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  1. #11
    Government’s Stimulus Package
    December 09, 2008

    By Chetan Ahya | Singapore & Tanvee Gupta | Mumbai

    The RBI’s Fresh Policy Measures

    The Reserve Bank of India announced policy rate cuts and other liquidity measures on December 6 – the first part of the government’s stimulus package; the second part, in the form of fiscal measures, was announced the next day. The total amount of the new fiscal package is estimated to be about US$8-9 billion (0.7-0.8% of GDP). The key measures initiated by the RBI are as follows:

    1) 100bp cut in policy rates: The RBI has reduced the repo rate (the rate at which it infuses liquidity) by 100bp to 6.5% and the reverse repo rate (the rate at which it absorbs excess liquidity) by 100bp to 5.0%, largely in line with market expectations. These policy rate cuts will be effective from December 8, 2008. While we expected the RBI to cut the repo rate to 6.0% by March 2009, this target is now likely to be achieved by end-January 2009. The RBI has been concerned about the weaker-than-expected growth outlook because of the global credit crunch.

    2) Liquidity enhancement measures: As widely expected, the RBI also announced measures to enhance credit access to the small-scale sector and the housing sector. Accordingly, to increase the credit delivery to the employment-intensive micro and small enterprises (MSE) sector, refinance for Rs70 billion (US$1.4 billion) to the Small Industries Development Bank of India (SIDBI) is provided. The facility will be available at the prevailing repo rate for a period of 90 days. During this 90-day period, the amount can be flexibly drawn and repaid. At the end of the 90-day period, the drawing can also be rolled over. This refinance facility will be available up to March 31, 2010. The RBI has announced that it is working on a similar refinance facility for the National Housing Bank (NHB) of an amount of Rs40 billion (US$0.8 billion).

    As we highlighted before, the area most worrying to us is the performance of the SME sector. Hundreds of SMEs have raised external commercial borrowings over the past few years when the cost of borrowing in the international market was very low. Some had not hedged the foreign exchange risk or had hedged under ‘knock-in knock-out’ (KIKO) agreements. Many hedges made under these KIKO contracts are lapsing due to the sharp movement in the rupee in such a short time. (KIKO is the acronym for Knock-in Knock-out barrier options. A barrier option is like a plain vanilla option but with the exception of the presence of one or two trigger prices. If the trigger price is touched at any time before maturity, it causes an option with pre-determined characteristics to come into existence (in the case of a knock-in option) or it causes an existing option to cease to exist (in the case of a knock-out option).) This has meant that many SMEs have seen FX losses on external liabilities increase significantly. SMEs are also facing challenges on their export income due to the global demand slowdown, and the recent tight global liquidity has meant that trade credit has also become difficult to access.

    Lastly, the borrowing cost of the SME sector has risen sharply. With AAA rated companies borrowing in the commercial paper market at 13.5%, the SME sector is suffering from even higher borrowing costs for its short-term funding needs.

    3) Buyback/prepayment of FCCBs made easier: In addition to the measures announced on November 15, 2008, the RBI now allows Authorized Dealers Category - I banks to prematurely buy back Foreign Currency Convertible Bonds (FCCBs) from their customers either out of their foreign currency resources held in India or abroad and/or fresh external commercial borrowings (ECB) raised in conformity with the current ECB norms, provided there is a minimum discount of 15% on the book value of the FCCB. In addition, the buyback of FCCBs out of rupee resources will be considered provided there is a minimum discount of 25% on the book value, the amount of the buyback is limited to US$50 million of the redemption value per company and the resources for buyback are drawn out of internal accruals of the company.

    4) Loans given by banks to housing finance companies (HFCs) will be treated as priority sector lending, if they are to fund less than Rs2 million of housing dwelling units. However, the eligibility under this measure will be restricted to 5% of the individual bank’s total priority sector lending. This special dispensation will apply to loans granted by banks to HFCs up to March 31, 2010.

    5) Relaxing NPL norms: The RBI has relaxed norms on classification of the NPLs in real estate loans and the corporate sector. Currently, RBI regulations do not allow the retaining of the asset classification of restructured standard accounts in the standard category. However, as the real estate sector is facing difficulties, the RBI has now allowed this exceptional/concessional treatment for commercial real estate exposures that are restructured up to June 30, 2009.

    Similarly, the RBI has relaxed norms for loans to “viable units facing temporary cash flow problems”. Currently, banks are allowed to restructure such loans only once. However, considering the increased stress in the corporate sector balance sheet, as a one-time measure, the RBI has decided that the second restructuring done by banks of such exposure (other than exposure to commercial real estate, capital market exposure and personal/consumer loans) up to June 30, 2009 will also be eligible for exceptional regulatory treatment.

    We believe that this change in norm will reduce the transparency of banks’ balance sheet. This will likely lower the market’s comfort in the asset quality of the banking system and dampen investor sentiment towards Indian banks.

    6) Reducing borrowing costs for exporters: India’s export growth (in dollar terms) declined 12.1%Y in October compared with 10.4% in September. This is the first time since November 2002 that export growth has slipped into negative territory and is the lowest year-on-year growth registered since May 1998. Moreover, foreign trade credit has become difficult in the current global environment. Currently, for overdue bills, banks have been permitted to charge the rates fixed for export for the period beyond the due date. It has now been decided that banks may charge a rate not exceeding banks’ prime lending rate minus 2.5 percentage points for overdue bills up to 180 days from the date of advance.

    Bottom line: The RBI’s proactive easing measures should help to reduce systemic risks from arising in the banking system. However, we believe that these measures are unlikely to revive business and consumer sentiment in the near term. The RBI’s policy statement also indicates that “a period of painful adjustment is inevitable”. Indeed, we believe that the real economy data for 1Q09 could be a major surprise for the market. We see risk of industrial production declining on a year-on-year basis for a few months in 1H09. We think that there could be greater risk of banking sector stress due to a sharp increase in NPLs. The vicious loop of rising credit defaults, a shrinking risk capital pool, slowing growth and rising unemployment is unveiling.

    Part II of the Government’s Stimulus Package

    The three most important measures in the second stimulus package, in our view, include 1) increase in government expenditure by US$4 billion; 2) reduction in central value added tax by 4%; and 3) effort to boost infrastructure spending by allowing the government-owned infrastructure finance company to raise US$2 billion through tax-free bonds. The total package of about US$8-9 billion is largely in line with our expectation of US$10-15 billion. Here is a summary of the fiscal measures announced:

    1) Increase in government spending: The government has decided to seek authorisation for additional plan expenditure of up to Rs200 billion (US$4 billion) in the current fiscal year (YE March 2009). This will take the next four months’ government spending (both plan and non-plan expenditure) up to US$60 billion compared with budgeted US$56 billion. Note that the government’s budgeted total expenditure (excluding off-budget items) at the start of the financial year was Rs7.5 trillion.

    2) Cenvat rate cut by 4%: An across-the-board cut of 4% in the ad valorem Cenvat (central value added tax) rate was announced that will be effective for the balance of F2009 on all products, other than petroleum and those where the current rate is less than 4%. This will result in a Rs87 billion (US$1.7 billion) revenue loss in indirect tax collections in F2009.

    3) Exporters: The government has announced an interest rate subvention of 2% up to March 2009 on pre- and post-shipment export credit for labour-intensive exports, i.e., textiles (including handlooms, carpets and handicrafts), leather, gems & jewellery, marine products and the SME sector. In addition, the government has announced the following measures for exporters: a) allocation of a further Rs11 billion to ensure full refund of terminal excise duty/central sales tax; b) a further allocation for export incentive schemes of Rs3.5 billion; and c) providing a government back-up guarantee to ECGC (Export Credit Guarantee Corporation) to the extent of Rs3.5 billion to enable it to provide guarantees for exports to difficult markets/products.

    4) Housing: On December 7, the RBI announced that it is working on a refinance facility for the NHB in an amount of Rs40 billion (US$0.8 billion). In addition, the government announced that it could increase the plan expenditure for the Indira Awas Yojana. There is no clarity on the amount to be spent by the government. The press release on the fiscal package mentioned that the public sector banks would shortly announce an incentive scheme for borrowers of home loans in two categories: a) up to Rs0.5 million; and b) Rs0.5-2 million.

    5) Support for medium, small and micro enterprises (MSMEs): The RBI announced refinance for Rs70 billion (US$1.4 billion) to the SIDBI to increase the credit delivery to the MSME sector. In addition, the key measures announced include: a) the guarantee cover under the credit guarantee scheme for MSMEs on loans is doubled to Rs10 million from the existing Rs5 million with guarantee cover of 50% aimed at boosting collateral free lending; b) the lock-in period for loans covered under the existing credit guarantee scheme was reduced from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme; and c) requesting Central Public Sector Enterprises and State Public Sector Enterprises to ensure prompt payment of bills of MSMEs.

    6) Textiles sector: It was announced that an additional allocation of Rs14 billion would be made to clear the entire backlog in the technology upgradation fund (TUF) scheme.

    7) Infrastructure financing: In order to support financing of infrastructure projects in the Public Private Partnership mode that have been facing financial constraints, the government authorised the India Infrastructure Finance Co. Ltd (IIFCL) to raise Rs100 billion through tax-free bonds by March 2009. These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highway and port sectors.

    8) Others: Besides the above, other measures announced include: a) letting government departments take up replacement of government vehicles within the allowed budget; b) eliminating import duty on naphtha for use in the power sector; and c) eliminating export duty on iron ore fines and reducing that on lumps to 5%.

    (Chetan Ahya is an Executive Director and the India & South East Asia economist at Morgan Stanley. )

  2. #12
    2009 Growth Outlook: Still in a Coupled World
    December 12, 2008

    The vicious loop of rising credit defaults, a shrinking risk capital pool, slowing growth and rising unemployment is unveiling. Our economics team has revised its global GDP growth forecast to 0.9% in 2009 from 1.7% about a month back. In this environment, global capital inflows into emerging markets are unlikely to revive soon. Risk-aversion in the global financial markets has resulted in a sharp reversal in capital flows into India. We have always argued that the most important driver of India’s growth cycle over the last four years has been global risk appetite and capital inflows. With the duration of risk-aversion in global financial markets likely to be longer than what we estimated earlier, we are cutting our GDP growth estimate for 2009 for India to 5.3% from 5.8%. We also review the upside and downside risks to our estimates.

    Capital Inflows Remain Key for Growth Outlook

    We believe that over the last few years, India’s GDP growth accelerated much higher than the potential growth due to large capital inflows – an argument that we have belabored for a long time now. India’s GDP growth accelerated to an average of 9.3% during the three years ended March 2008 compared with an average of 6.6% and 6.0% in the preceding three and five years, respectively. Capital inflows have risen dramatically over the last five years. India received an average of US$10 billion per annum during F2001-03, and that number increased to US$108 billion in F2008. We believe that higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate, lower interest rates and strong domestic demand growth.

    Unfortunately, capital inflows into India have less to do with India’s long-term fundamentals, in our view. The trend for capital inflows into EMs has been dependent on global risk appetite, which, in turn, has been driven by liquidity and the growth environment in the developed world. As per IIF estimates, capital inflows into EM increased to US$782 billion in 2007 from US$113 billion in 2002. The trend in India has been very similar.

    Indeed, just as the global growth environment has deteriorated, India has witnessed capital outflows. As per our estimates since early July, India has witnessed net capital outflows of ~US$8-10 billion. The systemic sudden stop in capital outflows at a time when the country runs a current account deficit has meant a large balance of payments deficit. We estimate that India’s balance of payments deficit was US$35-40 billion over the last five months. With the domestic banking system already witnessing tight liquidity conditions, foreign exchange outflows at the same time have resulted in a disruptive spike in the cost of capital. Policy rate cuts and liquidity measures cannot prevent a sharp slowdown in the growth of domestic demand. We believe that measures initiated by the central bank are unlikely to help bring down the cost of capital in a meaningful manner before domestic demand and underlying credit demand decelerate sharply.

    Unprecedented External Demand Shock Underway

    India’s export growth averaged 24.8% over the last three years, driven by strong global growth. However, over the last three months, export growth has decelerated sharply. While until recently the strong demand from emerging markets including Latin America, Emerging Europe, the Middle East and Africa ensured that export growth remained healthy, over the last three months disruptions in the macro environment of these economies have been evident. Apart from weakening demand, exports have also been affected by the lack of availability of foreign trade credit and inventory liquidation. India’s exports declined by 12.1%Y in October 2008 compared with 10.4% in September and 26.9% in August. While we expect some improvement in the second half of 2009, exports are likely to be unusually weak over the next six months. We now expect exports to decline by 5.3%Y in 2009 compared with 12.7% in 2008 (estimated) and 23.1% in 2007.

    Industrial Recession Ahead

    While deceleration in growth as reflected in GDP growth may not appear as severe, industrial production – which matters for the listed corporate sector – is likely to witness a deeper slowdown. Industrial production decelerated to an average of 4.5% for the three months ending September 2008 from a peak of 13.6% in the quarter ended January 2007. Further weakness in domestic demand owing to the rise in the cost of capital and sharp deterioration in external demand will likely result in industrial production declining for a few months between November 2008 and June 2009. This would be the worst industrial sector performance since the 1991 cycle.

    Trimming 2009 Growth Estimates Again

    We expect the fixed investment cycle to reverse sharply. Tight lending standards are likely to restrict consumer loan growth and private consumption spending. In addition, weaker global growth will also be apparent in the form of a slowdown in external demand. While lower oil prices should help to reduce the current account deficit, we believe that lower exports and remittance from non-residents should offset a large part of this gain. Moreover, as we have argued, for the balance of payment outlook, capital inflows are more important than the current account balance. Building in weaker domestic as well as external demand, we are cutting our GDP growth estimate for 2009 again to 5.3% from 5.8% estimated earlier. We are also cutting our F2010 (year-end March) estimate for GDP growth in India to 5.3% from 5.7%. This compares with the consensus estimate of 6.6% in F2010.

    We expect GDP growth to recover in 2010 in line with our global forecasts. Our economics team expects global GDP growth to accelerate to 3.3% in 2010. US and European GDP growth is expected to rise to 2% and 1.2%, respectively, in 2010 from -1.9% and -0.9% in 2009. We believe that the improvement in domestic demand in 2010 will be restrained by the fact that the banking sector will likely remain impaired because of large increases in non-performing loans in 2009. We expect a slight improvement in external demand as well as domestic demand. We forecast 2010 GDP growth to be at 6.4% (6.4% for F2011, year-end March).

    Aggressive Monetary Easing but Limited Fiscal Stimulus

    We are expecting monetary policy easing to continue through 2009. We now expect the repo rate (the key policy rate) to be reduced to 5.25% by the end of 2009. Most of this reduction will probably be front-loaded, with the repo rate likely to be at 5.5% by March 2009. We also expect the central bank to supplement the rate cuts with additional liquidity support measures. However, we are less optimistic with regards to the fiscal policy response. Indeed, we believe that in an environment of global deleveraging and risk-aversion, the private sector is unlikely to respond effectively to the monetary easing, and therefore a counter-cyclical fiscal policy does assume an important role.

    However, the Indian government has been running pro-cyclical fiscal policies over the last few years. In F2009, we estimate that the fiscal deficit including off-budget liabilities will be 9.9% of GDP, one of the highest among large economies in the world. Public debt to GDP after including off-budget liabilities is estimated to rise by 95.9% as of March 2009. Hence, we see no scope for an aggressive fiscal policy response. We believe that the government could try to increase infrastructure spending through bilateral investment agreements with Japan and/or Middle East countries, but the implementation of such an investment program is unlikely to be quick enough to get the growth support in 2009.

    A Framework to Assess Upside and Downside Risks to Our Growth Estimates

    As discussed earlier, we believe that the two most important factors for India’s growth outlook are global risk appetite, which will be reflected in the form of capital inflows in the country, and external demand. The upside and downside risks to our India GDP growth estimates will depend on the influence of the global growth outlook on these two factors.

    Following our global team’s framework, we have tried to assess the upside and downside risks to our GDP growth estimates for India. Richard Berner and Joachim Fels, Co-Heads of the Global Economics Team, highlight that globally there are five key drivers of risk (see Risks to the Global Outlook: The Good, the Bad and the Ugly, December 9, 2008):

    “First, the extent of deleveraging by leveraged lenders remains uncertain, and further write-downs and provisioning will intensify the credit crunch in several developed economies. The extent of further declines in asset values, especially in real estate, will deepen those risks, especially for US consumers. Second, many central banks have eased monetary policy aggressively and quantitatively, but it is unclear whether and when such policies will get traction. To be sure, there are recent signs of a revival in liquidity and money growth. However, monetary policy in many EM economies remains restrictive.

    Third, officials, notably the incoming Obama Administration, are considering a massive step-up in fiscal stimulus, with an undetermined amount in infrastructure outlays and tax cuts. The timing, size and economic effectiveness of such policy actions are likely to remain unclear for a while. Next, swings in currencies, commodity prices and risk premiums matter for the outlook in many EM economies. Finally, the extent of the real estate downturn in China is a critical risk factor for that pivotal economy.

    Combining the upside and downside risks, our global economics team has added two scenarios to the base case outcome. In our ‘ugly’ scenario, global activity contracts by 0.8% in 2009 and recovers by only 1.3% in 2010 as economic headwinds dominate policy stimulus. Given that we think of global recession as growth below 2.5%, the ugly scenario would border on something even worse than the most severe recession in the post-war period. In contrast, the ‘good’ scenario involves 2.3% growth next year and 4.3% in 2010, as a massive range of policy actions overwhelm the downturn.”

    Based on this framework for global growth outlook, we see bull case growth for India at 6.3% in 2009 and 7.5% in 2010 and bear case growth at 4.3% in 2009 and 5.3% in 2010. In the bear case, we are assuming continued risk-aversion in the global financial markets and therefore a sustained adverse trend in capital inflows and sharper fall in exports. In the bull case, we are assuming a recovery in capital inflows and export growth. We have assumed the political environment to be a neutral factor. However, the outcome of general elections scheduled in May 2009 could also bring upside or downside risks to our base case outlook. A stronger coalition government outcome can improve the growth outlook, with acceleration in the pace of structural reforms such as privatization and infrastructure investments. A weaker coalition government can add to the downside risks, slowing the pace of implementation of structural reforms.

  3. #13
    Lo scandalo Satyam sconvolge l' India

    7 gennaio 2008

    Forte ribasso per la borsa di Mumbai. L'indice Sensex ha terminato la sessione accusando uno scivolone del 7,25%. A provocare il ribasso lo scandalo provocato dalla truffa da diversi miliardi di dollari di cui sono accusati vari dirigenti del colosso informatico Satyam Computer. Il fondatore e presidente della società, Ramalinga Raju, ha ammesso che la società ha falsificato i bilanci per molti anni. Lo scandalo ha spaventato gli investitori che hanno reagito con una ondata di vendite sul listino. Naturalmente c'é stata una fuga dalla Satyam che ha chiuso la seduta accusando un crollo del 77,65 per cento.

    Last updated: January 7 2009 11:31

    The chairman of India’s Satyam Computer Services resigned on Wednesday after confessing to fixing the IT outsourcing company’s books for the past “several” years, the country’s first major fraud case to emerge following the global financial crisis.

    In a letter to Satyam’s board, B Ramalinga Raju admitted wildly inflating Satyam’s margins to paint a picture of good performance and retain his management position, in one of the worst scams to have hit India’s outsourcing sector.

    “It was like riding a tiger, not knowing when to get off without being eaten,” Mr Raju said, explaining how the fraud got out of control over a period of years.

    Satyam is India’s fourth biggest IT outsourcing firm by revenue and is listed in New York and Mumbai, and the scam has rocked the country’s business world.

    India generally gets high marks for corporate governance among emerging markets, particularly for companies in its outsourcing sector.

    These rely on their spotless reputations to persuade foreign Fortune 500 clients to entrust them with their confidential data and systems.

    Satyam’s shares imploded on Wednesday’s news, falling 78 per cent to Rs40.25, leading the benchmark Sensex index down 7.3 per cent to close at 9,586.88.

    “We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategise the way forward in light of this startling revelation,” Ram Mynampati, who has been appointed interim chief executive, said in a statement.

    In his letter, Mr Raju said the fraud originated several years ago from an attempt to cover up a “marginal” gap between actual operating performance and that reflected in the company books.

    This swelled over the years to “unmanageable proportions” as the company grew.

    Mr Raju admitted that the September quarter accounts for last year included a non-existent cash and bank balances of Rs50.40bn ($1bn), non-existent accrued interest of Rs3.76bn and other irregularities.

    In the September quarter alone, the operating margin was shown as 24 per cent of revenue compared with an actual operating margin of 3 per cent, due to inflated revenue and profit figures.

    In a final attempt to make ends meet and keep the fraud under wraps, he launched an aborted attempt last month to buy two companies controlled by his family for $1.6bn.

    The proposed deal was aimed at absorbing some of Satyam’s mostly fictitious cash reserve while at the same time providing it with some additional external assets that could be used to plug the gaps in its books.

    However, the deal was staunchly opposed by institutional investors, who at that time did not know about Satyam’s rigged books and thought Mr Raju was simply raiding its cashpile.

    To help cover up the gap in the books, Mr Raju had pledged his family stake in the company of more than 8 per cent to lenders to raise money, which was then injected into the company to cover costs.

    But the game was up when the global financial crisis struck India’s market. Satyam’s shares fell and lenders began selling off Mr Raju’s stake in the company that was pledged as collateral to satisfy margin calls.


    Satyam said Wednesday that DSP Merrill Lynch, which it had appointed to find a merger partner last month, has resigned the mandate.

    The systematic fraud over several years in a company listed in New York and Mumbai raises serious questions over governance and auditing, analysts said.

    PricewaterhouseCoopers was Satyam’s auditor.

    “This event is a first of its kind in India and we need to learn a lot from this,” said the stock market regulator CB Bhave, chairman of the Securities and Exchange Board.

    “We are already in touch with the stock exchanges and the ministry [of corporate affairs],” Mr Bhave added. ”We also need to check whether the audit was done properly.”

  4. #14
    Indian banks are strong & no bank has failed

    5 Jan 2009,

    State Bank of India chairman O P Bhatt has tremendous conviction in the Indian banking system, which he thinks has shown enough resilience to withstand the global financial turmoil and economic downturn. In a freewheeling interaction with ET at Guwahati on the occasion of the inauguration of the bank’s 11,111th branch in the country, Mr Bhatt shared his views on the strengths and weaknesses of Indian banks and SBI.

    The year 2008 has brought a bad spell for the global economy and the financial world. How did the Indian banking system fare during this period?

    It was a bad year for the financial world. But Indian banks are strong and no bank has failed in India. They have shown strength. My guess is that for the quarter ending December 2008, majority of the banks will even show very good profit. So, for India and Indian banks, I don’t think 2008 was bad year at all.

    What is SBI’s projection on profitability for the October-December quarter and the rest of the financial year? What is your outlook on the net interest margin?

    We have maintained a 40% profit growth quarter to quarter. We hope to maintain a 40% profit growth this quarter too and the whole fiscal. There is, however, a pressure on our net interest margin (NIM) for the third quarter as our benchmark prime lending rate has fallen. And there was no corresponding decline in deposit rates. However, we tried to cushion some of the pressure by increasing our CASA (current and savings accounts) deposits or by lending to those sectors where interest rates are still high. SBI’s NIM was 3.1% as on September. It will be less than that for the quarter ending December 2008.

    Interest rates are getting adjusted frequently. But deposits rates have not fallen as fast as lending rates. There has been 150 basis points cut in lending rates by two phases. Then, home loan rates have been reduced separately. This is a catch-22 situation. There is a natural pressure on NIM. However, this is not the first time that banks are facing such a situation. We are confident to tide over this.


  5. #15
    I principali indici azionari Indiani sono saliti ai massimi dell' ultimo mese

    Feb. 9 (Bloomberg) -- Indian stocks rose to the highest in a month, led by ICICI Bank Ltd. and other lenders after the government forecast the economy will expand more than economists predicted and the central bank suggested interest rates may drop.

    ICICI Bank, the country’s second-largest lender, rose 5.2 percent, its highest in three weeks. HDFC Bank Ltd., the No. 3, added 2.3 percent. Housing Development Finance Corp., the biggest mortgage provider, added 5.7 percent, its biggest gain in two months.

    “We may see one more interest rate cut before March,” said Shashank Khade, who helps manage $400 million at Kotak Securities Ltd. in Mumbai.


    “We do have room for interest-rate adjustments and we will make all adjustments as deemed appropriate,” Subbarao said at an event organized by the Malaysian central bank. He didn’t elaborate further.

    The economy will have a “more difficult year” in the 12 months ending March 2010, compared with expected growth of 7 percent in the current period, Subbarao told reporters in Kuala Lumpur.

    Overseas investors bought a net 512 million rupees ($10.5 million) of Indian stocks Feb. 5, according to the nation’s market regulator.

  6. #16
    March 19 (Bloomberg) -- Morgan Stanley cut its rating on Brazilian stocks and increased its recommendation on Indian shares, citing their price relative to earnings.

    Brazilian stocks were reduced to “equal-weight” from “overweight,” while equities in India and Thailand were raised to “equal-weight” from “underweight,” according to an e- mailed note.

    The New York-based bank also downgraded South African shares to “underweight” on slowing earnings growth, valuations and currency risk,

  7. #17
    14 April 2009

    Despite a host of global and local issues effecting India, emerging market veterans Hugh Young and Mark Mobius are finding opportunities in the country as elections loom.

    As the financial crisis that began in the west has moved to engulf emerging markets, India has suffered more than many had hoped. GDP growth rates have been revised down and the Indian stockmarket plummeted last year as risk aversion gripped investors. The Satyam accounting scandal dealt a further blow to confidence in the country.

    In the run-up to the elections which start on April 16., India has also been beset by local problems, including an increase in Maoist violence from militant groups opposed to increased western investment in the country.

    However, with inflation down sharply and a banking sector which avoided the problems of its western counterparts, it is not all bad news for India. Indeed, Franklin Templeton's Mark Mobius and Aberdeen's Hugh Young are currently finding opportunities in the country. However, they have both played down the impact that the elections will have on the country's economy.

    'The elections, like many in the past, will have a limited impact on the economy,' Young, manager of the Aberdeen Asia Pacific fund, says. 'Despite having vastly different ideologies, the last two governments both pushed for further economic deregulation, and we expect the next one to do the same.'

    Mobius concurs: 'A coalition will probably have to be formed to run the government and such coalitions would not normally result in drastic changes,' he says. 'I do not expect drastic policy changes - coalitions require consensus among many disparate views and this will result in a steady continuation of current policies.'
    Similarly, Vinay Gairola, the manager of the Atlantis India Opportunities fund, thinks it will make little difference which party is elected as they would all need to address the same issues.

  8. #18
    The Sensex surged 17 percent to 14,284.21, while the Nifty soared 18 percent to 4,323.15. The rupee jumped 3 percent to 47.92 a dollar at the 5 p.m. close in Mumbai, the biggest advance since March 1986. The yield on the most-traded 6.05 percent note due February 2019 dropped 12 basis points to 6.3 percent in Mumbai, according to the central bank’s trading system.

    “The election result is extremely positive and very, very bullish,” Madhusudan Kela, head of equities at Mumbai-based Reliance Capital Asset Management, the nation’s largest money manager overseeing $18 billion of assets, said in an interview. “This will provide a government which is stable and has powers to take decisions.”

    Rally Risk

    Today’s euphoria is a contrast from the Congress victory five years ago. The Sensex plunged 11 percent on May 17, 2004, the most in more than a decade, on investor concern a government formed by the Congress Party and communist allies would slow the pace of reforms.

    Credit Suisse Group said while India will benefit from a “large amount of capital flowing into” the country, the rally may be halted by “global markets, monetary and fiscal constraints, and data disappointment.”

    Morgan Stanley raised the country’s stocks to “overweight” from “underweight,” saying never before had its model recommended overweighting India. The two-step upgrade reflected improvements in political risk, outlook for the business cycle and earnings growth, London-based emerging-market strategists Jonathan Garner and Michael Wang wrote in a report today. The brokerage boosted its forecast for economic growth next year to 5.8 percent, from 4.4 percent predicted earlier.

    Surpassing Estimates

    The latest victory exceeded the most optimistic prediction in exit polls released by NDTV television channel after the five-week elections ended on May 13.

    The rupee will gain as much as 15 percent by the end of next year, and stocks will rally after election tallies ensured a stable government, said Reliance Capital’s Kela.

    The nation’s benchmark stock index may surge as much as 20 percent over the next week as overseas investors purchase up to $3 billion of Indian shares within a month, Singapore-based Samir Arora, who oversees Helios Capital Management Pte, an India focused hedge fund, said before the market opened.

    India will outperform other emerging markets as long as the government adopts a pro-growth, pro-reform stance, Chadha said.

    “We needed a stable government especially in the context of the global environment, which is still challenging,” Chadha said. “We need the government to kick-start the economy.”

    Last Updated: May 18, 2009 10:37 EDT


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