: HSBC

| Updated: Mar 03 2014, 08:58 IST

 

 

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Change in MSCI sector weights propels IT to the top spot (AP)

SummaryAll sectors except healthcare and staples saw increases in foreign institutional ownership.

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In 2013, the information technology sector gained 10% in absolute weight in the MSCI India Index because of significant relative outperformance and the addition of Tech Mahindra. This makes it the largest sector for India.
In comparison, foreign institutional investors (FIIs) now appear underweight on the sector, as per EPFR Global. Relatively, a bulk of the weight shift has been taken out from financials as four companies have been deleted from the MSCI index.
Although FIIs appear more in sync with MSCI weights, incremental demand for financial names from FIIs may be found wanting. Domestic institutional investors (DIIs) in contrast have a much higher proportion of AUMs (assets under management) in financials, in sync with the local indices.
With local money flow still weak (DIIs have pulled out $18 billion over the last three years--2011-13--compared to FII inflows of $48 bn in the same period), the performance of a large component of AUMs could be tested for DIIs triggering weight-reduction.
Rising passive money (Exchange Traded Funds) should also exhibit such trends. We remain cautious on financials from a fundamental standpoint and ownership disconnects could be an added pressure.
FIIs continue to increase stakes across companies –some pick-up in mid-capsThe October-December 2013 quarter saw stake increases by FIIs in three-fourths of BSE 200 companies, reflecting broad-based buying. The ‘risk-on’ rally post the currency turbulence of Q3FY2013 was further boosted by expectations of a stable government after the summer 2014 elections. This has led to increased ownership levels for a number of mid-caps.
Most sectors saw positive inflows by foreign investors During the quarter ending December 2013, all sectors except healthcare and staples saw increases in FII ownership. IT, consumer discretionary and utilities saw the highest net buying by foreign investors.
Interestingly, FIIs increased stakes in 26 industrial companies during the quarter, signalling some rotation towards domestically-oriented sectors. This trend was seen in consumer discretionary (autos) and materials as well.
Larsen & Toubro, Cummins India, Adani Ports & SEZ, Crompton Greaves and Jaiprakash Associates saw more than 1% increase in stakes by foreign investors.
In the materials space, stake increases were seen
RAJ KISHORE SHARMA
PGDM II SEM
 

Maruti Suzuki: corporate governance is the issue

 

Maruti Suzuki India Ltd’s clarifications regarding the funding structure of its proposed new venture at Gujarat is unlikely to allay investor concerns. True, Maruti will be saved of the initial capex estimated by analysts at about Rs.3,000 crore. But then, funds constraint was never a deterrent for Maruti, given its strong cash balance and cash flows from operations.

 

From a shareholder’s standpoint, the issue is one of corporate governance. The Gujarat unit will sell cars to Maruti at a so-called cost plus surplus value. Going by the Haryana plant model, Maruti’s sale price mark-up to dealers would hinge on market conditions prevailing at that time. “The release (from Maruti) does not specifically clarify regarding the quantum of surplus that Suzuki Gujarat will charge to Maruti,” a Nomura Securities Co. Ltd report says. “Although the maximum surplus that Suzuki Gujarat can charge is defined as normal margin earned by Maruti.” Poor transparency stems from the fact that the Gujarat plant is unlisted and the ability to forecast profit margins on Maruti’s sales from the Gujarat factory depends on the guidance from the company.

 

Further, the release states that future capacity expansion at Gujarat will be funded by depreciation from the unit, net amount of surplus generated from car pricing and, if need be, from equity infusion by the parent, in that order. So, incremental profit margins earned as the auto cycle turns positive will perhaps fund expansion, which in turn implies stagnation in long-term profitability. Also, will Maruti have lower control on costs as additional production will be driven from Gujarat?

 

In other words, the question is: from a minority shareholder’s perspective, will Maruti’s profit become more volatile based on Gujarat expansion? The long-term plan (post fiscal year 2017) is to expand to up to 1.5 million units a year, which is about the current size of Maruti. A Barclays Research report says that post-Gujarat, there would be a structural change in the earnings profile of the company towards higher proportion of distribution margin. Note that in fiscal year 2010, Japanese parent Suzuki Motor Corp. had raised royalty from 3% to 5% of sales.

 

In other words, the clarification issued only skirts around the structure of funding. The huge cash flows generated by Maruti are expected to be used for research and development and expansion of distribution network.

 

These issues related to Gujarat expansion and the stronghold of Suzuki post-2017 could cloud Maruti’s stock valuations. No wonder, in spite of a reasonable performance in the December quarter, the stock has hardly moved up—about 1.5% since the results were announced in end-January, compared with the BSE auto index’s 9% rise.

 

In the near term, the stock price would remain subdued given that the passenger car market does not have a positive story to sell at present. Sales growth has fallen to single digits, with contraction seen in segments like utility vehicles and exports. The February sales numbers released on Saturday saw a paltry 1.8% overall growth, propped up mainly by Maruti’s newly launched compact car.

 

RANJAY KUMAR

PGDM 1st YEAR

SOURCE-: MINT

 

26 pct: Rakesh Mohan panel

The panel calls for stake reduction within 3-5 year, WANTS a fitter organisation. (AP)

SummaryThe panel calls for stake reduction within 3-5 year, WANTS a fitter organisation.

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The National Transport Development Policy Committee (NTDPC) led by former deputy governor of the Reserve Bank of India, Rakesh Mohan, has recommended that the government reduce its stake in Air India to 26 per cent over five years.
The committee was constituted in 2010 and comprised representatives from government ministries involved in transportation and the private sector.
In its three-volume report, which was released by Prime Minister Manmohan Singh on Saturday, the committee has said it does not see any reason for the government to continue with its exclusive ownership in the national carrier.
“A plan for progressive disinvestment of the government’s stake in Air India over a period of three to five years, based on a phased scheme with defined milestone, should be achieved,” the report said.
The committee has observed that the airline would “need to be recapitalised, restructured organisationally, its working capital debt burden written off and some divisions made independent and corporatised with government retaining perhaps a 26 per cent stake”.
Air India’s future prospects remain precarious, the report said, as the airline is overmanned and unproductive with sub-par operations and has failed to invest in technology need to retain its competitiveness.
“Air India must therefore be provided the opportunity to reinvent itself with new professional management, managerial and operational autonomy, while taking over all existing productive assets.”
The government, in April 2012 approved financial support of over Rs 30,000 crore to the airline to be spread over a period of nine years till 2020-21. The national carrier has already received Rs 12,000 crore in the first two years and the government, in its interim budget, has another Rs 5,000 crore for FY15.
Air India has shown revenue increase and reduction in losses but continues to lose around Rs 10 crore a day. The airline is also trying to monetise its assets.
The recommendations assume significance since a section of the government is also talking about privatising Air India. The civil aviation minister has also said it the government should not be in the services industry and privatise Air India, which was opposed by several parliamentarians.
In other recommendations, the committee also wants
RAJ GAURAV
PGDM II SEM

Acumen to invest in low-income housing in India

Acumen has made 27 investments in India till date across sectors such as agriculture, education, energy and health. Photo: Mint

Mumbai: Acumen Fund, a New York-based not-for-profit venture fund for businesses that address poverty, is about to make its first investment in the low-income housing space in India.

“We will be investing up to $8 million (nearly Rs.50 crore) in India in 2014, of which around $2 million will be invested in the low-income housing space,” said Karuna Jain, a senior portfolio associate of Acumen Fund. “We are actively looking at housing finance companies to invest in and will close our first investments in a couple of months.”

Acumen has made 27 investments in India till date across sectors such as agriculture, education, energy and health. In 2013, the fund invested around $5 million in India.

Jain said most of the capital Acumen invests in India comes from its global corpus, but that it is now looking to raise additional funds locally.

“The challenge with low-income housing is that, if you see, most of the funds for low-income housing available right now are between the Rs.12-25 lakh bracket. We are looking to serve the customer segment which is earning a Rs.20,000 per month salary in a city and will invest in housing finance companies which will, in turn, give loans in rural areas and also to registered slums. We will invest in developers and are looking to invest in Rs.3-10 lakh projects,” said Jain.

According to a report by property consultant Jones Lang LaSalle India, the loan market for the Rs.3-10 lakh low-income housing segment is worth nearly Rs.11 trillion.

Despite this, the majority of loans disbursed by home finance companies go to middle- and high-income groups in a loan bracket above Rs.10 lakh. The key issue that stops people from availing housing loans in the Rs.3-10 lakh bracket, the report said, is the perceived high risk of the borrowers—that is fears of uneven repayments and loans turning into non-performing assets.

There is currently a shortfall of 26 million low-cost housing units in India, a figure that goes up every year, said Subhankar Mitra, head, strategic consulting (west), Jones Lang LaSalle India.

“The challenge area is that there are not many players who provide loans to the sub-Rs.10 lakh category. A few public sector banks who have been instructed by RBI (Reserve Bank of India) to do so, and others like Housing Development and Infrastructure Ltd, Tata Capital and microfinance companies like Micro Housing Finance Corp. Ltd are the ones giving such loans,” said Mitra.

PRASHANT SHARMA

PGDM-IIsem

China’s tryst with hot money

The PBOC’s decision could be an attempt to chase speculative capital away from the country 

China’s drive against speculative capital poses the risk of sending Chinese asset prices crashing. Photo: Bloomberg

 

The sharp decline of the Chinese Yuan over the past few days has drawn much speculation about its potential impact on the world economy. While the Chinese central bank has not confirmed its participation in the Yuan’s move, most have taken intervention by the People’s Bank of China (PBOC) as a given. Naturally, the famous Chinese carry trade—speculators borrowing cheap in the US and lending at higher rates in China—has come under the scanner.

Despite the US taper, the pure cross-border interest rate arbitrage opportunity may still exist. But with China’s recent actions, doubts over the sustenance of the steady appreciation of the Yuan—which has benefited carry traders for years—have crept up. Or, in other words, China wants to obliterate the interest arbitrage opportunity by the means of imposing offsetting currency losses.

The PBOC’s decision could be an attempt to chase speculative capital away from the country by changing expectations on the Yuan’s future value. With loose monetary policy in the US, a massive amount of liquidity has flown to the Chinese economy and added to the massive credit boom—something that has had as much to do with China’s own liquidity easing program. However, China’s drive against speculative capital poses the risk of sending Chinese asset prices crashing.

In 2011, amidst concerns of a Chinese landing, the economy witnessed hot money outflow (worth at least $128 billion, while some estimates provide a much higher figure) that outsized the capital exit following the fall of Lehman brothers.

Since this may not be the kind of “soft landing” the Chinese central bank has in mind, the PBOC is likely to resort to injecting more liquidity into the economy when asset prices drop. Note that despite talks of reforms and weaning the economy off cheap credit—which, by the way, has trumped the scale of liquidity expansion even in the United States and Japan—last year, China continued to inject liquidity as domestic rates witnessed sharp hikes.

Stepping back to allow the Yuan to continue its trend of appreciation and allowing capital inflows is an option. But the Chinese probably understand that this will only provide temporary relief—since capital flows will reverse anyway as rates in the US start to rise soon. Flushing more Yuan into the hands of foreigners to boost exports, on the other hand, is a much more appealing option for China given the control it provides the PBOC in both chasing away speculative capital in an “orderly” manner and managing export demand.

But given that long-term stability depends on letting the market decide the value of the Yuan, the latter may be a counterproductive objective to pursue. That is, since in its desire to fend off speculative capital through steady depreciation of the Yuan, China would have returned to the path of export promotion. Mal-investments driven by such currency manipulations, in turn, go bust eventually when currency values gyrate back to fundamentals. The catastrophic end of famous export-driven Asian growth episode should warn China’s leaders.

It is time the Chinese high command understands that beggar-thy-neighbour policies can offer temporary relief from speculative capital flows, but only at the risk of creating equal troubles elsewhere.

 

NITESH KUMAR SINGH

PGDM 2SEM

SOURCE-- LIVEMINT

 

 

FM can easily meet 4.6% deficit target: Economists

Higher revenue inflows towards the end of 2013-14 will help the government meet the revised fiscal deficit target of 4.6 per cent despite its having overshot the full-year borrowing target two months before the end of the fiscal, say economists.

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Fiscal deficit crossed the full-year target at the end of January by 1.6 per cent and stood at Rs. 5.32 lakh crore or 101.6 per cent of the estimate of Rs. 5.24 lakh crore, which is 4.6 per cent of GDP.
Finance minister P Chidambaram's Interim Budget revised down the fiscal deficit target at 4.6 per cent below the redline of 4.8 per cent or Rs. 5.42 lakh crore for the fiscal.

Economists believe that inflows from advance tax, 2G spectrum auction fees, dividend and proceeds from disinvestment would help.
"Revenue inflows coming from the spectrum auctions, divestment, dividends and advance tax payment will help in meeting the 4.6-per cent deficit target," said Axis Bank chief economist Saugata Bhattacharya.
Care Rating chief economist Madan Sabnavis also said: "There are lot of revenues which have not come in. March 15 is the date of fourth quarter advance tax payment. Also, of the spectrum revenue, one-third will come in by March-end."     
Corporates will make the last payout of advance tax for this fiscal by March 15, which, because of the last quarter, is the biggest chunk normally.
In the recently concluded spectrum auction in which eight telcos participated, the government received Rs. 61,162 crore.
Of it, a minimum of Rs. 18,296.36 crore will come to the government in the current financial year, ending March 31.
As per the Interim Budget, public sector enterprises, including banks, are expected to contribute Rs. 88,188 crore in the form of dividend and profit to the government this fiscal.
In January, Coal India was asked to declare an interim dividend of Rs. 29 per share amounting to Rs. 18,317 crore, or a record 290 per cent, for 2013-14. Also, Three CIL arms would chip in with close to Rs. 3,000 crore in special dividends.
                                                                                       NAME RAHUL SINGH 2
                                                                                               PGDM 2 SEM

 

Sensex slips 60 points ahead of manufacturing PMI

 

 

Mumbai: The 30-share bellwether BSE Sensex on Monday was trading 60 points lower ahead of manufacturing purchasing managers’ index (PMI) data to be released later in the day.

At 9.25am, the Sensex was trading down 0.3%, or 62.32 points, at 21,057.8 points, while the National Stock Exchange’s (NSE’s) broader 50-share Nifty was trading lower 0.4%, or 25.2 points, at 6,251.75 points.

The gainers included Sun Pharmaceuticals Industries Ltd that rose 1.52% to Rs.652.5 and Bharat Heavy Electricals Ltd (Bhel) that jumped 1.08% to Rs.169.

Among the losers, Sesa Sterlite Ltd shares lost 1.46% to Rs.175, while Dr Reddy’s Laboratories Ltd fell 0.97% to Rs.2,873.50.

The BSE healthcare index rose 0.35% to be the biggest gainer, while the realty index fell 0.35%, the most among sectoral indices.

Astrazeneca Pharma India Ltd was trading at Rs.1,110.90 on BSE, up 20% from its previous close after it reported that board will consider delisting proposal on 5 March.

Shares of Jaiprakash Power Ventures Ltd was trading at Rs.15.45 on BSE, down 6.76%, while Jaiprakash Associates rose 3.46% to Rs.41.9 after it reported that a consortium led by Abu Dhabi National Energy Co. PJSC has agreed to buy two operational hydro-power plants from the debt-laden Jaypee Group by investing Rs.10,320 crore.

India’s economy expanded 4.7% in the quarter that ended in December against 4.8% in the September quarter.

The HSBC manufacturing PMI data for India, compiled by Markit, will out at 10.30am for February.

Over the weekend, US markets closed marginally higher on speculation that the Federal Reserve will support the economy to offset concern over the escalating conflict in Ukraine. The S&P 500 gained 0.28% to 1,859.45. The Dow closed up 0.30%, while the Nasdaq down 0.25%.

Increasing political tensions in Ukraine are weighing on Asian stocks. Equities fell in morning trade as anxious investors cut their exposure to riskier assets in favour of safe haven bets such as developed countries’ currencies. Japan’s Nikkei Stock Average down 1.75%, Hong Kong’s Hang Seng was down 0.75%, while China’s Shanghai Composite was up 0.76%

md. aquil alam
pgdm 2nd semester
source.live mint