Real Estate Intellgence Report, Wednesday, July 15, 2009

FM sees early signs of recovery, says deficit won’t be monetised

FM sees early signs of recovery, says deficit won’t be monetised
The Financial Express, July 15, 2009, Page 1

fe Bureau, New Delhi

The government will push through its disinvestment programme, cut the fiscal deficit to 5.5% by next year and create the necessary policy environment—including reforms—in the financial sector, finance minister Pranab Mukherjee said on Tuesday.

“We all know that the global financial crisis did not affect Indian banks or financial market directly. But it did expose a number of weaknesses in our financial system,” was the minister’s candid acknowledgement in Parliament.

The minister used his reply to the debate on the general Budget to outline the government’s reform agenda. He touched on all topics that domestic and foreign investors as well as stock markets had missed in his Budget speech on July 6, saying there were early signs of economic recovery.

“There is sometimes a perception among financial and other investors that in the recent past, government has been slow on policy reforms. I intend to look into all issues, legislative or otherwise, necessary to carry forward the reforms to their logical end,” Mukherjee said.

Elaborating on the UPA government’s disinvestment policy, he said, “The President’s address had clearly spelt out the policy of the government on disinvestments--the government would develop people-ownership of public undertakings while ensuring that government equity does not fall below 51% and the government retains management control of the company. I reiterated this in my Budget speech.”

The finance ministry has already begun discussions with other ministries and departments to identify PSUs where the government can divest a portion of its stake or issue fresh equity to meet their fund requirements. “The details are being worked out and would be announced in due course,” Mukherjee said, adding that this would “enable the PSUs to benefit from techno-managerial efficiencies and become more competitive”.

Stake sales in four PSUs are already on the cards, Mukherjee told the Rajya Sabha earlier in the day. The Centre would divest its holding in NHPC Ltd and Oil India Ltd through IPOs this fiscal, and has also approved disinvestment of two loss-making companies-- Tyre Corporation of India Ltd and Central Inland Water Transport Corporation Ltd--he told the Upper House.

Mukherjee did not say if disinvestment proceeds would be used to bridge the fiscal deficit. But he assured Parliament that the fiscal deficit would come down from 6.8% of GDP in 2009-10 to 5.5% in 2010-11 and further to 4% by 2011-12. “Much of our recent success in raising our growth trajectory has come about due to adherence to FRBM targets, both at the central and state levels. Fiscal prudence is critical for maintaining stable balance of payments, moderate interest rates and steady flow of external capital for corporate investment,” he said.

On financial sector reforms, Mukherjee said the UPA would “create the necessary policy” to address weaknesses. He said this was necessary to counter the volatile nature of FII equity and private capital that created a negative impact on investment decisions.

The minister also clarified the Centre’s borrowing programme for 2009-10, estimated at Rs 3,97,957 crore, saying it has no intention of monetising its debt because the borrowing was being supported by RBI through its open market operations. He also dispelled fears that higher government borrowings would crowd out the private sector and increase the cost of borrowings.

FM holds out hope for economic recovery

FM holds out hope for economic recovery
The Times of India, July 15, 2009, Page 15

Pranab Says India Will Be Back On Track, Promises To Target Investment In ‘Quick Yield’ Areas

TIMES NEWS NETWORK

New Delhi: In his cautious manner, finance minister Pranab Mukherjee held out some hope for the economy. He told the Lok Sabha on Tuesday afternoon that a “silver lining is visible” and promised he would target investment in “quick yield” areas to get India back on the growth path.

He said there was a medium-term strategy to tap sectors of the economy where returns would be swifter. In what could be a bid to counter the impression that he might be too much of a “by-the-book-Benny” at a time when quick responses were needed, he made it clear that he would not be bogged down by the “process” and lose sight of the larger picture.

On Tuesday, when the Lok Sabha passed the general budget, Mukherjee promised to push for the rollout of GST next year and sought the cooperation of all major parties that are in power in various states. He declared his intention to pay due attention to returning to FRBM targets, seeking to assuage fears that borrow-and-spend was a permanent feature.

Mukherjee was not gungho. If Congress MPs were looking for a rousing speech, they were to be disappointed. He could well have depended on private sector to spur growth as “it was simpler to choose the softer option” of not crossing the fiscal red lines. But then, who would provide for the “teeming millions”, he asked pointing to UPA’s promise to provide the “bare minimum to the most needy”.

Having clearly followed comment and opinion closely, he pointed to criticism that he had presented an “accountant’s budget”. It was easy to fling about such epithets yet it required an act of courage to go in for a borrowing of Rs 3,91,000 crore. “It is not an easy task to borrow,” he said, indicating his concern by saying he was praying fervently to “Lord Indra” for a good monsoon.

It was growth alone that led to a rise in the tax-GDP ratios in the previous years and allowed the government to come out with ambitious schemes like the nation-wide loan waiver. The government was determined to make social investments and Mukherjee hoped that “signs of a pick up” in sectors like steel, cement, autos and telecom would remain on course. “These are small beginnings, we are not out of the woods,” he said.

Predictably, there were no giveaways on offer. Having outlined UPA’s commitments, he said the Budget was a “fourth” stimulus since last September though his current offering was mainly by way of spending plans. In deference to the market, he acknowledged that there might have been some sense of disappointment over his muted stance on disinvestment. He sought to send out a reforms signal by saying that his “so-called” silence had been misinterpreted.

A list of PSUs where government would issue fresh equity would soon be out. He did not elaborate just as he spoke of the importance of regulating capital flows to make the financial sector more “competitive” without spelling out plans for pending insurance, banking and pension legislation. He spoke of the need for efficient regulatory frameworks in order to protect India’s banks and financial markets against volatile capital flows.

Govt likely to set up expressway authority

Govt likely to set up expressway authority
Business Standard, July 15, 2009, Page 5

BS Reporter / New Delhi

To build 1,000 km of expressways at an estimated cost of Rs 16,680 crore.

Union Road Transport and Highways Minister Kamal Nath today said the government was considering setting up an authority for expressways on the pattern of the National Highways Authority of India (NHAI) in order to give impetus to infrastructure development in the country.

The government plans to build 1,000 km of expressways at an estimated cost of Rs 16,680 crore, which is likely to be completed by December 2015.

“The government is considering an expressway authority. The new authority will identify routes, technology and schemes for the expressways,” Nath said at the National Highways Development Conclave organised here by the Confederation of Indian Industry (CII).

A road task force, constituting members from the CII, the Union transport ministry and the NHAI, was also formed as a mechanism to address industry concerns.

The forum would meet every month under the leadership of the transport secretary and submit reports to the minister on the progress made.

Nath said he would discuss with the finance ministry on making toll collection a tangible asset, so that banks can offer loan to concessionaires.

Nath also said he would take up the matter of increasing the conflict of interest clause in the RFQ to 10 per cent from 5 per cent and to revamp the dispute restoration board model.

“Dispute restoration has to be revamped. It is a field issue and has to be settled on the field. We have set a committee in the ministry to look into this matter and it is to submit its report in the next two to three weeks,” Nath said.

On generation of funds for the road projects, Nath said the government would look at innovating capital sources and may consider coming up with bankable bonds markets for the long-term funding of road projects.

Planning Commission Deputy Chairman Montek Singh Ahluwalia said: “The development on infrastructure cannot completely rely on budgetary allocation. Therefore, public-private partnership engagements should be leveraged to strengthen the overall scenario and bring in efficient practices. Capacity generation and organisational issues are a big problem in the country and should be dealt with.”

Mkts bounce back on global cues, FII buying & monsoon

Mkts bounce back on global cues, FII buying & monsoon
The Financial Express, July 15, 2009, Page 4

fe Bureau, Mumbai

Indian equity indices surged ahead on Tuesday, after a sustained buying was seen by the foreign institutional investors (FII) coupled with monsoon finally arriving in several parts of the country. Additionally, strong cues from the Asian as well as European markets wherein all exchanges closed in the green, led the domestic markets to close above the dotted line. The 30-share Sensex of Bombay Stock Exchange (BSE) added 453.38 points or 3.38% to close the day at 13,853.70 points.

The broader S&P CNX Nifty of National Stock Exchange (NSE) ended higher by 137.35 points or 3.46% to 4,111.40 points.

Despite domestic markets going up on Tuesday, dealers in the market sense that, in the coming days markets might remain volatile due to lack of cues from the national as well as international front.

Ambareesh Baliga, vice president at Karvy stock broking said, “After witnessing a downward rally in the last week, there was bound to witness a bounce-back. However, I don’t think that, this upward rally will continue in the coming days.”

Domestic markets started the day on the positive terrain backed by encouraging note from the US markets and traded in green throughout the trading session, to close the day with handsome gains.

An analyst from a leading broking firm said, “Reports from the meteorological department forecasting that the monsoons will get stronger in coming days boosted the sentiments of the markets. Moreover, statements from the finance minister that the recovery of our economy is on the right track coupled with his belief that the huge spending plan of the central government will have a positive impact on the economy has also had a positive impact on the markets.”

As per the provisional figures furnished by BSE, FII were net buyers to the tune of Rs 87.23 crores while domestic institutional investors (DII) were net buyers at Rs 200.29 crores. All the sectors in the BSE Sectoral indices closed the day in green, with realty and metal being the top performers of the day. Baliga further added, “We assume that, Nifty is likely to remain in the range of 3,850 to 4,150 in the coming days. I don’t think Nifty will breach 4,150 mark as in the coming days we might not witness any major announcement from the government and on the monsoon front we have to wait for another 10-15 days to have a normal monsoon in the country.”

The breadth of the market remained strong as out of 2,639 stocks traded on BSE, 1,956 stocks advanced, 602 stocks declined while remaining 81 stocks remained unchanged. In Sensex, 29 stocks closed the day in green and one stock closed in red. Dealers further added that, domestic markets would also be triggered by the quarter earnings season and global cues.

QIP route set to lose sheen

QIP route set to lose sheen
The Financial Express, July 15, 2009, Page 4

fe Bureau, Mumbai

Raising money through the qualified institutional placement (QIP) route is expected to get tougher in coming days as almost 75% of the QIPs made in 2009 have given negative returns with 10 out of 13 of them trading below their offer prices.

With the success of Unitech, which raised a total of Rs 4,400 crore in two tranches in 2009, QIP has become the most favoured instrument for fund raising by corporates. So far in the calendar year 2009, 13 companies mobilised Rs 12,500 crore through the QIP route.

In view of the current down trend in the equity market where majority of the QIPs made have seen significant erosion in value, experts argue that raising funds through this route would either slow down or get delayed.

A study by Crisil Equities shows that total return on investments by all the QIPs is marginally negative despite significant gains registered from the first QIP of Unitech, which has delivered a positive return of around 75%. The study reveals that around one fourth of the QIPs are trading 20% below their offer prices.

In absolute terms, Unitech's second tranche of QIP of Rs 2789 crore at an offer price of Rs 81 has lost over Rs 450 crore. However, Unitech's first QIP of Rs 1,620 crore in April 2009 at an offer price of Rs 38.5 is the largest wealth creator for QIPs with total gains of Rs 1220 crore.

“The significant run up in the stock prices before the 2009-10 Budget made QIP deals unattractive as the inherent fundamentals of most companies which queued up for QIP have not changed materially. With the recent decline in prices and the consequent erosion in the QIP investment value, we expect raising capital through the QIP route may slow down significantly,” said Chetan Majithia, head of Crisil Equities.

Going forward, another 23 companies have lined up to raise Rs 43,887 crore through the QIP route. Of this, GMR Infrastructure has already withdrawn its QIP of Rs 5,000 crore owing to poor investor response.

Citing the example of GMR Infrastructure, Jagannadham Thunuguntla, head of equity, SMC Capital Ltd, said: "Only good companies with reasonable valuations will be able to successfully complete their QIP process. Whatever valuations the companies are offering to potential investors should also be justified by their fundamentals".

However, experts also argue that the significant fall in the prices of QIPs is also on account of profit taking by qualified institutional buyers (QIB). "Since there is no lock-in period for investment in QIPs, most of the institutional investors have sold heavily after subscribing to the QIPs making hefty profits", said a senior executive at a leading institutional broking firm.

Unitech, through its two QIP issues, raised around Rs 4,400 crore, accounting for 35% of the total QIP amount. Among sectors, the real estate, with five companies, has raised a total of Rs 9,500 crore, 76% of the total QIP amount.

10 out of 13 recent QIPs trading in the red

10 out of 13 recent QIPs trading in the red
Business Standard, Money & Markets, July 15, 2009, Page 1

BS Reporter / Mumbai

Companies may fail to raise the projected Rs 40,000 crore.

The pace of qualified institutional placements (QIPs) since the beginning of this financial year has started to run out of steam.

While projections put the amount being raised through this instrument at as high as Rs 40,000 crore, most placements completed in the last few months are trading in red.

A study by Crisil Equities reveals that most QIPs in 2009 have given negative returns with 10 out of 13 placements during the period trading below the offer price. As on July 10, average returns from these QIPs were marginally negative. This is despite 75 per cent returns from the first QIP by Unitech. Excluding Unitech, the average are a negative 12 per cent.

Around one-fourth QIPs are trading 20 per cent below their offer price. In percentage terms, Bajaj Hindustan’s QIP has declined the most. Its current market price is around 28 per cent below the offer price. In absolute terms, Unitech (the second tranche sold at Rs 81) and HDIL have lost the most (more than Rs 450 and 350 crore, respectively).

Now, the Rs 40,000 crore projected to be raised via QIPs seems far off with some companies reducing the amount to be raised. Some have even scrapped their QIP plans.

The total amount raised through QIPs was Rs 12,500 crore. Unitech, through its two QIPs (in April and June), raised around Rs 4400 crore, or 35 per cent of the total. The Rs 50 crore QIP of Power Trading Corporation was the smallest. Among sectors, five real estate companies raised close to Rs 9,500 crore, or 76 per cent of the total.

There are over 30 other companies that have got shareholders’ nod for QIPs. These are Pantaloon Retail, JSW Steel, IndusInd Bank and S Kumars. Educomp raised Rs 607 crore via private placement last Thursday.

In the last two weeks, the markets have been volatile with a downward bias. Market experts said this could lead to a further fall in interest in QIPs. This is because under the Securities and Exchange Board of India's guidelines, the price at which the placement is done is the average of the last 15 days’ stock price of the company.

GMR Infrastructure was forced to call off its Rs 2,447 crore QIP on Monday after investors developed cold feet on concerns over valuation. Similarly, construction firm HCC had a mandate to raise Rs 1,500 crore but could raise only Rs 480 crore. Real estate firm Sobha Developers could raise only Rs 543 crore as against the target of Rs 1,468 crore, while GVK Power, say sources, has managed to raise Rs 611-734 crore as against a target of Rs 2,447 crore.

Chetan Majithia, head, Crisil Equities, said, “The significant run-up in stock prices before the 2009-10 Budget made QIP deals unattractive as fundamentals of most companies which queued up for these issues had not changed materially. With concerns over global economic growth persisting and delay in monsoon, the S&P CNX NIFTY is trading 15 times its FY10 expected earnings, which is rather expensive. With recent decline in prices and consequent erosion of the QIP investment value, we expect raising of capital through the QIP route to slow down significantly.”

WB sees remittances to developing nations fall to $304 billion in 2009

WB sees remittances to developing nations fall to $304 billion in 2009
The Financial Express, July 15, 2009, Page 13

fe Bureau, Chennai

Remittance flows to developing countries are expected to be $304 billion in 2009, down from an estimated $328 billion in 2008, the World Bank has said, releasing a new migration and remittances brief to coincide with an international diaspora and development conference.

The predicted decline in remittances by -7.3% this year is far smaller than that for private flows to developing countries. According to the World Bank, remittances are relatively resilient because while new migration flows have declined, the number of migrants living overseas has been relatively unaffected by the crisis.

However, sources of risk to the outlook include uncertainty about the depth and duration of the current crisis, unpredictable movements in exchange rates, and the possibility that immigration controls may be tightened further in major destination countries.

“There is a risk that rising unemployment will trigger further immigration restrictions in major destination countries. Such restrictions would curb remittances more than forecast and would slow the global recovery in the same way as protectionism against trade would endanger a global upturn,” explained World Bank's development prospects group director Hans Timmer.

Remittances have slowed in many corridors since the last quarter of 2008. In line with a recent downward revision in the World Bank's forecast of global economic growth, the new update (2009-2011) highlights the impact of the present financial crisis on the remittance flows and describes broad regional and country specific trends.

Remittance flows to Latin America have been falling in large part because of a slowdown in the US construction sector. The new forecasts show a -6.9% decline in remittances for the Latin America and Caribbean region. Sub-Saharan Africa is also likely to experience a -8.3% slowdown in its remittance flows.

However, flows to South Asia and East Asia have been strong; but remittances are expected to decline somewhat in 2009.

India, China and Mexico retain their position as the top recipients of migrant remittances among developing countries.

Smaller economies such as Tajikistan, Moldova, Tonga, Lesotho, and Guyana are the top recipients in terms of the share of remittances in GDP; which exceeded a quarter of their GDP.

“Remittances provide a lifeline to many poor countries. Although they remain resilient, even a small decline of 7% or 10% can pose significant hardships to the people and to governments, especially those facing external financing gaps. Reducing remittance fees and developing innovative tools to leverage remittances for financial inclusion and capital market access should be a part of our response to the financial crisis,” said World Bank development prospects group lead economist Dilip Ratha.

Permanent housing for slumdwellers in offing

Permanent housing for slumdwellers in offing
The Financial Express, July 15, 2009, Page 2

Kakoly Chatterjee, New Delhi

The city’s slumdwellers could get permanent housing under a new scheme, the Rajiv Awas Yojana (RAY), announced by finance minister Pranab Mukherjee in Budget 2009-10.

Though the fine prints of the new scheme are still being worked out by the housing ministry, officials said each dwelling unit under the scheme would be of the size of 25 sq mt and expected to cost around Rs 2,00,000 to Rs 2,50,000. The cost of the dwelling units would be shared by the central and state government alongwith the occupant.

While central government assistance will be in the range of 50% to 90% depending on which part of the country the project is located, the remaining would be shared by the state governments and the occupants.

According to Kaustav Basu, principal consultant, PA Consulting Group, “There should be a lock-in period of five to six years before the occupants can sell the property to discourage the trade in these dwelling units”.

Housing and poverty alleviation minister, Kumari Selja said that RAY is not only going to deal with existing issues but also future issues relating to the grwoth of slums in the cities.

“Inclusive growth is not possible until we have inclusive cities for which inclusive zoning is required. Existing planning model which is exclusionary needs to be modified with inclusive planning,” Selja said.

According to housing ministry, the concept paper for RAY is ready and has been sent to state chief ministers. By mid-July Kumari Selja is expected to confer with technical advisors and members of Jawaharlal Nehru National Urban Renewal Mission (JNNURM), eminent NGOs, industry associations to finalise on the fineprints of the scheme.

The main highlight of RAY is that the scheme would focus on according property rights to slum dwellers. The legal framework is being worked for this. An extensive slum survey to find out the number of families and where they are dwelling needs to be completed before RAY is implemented.

Housing ministry has received a 50% hike in funds to Rs 3,765 crore for funding the two JNNURM schemes that the ministry runs. For basic services to the urban poor (BSUP) housing ministry has received Rs 2,505 crore. Funds allocated for integrated housing and slum development programme (IHSDP) is Rs 1,110 crore and a token amount of Rs 150 crore has been allocated for RAY.

FIIs cut premiums for Indian stock markets

FIIs cut premiums for Indian stock markets
Business Standard, Money & Markets, July 15, 2009, Page 1

Palak Shah / Mumbai

After investing around $8 billion between mid-March and mid-June, foreign institutional investors (FIIs) have started cutting down premiums for the Indian stock markets.

Market experts said the premiums were down from around 15 per cent before the Union Budget last week to 5-7 per cent at present.

“All major FIIs have cut their premiums to the Indian markets. Consequently, the premiums are justified and realistic now,” said Pramod Gubbi, director, Nobel, a research house that advises several FIIs.

Long-only FIIs allocate funds for each market, which entails a certain premium, based on growth projections for the year.

Prior to the Budget last week, the markets in India were getting a premium of 15-20 per cent as there were expectations of a clear road map for divestment of public sector units and de-regulation of oil prices.

However, the premium slipped due to lack of a clear message from the government regarding these reforms in the Budget. The rise in the Centre’s fiscal deficit to 6.8 per cent of the gross domestic product is another reason for concern. Also, the government announced record borrowings of Rs 4.51 lakh crore in the Union Budget. Analysts fear that such a huge borrowing programme will lead to hardening of interest rates. This, in turn, could crowd out the private sector’s borrowing and hit balance sheets of companies by raising their cost of borrowing.

However, experts said the premiums could rise again if the reforms agenda continued after the Budget. Rashesh Shah, chairman, Edelweiss Securities, said foreign investors were still willing to pay a premium for the Indian markets on hope that the government would push reforms.

“Even though this will be a short fiscal year after the Budget, it is likely that FIIs could bring in over $10 billion if a clear road map for reforms is worked out. In that case, premiums could rise above 10 percent,” added Shah.

In the absence of any major FII action, Shah said the markets could consolidate and stay within a range for a month or two before the next rally.

The Indian markets have risen the fastest in the last few months. Since March, the S&P Nifty has risen 55 per cent. Other emerging markets, including Brazil, Russia and China, gained between 34 per cent and 48 per cent.