the South Asia Forum on Impact of the Global Economic and Financial Crisis, a two-day forum being held at ADB headquarters at Manila on March 9 and 10.
The global financial crisis slashed the value of financial assets worldwide by $50 trillion in 2008, said an ADB study on the global financial turmoil. Financial asset losses in developing Asia, which suffered more than other emerging markets, totalled $9.6 trillion, or just over one year’s worth of developing Asia’s gross domestic product, the ADB report said.
Business Standard, March 10, 2009, Section II, Page 3
BS Reporter / New Delhi
India has room to cut interest rates further, and it should quickly disburse funds related to the fiscal stimulus packages announced recently to cushion economic growth from the impact of the global economic turmoil, Asian Development Bank (ADB) said in a new study published today.
“There is further room for interest rate reductions, particularly in India and Sri Lanka. While most countries have little scope for large stimulus packages, given deficit constraints, India, which has introduced two of them, should disburse the funds swiftly for maximum impact,” the study said.
Titled ‘The Impact of the Global Economic Slowdown on South Asia’, the study also noted that the sub-region had been hit by capital outflows and weaker commodity prices, and faced a sharp slowdown in exports and remittances as global troubles worsened.
“Governments could consider incentives to encourage overseas workers to remit money home, such as special savings instruments, and they should also discuss currency swap arrangements and other measures to keep their financial systems stable,” it added.
A number of short-term measures have been taken to cushion the impact of the crisis, including monetary easing and fiscal stimulus packages. India had announced a Rs 20,000-crore additional planned expenditure in the current fiscal, refund of certain service taxes, interest subsidy to labour-intensive sectors and extended finance support to various sectors, including infrastructure.
Additionally, the Reserve Bank of India had cut repo rate, the rate at which the central bank lends to banks, for the fifth time since October 20, and the overall cut effected since the global credit crisis intensified added up to 400 basis points. Since September, the central bank had also lowered cash reserve ratio requirements, or the proportion of deposits that banks set aside, by another 400 basis points to inject Rs 1,60,000 crore into the system.
“South Asian countries can weather the global financial crisis by taking both short- and long-term measures to stimulate their economies,” the study said.
“In the long term, South Asian countries need to reduce their fiscal deficits, diversify their economies, step up infrastructure investment and boost intra-regional trade to take up the slack of lower demand from G7 nations,” it added.
“While some countries in South Asia have had relatively less exposure to the crisis from the adverse impacts of capital flows, more than half of the 900 million people in developing Asia who survive on US$1.25 a day live in the sub-region, so any tempering of growth is a serious cause for concern,” said ADB President Haruhiko Kuroda.
The study is being presented as a discussion paper at the South Asia Forum on Impact of the Global Economic and Financial Crisis, a two-day forum being held at ADB headquarters at Manila on March 9 and 10.
The global financial crisis slashed the value of financial assets worldwide by $50 trillion in 2008, said an ADB study on the global financial turmoil. Financial asset losses in developing Asia, which suffered more than other emerging markets, totalled $9.6 trillion, or just over one year’s worth of developing Asia’s gross domestic product, the ADB report said.
Dharavi: HDIL won't bid directly
Dharavi: HDIL won't bid directly
Business Standard, March 10, 2009, Page 5
Raghavendra Kamath / Mumbai
Developer to bid for work from those who win the final contract
Mumbai-based property developer Housing Development Infrastructure (HDIL) says it has pulled out of the Rs 15,000 crore Dharavi Redevelopment Project (DRP) because the latter doesn’t seem viable.
Instead of bidding first-hand, it says, it is looking to undertake contracts for the final winners of the DRP. HDIL is one of the largest slum redevelopers in the country.
“The project has become unviable and we are not sure when it will take off. There is uncertainty over the bidding process and the premium the government is asking. We do not want to look at projects which run over four-five years. Today, capital is not coming that easily and we do not want to invest a single rupee in an unviable project,” said Hari Pande, deputy general manager, finance.
HDIL, which partnered with the fallen investor, Lehman Brothers, is among five consortiums that opted out of the plan, which aims to redevelop the 535 acre slum in the centre of Mumbai, supposedly the largest in Asia. Others who opted out include Limitless Llc, Reliance Engineering Associates-Urban Infrastructure Venture Capital and Larsen and Toubro Ltd-Godrej Properties, among others.
The project aspired to transform the huge slum into a global financial centre, originally estimated to produce 5 million sq ft of new office and residential space in the near term and as much as 40 m sq ft over seven years. It was to start in December 2007. Since then, the project has been mired in controversies such as demand from bigger tenements, government delays, transfer of key project officials and so on.
“We can indirectly take part in the project by becoming a contractor to the winners,” Pande said.
HDIL said it was selling apartments built on the land it got under the airport slum rehabilitation project and the accompanying transfer of development rights (TDRs) at lower prices to generate cash flows for the company during the downturn.
TRDs mean getting additional built-up area in lieu of the area surrendered by the owner of the land for any redevelopment or a public purpose project.
The company bagged the contract for rehabilitation and resettlement of slums around Chhatrapati Shivaji International Airport (CSIA) in Mumbai in October 2007, where it is required to rehabilitate 85,000 slum dwellers from 276 acres of land. Depending on the area cleared, HDIL will get 25 per cent of the area for sale and 10 million sq ft of TDR by March 2010.
It has recently launched a 650,000 sq ft project for 759 apartments in Kurla, one of the central suburbs of Mumbai, and is planning to launch other residential projects at Andheri and Kurla (East). In Kurla, the company is selling houses at Rs 5,251 per sq ft or 30 per cent lower than the market price, Pande says.
“At Rs 1,800 per sq ft land cost and Rs 1,500 per sq ft construction cost, we still make around 35 per cent margin. We have to take a call on profitability and cash flows today,” Pande said. The company has booked half the flats since the launch last week.
Analysts said the fall in TDR prices from Rs 4,000 per sq ft in March last year to Rs 1,100 a sq ft now and competition from local developers after the hike in floor space index (FSI) under slum development was expected to hit company revenues.
“They have a TDR pile-up of 1 million sq ft and nearly 8 million sq ft is expected to come from the airport project. They cannot utilise everything by themselves. After the increase in FSI from slum redevelopment projects to 4, the TDR generation will be high and they have to face a lot of competition from local builders,” said an analyst from the Mumbai brokerage who did not wish to be quoted.
But the company is not worried, as it feels there is still room for profits. “The whole analysis of margins has gone down in the last five-seven years. Today, when our TDR cost is Rs 850 a sq ft and we sell it at Rs 1,100 a sq ft, we still make a margin of 15 per cent. We cannot sit on our inventory. We can use the proceeds to repay our debt, reduce interest burden and improve cash flows,” Pande said.
“As long as the company utilises TDR proceeds to repay the debt and residential projects, the strategy looks good. If they invest the money in any other projects where they do not make money immediately, it is not the right strategy,” said the analyst.
Business Standard, March 10, 2009, Page 5
Raghavendra Kamath / Mumbai
Developer to bid for work from those who win the final contract
Mumbai-based property developer Housing Development Infrastructure (HDIL) says it has pulled out of the Rs 15,000 crore Dharavi Redevelopment Project (DRP) because the latter doesn’t seem viable.
Instead of bidding first-hand, it says, it is looking to undertake contracts for the final winners of the DRP. HDIL is one of the largest slum redevelopers in the country.
“The project has become unviable and we are not sure when it will take off. There is uncertainty over the bidding process and the premium the government is asking. We do not want to look at projects which run over four-five years. Today, capital is not coming that easily and we do not want to invest a single rupee in an unviable project,” said Hari Pande, deputy general manager, finance.
HDIL, which partnered with the fallen investor, Lehman Brothers, is among five consortiums that opted out of the plan, which aims to redevelop the 535 acre slum in the centre of Mumbai, supposedly the largest in Asia. Others who opted out include Limitless Llc, Reliance Engineering Associates-Urban Infrastructure Venture Capital and Larsen and Toubro Ltd-Godrej Properties, among others.
The project aspired to transform the huge slum into a global financial centre, originally estimated to produce 5 million sq ft of new office and residential space in the near term and as much as 40 m sq ft over seven years. It was to start in December 2007. Since then, the project has been mired in controversies such as demand from bigger tenements, government delays, transfer of key project officials and so on.
“We can indirectly take part in the project by becoming a contractor to the winners,” Pande said.
HDIL said it was selling apartments built on the land it got under the airport slum rehabilitation project and the accompanying transfer of development rights (TDRs) at lower prices to generate cash flows for the company during the downturn.
TRDs mean getting additional built-up area in lieu of the area surrendered by the owner of the land for any redevelopment or a public purpose project.
The company bagged the contract for rehabilitation and resettlement of slums around Chhatrapati Shivaji International Airport (CSIA) in Mumbai in October 2007, where it is required to rehabilitate 85,000 slum dwellers from 276 acres of land. Depending on the area cleared, HDIL will get 25 per cent of the area for sale and 10 million sq ft of TDR by March 2010.
It has recently launched a 650,000 sq ft project for 759 apartments in Kurla, one of the central suburbs of Mumbai, and is planning to launch other residential projects at Andheri and Kurla (East). In Kurla, the company is selling houses at Rs 5,251 per sq ft or 30 per cent lower than the market price, Pande says.
“At Rs 1,800 per sq ft land cost and Rs 1,500 per sq ft construction cost, we still make around 35 per cent margin. We have to take a call on profitability and cash flows today,” Pande said. The company has booked half the flats since the launch last week.
Analysts said the fall in TDR prices from Rs 4,000 per sq ft in March last year to Rs 1,100 a sq ft now and competition from local developers after the hike in floor space index (FSI) under slum development was expected to hit company revenues.
“They have a TDR pile-up of 1 million sq ft and nearly 8 million sq ft is expected to come from the airport project. They cannot utilise everything by themselves. After the increase in FSI from slum redevelopment projects to 4, the TDR generation will be high and they have to face a lot of competition from local builders,” said an analyst from the Mumbai brokerage who did not wish to be quoted.
But the company is not worried, as it feels there is still room for profits. “The whole analysis of margins has gone down in the last five-seven years. Today, when our TDR cost is Rs 850 a sq ft and we sell it at Rs 1,100 a sq ft, we still make a margin of 15 per cent. We cannot sit on our inventory. We can use the proceeds to repay our debt, reduce interest burden and improve cash flows,” Pande said.
“As long as the company utilises TDR proceeds to repay the debt and residential projects, the strategy looks good. If they invest the money in any other projects where they do not make money immediately, it is not the right strategy,” said the analyst.
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