Fw: Cygnus Daily Business Update 02 Apr,10
G.V.Sandeep
G.V.Sandeep
DY Manager
Cygnus Business Consulting and Research Pvt ltd
Hyderabad
9849427085
040-23430203-114
Indian Economy
India price rises weigh on industry, rate hike looms
Indian food price inflation snapped a three-week easing trend in late March and cost pressures dragged down the pace of manufacturing growth, reinforcing expectations for a second interest rate increase in as many months later in April. Government data also showed the fuel price index continued to rise, adding more pressure to headline inflation that is on track to cross into double digits in March, and which could further contribute to an uptick in manufacturing inflation. The central bank last month warned of inflationary pressures from higher capacity utilisation and rising commodity and energy costs. That assessment was validated on Thursday by the HSBC Markit Purchasing Managers' Index, which fell to 57.8 in March from 58.5 in February as mounting cost pressures took a toll on output expansion.
Exports under duty exemption schemes to be monitored
The Central Board of Excise and Customs (CBEC) has put in place a comprehensive mechanism for verification and monitoring of exports made under various duty exemption or reward schemes. The Foreign Trade Policy has outlined various trade promotion schemes for exporters and importers like advance authorisation, duty-free import authorisation, as well as the export promotion capital goods (EPCG) scheme. In advance authorisation and duty-free imports, the customs department gives a certificate to an exporter to import freely certain amount equivalent to the amount of exports, and goods related to its exports done. Sometimes this credit given prior to the exports is done and, thus, it is called advance authorisation. These certificates are called duty credit scrips. The decision to set up a centralised monitoring mechanism over and above the monitoring procedures under different port jurisdictions follows reports received from the field formations, which indicated discrepancies during the verification of the duty credit scrips. Following such reports, the board has also examined all trade promotion schemes under the Foreign Trade Policy. A quarterly report on the outcome of the said verification will be forwarded to the Board, which should include details of the discrepancies noticed during the verification and the measures taken to redress such discrepancies. In case of default of export obligation under these schemes, an importer/exporter should pay proportional duty of unfulfilled portion of export obligation along with interest from the date of clearance of goods. Such payments should be paid within three months from the expiry of duty payment date.
Meltdown should not stop financial innovation
The global economic crisis should not result in an end to financial innovation, as the Indian banking and the financial sectors were small and needed to be developed to support faster growth. The banks needed to provide instruments to Indian companies to help them manage their foreign currency risks. Similarly, there was need to initiate steps to develop a strong domestic corporate bond market to finance infrastructure investments, as banks were not the best financiers. Most of the resources raised by banks were by way of deposits, which were short-term in nature, while infrastructure projects had a long-gestation period. This created an asset-liability mismatch. While the development of a corporate bond market had been on the agenda for several years, the government and RBI were not able to make much headway. The Prime Minister complimented RBI on initiating counter-cyclical measures before the financial crisis of 2008 to check a build-up of pressure from real estate lending in India. Also, financial regulations needed to be designed to avoid excessive risk-taking, so that banks could protect their balance sheets from cyclical variations.
Industry News
Agri Commodities
Cashew kernel exports stagnate in 2009-10
Slackening demand from the US and European Union nations due to the global economic slowdown and increasing competition from Vietnam in the international market pulled down India’s cashew kernel exports during 2009-10. The provisional numbers worked out by the Cashew Export Promotion Council of India (CEPCI) for 2009-10 show a marginal decline of 2 per cent in India’s cashew kernel exports to 107,500 tonnes, as compared to 109,522 tonnes in the previous financial year. In value terms, the exports fell 6.2 per cent to Rs 2,800 crore compared to the previous financial year. This was mainly on account of a 2 per cent drop in unit value realisation, which stood at Rs 268 per kg, as against Rs 273 per kg in the international market, for W320 grade kernel. The appreciation of the rupee against the US dollar added to the fall. The demand from the US, a major importer from India, has come down considerably, which is battling recession since December 2007. Cashew exports to US stood at 30,000 tonnes in 2009, a drop of 26 per cent compared to 40,500 tonnes exported in 2008. Exports to the European Union also declined by a marginal 3 per cent to 32,000 tonnes.
Trade deficit doubles in Feb as imports surge 66%
Imports, which surged by 66 per cent on the back of faster economic revival, far outweighed growth in exports, resulting in trade deficit nearly doubling to $8.96 billion in February over the year-ago period. Though the overall economic revival boosted demand for imports which surged to $25.05 billion in February, this surge was primarily driven by oil import which shot up by a whopping 97.4 per cent over the same month last month. Against this, exports expanded by 34.8 per cent in February, indicating revival of demand for Indian merchandise in the Western markets. For the cumulative April-February period, exports aggregated $152.98 billion, down by 11.3 per cent under the impact of the global downturn felt in the earlier months of the just-concluded fiscal. Oil imports jumped to $7.63 billion, up 97.4 per cent from a year ago period in the reporting month. But this is lower by 18.2 per cent to $73.23 billion during the April-February period. Non-oil imports rose by 55.6 per cent in February to $17.42 billion. For the 11 months period, non-oil imports were valued at $175 billion, down by 11.4 per cent.
Agri Processed food
Gujarat co-op dairies hike milk procurement prices
Gujarat-based co-operative dairies have raised the milk procurement prices, which have come into effect from Thursday. This has come as a major respite to milk producers mainly consisting of farmers, who are facing problems due to skyrocketing cattle feed cost. Co-operative dairies such as Amul, Dudhsagar, Banas and Sumul have increased the prices paid to milk producers for supplying milk to the respective dairies. The new prices have come into effect from 1st April. The dairies have hiked the milk procurement prices in the range of Rs 5 to Rs 10 per kg fat," confirmed a senior official of Gujarat Co-operative Milk Marketing Federation (GCMMF). The recent surge in procurement prices has brought cheer to milk producers, who were pitching for higher prices for milk supplied by them to these dairies in the wake of soaring cost of cattle feed. As per the industry sources, cattle feed prices shot up by more than 30 per cent in last few quarters, while prices paid to milk producers have increased only 15 per cent. GCMMF also sees firm cattle feed prices as one of factors responsible for lower growth in milk procurement in recently concluded financial year. The federation estimates 5 per cent growth in average milk procurement by member unions at around 90 lakh kg per day in 2009-10 as against a robust growth of 14.87 per cent in 2008-09, which saw average milk procurement of 87.19 lakh kg a day.
Banking
Public sector banks may need more core capital
RBI may ask banks to keep hybrid instruments out of Tier-I capital. A number of public sector banks (PSBs) will have to stock up on core capital, if the Reserve Bank of India (RBI) decides to ask banks to leave out hybrid instruments while computing Tier-I capital adequacy. According to data from credit rating agency Icra, about 8 per cent of government-owned banks’ Tier-I capital as on December 31, 2009, comprised hybrid instruments such as innovative perpetual debt instruments and perpetual non-cumulative preference shares (PNCPS). Out of the total Tier-I capital of Rs 230,600 crore, net-owned funds account for Rs 212,000 crore while innovative instruments account for Rs 18,500 crore. In comparison, hybrid instruments account for only 3 per cent of Tier-I capital of private sector banks. Every time a bank extends a loan or makes investment, it has to set aside a stipulated amount of capital to cover the possibility of a default. Capital adequacy ratio (CAR) is the ratio of capital to risk-weighted assets. Banks are required to maintain a minimum CAR of 9 per cent and a Tier-I capital adequacy of 6 per cent. In recent years, banks have resorted to using hybrid capital to shore up capital adequacy ratios.
States start offering Rs 1,000 per NPS account
Investing in the new pension scheme (NPS) could become doubly profitable for unorganised sector workers. After the central government, states are coming forward to contribute Rs 1,000 a year to each NPS account. Haryana and Karnataka have already started contributing. Sources say some more states are planning follow these two. The Pension Fund Regulatory Development Authority (PFRDA) is finalising the modalities of the scheme, which will benefit about 1 million NPS subscribers in the unorganised sector. Non-government organisations and self-help groups have come forward to join the scheme. But, PFRDA is cautious about including people in the scheme. This will take the total government contribution per account to Rs 2,000 a year. The low-cost account of NPS will be operational from April 1 and PFRDA expects Swavalamban to help the new subscribers. An investment of Rs 3,000 a year (Rs 1,000 each from the Centre, the state government and the subscriber) will take the total invested corpus to Rs 90,000 after 30 years. The number of non-government subscribers, which joined the scheme after May 1 last year, has reached 4,100. PFRDA has added 20 more points of presence in the two latest rounds, taking the total to 41.
ICICI expects lending rates to go up with higher credit growth
The country’s largest private sector lender, ICICI Bank, on Thursday said credit offtake will pick from July putting pressure on lending rates. The demand-supply of money will be very tightly balanced which does mean that there could be some amount of increase in interest rates in the second half of the financial year. However, in February ICICI Bank raised deposit rates by up to 50 basis point across different maturities. Other banks like Indian Overseas Bank, Kotak Mahindra Bank and HDFC Bank raised deposit rates in the last 2 months. So, a gradual smooth increase in interest rate in the second half of the year but something that will be absorbed by the economy and will not really create a lot of pain to growth rate that we are witnessing. Asked about expectation about April 20 credit policy, since the cash reserve ratio (CRR) is already been increased by 75 basis points, we are now looking at a scenario where there is a possibility of increase in credit offtake, may be not much will be done on the CRR side and something can be expected actually to be done on the interest rate side.
Life insurance
ICICI Venture to invest Rs 120 cr in Star Health
Private equity firm ICICI Venture plans to invest Rs 120 crore in Star Health and Allied Insurance Company, marking the first private equity deal in the Indian health insurance sector. Star Health is a Chennai-headquartered company headed by V Jagannathan, which has garnered a gross premium of around $200 million in 2009-10. The Indian health insurance market is poised for an exciting future given the low penetration levels witnessed historically despite a clear underlying consumer need. Star Health is promoted by shareholders of the ETA Ascon group (the Middle-East-based conglomerate) and Oman Insurance Company, a subsidiary of the UAE-based Mashreq Bank. The Indian health insurance industry has grown at an annual rate of over 35 per cent since the opening of the sector in 2000 but the market continues to be significantly under-penetrated in comparison with other countries. For instance, per capita private health insurance in India is estimated at $1.1 in comparison with $2,300 in the US, or $63 in Brazil. Health insurance accounts for less than three per cent of healthcare spend in India in comparison with China's five per cent. Consequently, industry experts believe that the Indian market will grow rapidly as a result of greater awareness, government spending and increasing healthcare costs which create a greater incentive for health insurance coverage. Over the next five years, the market is projected to grow at 25-30 per cent thereby, making it the fastest-growing segment in the general insurance market.
Weak option for insured
If one is not satisfied with the assessment by the company-provided surveyor, he/she can appoint an independent surveyor If one is not satisfied with the assessment by the company-provided surveyor, he/she can appoint an independent surveyor. When a policyholder files a claim, a surveyor is appointed to assess the loss. The insurance company settles the claim on the basis of the report submitted by the surveyor. But, many times, insurance companies ignore reports submitted by surveyors. While surveyors are supposed to be independent, many insurers have them on their rolls. Even when independent surveyors are appointed, the insurers have the option of re-appointing surveyors till they get the report that suits them. While the claimant has the choice of appointing a surveyor, the insurer is likely to take the opinion of its own employee before deciding. Though the regulator has made a provision for both the insurance company and the claimant to have their own surveyors, most companies do not accept assessments by surveyors appointed by claimants,” said a Mumbai-based surveyor. In case of a partial loss, most companies approve 40-50 per cent of the claimed.
Oil & Gas
India buys $70 million worth of LNG from Trinidad
Trinidad and Tobago exported US$70 million worth of liquified natural gas (LNG) to India in 2007. India Trade seminar that this gas export contributed to a trade surplus between both countries for the first time in 11 years. The dominant sector is oil and gas, the non-energy sector must become more robust. That is why they negotiated an array of trade agreements. They represent the gateway to Latin America (for India), and this presents an unique investment opportunity for companies to locate here. There was new dynamism in trade emerging from countries in the South such as India, China and Brazil and Trinidad needed to tap into those markets as trade with North was "probably dying".
Placement
IIM-Shillong graduate bags Rs 18-lakh offer
THE first batch of graduates in the youngest IIM of the country in Shillong has achieved an almost 100% strike rate at the placements recently. The batch of 63 students has attracted an average salary of around Rs 9.8 lakh per annum. The highest offer for experienced students was at Rs 18 lakh per annum while for freshers it was at Rs 17 lakh per annum in the domestic circuit. There were around four international offers from Indonesia, Singapore and Dubai and the salaries were in the Rs 33-34 lakh band. The B-school has adopted a rolling window recruitment system under which two to three companies are clubbed together and discussed with a group of students. The pre-placement offer was around 20-25%. Investment banking, logistics, public sector banks and oil marketing companies hired the most number of students. Around 35% of the offers were through video-conferencing.
Power
Power, fertiliser firms reap gains
Gas production surpassed oil for the first time in 2009-10. Natural gas from Reliance Industries’ prolific D6 field has generated savings worth thousands of crores of rupees for power and fertiliser companies, the main users of the gas — even as it continues to be at the centre of the dispute between the Ambani brothers. Commercial production from the field in the Krishna Godavari (K-G) basin started on April 2 last year. The gas-based power industry is estimated to have saved Rs 6,000 crore over the last year, while the government’s fertiliser subsidy bill is estimated to be lower by Rs 3,100 crore. The gas-based power industry is estimated to have saved Rs 6,000 crore over the last year, while the government’s fertiliser subsidy bill is estimated to be lower by Rs 3,100 crore. Users within the country could get gas from the D6 field, located off the Andhra cost, at a landed cost of $ 4.2 per million British thermal units (mBtu). This price was much lower than alternates like imported liquefied natural gas (LNG), the price of which touched over $20 per mbtu. It was, however, higher than the subsidised price at which the government sold gas to select customers. NTPC, the country's largest power producer, could reduce its pricey LNG imports as domestic gas became available. The power sector, the biggest consumer of K-G gas, was sold about 18 mscmd of gas, used across 4,745 Mw of power capacity. According to industry experts, the cost of generating power from naphtha, assuming a naphtha price of $10 per mBtu, would be Rs 3.97 per unit, while the cost of generation from KG-D6 gas assuming a delivered price of $6 per mBtu would be Rs 2.50 a unit. The average saving to a household in Andhra Pradesh, a state which houses some of the plants to which the D6 gas has been allocated, would be as much as Rs 300 per month. The government, through its gas utilisation policy, has made allocations to various priority sectors like power, fertiliser, steel, city gas, refineries, petrochemicals, LPG and captive power. The power sector has been allocated 31.165 mscmd of gas on a firm basis and another 12 mscmd of gas on fallback basis. The fertiliser sector has been given firm allocation of 15.508 mscmd, refineries have been given 5 mscmd of firm allocation and 6 mscmd of fallback allocation and the steel sector has been given 4.19 mscmd firm allocations.
Real estate
Hyderabad, Bangalore third most preferred real estate destinations
Hyderabad and Bangalore are the third most preferred real estate investment destinations in 2010, nationally, according to online real estate Website, Makaan.com. The real estate portal stated that it conducted a nationwide online survey christened ‘Realty Trends 2010’ for metros and Tier II cities across the country, which saw participation from over 4,800 property seekers. According to the survey, 34 per cent of the property seekers want to own a house in Delhi followed by Mumbai with 28 per cent interested buyers. Bangalore and Hyderabad attracted 11 per cent property seekers nationally. Most of the buyers, who are interested in buying a house, this year, want it for self-consumption. While 67 per cent of the national property seekers want to buy a house for self-consumption, only 23 per cent are looking for property options from a long-term investment perspective. Short-term investors have only 10 per cent survey takers. When it comes to Hyderabad, the trend is in line with the national findings. Seventy one per cent of the property seekers from the city want to buy a house for self-consumption. On the other hand, 25 per cent buyers are looking it from long-term perspective. Only 4 per cent survey takers want to invest for short-term.
Prices of properties to rise 12 Pc by year-end
Prices of properties may rise over 12 per cent from its present levels by the end of this year due to the rising costs of inputs like cement and steel, service tax levied on real estate industry and high cost of funds. While cement prices have risen by Rs 20 per bag, steel prices have also increased by around Rs 1,000 per tonne in recent times on the back of excise duty hike on the commodity. Further, budgetary provisions of levying a 10 per cent service tax on purchase of apartments or commercial property and with possibility of hardening of lending rates by banks will add to this price rise. Confederation of Real Estate Developers Association of India (CREDAI) — Karnataka, which is holding Realty Expo 2010 on 3rd and 4th of April, however, expects a good response from consumers due to reviving demand. The demand for residential properties is good and on the back of revival in IT industry and salary hike for most employees, this is set to grow. The real estate sector has been badly hit by the recession due to the falling demand and repayment pressures. However, the sector is now looking up with some tangible signs of economic revival.
Retail
Birla retail arm shuts all stores in Nashik
Close on the heels of shutting its supermarkets in Ahmedabad, Aditya Birla Retail Ltd (ABRL), the retail arm of Aditya Birla Group, has shut down its retail operation in Nashik. The company has closed its all 13 supermarkets under the brand name- ‘More’ here in Nashik. The company had launched its retail chain of supermarkets under the brand name ‘More’ in February 2008. Presently, the company has total 632 supermarkets and six hypermarkets across the country under the brand name ‘More’.
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