Market Round Up Vol2 Issue17

SIMSREE Mutual Fund presents

Special Feature

“Market Roundup”

- Market Views

Volume 2 Issue 17 (24/11/13)

- Who is giving money to banks?

MARKET NEWS 

Fresh taper talk, FII selloff spook markets

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Govt Vows Diesel Decontrol, Mum on Poll Controls

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RBI favours slashing SLR to free up funds for industry

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Banking licenses: why corporate are better placed than NBFC’s?

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Amway to Set Up Plant in Tamil Nadu

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Campus hiring: TCS to give out 25,000 offers

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Sun Pharma posts fourfold jump in net profit on strong overseas earnings

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Ranbaxy looks to sell India-made generic medicines in Japan

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Telecom companies may get to trade, share spectrum

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Power project delays put Rs 1 lakh cr of loans at risk: KPMG

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Cement firms’ grip on pricing weakens

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IIP growth disappoints

Recommended Reads:    

http://in.reuters.com/article/2013/11/22/china-eu-trade-idINDEE9AL0BX20131122?type=economicNews http://in.reuters.com/article/2013/11/22/india-forex-reserves-idINDEE9AL09P20131122?type=economicNews http://in.reuters.com/article/2013/11/22/india-economy-rupee-idINDEE9AL06420131122?type=economicNews http://in.reuters.com/article/2013/11/21/india-cbank-minutes-idINDEE9AK0D420131121?type=economicNews

International News

Nibodh Shetty

Fresh taper talk, FII selloff spook markets Mumbai: Fresh talks of US Fed tapering as early as December and slowing pace of foreign fund buying in the Indian market spooked Dalal Street investors on Thursday, pulling the sensex down by 406 points to 20,229.

The day’s fall in the index, with all its 30 constituents closing in the red, was the sharpest in over two months, BSE data showed.

The day’s session started on a weak note on the back of indications from the release of minutes of the US Fed’s last policy meeting that its $85-billion monthly bond-buying programme could be cut down from December, but it would depend on stronger economic data. The sensex started the day about 100 points lower and slid through the session to close 2% down.

The day’s session also left investors poorer by nearly Rs 1.25 lakh crore with BSE’s market capitalization now at nearly Rs 66 lakh crore.

The day’s slide also came on the back of foreign funds turning net sellers, after remaining net buyers for most part of the current month. BSE data

showed net FII selling at Rs 60 crore. Domestic funds too were net sellers at Rs 651 crore. On the NSE, the nifty slid over 2% to close just below the psychologically important 6,000 mark.

Despite the sharp slide, unlike in May this year, investors on the Street are not scared about a US Fed tapering that could start as early as December.

There was no panic, instead investors are now cautious and taking it in their stride. “Global and Indian markets are discounting that tapering could happen as early as December. This is healthy for our market and will ensure no unpleasant surprises when it actually happens,” said Arun Kejriwal, director, KRIS, and investment advisory firm.

Our ViewThe markets have been rising since the past year more due to increase in money by Fed rather than conspicuous increase in profit of companies. Fed started infusing money into the US economy through bond purchase of $85Billion every month; so that companies can use this money to recover in grow. Most of this money has poured into developing markets like India. Now that the US economy is recovering, jobless rate is coming down at a higher rate than expected and the economy has grown higher than the analysts’ expectation, several economist and analyst are calling for the Fed to taper down its bond purchases. If done the flow of money into India will reduce and FIIs will start pulling out their money. That’s why the markets fell after almost a month of gains .

National News

Nitin Mali

Govt Vows Diesel Decontrol, Mum on Poll Controls Oil Minister Veerappa Moily said the government will deregulate diesel prices in the next six months,but kept silent on how it plans to so without raising rates sharply in an election year.

“Our determination to deregulate diesel remains unchanged. We hope to achieve this in six months,” Moily said here on Wednesday at an energy conclave organised by consulting firm KPMG. The government will have to raise pump prices by around. 10 a litre in the next six months if it wants to deregulate diesel and link it to market rates.While the minister said the government would continue to raise diesel prices by 50 paise every month, he ruled out a steep increase as it would stoke inflation.

Polls are being held in five states in NovemberDecember and general elections are scheduled to take place in the first half of 2014. Opposition parties have targeted the ruling UPA for high prices of food items and vegetables in their election campaigns.

“It is impossible to deregulate diesel with 50 paise monthly increases unless international diesel prices soften below $110 per barrel and the rupee appreciates to 55 to a dollar,” a senior executive at a state-run oil company said requesting anonymity.

According to the oil ministry’sdata keeper, the Petroleum Planning and Analysis Cell, global diesel

rates are hovering around $122 a barrel and average exchange rateis about. 63 per dollar.

Oil company executives say only a major price hike could help in diesel price reforms, which are unlikely before the new government is formed in mid-2014. “The current gap between market rate of diesel and its pump price is . 9.69 per litre. It will take about 20 months to havethe market pricein the normal course,” an executive said. In January, the government had allowed state-run oil marketing companies to raise diesel rates by 50 paise every month until pump prices are aligned with market rates. No Boost to Oil Stocks Moily’s statement that diesel prices would be deregulated in six months failed to boost stocks of oil marketing companies. Indian Oil, Bharat Petroleum and Hindustan Petroleum fell 2-3% in the Mumbai market after his statement.

An oil ministry official said Moily’s statement was based on hope that international oil prices would soften due to spurt in energy supply because of shale gas. Moily defended the government’s policy to gradually raise pump prices of diesel until it aligned with market rates. “Under-recoveries (retailers’ revenue loss on diesel) had come down to 2.50 because of monthly increases, but they again soared to . 14 as the rupee depreciated sharply.

Our viewThe Govt is trying its best to nail fiscal deficit. But falling tax revenues are giving a hint that this years fiscal deficit target would be difficult to meet as the disinvestment has not yet started. With fears of Fed Tapering lurking, it would be even more difficult to reach the disinvestment target for this fiscal. Due to rise in global crude prices the fuel subsidy has increased. The Government’s policy to increase the diesel price by 50 paisa every month, has still left the difference in market price and production price at the same place where it was

before this cycle started. There is still a difference of Rs.10 in the market rate and production rate. The oil minister has stated that the Gov will bring the prices at market rate in the next 6 months, but it has to be seen whether the Gov can do it? Inflation is rising every day and there are many elections coming up before May 2014. As this Gov has no credibility and has a track record of going back on its word, only time will tell whether diesel can be deregulated. If done it would go a great way in reducing fiscal deficit, improving investor sentiments and probably may lead to another upgrade by rating agencies.

Banking Sector

Devrishi Vijan

New bank licences: Sebi scans listed applicants, group firms As RBI gears up to issue new bank licences, capital markets regulator Sebi has also a job at hand that is of scrutinising all applicants coming under its jurisdiction directly or through group entities.

Sebi's scrutiny follows detailed queries shot off by RBI to various regulators in India and abroad as part of its due-diligence of entities seeking to enter banking arena.

According to a senior official, Sebi is looking into the capital market track-record of all the group entities of 26 banking aspirants, some of whom are either listed entities or have presence in Sebiregulated businesses like mutual funds, brokerage and investment banks.

The area of prime focus for the Securities and Exchange Board of India (Sebi) is action taken by or underway for violations to various market regulations, he added.

The scrutiny is expected to be over this month itself.

RBI is granting new bank licences for the first time in about a decade and preliminary screening process is underway for 26 entities that have submitted their applications.

As part of this process, RBI has also asked the applicants to provide further details about their promoters, equity structure, financial inclusion programme, proposed banking model, among others, sources said.

In addition to Sebi, RBI is also seeking details from other regulators such as insurance watchdog IRDA and pension regulator PFRDA, about the businesses of the applicant entities under their respective jurisdictions.

With regard to some applicants, RBI has sought to know details about source of funds and compliance

to the structural norms proposed for new banking players.

Besides, RBI is seeking additional details from the concerned foreign regulators about those applicants whose group entities have operations, significant business dealings with foreign companies or overseas listings.

Sources said this due diligence process involves information exchange with domestic and foreign regulatory authorities for all group entities of the applicants.

RBI has also set up an expert panel to look into the applications. Headed by former RBI Governor Bimal Jalan, this committee includes RBI's former Deputy Governor Usha Thorat, Sebi's former Chairman C B Bhave and financial sector expert Nachiket Mo. This panel held its first meeting on November 1.

RBI's board will take a final decision on new licences after taking into account the panel recommendations.

The applicants include entities from large corporate houses like Tatas, Anil Ambani-led Reliance Group, Kumar Mangalam Birla-headed Aditya Birla Group, L&T, Bajaj, SREI, Religare and Indiabulls. Besides, Department of Post, IFCI, LIC Housing Finance, JM Financial, Muthoot Finance, Edelweiss, IDFC, India Infoline and Shriram Capital are also in the fray.

In the past 20 years, the RBI has licensed 12 banks in the private sector in two phases, with Kotak Mahindra Bank and Yes Bank being the last two entities to get banking licences in 2003-04.

Our View: With January, 2014 round the corner when RBI is expected to award the new licenses, the scrutiny of the concerned applicant by SEBI and other Regulators shall ensure an added level of security. The core purpose of the process being thorough background check of the source of funds, promoters, previous violations of norms shall ensure no such application is approved where the safety parked public funds in the form of deposits is unsecure. Such scrutiny shall help the RBI Panel headed by ex-RBI Governor Bimal Jalan to take an informed decision while awarding the bank licenses.

RBI favours slashing SLR to free up funds for industry RBI has again stressed on the need to reduce the level of mandatory holding of government securities by banks, as that would enable credit flow to other sectors. It has, however, warned that it might have to wait until government finances improve and when pension funds gather size.

as they offer sovereign protection besides stable returns. Ex-RBI deputy governor Rakesh Mohan has called this practice "lazy banking." RBI, however, is aware of the limitation of this proposal, given the high market borrowing needs of the government.

"One of the mandates for the RBI in the RBI Act is ensuring the flow of credit to productive sectors of the economy," it said in a report on Trend and Progress of Banking. "In this context, it is necessary to reduce banks' requirements of investing in government securities in a calibrated way, to what is strictly needed from a prudential perspective."

"It is recognised that the scope for such reduction will increase as government finances improve," the report said. "Further, as the penetration of other FIs, such as pension funds and insurance companies increases, it will be possible to reduce the need for commercial banks to invest in government securities."

RBI governor Rajan had raised this issue at his first media briefing after taking charge on September 4.

At present, banks are mandated to park 23% of the deposits mobilised by them in government bonds under what is called the statutory liquidity requirements, or SLR.

The Reserve Bank also said the banking industry needs to grow to an estimated Rs 288 lakh crore by 2020 from about Rs 115 lakh crore in 2012 to support the economic growth as envisaged in the 12th Plan. "The banking sector needs to match up the likely acceleration in the credit-to-GDP ratio as the economy expands," the RBI said in the report.

However, most banks park much higher proportion in government bonds. As of November 1, the banking sector as a whole had parked almost 30% of the deposits in government bonds. This is almost 7 percentage points in excess of the mandated requirement. Due to this practice, lending to the commercial sector, which is the primary mandate of banks, tends to get restricted.

The RBI said there is a need to change the present structure to enable the banking system to grow in size, resources, efficiency and inclusively. "The Reserve Bank has initiated a debate on reorienting the banking structure in the country to better serve the needs of the real economy. As the economy expands, more resources will be needed for supporting the growth process."

Banks tend to opt for higher investments in government bonds as these investments are risk-free

Further, as the penetration of other financial institutions, such as pension funds and insurers,

increases, it will be possible to cut the need for

commercial banks to invest in gilts.

Our View: Statutory Liquidity Ratio (SLR) is the amount of liquid assets, such as cash, precious metals or other shortterm securities, that a financial institution must maintain in its reserves. With RBI favouring such a reform, it becomes extremely important for the banks to provide such freed-up capital to only prospering industries with a good contribution to the GDP and such capital should only be provided after understanding the business model of the concerned industries to avoid defaults. At the same time with the current practise of maintaining the SLR at a greater rate than required by the policy, it seems that promoting lower SLR to free up funds for industry may be futile as the banks do not want to take risks.

NBFC Sector

Bhanu Kishore, Yogesh Athale

Who is giving money to banks?

On October 3, 2013, the finance ministry headed by P Chidambaram put out a rather nondescript press release, in which it said “The Central Government has decided in principle to enhance the amount of capital to be infused into Public Sector Banks (PSBs).

It may be recalled that in the Budget for 2013-14, a sum of Rs. 14,000 crore was provided for capital infusion. This amount will be enhanced sufficiently.

The additional amount of capital will be provided to banks to enable them to lend to borrowers in selected sectors such as two wheelers, consumer durables etc. at lower rates in order to stimulate demand.” In other words, the government of India will provide public sector banks more money than what it had budgeted for, so that they can lend it to borrowers to buy two wheelers and consumer durables. And this would revive consumer demand and in turn economic growth. Now only if economics worked in such a linear sequence, even I could be the RBI governor.

The first question is where is the government going to get this ‘extra’ money from? As Deputy Governor of the Reserve Bank of India KC Chakrabarty put it on Saturday “How much (will the government put in)? If the government has so much money, then no problem.” The government of India will provide public sector banks more money than what it had budgeted for. Reuters The government of India (like most governments in the world) spends more than it earns. Hence, it runs a fiscal deficit. This deficit is financed by selling government bonds. Who buys these bonds? Banks and other financial institutions. Latest data released

by RBI shows that as on September 20, 2013, the banks had a credit deposit ratio of 78.2%.

This means that for every Rs 100 that banks had borrowed as a deposit, they had lent out Rs 78.2.

The banks need to maintain a cash reserve ratio of 4% i.e. for every Rs 100 they borrow as a deposit, they need to maintain a reserve of Rs 4 with the RBI. Other than this banks need to maintain a statutory liquidity ratio of 23% i.e. Rs 23 out of every Rs 100 borrowed as a deposit, needs to be invested in government bonds. Hence, Rs 27 (Rs 23 + Rs 4) out of every Rs 100 borrowed as a deposit goes out of the equation straight away. This means only Rs 73 out of every Rs 100 borrowed as a deposit can be given out as a loan. But as we saw a little earlier the Indian banks have lent Rs 78.2 for every Rs 100 they have borrowed as a deposit. This means is that banks are borrowing from other sources in the market to lend money. Why would they do that? They are doing that because they aren’t able to raise enough deposits.

Let’s look at data over the last one year (i.e. between Sep 21, 2012 and Sep 20, 2013). Deposits have grown at a pace 11.9%. Loans have grown at a much faster 15.4%. The incremental credit deposit ratio is at 101.4%. What this means is that for every Rs 100 raised as deposit, banks have given out Rs 101.4 as loans. Ideally, for every Rs 100 raised as a deposit, banks shouldn’t be lending more than Rs 73. Hence, banks have a paucity of funds going around. In this situation, if the government chooses to hand over extra capital to public sector banks, it will have to finance this transaction by selling government bonds. Banks and other financial institutions will buy these bonds.

As we saw, banks are already stretched when it comes to deposits. In order to buy these bonds, banks will have to raise extra deposits by offering a

higher rate of interest. Or they will have to raise money from sources other than deposits, and that will mean paying a higher rate of interest. And when they do that how can they be expected to lend at lower interest rates? The finance minister has been pretty vocal about the fact that the government won’t let the fiscal deficit cross the level of 4.8% of the GDP, that it had projected in the annual budget.

The trouble is that in the first five months of the financial year (i.e. between April-August 2013), the fiscal deficit has already touched 74.6% of its annual target. If the government wants to provide extra capital to public sector banks then it would lead to more expenditure, making it more difficult for the government to stick to the fiscal deficit target.

Given this, the government may look to finance this transaction by cutting other expenditure. In this scenario, it is more likely to cut planned expenditure than non planned expenditure. Planned expenditure is essentially money that goes towards creation of productive assets through schemes and programmes sponsored by the central government.

Non- plan expenditure is an outcome of planned expenditure. For example, the government constructs a highway using money categorised as a planned expenditure. But the money that goes towards the maintenance of that highway is nonplanned expenditure. Interest payments, pensions, salaries, subsidies and maintenance expenditure are all non-plan expenditure. As is obvious a lot of nonplan expenditure is largely regular expenditure that cannot be done away with. Hence, when expenditure needs to be cut, it is the asset creating planned expenditure which typically faces the axe and that is not good for the overall economy.

It also needs to be pointed out that currently the market for two wheeler and consumer durable loans is dominated by private players and not public sector banks. People stay away from public sector banks because of the high level of documentation

required. As a senior executive of Bajaj Auto told DNA recently “Currently, NBFCs and private banks dominate the two-wheeler finance market. So, I don’t think the move will have any major impact.”

Hence, just offering lower interest rates on loans is not enough to get people to borrow from public sector banks. Further, trying to get public sector banks to lend at lower interest rates is “inconsistency in public policy approach.” As Sonal Varma of Nomura put it in a note dated October 3, 2013, “The government is prodding public sector banks to lend at a subsidised rate at a time when the RBI has just hiked the repo rate – a signal to banks to hike their lending rate. We do not see this as a sustainable strategy to kickstart consumption.” The RBI had also recently asked banks not to offer 0% EMI plans for the purchase of consumer goods.

And now the government is telling the banks that we want you to lend at lower interest rates. Also, some little bit of basic maths can show us why interest rates do not have much of an impact, when it comes to people taking loans to buy consumer goods and two wheelers. Let’s us say an individual takes on a two year loan of Rs 25,000, at an interest of 17%. The EMI for this works out at around Rs 1236. For every 100 basis point (one basis point is one hundredth of a percentage) fall in interest rate, the EMI comes down by Rs 12. Yes, you read it right. So, if the rate of interest falls to 16%, the EMI will come to around Rs 1224 from Rs 1236 earlier.

At 15% it would come to Rs 1212 and so on.

Hence, even if interest rates crash by 700 basis points and come down to 10%, the EMI will come down by only Rs 84 per month. Considering this no one is going to go ahead and buy a consumer good or a two-wheeler because the EMIs fall by Rs 12, for every 100 basis points cut in interest rates.

Our View: People are not buying because they do not feel confident enough of their job prospects in the days to come.

“The job market and income growth – the key drivers of consumption – remain lackluster. And that’s the main problem. Lower interest rates alone can’t just address that.

Banking licenses: why corporate are better placed than NBFC’s?

The Reserve Bank of India has clarified the guidelines for new banking licenses, thereby allowing corporates and PSUs with sound credentials and strong track records to enter the banking business. The central bank has, however, poured cold water on hopes of regulatory forbearance on liquidity requirements for finance firms that are planning to convert into banks. In other words, very serious players with deep-pockets like corporates are the likely beneficiaries while non-banking financial corporations are the likely losers as they will have to comply with stringent norms such as the cash reserve ratio (CRR), statutory liquidity ratio (SLR) requirements on day one and will need to transfer their entire lending book to the bank itself.

CRR is the deposit that banks have to mandatorily keep with the RBI at zero percent interest.

Currently, CRR is 4 percent of a bank’s deposits and SLR, that is the percentage that a bank has to compulsorily invest in government securities is about 23 percent of the bank’s deposits. very serious players with deep-pockets like corporates are the likely beneficiaries while non-banking financial corporations are the likely losers. Reuters “If the rules for SLR and CRR remain unchanged, then there will be very limited players who have credibility to raise funds and put capital in the business. The rest are ruled out,” said AK Purwar, banking expert and former chairman of State Bank of India in an interview with CNBC- TV18. RBI on Monday issued clarifications to as many as 443 questions from 39 organisations about the holding and capital structure of the proposed non-operative

finance holding company that license aspirants should set to open a bank branch apart from many others things like extending the time-line to get this holding company in place, reducing the promoter holding to 18 months from 12 months.

“The best part is that it has considerably reduced the element of discretion at the hands of the regulator and thus leaving limited rooms for disputes,” Ernst & Young India partner and national leader for banking and financial services Ashvin Parekh said. “I fear it will hurt many, especially NBFCs as the guidelines look favouring corporates over NBFCs, because the new guidelines are so tough to be complied with. With these clarifications I see lesser chances for NBFCs and better chance for corporates to bag new banking licenses. It will be much tougher for NBFCs now, I am afraid,” Parekh said.

According to a report in the Business Standard, large corporates like L&T Finance and M&M Finance are set to gain as their parent companies have a diversified ownership and a sound record.

However, L&T Finance will have to tweak its corporate structure as the central bank has said private players aspiring to enter the banking space need to create a non-operative financial holding company (NOFHC). The requirement is that not less than 51 percent of the voting equity shares of NOFHC shall be held by companies in the promoter group, in which the public hold not less than 51 percent of the voting equity,” RBI said in its clarifications released yesterday. However, in L&T Finance Holdings, the holding company of L&T

Finance, parent Larsen & Toubro had 82.54 percent stake at the end of March, so L&T Finance Holdings cannot set up NOFHC as public shareholding in the company is below 51 percent.

For M&M the lending business will have to be transferred to the bank and maintaining CRR and SLR will be a key challenge.

A graphic in Economic Times points out that RIL has two advantages when it comes to a bank license: 1. It is already 51 percent owned by the public and secondly, it does not have substantial financial services business to be transferred to the bank. The only challenge remains on the corporate governance front as the CAG has called

for a probe into the alleged cost escalation at its KG-D6 gas oil fields, while Sebi is probing an alleged insider trading case at RIL. Finance companies like JM Financial will have to cut their promoter stake to 49 percent from the current 68.94 percent stake. NBFCs like Shriram Group and IDFC will have to rethink their strategy since the RBI has stipulated that the lending businesses of NBFCs have to be transferred to the proposed bank.

Moreover, maintaining CRR and SLR once the assets are transferred into a bank will remain a challenge.

license then this particular business (transfer entire lending business to the bank) will have to be merged with the bank,� said Nischint Chawathe, analyst at Kotak Institutional Equities, in an interview with CNBC-TV18. LIC Housing Finance, on the other hand, will have to demerge its housing finance business into the promised bank if it wants to apply for a license, the BS report added. With these clarifications on the non-operative finance holding company, the RBI has ensured that the new structure would not pose any systemic risks as these norms have ring-fenced the system.

“From Shriram Transport’s point of view it all appears that if Shriram Group has to apply for a

FMCG Sector

Avi Yogen

Amway to Set Up Plant in Tamil Nadu Direct selling FMCG major Amway India will set up a Rs 500-crore Greenfield manufacturing facility in Tamil Nadu.

"We are setting up our first greenfield manufacturing facility in Tamil Nadu to cater its products in the Indian market," Amway India Regional Head G S Cheema told reporters here today.

The company continues to maintain upward movement with turnover of Rs 2,288 Crore in 2012 registering a little over 7 per cent of the growth over the last fiscal when it recorded a turnover of Rs 2,130 Crore, Cheema said.

The direct selling industry in India is showing a healthy growth rate which is in access of 22 per cent, he said.

He said the manufacturing facility would be completed and production will start by mid-2015.

The year 2013 started with the launch of women's health range from brand Nutrilite, Cheema said.

This step has been taken in view of increasing product base of the company in the country, he said.

Considering the changing lifestyle, the new women's range which is targeted at both working and non-working women addresses the nutritional requirements across life stages helping them maintain a perfect balance between health, wellbeing and daily activities, he said.

Land has already been acquired and project report has been formulated and submitted to Government of Tamil Nadu, he said adding it will come up in entire green environment with zero discharge capability and advance technology.

It will be a state of art facility surrounded by green belts, he said, adding that the construction of the company has already been awarded to a big construction group.

The company will manufacture 1.2 billion tablets and soft drinks regarding its Nutrilite supplements, besides toothpastes and other products, he said.

In the beauty category, Amway introduced 'Renewing Peel' and 'Youth Xtend' from super premium brand 'Artistry', he said.

Amway India is country's leading direct selling FMCG Company. The company has invested more than Rs 151 Crore in India and has 135 offices and 55 city warehouses across the country, covering over 4,000 cities and towns through its home delivery network, Cheema added.

Our View: India’s leading direct selling FMCG Company Amway is going to set up its first Greenfield manufacturing facility in Tamil Nadu which will be operational from mid-2015. With the scope of direct selling increasing by 22% yoy basis as claimed by Amway country head Amway might prove a good investment option but when you go through Amway financials there is hardly significant increase in revenues as compared to industry standards in the last fiscal. So my view is to keep investment in Amway currently in hold position.

Dabur Raises Limit on FII Investment FMCG firm, Dabur India Ltd today said its board of directors have approved increasing the investment limit for Foreign Institutional Investors (FIIs) in the company to 30 per cent from 24 per cent at present.

"By way of passing resolutions by circulation and subject to the approval by the shareholders of the company approved for increase in the investment limit for foreign institutional investors (FIIs) up to 30 per cent," Dabur said in a BSE filing.

The board of directors through a postal ballot approved the proposal.

"With increased participation by FIIs in the Indian capital market, we have decided to increase the FII investment limit to 30 per cent for investment in company's capital under the Portfolio Investment Scheme (PIS)," Dabur India Ltd Group Director P D Narang said in a statement.

Currently, FIIs hold around 21 per cent shares of the company, which is likely to exceed 24 per cent very shortly, Dabur said in a statement.

Dabur would be seeking consent of the shareholders by postal ballot, it added.

Our view: With the increased participation of FIIs in the Indian Capital Market, the decision taken by Dabur to raise investment by FIIs can be termed as a welcoming one. But it must be noted with caution that whenever the Indian economic undergoes a downturn its first the FIIs only who lose confidence and pull out of the market which further damages the investor confidence causing lowering of share prices in a big manner.

IT Sector

Sushant Nayak

Campus hiring: TCS to give out 25,000 offers India's largest software firm Tata Consultancy Services said there was no pressure to increase entry level salaries, which have been stagnant for the past four years. However, the company will evaluate if there is a need for fresher compensation to be increased because of rising inflation, a top company official said.

Ajoy Mukherjee, executive vice-president and global head (human resources), said the move will have to be carefully thought out because an increase in entry level salaries will have a cascading effect, increasing salaries across all employee levels.

Fresher salaries in TCS are about Rs 3.50 lakh per annum.

At about 285,000 employees, TCS is the largest private sector employer in the country. For 2001415 the company has announced it will hire 25,000 people from campus, same as the previous year.

This number does not include students it will recruit

from campuses overseas, where TCS and other Indian IT providers have significantly increased their hiring in countries such as US in the last 2-3 years.

TCS has digitized its entire campus hiring process with the only manual intervention being at the interview stage. Students can register at its recruitment portal soon after they enroll in any of the colleges accredited with the company and participate in online communities and contests such as Code Vista, a coding contest, and Mobeel, for creating mobile apps, and win prizes including a chance to work in TCS' R&D team. Applicants can check if they have been shortlisted for placement in TCS after an online test through the portal.

About 3 lakh students from 450 colleges are registered on the portal, Mukherjee said. For the first time, TCS will also use the portal to hire from campuses it does not visit.

Our View: Last month, TCS had revised it gross hiring target for the current year from 45,000 to 50,000 because of higher demand for its services. This had sparked rumors of a possible hike in entry level salaries as well. However, TCS will not be increasing the fresher compensation anytime soon, as the demand is still not at boom time levels of pre-2008. As a result the attrition levels will also not increase until the demand returns to those levels.

Pharma Sector

Sushant Nayak

Sun Pharma posts fourfold jump in net profit on strong overseas earnings Sun Pharmaceutical Industries Ltd, India’s most valuable drug maker, posted a fourfold increase in net profit to Rs.1,362 crore for the September quarter on robust US sales and strong earnings at its Israeli subsidiary Taro Pharmaceutical Industries Ltd. Sun Pharma also raised its revenue growth forecast for 2013-14 to 25% from its earlier forecast of 1820%, taking into account its improved performance.

Sun Pharma’s sales in the three months to 30 September increased to Rs.4,206 crore from Rs.2,657 crore a year ago. Domestic sales grew 17% to Rs.949 crore despite challenges such as pricing uncertainties and distributors’ strike demanding higher margins. Its net profit in the yearago quarter was Rs.319.64 crore.

Sun Pharma’s sales and profit growth comfortably beat market expectations. A Mint poll of five brokerages had predicted at least a 50% growth in net profit and about a 30% increase in sales for the September quarter.

The growth was mainly pushed by a twofold increase in sales in the US mainly on market exclusivity for two products. US sales nearly

doubled to Rs.2,588 crore from Rs.1,330 crore in the corresponding year-ago quarter.

In the April-June quarter, Sun Pharma reported a loss of Rs.1,162 crore as it set aside money anticipating a patent case settlement with Pfizer Inc., the world’s largest drug maker by sales. The earnings were also impacted by Taro’s lacklustre performance on the back of a price erosion and slow sales growth in the US. Taro contributes about onethird of Sun Pharma’s revenue. Taro’s net profit had declined 7.1% to $58 million in the quarter ended 30 June on a 3.7% drop in sales to $153 million.

Taro, which announced its September quarter results on Tuesday, posted 45.7% growth in net profit at $96.3 million and a 27.5% rise in sales to $205.3 million.

Brokerage Reliance Capital Ltd has estimated $113 million in sales from Doxil for Sun in fiscal 2014, contributing at least 8.1% to the company’s estimated earnings per share for the year.

Sun Pharma shares, which gained 4% in early trade on BSE on Wednesday, closed at Rs.607.8, up 1.61%, while the benchmark Sensex fell 0.43% to 20,194.40 points.

Our View: Exclusive marketing rights in the US significantly boosted Sun Pharma’s profitability in the latest September quarter. It was the largest supplier of the generic version of ovarian cancer drug Doxil in the US after its competitor Johnson & Johnson announced an interruption in supply. Sun now has a 45% share in the product’s market in the US. The performance of all their businesses exceeded plans. Sun pharma continues to develop a differentiated and specialty driven product basket and it is also reviewing opportunities to expand and strengthen their global footprint.

Ranbaxy looks to sell India-made generic medicines in Japan Ranbaxy Laboratories, the global generic arm of Japan's second-largest pharmaceutical company, Daiichi Sankyo, plans to supply medicines to the Land of the Rising Sun from its Indian facilities, according to sources. Though Ranbaxy is yet to get approvals from the Japanese regulatory agency, it is trying to get a foothold in that market to boost its consolidated revenues, sources added.

annually, it has so far been a tough destination for generic manufacturers because of the country's tight regulatory regime. The generic penetration is estimated very low even today, in spite of a series of reforms launched by the Japanese government with an intention of expanding generic drug reach to 30 per cent of the drug market by 2013, from 18 per cent in 2010.

When contacted, a Ranbaxy spokesperson told Business Standard: "The product selection procedure for launch in Japan has been finalized."

He added the hybrid business model between Ranbaxy and Daiichi Sankyo continues on several fronts and Daiichi Sankyo Espha Co Ltd will be the vehicle to introduce generic products in Japan, through a joint team set up for development, sales and distribution.

Among Indian drug makers, only Lupin has a significant presence in the Japanese pharmaceutical market. Lupin established its presence in Japan by acquiring a majority stake in generic pharma company Kyowa Pharmaceutical in 2007.

According to a source, Ranbaxy and Daiichi Sankyo officials are in advanced talks with Japan's Ministry of Health, Labour and Welfare, which regulates medicines.

Later, Lupin also acquired I'rom Pharmaceutical Co to enter the generic injectable segment.

According to experts, with Daiichi Sankyo being an innovator company, with significant presence in Japan, Ranbaxy has a fair chance of establishing itself in the market. Also, if the drug maker gets product approvals from Indian facility, it will reduce its cost while increasing revenues.

Japan, despite being the world's second-largest pharmaceutical market, pegged at $90 billion

Our View: If the company secures approval to supply to Japan from its Indian facilities, it will be a major positive for Ranbaxy, after troubles in the US. Japan is a major pharma market and not too many generic companies are present there. An early entry will be helpful for the company to establish itself. Also, it will be right utilization of Ranbaxy's Indian plants. Its key generic manufacturing facilities at three sites in India - Paonta Sahib, Dewas and Mohali - are currently under the radar of the US Food and Drug Administration, but as per Ranbaxy are supplying to other markets.

Telecom Sector

Kinshul Jogatar

Telecom companies may get to trade, share spectrum Ahead of announcing a fresh spectrum auction, the government is expected to give a go-ahead to trading and sharing of spectrum between telecom operators, while also recommending a uniform Spectrum Usage Charge (SUC) for various telecom services.

According to top government sources, the idea is to create a conducive environment before the start of auctions and signal an industry-friendly approach adopted by the DoT. The moves, it is felt, are crucial to ensure healthy participation by telecom operators in the auction as well as to encourage an aggressive bidding. "These measures will soon be announced and are positive elements to improve sentiment," a highly-placed source said.

The steps assume significance in view of the lukewarm response to the auctions in the last two rounds — November '12 and March '13 — where most of the operators stayed away, complaining of high prices and a disabling environment.

The new measures also come at a time when the government appears to have made up its mind to go with the lower floor price for spectrum

recommended by the Trai. "All these measures, when combined, will make the new spectrum auctions very lucrative," another source said. The sources said the government will give an inprinciple agreement to spectrum trading and sharing in the notice inviting applications (NIA) for the new sale. The broader regulations will be worked out later. "The modalities can be worked out and may take time."

However, Trai's view was objected to by an internal committee of DoT which, among other things, pointed out that companies only win rights to use spectrum and their licence has no provision for transfer of ownership.

On SUC, the government wants to move towards a "uniform rate" against the current practice where carriers pay 3-8 %, depending on their spectrum holding. "There will be measured and calibrated steps over a period of time. Some road map will be made known before the auctions," the government source said. Trai has already recommended that SUC be set at a flat 3% of companies' revenue for the spectrum they buy from auctions.

Our view: This move will have a positive impact on the industry. It is a very progressive move and will allow efficient utilization of resources. Operators will be more willing to invest in spectrum with the knowledge that they have the opportunity to sell the spectrum rights, in case their business models are not successful, spectrum trading may lead to greater competition , provide incentives for innovation , greater certainty to service providers over their rights on spectrum.The SUC move would be beneficial for older operators which have sizeable spectrum holding, many others like RCOM, Tata Tele and Reliance Jio are understood to be against the move.

In the long run, India can support only 6 profitable telcos: Fitch Rating agency Fitch said that the Indian telecom sector was heading for consolidation as "weaker, smaller" mobile phone companies would be acquired by larger players or be merged amongst themselves to improve profitability and cash flow over the next financial year.

"Overcapacity will decline in both Indian and Indonesian telecom industries over 2014-15," the agency said in a note on Thursday. It, however, warned that such deals may "weaken" balance sheets of larger telecom operators as they may take on additional debt.

Indian mobile phone companies are waiting for the relaxation of merger and acquisition (M&A) guidelines which the agency believes will be announced by the end of this year.

"Lack of clarity over the telco M&A regime and, in particular, spectrum acquisitions have prevented any consolidation in India so far. Consolidation should improve small telcos' declining profitability as cost synergies are realised and voice tariffs benefit from lower competition," Fitch said.

Our View: The Indian market is less profitable and more fragmented, and the top three telcos have relatively weaker balance sheets - which are more likely to be adversely affected by debt-funded acquisitions. However, in the long run, consolidation is inevitable.

Auto Sector

Nibodh Shetty

Slowdown forces auto parts makers to diversify NEW DELHI: Hit by a double whammy of falling sales and rising input costs, auto component makers are venturing into new territories that are promising growth opportunities despite the slowdown.

Over the past few months, several auto component makers have entered businesses as diverse as healthcare, real estate, sports infrastructure, aerospace and even robotics.

"We have developed all new LED lighting systems at half the cost than any global company," said JK Jain, chairman .. and managing director at Delhi-based Fiem Auto.

With orders from automobile makers drying up, the company decided to stretch its research into a relatively new area of LED luminaries business.

The .`1,000-crore company, which counts SuzukiBSE -0.47 %, Honda, and Mahindra and MahindraBSE 0.23 % among its clients, is now making LED lights for domestic and commercial uses. It has also developed solar LED lamps.

Fresh investments into the auto component industry fell to $1.5-1.8 billion (Rs 9,000-11,000 crore) in 2012-13 from $2-2.05 billion in the previous year.

The industry is estimated to be worth about $40 billion.

Subros, the country's biggest maker of automotive air conditioning systems has set up a facility to manufacture insulated containers, or refrigerated trucks, with staggered chilling units to cater to the needs of retail chains across the country.

"It is a fast-growing business with huge demand coming from cold chain operations and the retail business," said Ramesh Suri, chairman at Subros.

"We have set up an integrated facility to make

panels and insulated chambers with aircon units to have dedicated end-solutions for refrigerated trucks."

Slowdown has hit hard the auto component industry with demand in all segments, except motorcycles and scooters, plunging into the negative territory.

The once lucrative bus and truck segment has suffered the most with sales falling 32% year-onyear in October to 14,261 units. These gment has been seeing negative sales for the past 20 months.

Sansera Engineering, a Bangalore-based company that supplies forged and precision-machined power train components to the likes of Maruti SuzukiBSE -0.47 %, Honda, Fiat and General Motors, has ventured into the aerospace business.

The company is also eyeing the critical medical healthcare areas in the second stage of its diversification. "We have developed some synergies from the auto sector to develop and and manufacture components for the aerospace business," joint managing director FR Singhvi told ET. "We have targeted the generic components like light, seating and safety equipments for our partners — the $65-bilion UTC Aerospace.

Based on the successful foray into the aviation business, our next target is healthcare, where we aim to utilise out core strength of forging and machining." The persistent drop in demand also forced Mumbai-based Setco Automotive, a manufacturer of clutches for heavy and medium commercial vehicles, to foray into sports infrastructure. The company has earmarked Rs 500 crore for the construction of a stadium in Gujarat that will support a dozen sports from soccer to tennis to squash.

Our View: Since the auto sales have been dismal this year, the automotive companies are scouting for new avenues of revenue. They are diversifying there portfolio to reduce risk and dependency on auto companies for revenue. All these years auto sector was doing good now that they sales are sliding, the pressure is being felt. The stocks of these companies may be a better option than investing in auto companies for this year.

Power Sector

Jay Sheth

Maharashtra govt gives nod to Mundra UMPP rate revision with riders Maharashtra government today approved an application from Tata Power's 4,000 MW ultramega power project (UMPP) at Mundra seeking tariff revision, as recommended by the Deepak Parekh panel, but with some riders. The decision was taken at a Cabinet meeting here, official sources said.

Maharashtra's power distribution arm MahaVitaran has tied up for getting 800 MW from the coal-fired UMPP in Gujarat. But the state is currently getting 80 per cent of this and wants the company to ensure it gets the entire quota.

One of the riders says once the price of imported coal (used in UMPP) falls, the tariff should be revised downwards accordingly. Another caveat calls for an undertaking from the private firm to reduce its return on equity or RoE (a measure of company profitability) as far as possible, they said.

If the revision materialises, the power tariff may increase by 59 paise per unit for MahaVitaran. But according to a state discom official, they expect the effective increase to be 35-45 paise a unit.

Chairman Deepak Parekh, which had called for a hike in tariff for power supplied by Coastal Gujarat Power, an arm of Tata Power that runs Mundra UMPP. Central Electricity Regulatory Commission (CERC), in April this year, had allowed Tata Power to pass on to consumers high cost of coal imported from Indonesia for the Mundra unit, which supplies power to five states.

According to the MahaVitaran affidavit, Tata Power should pass on the benefit of any reduction in Indonesian coal prices and also reduce the RoE as far as possible. It called on financial institutions, which have funded the project, to reduce their interest rates.

It said even after the entire exercise, if the tariff is unviable, the state will have the option of cancelling the purchase pact without giving any compensation.

Punjab and Haryana, receiving power from Mundra UMPP, have opposed the CERC nod to hike in tariff and have moved the court against the decision.

The state government has accepted recommendations of the panel, headed by HDFC

Our View: Tata power's long battle with Punjab, Haryana and Maharashtra over increased tariff hike of Mundra UMPP has come to little relief as Maharashtra has accepted the revised tariff rate suggested by Deepak Parikh committee with some riders. Due to increase in the price of imported Indonesian coal, Tata power is facing the threat of losing the 1800 crore annually over 25 years which it could realized from extra tariff. Deepak Parikh, appointed by CERC for the issue has suggested an increased tariff rate of 50-55 paise per unit. However Punjab, Haryana has opposed it saying power from Mundra should be priced "strictly as per the terms agreed under the power purchase agreements" while Maharashtra has stated that it plans to approach the CAG and the CVC on whether to accept a proposal of the Parekh committee.

The riders suggested by Maharashtra Gov. can also be used to negotiate with Punjab and Haryana. The riders suggests that Power tariff rate should be linked with price of coal and also asked for decreased ROE for Tata

power to make the price viable. Punjab and Haryana has opposed the move suggesting that if suggestion accepted, then other companies will also ask foe revised Power Purchase Agreement which is not beneficial to customer and distribution companies.

Power project delays put Rs 1 lakh cr of loans at risk: KPMG Delays in implementing power projects, mainly due to fuel issues, could turn Rs 1 lakh crore of bank loans into NPAs if prompt action is not taken, according to a study by KPMG. "Lack of financing and a poor pipeline is due to the current stalemate on various projects. Over 33 GW of projects are operating below 60 per cent plant load factor, mainly due to fuel issues. This could pose a risk to over Rs 1 lakh crore worth bank loans which could turn into NPAs (non-performing assets) if we don't take action quickly," KPMG said.

According to the consultancy firm, 33 GW of capacity in an advanced stage of readiness is either tied up or under negotiation for supply based on competitive bidding.

The power sector is heavily indebted and has one of the largest exposures from banks. Their loans to private power companies stood at Rs 1.57 lakh crore as of FY13, compared with Rs 30,251 crore in FY09, according to KPMG.

That apart, the exposure of banks to state-run distribution companies in the form of short-term loans stands at Rs 1.9 lakh crore.

"For projects which have entered into PPAs (power purchase agreements) under existing competitive bidding guidelines, government should allow import of coal for the quantity equivalent to shortfall in domestic coal supply as per the signed fuel supply agreements (FSAs).

"These projects may turn into non-performing assets because of non-availability of fuel," KPMG said.

KPMG has suggested that Coal India could issue a certificate for the shortfall quantity and the cost of imported coal procured against this approved quantum can be made a pass through by the regulator based on the guideline.

Our View: The power sector is highly indebted and has largest exposures from banks. Their loans to private power sector companies stood at 1.5 lakh crore which has high chance of becoming NPA. The reason behind the nonefficiency of power companies is due to slow decision making from government, shortfall in the supply of coal and high price of imported coal. Because of shortfall in the domestic coal supply, power companies cannot run to full capacities and also FSA binds them from importing coals. Lack of funds, delays in land acquisition and environmental approvals and issues related to allocation of coal and passing on costs of importing the fuel leads to cycle of high deficit.

Over 33,000 MW of projects are operating below 60 per cent plant load factor, mainly due to fuel issues.

Delays in environment and forest approvals are taking a huge toll on projects. Clearances are pending for about 1,03,000 MW of power projects and 726 million tons per annum of mining capacity. Suggestion provided

by KPMG over shortfall quantity of fuel can be a potential viable option.

Cement Sector

Nitin Mali

Cement firms’ grip on pricing weakens Pricing power, once a powerful tool in Indian cement companies' hands, is now missing. This is despite the start of the peak consumption period.

Demand remains poor, leading to 100 million tonnes (mt) of capacity, or 30 per cent, lying idle.

In the north, a bag is Rs 252, a fall of Rs 5 against September-end's price. In the south, prices have slipped from Rs 318 to Rs 298; and in the east, rates are Rs 315 against Rs 340. The west has seen a tepid rise of Rs 2 to Rs 287.

After initial rises after monsoon, prices are flattening or softening. Sector leaders say poor demand is here to stay. Things will be clearer once elections happen.

In Mumbai, India's largest cement consumption market, a 50 kg bag is Rs 310, a rise of Rs 10.

Consider this: This time, last year, the average allIndia price was Rs 295 for a 50-kg bag, now Rs 282, a fall of 4.5 per cent.

A mismatch in the pace of consumption and capacity addition has disrupted pricing power. Even ACC, Ambuja and UltraTech, with a pan-India presence, have been affected.

H M Bangur, managing director, Shree Cement, told Business Standard, “Hopes are not there.

Nobody wants to spend money.

So, how would demand rise? Against estimates of seven-eight per cent, the sector is growing threefour per cent.”

Analysts say costs are on the rise. They do not rule out a further price fall of Rs 5-10, but add volatility in prices would continue.

“Such losses are unsustainable. Companies may be forced to cut capacity or shut shops,” added Bangur.

The sector doubled capacity since 2007 from 180 million tonne per annum (mtpa) to 360. However, in consumption, it is likely to remain a little less than 250 million in the current financial year. This means there is an overcapacity of 110 million.

Capacity use has been dropping for the last few years. If the situation remains grim, possibility of a reduction to below 70 per cent may not be ruled out.

In the south, usage has dropped below 60 per cent.

ACC, Ambuja Record strong trade before paring gains Shares of two large Indian cement makers — ACC and Ambuja Cements — traded strong during most of the session on Wednesday, despite reports suggesting state-run insurers had voted against the restructuring of Holcim’s Indian operations.

the last thirty minutes of trade triggered a fall in both the counters.

Till the fag end of the trading session, the ACC stock had surged 1.7 per cent, while the Ambuja stock rose 1.2 per cent on BSE, before losing ground. A sharp decline in the benchmark indices in

The Holcim restructuring deal, signed in July this year, involved restructuring in two phases. Holcim was to raise its stake in Ambuja from 50.55 per cent to 61.39 per cent. Ambuja, in turn, would buy Holcim’s stake in ACC. At a later date, Ambuja

Ambuja pared all gains to close 1.2 per cent down, while ACC closed with a gain of 80 basis points.

would further increase its stake in ACC by 10 percentage points for an investment of up to Rs 3,000 crore, through open-market purchases.

Ambuja was to first acquire 24 per cent stake in Holcim India Pvt Ltd (HIPL) for Rs 3,500 crore in cash, followed by a stock merger between the two.

HIPL is Holcim’s wholly-owned financial holding company.

Currently, HIPL directly holds 9.76 per cent stake in Ambuja, and 50.01 per cent stake in ACC. After the merger, HIPL’s stake in Ambuja would stand cancelled and Ambuja would own 50.01 per cent stake in ACC. The swap ratio for the merger was decided as one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share.

Capital Goods Sector

Rohan Muntode

IIP growth disappoints After promising export numbers, the Index for Industrial Production (IIP), too, hinted at a revival in the economy as the factory output for September grew 2%.

The growth was on account of good performance by power and mining sectors, while capital goods posted negative numbers.

The IIP had contracted by 0.7% in the corresponding period last year. Meanwhile, IIP growth for August this year has been revised to 0.43% from the provisional estimate of 0.6% The capital goods sector declined 6.8% in September as against a contraction of 13.3% in the same period last year.

Source - http://www.dnaindia.com/money/report-iipgrowth-disappoints-retail-inflation-soars-1918230

Our View: The IIP numbers come in as a big disappointment as a much higher growth of around 3-3.5% was expected.

The numbers suggest is that the country is on course to post a sub 5 per cent GDP growth. These numbers along with double digit inflation rates leaves little room for RBI to steer the economy.