Friday, 14 September, 2007

Weekly Newsletter

Industry growth slips...but Govt says don't worry

A high base effect, possible inventory issues, a stronger rupee and high interest rates pulled down the expansion in industrial production in July, the Government said. The Index of Industrial Production (IIP) stood at 252.2 in July, which is up 7.1% compared to the same month last year, when the growth in industrial output was 13.2%. Meanwhile, the Government revised down the June growth to 9% from the preliminary estimate of 9.8%. As a result of the sharp deceleration in July, the cumulative industrial production growth during April-July 2007-08 too fell to 9.6% from 11.1% in the corresponding period of last year. The manufacturing sector grew by 7.2% in July compared to 14.3% in the same month last year. Mining sector growth declined to 4.9% from 5.1% in July 2006 and the electricity sector expanded by 7.5% versus 8.9% a year ago. Basic Goods, Capital Goods and Intermediate Goods grew by 9%, 12.9% and 4.7%, respectively. The Consumer Durable and Consumer Non-durable recorded growth of (-) 3.2% and 8.4%, respectively, with the overall growth in Consumer Goods being 5.3%.

But, the Government sought to allay concerns over a possible slowdown in the economy. Finance Minister P. Chidambaram and Commerce Minister Kamal Nath took pains to explain that the fall in July industrial production was just an aberration, and that things should stark looking up due to the onset of the festival season. "There is no evidence of slowdown in investment. There is evidence of slowdown in production in some sectors," Chidambaram told reporters in New Delhi on the slackening of industrial output in July. "Except for automobiles there is no evidence of production cut back either," he said. Separately, Kamal Nath said the slowdown in industrial growth in July was not a matter of great concern and that the Government remains optimistic that it will achieve manufacturing expansion of 12% this fiscal. Chidambaram expressed the hope that there was reasonable expectation that demand will pick up during the festival season that is already underway and runs through the end of the year. "No conclusions can be drawn from one month's figure, positive or negative," Chidambaram said.

Northern Rock sends Europe into a tizzy

European equity markets slid on Sept. 14, after a British home lender said the Bank of England (BOE) agreed to provide it emergency funds to ease a severe liquidity squeeze, linked to the subprime contagion in the US. Shares of UK's Northern Rock shares tumbled a record 25% and dragged down other financial companies with it after saying that global credit markets have not recovered and there continues to be a severe squeeze on liquidity. It also warned the turmoil will have a significant impact on profit as margins are squeezed and lending is reduced. Northern Rock is the UK's fifth-largest mortgage lender in terms of volume, though it only has around 70 branches, and is headquartered in Gosforth, in the north of England.

The Dow Jones Stoxx 600 Index lost 1.8% to 365.47 at 1:32 p.m. in London, as more than 10 stocks fell for each one that rose. The index is down 8.6% since reaching a 6 1/2-year high on June 1 on concern turmoil in the credit markets will spill over to the broader economy, eroding earnings. National benchmarks fell in all of the 18 western European markets except for Greece. The UK's FTSE 100 decreased 2%. France's CAC 40 slid 1.1%, and Germany's DAX lost 1%. Stocks extended declines after China raised interest rates for the fifth time since March to curb the fastest inflation since 1996 and cool speculation in stocks and real estate. A report showing US retail sales rose less than economists estimated last month also weighed on shares.

Flat close on Dalal Street

Just when things were looking bright for the bulls and they were inching closer towards new all-time highs, the market got another global jolt. Key indices reversed their early gains amid fresh concerns over a deepening global credit crisis. Stocks across Europe nose dived after Northern Rock Plc of the UK said the Bank of England agreed to provide emergency funds to ease a severe liquidity squeeze. The tremors of that news were felt on Dalal Street as well. Banking stocks suffered the most as concerns over subprime issue came back to haunt the bulls again. But, on the week, Metal, Real Estate, Cement, Small-Cap and Oil & Gas shares were among the major gainers. IT and Pharma stocks were on the losing side.

Despite the sudden jitters on the last trading day of the week, the market consolidated over the week ahead of the outcome of the Fed policy meeting on September 18. The Nifty managed to add mere 9 points or 0.2% to close at 4518 and the Sensex added just 14 points or 0.01% to finish at 15,604. Among the index heavyweights, HDFC, RIL, REL, Tata Power and Ambuja Cements were the big gainers.

Power stocks had an electrifying week. Suzlon jumped by over 7% to Rs1372, REL surged 3.8% to Rs882 and Tata power rose 3.5% to Rs743. Strong response to the Power Grid IPO was one of the factors. The issue received record response, and was subscribed 65 times. The company fixed an issue price of Rs52 per share.

Weakness continued in IT stocks amid concerns about wage inflation and rupee's persistent appreciation. Wipro led the fall. The scrip was the top loser in the Sensex, falling by over 5% to Rs450. TCS lost by over 5% to Rs1022, Satyam shed 4.2% to Rs430 and Infosys declined 4.1.% to Rs1830.

Firm metal prices on the LME boosted metal stocks on Dalal Street. Tata Steel rose over 2.2% to Rs935. Sterlite Industries was an outperformer. The scrip surged by over 5.5% to Rs645. SAIL gained 2% to Rs171 and Bhusan Steel added 2.3% to Rs935.

Oil & Gas stocks were also in demand during the week. RPL surged by over 6.5% to Rs130. MRPL advanced 3.8% to Rs48. Reliance Industries recorded smart gains adding 3.6% close at Rs2034 after announcing an acquisition in Malaysia. The Government's decision to approve its gas pricing formula with a minor change also had a positive impact on the stock.

Fertilizer sector remained abuzz, after the Ministry of Chemicals & Fertilizers pointed out four different options for increasing availability of fertilizer and attracting investment in the sector. Nagarjuna Fertilizer rose over 3.5% to Rs44.

Market awaits Bernanke & Co's move

Bulls would certainly hope that the rally continues for the coming week, as FIIs have resumed their buying spree and the main indices are very close to their new peaks. However, global volatility could spoil the party for the bulls as the credit crunch continues to haunt world equity markets, with bad news emerging every now and again. Also, there is a likelihood of some profit booking as the main indices have been on the rise consistently over the past four weeks. Investors could also take it a bit easy and wait for the next set of results before taking a call on the market. The biggest event will be Tuesday's Fed meeting, where the US central bank is expected to announce a big cut in rates to sooth a jittery market and ward off the threat of a recession. What the Fed's policy panel says about the US economy and the subprime crisis will be very crucial as well. Though the medium to long-term outlook is bullish, in the near term the market is likely to be choppy and range bound. Notwithstanding the sharp pullback from last month's fall, one needs to be cautious at every rise.

EGoM approves RIL gas pricing

After dragging its feet over the issue for several weeks, the Government approved the gas pricing formula and the price-discovery process of Reliance Industries Ltd. (RIL) with only minor changes. The Empowered Group of Ministers (eGoM), which met for a third time, lowered the proposed price of the gas at Kakinada to US $4.20 per unit from US $4.33. The price at which RIL will sell its gas from the KG basin to consumers will be valid for five years, after which it will be open for revision. RIL will not be required to call for fresh bids. The EGoM said the approval of RIL's gas price will not affect the outcome of the legal cases NTPC and Anil Ambani's RNRL have filed for fuel supplies against the Mukesh Ambani company.

Inflation falls to two-year low

India's inflation, based on the Wholesale Price Index (WPI), declined to its lowest level in two years in the week ended September 1 due to cheaper mineral and energy prices, the Government said. The wholesale inflation was 3.52% in the first week of September, compared with 3.79% in the previous week, the Ministry of Commerce & Industry said today. Analysts forecast ranged between 3.2% to 3.3%. The annual inflation rate was at 5.34% during the corresponding week of the previous year. The WPI rose 0.4% to 214.4 from 213.6. The index for Primary Articles climbed 1.3% to 227.5 from 224.5, while the index for Fuel & Power fell 0.1% to 321.9 from 322.1. The index for Manufactured Products rose 0.2% to 185.9 from 185.6. Meanwhile, the Government revised the inflation rate for the week ended July 7 to 4.61% from 4.27%.

Indian banks not affected by subprime woes: RBI

The ongoing crisis in the US subprime mortgages won't hurt Indian banks as their exposure to instruments such as Collateralised Debt Obligations (CDOs) is very limited, the Reserve Bank of India (RBI) deputy governor V. Leeladhar said. He also said that Indian banks were on course to meet the international Basel II framework that aims to match capital reserve requirements to the risks faced by banks. To a query about the central bank's discussion paper on banks forming holding companies for their subsidiaries in life insurance and asset management, Leeladhar said the RBI regulator will soon finalise guidelines for the same. "The responses have started coming. The moment the deadline is over, we would consolidate all responses and wherever necessary we would try to modify it," the RBI Deputy Governor said. However, he did not give any timeline for the release of final guidelines.

August car sales up 18% yoy

Car sales in the domestic market rose by 18% last month, fueled by new launches by the likes of Maruti, Mahindra-Renault and General Motors and discounts. But, bike sales continued their downward spiral, falling 11% from a year earlier. Passenger car sales increased to 98,893 units in August from 83,864 in the same month a year earlier, the Society of Indian Automobile Manufacturers (SIAM) said. But, motorcycle sales fell to 418,702 units from 470,955 in August last year, according to the SIAM data. Sales of commercial vehicles stood at 36,409 units in August, up 3.2% from 35,268 in the corresponding month a year earlier.

GSM operators add 5.95mn new users in August

India's GSM-based telecom service providers added 5.95mn new connections subscribers last month, taking their total customer base in the country to 147.7mn, data released by the Cellular Operators' Association of India (COAI) showed. Bharti Airtel added 2.05mn new connections in August, taking its total customer base to 46.8mn, the COAI data reveals. Vodafone Essar added 1.67mn new users to take its subscriber base of 34.1mn. BSNL added 725,392 new subscribers in August, taking its user base to 29.7mn. Idea Cellular gained 866,629 new users in August, lifting its user base to 17.9mn. Reliance Telecom did not announce its August numbers. Aircel, which is 74% owned by Malaysia's Maxis, 458,408 new users and MTNL saw its base rise by 60,117 new users, and Spice Communication added 107,234 new subscribers.

Power Grid issue subscribed 65 times

The Initial Public Offering (IPO) of Power Grid Corporation of India Ltd. (PGCIL), was subscribed 65 times, spurred by strong response from the institutions. India's biggest power transmission company received bids worth a whopping Rs1.9 trillion as against the issue size of Rs30bn. The price band of the 100% book built issue was fixed at Rs44-52 per share. PGCIL offered to sell 382.6mn new shares while the Government offered to sell 191.3mn shares. The company plans to reserve 13.98mn shares for eligible employees and the net offer to the public will be 559.9mn shares. The shares on offer will account for 13.6% of PGCIL's fully diluted, post-issue capital. The Government's stake will reduce to 86.3% from 100% now. PGCIL is raising funds to part-finance its capital expenditure. The country's transmission sector requires an estimated investment of Rs700bn during the 11th plan.

Govt permits Jet Airways to fly on Gulf routes

The Government allowed Jet Airways India Ltd. to fly on the India-Middle East routes from January. The move ends the monopoly of the public sector airlines on the crucial sector. The decision was conveyed to the Directorate General of Civil Aviation (DGCA). Starting January 1, Jet Airways will be allowed to operate flights to Kuwait, Oman, Qatar and Bahrain, the Civil Aviation Ministry said. The airline's request to fly to Dubai and Abu Dhabi is being considered, it said. Jet Airways had applied for traffic rights on Gulf routes on July 18. At present, Indian carriers' total entitlement on the Gulf routes is 85,481 seats per week. But, the utilisation by Indian carriers of the available Gulf routes is 49,348 seats per week only.

Cairn India gets Govt nod for pipeline

Cairn India Ltd. said the Government had approved its proposal to build a US$700mn pipeline for transporting crude from its Mangala oil field in Rajasthan, to the Gujarat coast. The Indian subsidiary of the UK-based oil & gas producer got permission to acquire the land for laying the 582-km pipeline from Barmer to Salaya. The pipeline will take minimum 18 months to complete. While MRPL, a subsidiary of ONGC, has agreed to take 1.2 million tons of crude, the balance will be shipped from a Gujarat port to refiners on east and west coasts. Cairn India plans to start production from Rajasthan fields by first half of 2009. The production can go up to 150,000 barrels per day. ONGC has agreed to bear 30% of the cost. Cairn India will fund the balance.

Lipitor case...Ranbaxy scores partial win in Canada

Ranbaxy Laboratories Ltd. said a Canadian court had partially ruled in its favour in connection with the patent dispute over Atorvastatin, the chemical name of Pfizer's blockbuster brand Lipitor. The Federal Court of Canada ruled that Pfizer's patent covering a crystalline form of Atorvastatin, the active ingredient in Lipitor, would be infringed by Ranbaxy's process for making the proposed generic Atorvastatin product. The Toronto-based court accepted Pfizer's application, seeking to prevent Ranbaxy from launching its generic version of Atorvastatin until the expiration of the patent (Canadian Patent No. 2,220,018) in July 2016. At the same time, the Federal Court of Canada dismissed Pfizer's application to deny issuance of a Notice of Compliance (NoC) as regards a second patent covering a process for making amorphous Atorvastatin (Canadian Patent No. 2,220,455), which also expires in July 2016. Ranbaxy said it will appeal this decision and remains confident in its position.

Sun Pharma receives USFDA approval for Protonix

Sun Pharmaceutical Industries Ltd. announced that USFDA has granted final approval for the company’s Abbreviated New Drug Application (ANDA) to market its generic version of Wyeth’s Protonix, pantoprazole tablets. The generic drug includes two strengths: 20 mg (base) and 40 mg (base). These strengths of Protonix have annual sales of about US$2.3bn. Sun Pharma, being one of the first-to-file an ANDA for generic Protonix with a para IV certification, shares a 180-day marketing exclusivity. Separately, US-based Sepracor Inc and the University of Massachusetts filed a patent infringement suit with the US district court of New Jersey against Sun Pharma, to prevent the Indian firm from selling a generic version of Sepracor's drug Desloratadine, branded Clarinex. The drug is used to treat the symptoms of allergies such as sneezing, watery eyes, and runny nose, and had US sales of US $325mn in 2006.

BHEL forms JV with NTPC for EPC contracts

BHEL and NTPC signed an MoU to form a joint venture for carrying out engineering, procurement and construction (EPC) activities in the power sector. The co-operation between the two PSUs comes at a time when the government is contemplating to set up a second company for manufacturing high-capacity power equipment, promoted by NTPC. As per the MoU, both NTPC and BHEL will have 50:50 equity participation in the new venture. The exact capitalisation of the company is still to be worked out. It has been decided that the post of Chairman and MD will be rotated between the two companies. The proposed joint venture would take up EPC contracts for power projects, both in domestic and overseas market.

RIL sets tone on deal street

Reliance Industries Ltd. (RIL) said it would acquire Hualon Corporation (M) Sdn Bhd of Malaysia for US$250mn. Hualon is a leading polyester producer in Malaysia with a polyester (fibre, yarn and resin) manufacturing capacity of half a million tons per annum along with downstream textile manufacturing capabilities spread over two locations in Malaysia namely, Nilai and Malacca. It is one of the largest exporters in Malaysia. This will help RIL consolidate its position further as the World’s largest polyester manufacturer with 2.5mn tons capacity, 25% increase from the current capacity and increase in revenue by around US$1bn. This acquisition will bestow RIL with more than 7% global market share in polyester fibre and yarn.

Mahindra & Mahindra Ltd. (M&M) has reportedly decided to pull out of the race for buying Ford's troubled British luxury marquees - Jaguar and Rover. At the same time, a financial daily reports that Tata Motors is very much interested in bidding for the priced automobile brands, and is believed to be among the three main contenders. The other two suitors in the fray are private equity funds Texas Pacific Group (TPG) and Ripplewood. Ford is likely to call for final bids for Jaguar and Rover by the middle of October and could wrap up the deal by the end of the year.

Ess Dee Aluminium Ltd. has joined the race for acquiring Canadian aluminium giant Alcan's packaging business, Chairman and Managing Director Sudip Dutta said. "We have is really in the first stage ... it will take another six to eight months," Dutta told a business news channel. Earlier, a business daily reported that Ess Dee, which makes packaging material for pharmaceutical companies, was pitted against Indian rival Essel Propack and Australia's Amcore. The deal size is estimated to be worth around US$1bn or 1.2 times the sales of the target.

BPCL said its wholly-owned subsidiary Bharat PetroResources Ltd. and Videocon Industries Ltd. will acquire a stake in EnCana Brasil PetrĂ³leo Limitada, Brazil for US$165mn in cash. The sale has an effective date of January 1 and is subject to normal closing conditions, regulatory approvals, pre-emptive rights associated with certain assets. The deal is expected to close in the first quarter of 2008. As per the deal, the BPCL-Videocon combine will get interests in 10 deep-water offshore exploration blocks in four concessions in Brazil. Brazilian oil companies Petrobras and Anadarco also have a stake in EnCana Brasil and Petrobras is the operator in seven of the 10 blocks.

Bajaj Auto launches new 125 cc bike

Christened XCD 125 DTS-Si (Pronounced Exceed 125 DTS-Si) Bajaj Auto launched its much-awaited motorbike with the all new ‘Digital Twin Spark - Swirl induction’ (DTS-Si) engine. Designed and developed completely by the company's in-house R&D team, Bajaj Auto aims to upgrade 100cc customers with this revolutionary product. Bajaj Auto claims that the XCD 125 DTS-Si offers an unprecedented combination of 150cc features, 125cc performance and 100 cc mileage. The XCD comes in four colors and has an attractive ex-showroom price of Rs41,000 (Pune).

Strong debut for Motilal Oswal

Motilal Oswal Financial Services Ltd. had a strong debut on the bourses on Sept. 11, with the stock rising as much as 21% amid optimism that a booming stock market will result in higher earnings for one of India's top brokerages. The stock opened at Rs999 on the Bombay Stock Exchange (BSE) as against the issue price of Rs825. It finished the week at Rs969.6 after touching a low of Rs913. Motilal Oswal's IPO was for 2,982,710 shares and was subscribed 27.41 times overall. The QIB portion was subscribed 43.9 times, the HNI portion 10.26 times, the Retail category 4.44 times and the Employee category 1.75 times. Motilal Oswal plans to utilise the issue proceeds to improve its competitive position, support growth plans through long-term working capital, enhanced financing facility for customers, additional office space and technology enhancement.

Unitech up on news of entry in Nifty

Unitech shares climbed after the National Stock Exchange (NSE) decided to include the real estate major in its benchmark index, the S&P CNX Nifty. The Delhi-based Unitech will replace IPCL, which will cease to exist due to the merger with its parent company Reliance Industries. This will be the first time in the history of Indian stock market that a real estate player will be part of one of the two main stock indexes. On the S&P CNX 500 index, IPCL will be replaced by Mindtree Consulting. The changes will come into effect from October 5. Unitech is the second biggest real estate company in terms of market value after DLF, which has become the numero uno after its listing this year. Unitech would rank 17th in the Nifty in terms of market cap.

Japanese PM Shinzo Abe steps down

Japanese Prime Minister Shinzo Abe offered to step down from his post. According to Japanese media reports, Abe told executives from his ruling Liberal Democratic Party that he wanted to resign. Abe had been weighing the decision after approval ratings for his cabinet dropped below 30% following the party's defeat in upper house election in late July, the Nikkei News reported. Since he came to power in September last year, Abe's administration has been hit by a string of financial scandals leading to the resignations of four ministers and suicide by one minister. His government also came under fire when the extent of the mess and confusion in the public pension system came to light. The ruling coalition also faces a tough time passing a bill to extend the anti-terror special measures law.

Oil tops $80 despite OPEC raising output

Crude oil in New York crossed the US$80 per barrel mark amid concerns that the small increase in output by OPEC may not be sufficient to meet the peak demand in the fourth quarter of the year. The record high was also caused by a US Energy Department report that crude stockpiles saw the year's biggest decline last week. OPEC's decision to pump more oil failed to allay speculation of a shortage of crude next quarter, contributing to the gain. However, it fell from a record in New York after Tropical Depression Humberto weakened from a hurricane and passed over Texas without damaging oil rigs and refineries. Crude oil for October delivery fell as much as 64 cents, or 0.8%, to US$79.45 on the New York Mercantile Exchange. It was at US$79.64 at 1:25 p.m. in London on Sept. 14. Brent crude oil for November settlement was trading at US$76.75 a barrel, down 37 cents, on London's ICE Futures exchange. On Sept. 13, oil in New York touched US$80.20, the highest intraday price ever, and for the first time closed above US$80 a barrel at $80.09. Prices are up 26% from a year ago.

Dollar slips to record low vs euro

The dollar declined to an all-time low of US$1.3927 per euro on Sept. 13 on growing expectations that the Federal Reserve will start cutting interest rates next week to aid the weakening US economy. The dollar index, which tracks the US currency's performance against a basket of major currencies, plumbed the 15-year low of 79.302. A government report showing less than expected rise in retail sales last month added to the weakness. Signs of a slowdown in consumption added to fear that credit market turmoil and a housing slump will lead the world's largest economy into a recession. But, the dollar saw some safe-haven flows on Sept. 14 after UK mortgage lender Northern Rock said it needs to tap the Bank of England for emergency funding as the credit crunch left it struggling to raise financing. The US currency has lost 4.9% against the euro this year as investors bet slowing growth will push the Fed to trim borrowing costs from 5.25% while the European Central Bank may need to raise its 4% benchmark further to tame inflation.

China ups rates to reign in inflation, liquidity

With inflation at 10-year high and fixed investment showing no sign of moderation, China raised interest rates for the fifth time this year to curb inflation expectation and tighten control over excessive liquidity. The benchmark one-year lending rate will increase to a nine-year high of 7.29% from 7.02%, starting tomorrow, the People's Bank of China said on its Web site. The one-year deposit rate will rise to 3.87% from 3.6%. The announcement was less than a month after the previous rate increase. China raised the reserve requirement ratio for a seventh time this year on Sep. 6. The latest interest rate hike was more or less expected after consumer price index (CPI) in August rose to an 11-year-high of 6.5%, leading to a 4% fall in stocks on Sept. 11, the largest daily drop since July 5. China's money supply remains too high despite a slowdown of M2 in August. During the first eight months, China's new renminbi-dominated loans reached 3.08 trillion yuan, nearly last year's total, pushing up urban fixed assets investment by 26.7%.

Cadbury turns down bid for drinks unit

Britain's Cadbury Schweppes Plc rejected a private equity bid for its North American soft drinks unit due to the financing of the offer rather than the overall valuation, industry sources said. The world's largest confectionery group turned down the offer of between 6.4bn and 6.9bn pounds (US$13-14bn) from the Blackstone, Kohlberg Kravis Roberts and Lion Capital consortium last week as it did not like the terms, the Financial Times said. Cadbury executives objected to the terms, including a proposal under which the London-based confectioner would have financed part of the sale, the FT said. Cadbury said in March it would separate its Dr Pepper and 7UP unit. Meanwhile, reports said KKR may delay the sale of loans to finance the US $26bn takeover of First Data Corp. until next week after failing to agree on terms with bankers, people close to the negotiations said.