Weekly Update 11th – 15th October 2010

Beside Indian market all global markets closed in green in the week gone by on the expectation of policy easing by developed nations. Central banks resorting to purchase of debt and currency intervention in developedeconomies is flooding markets with liquidity and funds are flowing to Asia for higherreturns. Fed Chairman Ben S. Bernanke has signaled that Fed may announce thepurchase of more Treasuries as soon as their next policy meeting in November in aneffort to boost growth and reduce an unemployment rate.

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The Bank of Japan said this week it will establish a 5 trillion yen ($61 billion) fund to buy government bondsand other assets. It also cut its benchmark overnight interest rate for the first timesince 2008, dropping it to a range of zero to 0.1 percent. Joining the league European Central Bank President Jean- Claude Trichet too said that ECB policymakers are in the “same mood” as a month ago and for now remain committed tophasing out their unlimited lending program.With the economic activity gaining pace, it is believed that Indian market wouldcontinue to see overseas buying. Moreover Indian government plans to raise $8.9billion in the year ending March 31 selling state assets including Coal India, Steel Authority of India Ltd. and Indian Oil Corp. thereby giving more investment opportunities to investors.

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While many developed nations are intervening in the currency markets in order tostem the appreciation in the currency, Indian Finance minister is of the opinion thatthe situation has not gone to an extent at which there is a need to restrict portfolio or foreign direct investment. As a matter of fact Indian rupee gained 4.5 percent inSeptember. Finance Minister said “We should try to engage the countries innegotiations and build up a consensus through which the matter can be resolved andit cannot be resolved through confrontation.” The International Monetary Fundraised its 2010 economic growth forecast for India to 9.7 percent from 9.4 percent,citing strengthening local consumer demand.

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Since we have already seen a huge run up in the broader indices meaning moreparticipation coming from large cap stocks so now going forward we may expectmore activity in mid and small cap stocks. The result season is starting in the comingweek and corporate would give their guidance for the rest of the year which wouldset the future undertone of the markets. Nifty has support between 5950-5870 and Sensex between 19640-19200 levels.What a stunning rally gold has enjoyed recently on fear of inflation. It has hit many records in fewer days.

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Silver was not behind, it made life time high of `34898 on MCX and breached the mark of `35000 in spot market. Talk of quantitative easing by US and rate cut by BoJ are creating anxiety over currency devaluation and long-terminflation is keeping gold and silver on remarkable run up. After witnessing the bigswings of both side, we can say that trend of crude oil is little bit in indecision mode.However, bias should be on upside. Michigan Confidence, CPI and advance retailsales data of US may further provide the direction to metals and energy. Industrialmetals which have made upper trading range last week, are likely to trade up onweakening dollar index.

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Single policy platform for FDI

Union Commerce and Industry Minister Anand Sharma released the final document of FDI Policy Framework.

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It would now comprise the single document on FDI policy and mark the inception of a whole new chapter on FDI policy.

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Meanwhile, he said that the current exercise had been started with the goal of incorporation of all prior regulations on FDI.

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That contained in Foreign Exchange Management Act (FEMA), RBI circulars, and various Press Notes into one consolidated document.

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This is so as to reflect the current regulatory framework.

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Moreover, having a single policy platform would also ease the regulatory burden for Government.

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The intention of this exercise is not to make changes in the extant guidelines, but to deal with them comprehensively.

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The government stated that it was considering permitting FDI in limited liability partnership (LLP) firms.

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It was also considering to clearly define whether shares and bonds issued to overseas investors could be treated as foreign direct investment.

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On the other hand, the government may also do away with Schedule IV of the FEMA that deals with sale and purchase of shares and debentures by NRIs and overseas corporate bodies on non-repatriable basis.

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Earlier, it was said that India”s Foreign Direct Investment (FDI) inflows reduced by 25 % to $2.04 bn in January 2010 as compared to the corresponding period of the previous year, breaking a trend of positive growth in the previous 3 consecutive months.

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An official said there is no specific reason why the inflows in January inched down. India”s total FDI by the end of the current financial year, will not be more than last financial year”s.

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However, last year in January 2009, FDI inflows were $2.73 bn. India attracted FDI of $2.33 bn in October 2009, about 56 % jump over the same period last year, while in November FDI surged by 60 % to $1.73 bn.

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Previously, as the response from investors did not warrant such a move, the government does not have any plan to increase the cap of foreign investments in bonds stated a top Finance Ministry official.

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The existing limit is not being used up for a long time while there is no proposal to raise the foreign institutional investment (FII) debt limit.

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Currently, the government allows foreign investments of up to $15-billion in corporate bonds and up to $5-billion in government bonds.

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India received $1.5 billion foreign direct investment (FDI) in December 2009 that is an increase of over 10% over that in the same month of previous year.

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FDI was $1.36 billion in December 2008.

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The overseas inflows decreased marginally to $20.9 billion in April-December compared to $21.15 billion in the corresponding period last year.

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In addition, Commerce and Industry Minister Anand Sharma stated that the government plans to introduce a single FDI document by end-fiscal, with a view to simplify foreign direct investment (FDI) process, and is currently discussing the various modalities.

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He said they have put this document for discussions with all stakeholders to invite their comment which is likely to close by January 31.

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By March 31, they will have single FDI document to ensure simplification, easy comprehension and predictability.

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Moreover, Commerce and Industry Minister Anand Sharma stated that India”s share in the global Foreign Direct Investment has almost doubled to 2.45% in 2008.

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India was fourth in 2008, in terms of FDI inflows, among developing countries with reference to UNCTAD World Investment Report (WIR) 2009.

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However, earlier, in order to attract $50 billion of foreign direct investment (FDI) annually by 2012, the Centre is creating an investor friendly environment, to keep up with the economic growth and build infrastructure.

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It is said that the government will aim at $50 billion annual FDI flows by 2012 and $100 billion by 2017 whereas last year the FDI inflows were $35 billion and in the H1 of 2009-10, the FDI inflows were around $15 billion.

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On the other hand, the government approved 17 foreign direct investment (FDI) proposals worth Rs 1,158.78 crore where among the major proposals are the FDI applications of ArcelorMittal and ductile iron pipe maker Electrosteel Castings.

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ArcelorMittal, with an FDI of Rs 503.37 crore, plans to infuse foreign equity into a company engaged in manufacturing cold-rolled semi-finished iron and steel products.

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Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization.

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Savings accounts are accounts maintained by retail financial institutions that pay interest but can not be used directly as money ( for example, by writing a cheque).

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These accounts let customers set aside a portion of their liquid assets while earning a monetary return..

India’s Stocks Rose to Highest since May 2008

India’s stocks rose to their highest in 19 months

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India’s stocks rose to their highest in 19 months after foreign direct investment into the nation jumped 61 percent

and the government relaxed a rule to make some state-run companies globally competitive.

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Tata Motors Ltd., soared to the highest in more than two years after foreign direct investment into the nation rose to $1.74 billion in November.

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Oil & Natural Gas Corp., the largest state-owned oil explorer, climbed the most in three weeks as the government increased the cap on the amount some state-run companies can spend to acquire assets and set up joint ventures.

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“Money always chases opportunity and now the opportunity is in India,” said

Jagannadham Thunuguntla, chief strategist at SMC Capitals Ltd. in New Delhi.

“There are not many options left for the global investor.”

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The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 129.50, or 0.8 percent, to 17,360.61, the highest since May 16, 2008.

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The gauge has risen 3.8 percent this week, the most in more than a month.

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The Sensex climbed 80 percent this year, set for its best annual performance in 18 years as economic expansion accelerated and the election victory of Prime Minister Manmohan Singh ruling coalition in May raised optimism he will push through reform measures to boost growth.

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The S&P CNX Nifty Index on the National Stock Exchange rose 0.7 percent to 5,178.40.

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The BSE 200 Index increased 0.7 percent to 2,169.65.

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RBI not in favour of 3-yr lock-in in realty FDI

The Department of Industrial Policy and Promotion (DIPP) proposal made last month to remove the three-year lock in period for foreign direct investment (FDI) in real estate has not found favour with the Finance Ministry or with the Reserve Bank of India (RBI). Both entities have written to the DIPP to this effect.

The developers were asking for a removal of the lock-in period in order to encourage speculation in realty. CNBC-TV18’s Latha Venkatesh reports.

It has been a long standing demand of the real estate companies that this lock-in of FDI into real estate projects should be removed because that restricts the number of investors into real estate projects. But this proposal even historically has never found favor with the RBI and the Finance Ministry. When the proposal was mooted around November 22-23 and was sent by the DIPP to Finance Ministry and related ministries—the urban development ministry as well as the RBI, what we now gather is that both the Finance Ministry and the RBI have raised their descent note against this proposal, their argument more or less similar is that allowing this lock in to be removed would mean a free flow of money coming in and parking in, pushing up real estate prices and then cashing out and booking a quick profit.

Primarily to avoid such speculative boosting of asset prices is the reason why both the Finance Ministry and the RBI are opposed to it. But sources who told us that this descent note has been sent, have added that they do not have any final authority over this kind of a proposal and that their descent in the past has been overruled. We know of the various press notes which have been opposed by various sections in the Finance Ministry and in the RBI in very recent cases and their descent need not necessarily be taken in by the Commerce Ministry or the DIPP. But a descent has been put on the record.

Source:http://www.moneycontrol.com/news/cnbc-tv18-comments/fin-min-rbi-notfavour3-yr-lock-inrealty-fdi_430429.html

India Crossed the $100 Billion Mark in FDI :)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI)

Amidst of the global crisis, India crossed the $100 billion milestone in foreign direct investment (FDI) through equity confirming its rising profile as a safe and sound investment objective.

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However, 44% of the money came through Mauritius as investors wanted to take advantage of India’s double taxation avoidance treaty with the island nation.

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Moreover, the cumulative FDI inflows since 2000 and up to July 2009 amounted to $100.33 billion while the inflows in the first 4 months of the current fiscal were $10.49 billion and the other big investors included Singapore, the US, UK and the Netherlands.

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Additionally, it is said that FDI’s main impact comes from new technology, new managerial capabilities and new benchmarks in corporate functioning whereas India reached the $100 billion mark at a time when the global financial crisis has had a dampening impact on FDI flows which are expected to fall this year.

Further, it is said that the global FDI flows will decline by 30% in 2009 reviving only marginally during the next year.

Although declining, FDI flows to developing countries proved to be more flexible than other capital flows such as portfolio investment and bank lending, the main reasons being that FDI is more of a long term nature than capital flows.

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On the other hand, India’s services sector received 23% of the cumulative equity FDI inflows followed by computer software, hardware, telecommunication and real estate.

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Dual Listing?? No Way… : India !!

India not agree to South Africa's proposal of dual listing of shares

Considering of full convertibility of rupee not being in place, India could not have agreed to South Africa’s proposal of dual listing of shares that ultimately caused the collapse of the USD 23 billion MTN-Bharti merger deal, analysts quoted.

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Experts have expressed the view that as the Indian rupee is not fully convertible, it is not possible to move in for dual listing of shares which allow people to buy shares in stock exchanges of one country and sell in bourses of the other country.

Expressing similar opinion, Jagannadham Thunuguntla, equity head SMC Capital said, “There will be flight of capital from one country to another without any control… this cannot be allowed unless we have full currency convertibility.”

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The laws cannot be changed and altered to accommodate the wishes of a single company.

Experts have mentioned that adding such changes need to be incorporated after taking into consideration the implications for the country as a whole.

The Indian government’s policy, which is guided by the Tarapore Committee reports lay emphasis on going for fuller capital account convertibility and not full convertibility.

Under the full convertibility, capital can move as capital from one country to another.

Currently, India allows convertibility of current account, which means transactions relating to trade and investment.

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Bharti-MTN $23 Billion Deal Fell Through :(

Proposed $23-billion deal between Indian telecom major Bharti Airtel and South Africa-based MTN was called off on Wednesday 😦

The USD 23 billion deal for the merger of  Bharti Airtel and    South African giant MTN, which would have been the world’s largest in the telecom sector, today fell through.

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Sunil Mittal-led Bharti called off discussions with MTN citing the South African government’s rejection of the proposed merger structure, which would have created the world’s third largest telecom company with combined revenues of over USD 20 billion annually and a subscriber base of over 200 million.

The issue of dual listing of MTN to maintain its identity in the merged company appears to have been the deal-breaker during the tough negotiations lasting well over four months.

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Ultimately, the South African government’s insistence on dual listing of both companies—Bharti Airtel and MTN—in India and South Africa proved a deal breaker, as this would have amounted to capital account convertibility.

Under the deal, Bharti would have acquired 49% stake in MTN and MTN 25% in Bharti.

Besides this, the net cash outflow from Bharti would have $ 4.1 billion.

This is the second time in just over a year when Sunil Mittal-led Bharti Airtel has been forced to abandon talks for amalgamation of the two organisations.

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Prime Minister Manmohan Singh had strongly backed the deal which he took up with South African President Jacob Zuma at the G-20 Summit in Pittsburgh last week.

The alliance planned between Bharti and MTN was a vision based on solid fundamentals, which had the potential of creating an emerging markets telecom giant and the third largest telecom company in the world.

This transaction would have been the single largest Foreign Direct Investment into South Africa and one of the largest outbound FDIs from India.

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The deal would have been a significant step in promoting South-South cooperation – a vision of the two countries.

Despite failure in the two round of discussion, Bharti has not quit hope.

It said, “We hope the South African government will review its position in the future and allow both companies an opportunity to re-engage.’’

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India’s FDI Inflows Surge in July :)

The government has revealed that despite a global financial crisis, the flow of foreign direct investment (FDI) to India during the month of July 2009 has been registered at $3.52 billion, impressive 56.5% higher than the $2.25 billion registered last year.

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However, the inflows in July have been against $2.58 billion during the month of June 2009 and $2.10 billion received during the month of May 2009.

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Moreover, it is said that this raise is an optimistic one if the present fiscal situation of India and world is taken into consideration.

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In addition, it is said that a non-profit company will be encouraging FDI into India and this will act in association with the central and state governments as well as the Federation of Indian Chambers of Commerce and Industry.

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On the other hand, the distinctive feature is the partnership between a private sector organization, the Government of India and state governments is unlike anywhere else in the world.

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However, in order to attract more foreign investments, Indian government on Thursday announced formation of a not-for-profit company ‘Invest India’.

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Where are we heading to? Part 1

The Indian economy’s business sentiment has improved indicating a path of recovery.

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Let’s see, why do we say this?

A surprise improvement was witnessed in the IIP numbers for June 2009 at 7.8%.

The WPI based inflation has softened to below zero level.

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However, the prices of items of mass consumption (food articles) show no signs of softening and have risen substantially due to supply side constraints.

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The performance of inward investments has been fairly well.

The Foreign Direct Investment flows surged 13% at $4.3 bn for April-May 2009-10.

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Painting a picture of a resilient economy, Finance Minister believes the economy will grow by more than 6% despite a fear of drought and the decline in the sowing of the kharif crop, such as rice.

The strength of the economy in the slowdown is the large services sector, which has, historically, been less affected by cyclical downturns than manufacturing, a strong farm sector, robust savings rate, ambitious infrastructure development programme and upbeat foreign investors.

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The 224-million-tonnes cement industry is yet again set to strike a growth of 10 per cent in June.

The production numbers from the top cement makers are anything to go by, the continuous robust growth will be maintained.

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The Rs 82,000 crore Indian FMCG industry primarily seeking the implementation of the GST (Goods & Services Tax) by April 1, 2010 in the upcoming Union Budget, expects fiscal measures will spur growth of the FMCG sector in rural as well as urban India.

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Further, in a sign of confidence in the Indian markets, Foreign Institutional Investors pumped in over $6 billion, or about Rs. 29,940 crore this year, with over $1 billion coming in July alone.

An analysis of FIIs activity shows that overseas investors are the net purchasers of Indian stocks worth $6.18 billion (Rs 29,940.30 crore) from January to July this year.

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Also, with the India-Asean (Association of South-East Asian Nations)  that inked the long awaited Free Trade Agreement (FTA) for duty-free import and export of 4,000 products over a period of eight years at the Asean economic ministers meeting held in Thailand, the India-Asean trade is likely to surpass $50 billion by 2010.

The Indian economy’s business sentiment has improved indicating a path of recovery. Let’s see, why do we say this?

A surprise improvement was witnessed in the IIP numbers for June 2009 at 7.8%. The WPI based inflation has softened to

below zero level. However, the prices of items of mass consumption (food articles) show no signs of softening and have

risen substantially due to supply side constraints. The performance of inward investments has been fairly well. The

Foreign Direct Investment flows surged 13% at $4.3 bn for April-May 2009-10.

Painting a picture of a resilient economy, Finance Minister believes the economy will grow by more than 6% despite a fear

of drought and the decline in the sowing of the kharif crop, such as rice. The strength of the economy in the slowdown is

the large services sector, which has, historically, been less affected by cyclical downturns than manufacturing, a strong

farm sector, robust savings rate, ambitious infrastructure development programme and upbeat foreign investors.

The 224-million-tonnes cement industry is yet again set to strike a growth of 10 per cent in June. The production

numbers from the top cement makers are anything to go by, the continuous robust growth will be maintained.

The Rs 82,000 crore Indian FMCG industry primarily seeking the implementation of the GST (Goods & Services Tax) by

April 1, 2010 in the upcoming Union Budget, expects fiscal measures will spur growth of the FMCG sector in rural as well

as urban India

Further, in a sign of confidence in the Indian markets, Foreign Institutional Investors pumped in over $6 billion, or about

Rs.29,940 crore this year, with over $1 billion coming in July alone. An analysis of FIIs activity shows that overseas

investors are the net purchasers of Indian stocks worth $6.18 billion (Rs 29,940.30 crore) from January to July this year.

Also, with the India-Asean (Association of South-East Asian Nations) Free Trade Agreement (FTA) that inked the longawaited

Free Trade Agreement (FTA) for duty-free import and export of 4,000 products over a period of eight years at the

Asean economic ministers meeting held in Thailand, the India-Asean trade is likely to surpass $50 billion by 2010.

Can India run ahead of China?

Can India run ahead of China?

Indians have for long suffered from an advanced case of China envy. It has never been just a question of higher growth rates in China. Visitors from India have also inevitably come back with breathless tales about the new downtown Shanghai, the magnetic levitation trains or the new highways being built across that country.

However, the World Bank said on Monday that India is expected to grow at a slightly faster pace than China in 2010. And the two economies will expand at around the same rate in 2011.

Is this a turning point in the long race between the hare and the tortoise?

There is little doubt that the gap between the rates at which the two emerging giants are growing has started narrowing.

China used to grow around 3 percentage points faster than India earlier this decade. That gap has now narrowed to the point of insignificance in the past couple of years, even without discounting China’s dodgy macroeconomic numbers.

This change is likely to be enduring for several reasons.

First, China is more exposed to the vagaries of the world market because of its high trade intensity. A Japan-style secular slowdown in the US and Europe over the next decade will hurt China more than India unless China moved beyond its admittedly successful mercantilism.

Second, the foreign direct investment boom in China since the mid-1990s pushed up its investment rate, enabled technology transfer and plugged the nation into global supply chains. All this took China closer to the global efficiency frontier, but it now seems that diminishing returns are setting in. Future growth will have to depend more on domestic demand and local innovation, which means that China will have to change its growth model.

Third, China is a fast ageing society, thanks to a one-child policy. This demographic change will increase dependency ratios and social costs.

India seems to be on a stronger wicket right now, thanks to its higher dependence on domestic demand, its vibrant entrepreneurial culture and a young population. But that should not mean that catching up or overtaking China is inevitable.

The joker in the pack is the quality of national leadership.

India needs to do several things if it has to realistically overtake China in the next decade: economic reforms, better infrastructure, internal security check, less bureaucracy and intensive skill development, for example.