Tata denies using strong words on PM and Govt
Mumbai, Dec 8:
Tata Sons on Saturday denied that group Chairman Ratan Tata has used words such as "venal" business environment or accused the government of "inaction" in media interviews.
"Tata Sons clarifies that in Ratan N Tata's interview with (a leading British financial) daily, he spoke about coherence in implementation of government policy rather than "lashes into the PM", "rapping India", "warning government of inaction" or "venal business environment", as has been reported in the daily and other media," said a statement from Tata Sons.
"These are terms used by the publications and not by Tata in any manner," it said.
"Tata Sons is surprised that reputed media entities have sensationalised the observations, without taking into cognisance the tone, tenor and context of the interview," the statement said.
Where is the rupee headed?
We track the five fundamental drivers of the rupee and how they have been moving.
The rupee did a merry jig in 2012, causing a great deal of trouble to companies, regulators and investors. It appreciated to 48.6 against the dollar at the beginning of the year and then went on to its life-time low at 57.3 only to surge towards 51 again by October.
However, the trajectory of the rupee is downward against the dollar since July 2011 with the currency down 24 per cent since then.
The cause for this weakness appears mainly domestic because rupee weakness is not just limited to the exchange rate against the dollar.
The Indian currency is down 22 and 25 per cent against the Japanese yen and British pound, respectively, since July 2011. Even against the beleaguered euro, rupee has declined 12 per cent. The rupee also recorded its life-time low against all the above currencies in 2012.
Here are five fundamental drivers of the rupee and how they have been moving.
Dealing with deficits
The Indian economy has been sporting a current account deficit regularly since mid-2005 and this is one of the primary reasons the rupee has been on a secular downtrend.
This was considered acceptable, given the expansionary phase of the economy. But the slowdown in exports in recent times belies this argument.
Exports of goods that were growing around 40 per cent in recent years have decelerated since the last quarter of 2011. The monthly change fluctuated between -15 and 5 per cent between November 2011 and October 2012.
This has, in turn, impacted growth in merchandise imports too, with monthly average change at negative 2 per cent since this April against an average increase of 32 per cent in 2011.
Ongoing troubles in the Euro Zone have had a negative impact, with exports to this region recording a 15.8 per cent decline in the June 2012 quarter.
Exports to developing nations also declined. Higher contraction in imports has, however, helped reduce the trade deficit by 5 per cent in the June quarter compared with year ago quarter.
The current account deficit also reduced slightly in the June quarter helped by the lower trade deficit and higher remittances from overseas Indians. But sluggishness in services exports that grew at just 2 per cent in June quarter against 27 per cent growth a year ago is a point of concern.
The European Central Bank expects the Euro Zone economy to either shrink by 0.9 per cent or post feeble growth of 0.3 per cent in 2013.
With the IMF revising its April 2012 forecast for advanced economies down, from 2 to 1.5 per cent for 2013 and from 6 to 5.6 per cent for emerging economies, exports are not expected to pick up soon. But subdued commodity prices and crude remaining in a range between $80 and $110 can keep the current account deficit under check next calendar.
Flows to forge
Foreign direct investment inflows have not been strong this fiscal. Between April and September 2012, the country received $12.8 billion of inflows. This is down 44 per cent from the $22.4 billion received in the same period last fiscal year.
Policy paralysis and lack of clarity on taxing cross-border transactions took their toll on these flows. That said, FII flows have been robust in 2012 with almost $20 billion invested in equity and $6 billion in debt, according to the Securities and Exchange Board of India (SEBI).
This compares favourably with almost nil net inflows into equity and $5 billion in debt in calendar 2011.
Postponing of General Anti-Avoidance Rules (GAAR) has been received well by overseas investors.
Lack of alternate avenues for investment has also made many global funds revise their rating for India higher.
With the change in Finance Minister and the reform rush seen in October and November this year, FDI as well as FII flows could pick up in the months ahead.
Depleting reserves
Forex reserve balance has been depleting since the last quarter of 2011 as the trade balance turned negative. The reserves hit the peak at $320 billion last October and have been moving lower since then.
Towards the end of October 2012, forex reserves were down 7 per cent from this peak at $295 billion.
Import cover provided by forex reserves had declined to less than seven months by October this year. Proportion of forex reserves to external debt is also at the lowest since 2003-04 at 83 per cent.
Reduction in forex reserves limits the Central Bank's ability to intervene in the foreign exchange market to control rupee volatility.
While the RBI sold $7.8 billion and $7.3 billion in forex market in December 2011 and January 2012 it could net-sell only $2 billion between April and September this year, reflecting the reduced ammunition available.
External debt
Towards the end of June 2012, external debt outstanding was $349 billion, of which external commercial borrowings accounted for $133 billion or 40 per cent and NRI deposits made up 17 per cent. Sovereign debt and short-term credit made up the rest.
The point of concern is that short-term debt based on time left for repayment accounted for 43 per cent of the total debt. Forex reserves cover on short-term debt is also low at 52 per cent.
If there is a sovereign default in the Euro Zone with a liquidity crunch akin to that witnessed in 2008, the rupee could come under considerable pressure as refinancing these debts with short-term maturities gets more difficult.
Another matter for concern is that trade related credit (up to one year) spiked 17 per cent towards end of June 2012 to $70 billion.
True value
High inflation is another negative for the currency as it erodes its intrinsic value. The wholesale price inflation, which captures price rise at producer level, is growing between 7.5 and 8 per cent since the beginning of this calendar.
Inflation at the consumer level, as captured by the CPI, is growing at 10 per cent.
With the RBI projecting headline inflation to remain at current levels till March 2013, this factor might not trouble the rupee too much in the months ahead.
So, is the rupee over or undervalued now? One way to arrive at this is to look at the Real Effective Exchange Rate calculated by the Reserve Bank of India.
REER is based on rupee exchange rate against a basket of currencies of India's trading partners adjusted for inflation.
While the RBI publishes REER for 36 as well as 6 countries, it is the latter that is tracked closely by it.
The Central Bank was known to keep the 6 country REER close to 100 to maintain export competitiveness of the currency.
The 6-currency REER has depreciated only 9 per cent since July 2011, against 24 per cent decline in the USD-INR spot rate.
The Nominal Effective Exchange Rate (REER not adjusted for inflation) has declined 14 per cent in this period, indicating that domestic inflation of our trading partners kept rupee more competitive than the rupee exchange rate conveys.
Towards the end of October, 6-country REER was at 93, implying that the spot rate (53.8 then) was undervalued and there was room for the currency to appreciate above 53.8.
The Central Bank also has to reckon with a host of currency speculators in the foreign exchange market who can cause the rupee to swing away from its true value.
It is not just the domestic exchange traded currency futures but also the off-shore non-deliverable forwards market that provides an avenue for speculators to influence currency prices.
To sum up, slowdown in exports and increasing proportion of short-term debt could maintain pressure on rupee. But FDI and FII flows could be good with the government signalling its intent to push forward with economic reforms.
Though growing short-term external debt is a concern, Indian companies have not had too much trouble in refinancing this debt in calendar 2011.
Moderating inflation with lower commodity prices could keep the rupee competitive setting up the range between 50 and 58 over the next 12 months.
Zee editors sent to 2-day police custody
Zee Group chairman Subhash Chandra and his son Punit Goenka arrive at crime branch office of police for questioning in connection with the alleged Rs. 100 crore extortion bid by two Zee editors.
New Delhi, Dec 8:
Two Zee editors were today remanded back in two-day police custody by a Delhi court to enable the investigators to confront them with Zee group head Subhash Chandra and his son in a case of alleged extortion bid of Rs 100 crore from the Congress MP Naveen Jindal's company.
"Two days police custody is granted," Metropolitan Magistrate Ankit Singla ordered.
Chandra and his son Puneet Goenka, MD of Zee Entertainment Enterprises Ltd today joined the investigation following the notice issued by the Delhi Police.
They joined the probe after a court on December 6 had granted them interim protection from arrest till December 14.
The Delhi Police had moved the application before the court seeking police remand of the arrested Zee News head Sudhir Chaudhary and Zee Business Editor Samir Ahluwalia, whose bail plea were rejected.
They were arrested on November 27 and were subjected to custodial interrogation for two days before being sent to judicial custody on November 30.
The Additional Public Prosecutor Rajiv Mohan sought three-day further police remand for the two Zee editors saying, "They were remanded in police custody on November 28 for two days".
"During the police custody efforts were made to join Zee group chairman Subhash Chandra and Zee Entertainment Enterprises Ltd MD Puneet Goenka in the investigation as accused persons had to be confronted with them to reach to the bottom of the criminal conspiracy," he said.
"As both Chairman and MD were out of the country, a request was made to remand both Sudhir Chaudhary and Samir Ahluwalia to judicial custody," the prosecutor submitted.
IPOs in 2012: Modest pricing, stunning returns
Upbeat mood may revive stalled offerings
December 8, 2012:
There were far fewer Initial Public Offers (IPOs) this year than in 2011. But those that made it to the market have delivered stunning returns to investors.
A share in jewellery retailer Tribhovandas Bhimji Zaveri (TBZ), offered at Rs 120 in its IPO, is worth Rs 287 today, a neat 139 per cent gain in barely six months. MT Educare and National Building Construction Corp, a public sector firm, delivered 50-60 per cent gains. The stock of Multi-Commodity Exchange is 49 per cent above its offer price. In fact, had you invested Rs 1,000 in each of the eight IPOs made so far this year, your 'portfolio' today would be up 75 per cent.
Unlike in the past, investing in IPOs this year has also been a better bet than buying stocks in the secondary market. Returns on seven out of eight IPOs have beaten the CNX 500 index, reckoned from their offer date. The only stock languishing below its offer price is Tara Jewels, which made its debut on Thursday.
Good companies in bad markets
In contrast to recent offers, the crop of IPOs from last year has not fared as well, with 22 of the 37 offers still languishing below their offer price.
So, how did the 2012 IPOs deliver these returns? The bad market conditions at the start of the year helped because that kept offer prices reasonable, say investment bankers.
"2012 was an ideal situation where you could buy good companies in bad markets at reasonable prices. Plus, some of these were quality companies. MCX, for instance, was in a unique business and it got a further boost from regulatory changes after the offer," says Vikas Khemani, President and Co-Head of wholesale capital markets at Edelweiss.
Sandeep Singal, Co-head of institutional equities at Emkay Global, cites TBZ as an example of attractive pricing. The offer price had a good margin of safety and the stock is now catching up with the valuation multiple of retail companies like Titan, he points out. TBZ's offer in April was made at a price-earnings ratio of 12, while Titan traded at over 35 times.
Better quality
SEBI's crackdown on cases of blatant IPO manipulation last year has also helped weed out poor quality issuers from the market, say some market players. This is part of the reason why the number of offers dropped sharply from over 40 to just eight this year. IPOs this year have bagged better fundamental grades from rating agencies than last year's offers. While IPOs of more established companies listed on the main NSE and BSE platforms have done well, those listed on the SME segment have not been so consistent.
Reviving activity
The good returns from recent offers combined with an upbeat market seem to be prompting quite a few issuers to revive their stalled IPO plans. Bharti Infratel, CARE Ratings and PC Jewellers are set to raise a combined Rs 5,500 crore this week.
But does this bunching up of offers means the party may be short-lived? That could lead to dwindling returns from recent offers too. All the five market players we spoke to disagreed, pointing that there are hardly any signs of market euphoria.
"Today, there is such deep pessimism. One can safely say that gains from the recently listed IPOs have really not gone to retail investors. They have gone to the institutional investors. So markets are nowhere close to peaking out now," says Manish Sonthalia, V-P, Motilal Oswal Asset Management Company. Government decisions on pending reforms like FII taxation and FDI in retail and aviation have improved sentiment, says Singal.
Investment bankers were also of the opinion that the three IPOs hitting the markets next week could be easily absorbed by the markets. Indian markets are large and can easily absorb $1 billion or more in paper, said one of them.
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