INDIA FACES...Worsening bank asset quality....

Worsening bank asset quality poses near-term risk to India, says IMF but RBI disagrees

PTI: WASHINGTON, JAN 16 2013, 12:38 IST

Washington: Indian economy faces near-term risks of worsening bank asset quality and pressures on systemic liquidity, an IMF report has said. The Indian financial system is becoming more complex, with inter-linkages across institutions and borders, the report 'India: Financial System Stability Assessment Update', based on figures available till February 2012, said. "The main near-term risks to the financial system are a worsening of bank asset quality and renewed pressures on systemic liquidity," the report said. "However, stress tests did not reveal near-term stability concerns, suggesting the banking system would be resilient to a range of adverse shocks," it added. India has made remarkable progress towards developing a stable financial system but confronts a build-up of financial sector vulnerabilities, it said.

The areas for improvement include greater de jure independence of regulatory agencies, consolidated supervision of financial conglomerates and reductions in the large exposures and related-party lending limits in banks. The report also listed stronger valuation and solvency requirements in insurance, and the monitoring of corporations- compliance with reporting, auditing, and accounting requirements for issuers as areas for improvement.

It also added that the regulatory and supervisory regime for banks, insurance, and securities markets is well developed and largely in compliance with international standards.

The prominent role of the state in the financial sector contributes to a build-up of fiscal contingent liabilities and creates a risk of capital misallocation that may constrain economic growth, the report said.

Gradually reducing mandatory holdings of government securities by financial institutions, and allowing greater access to private (domestic and foreign) sources of capital, would provide more room for the financial sector to intermediate funds towards productive economic activities, thereby improving prospects for sustained growth.

The report said that "steps are needed to promote deeper fixed income markets, including a prudent reduction in banks' minimum statutory holdings of government bonds in line with evolving international liquidity requirements". "Use of capital markets to refinance infrastructure loans would help alleviate pressures on banks," it said. According to the IMF report, the multiple roles of Reserve Bank of India (RBI) create the potential for conflicting goals. RBI officers are nominated as directors on the Boards of public banks, while at the same time RBI serves as the prudential supervisor of these banks, it said.

It would be preferable for the government to focus on policies that ensure the appointment of well-qualified, independent Board members that are not from the RBI, it said. 

"And while there may be some synergies, RBI's role as monetary authority, bank regulator, and government debt manager may have led it to require banks to hold larger holdings of government debt than might be needed on prudential grounds. Finally, using the banking system rather than government programmes in meeting the needs of priority sectors (agriculture, small and micro credit, education, health) and underserved areas may conflict with RBI's supervisory role," the report said.

In light of its commitment to retain the public sector character of state-owned banks, the government needs to consider how to manage its ownership in ways that are compatible with the public banks prudently financing a rapidly growing economy, the IMF said. To perform competitively, banks need the flexibility to attract top notch financial talent, innovate, enhance risk management, and build-up capital.

Public ownership should not impose obligations or restrictions that limit banks' ability to remain competitive and sound, it said

RBI disagrees with IMF, says regulators function independently

Mumbai (PTI): Disagreeing with IMF's assessment of India's financial sector, the Reserve Bank of India (RBI) today said the government does not interfere with the working of regulators and the country's banks cannot follow international group exposure norms as it would hamper economic growth.

The financial sector regulators do not enjoy de jure status in India but their "de facto position too reveals no interference in the functioning of regulators" by the government, Reserve Bank said in its comments on the IMF's Financial Stability Report on India.

The IMF report said that the financial sector regulators in India "lack of de jure independence, which can be rendered more challenging by the intricate relationship with state-owned supervised entities and their business decisions". RBI, however, added that IMF's suggestion "merits consideration" as the regulators have to function within the framework of policies framed by the government.

The apex bank said that the government had set up a Financial Sector Legislative Reforms Commission (FSLRC) to suggest steps to streamline and further strengthen the statutory framework comprising an array of statutes enacted since 1930s. The FSLRC is expected to give its report by March 2013.

Moreover, the RBI said steps were underway to accord a statutory basis to the pensions regulator.

With regard to IMF's observation on large exposure limits, RBI said it was not possible to follow the international norms with regard to group borrower limit as it would hamper the growth of economy.

The IMF report said that the Indian economy faces near-term risks of worsening bank asset quality and pressures on systemic liquidity. Referring to moral hazard issues following appointment of nominees on bank boards by RBI, RBI said: "the system has served India well and ensured more effective compliance with RBI regulations from the banks' side. "Nevertheless, RBI is sensitive to the issue and has taken up the matter with Government of India for amendment of the enabling legal provisions", it said.

The IMF's report is part of the review of 25 systemically important economies under the Financial Stability Assessment Programme (FSAP). Besides other issues, the IMF report had identified gaps in international and domestic supervisory information sharing and co-operation, consolidated supervision of financial conglomerates, and some limits on the 'de jure' independence of the regulators like RBI and IRDA. With regard to overseas supervision of banks, RBI said, it has already entered into information-sharing MoUs with 12 jurisdictions and two more are in the pipeline.

The IRDA, it added, was also addressing issues relating to sharing of information at the international level through entering into a Multilateral Memorandum of Understanding (MMoU) under the aegis of the International Association of Insurance Supervisors (IAIS). On the issue of Statutory Liquidity Ratio (SLR) hampering monetary policy transmission, the RBI said the ratio, which is the percentage of deposits banks park in government bonds, has been brought down over the years. "The holding of government bonds could help banks to better cope with financial stress situations by giving greater access to liquidity," RBI said, adding steps are underway to enhance liquidity in government securities market.

Referring to concerns raised on stock market regulations, RBI said regulator Sebi has been taking several steps to re-energise the mutual fund industry to increase product penetration especially in smaller cities/towns. On issues of auditing and accounting practices in the securities market, RBI said the Companies Act and Chartered Accountants Act provide a framework to maintain objectivity and integrity of accounting and audit. Under the recently constituted inter-regulatory framework, Sebi has set up an Early Warning Group (EWG) for financial markets to address potential crisis scenarios.

http://www.financialexpress.com/news/worsening-bank-asset-quality-poses-nearterm-risk-to-india-says-imf-but-rbi-disagrees/1060121/0

EXPERTS - BULLISH...GARNER THE OPPORTUNITY...

Mavens are bullish on equities

Published: Saturday, Jan 12, 2013, 5:57 IST 
By Nitin Shrivastava | Place: Mumbai | Agency: DNA

Speaking at the India Investment Conference organised by the CFA Institute on Friday, a clutch of market mavens — Ridham Desai, managing director at Morgan Stanley, Prashant Jain, chief investment officer at HDFC AMC, Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services, and Sunil Singhania, head of equity investments at Reliance AMC were very bullish on India. 
Edited excerpts of what they said:

Prashant Jain:
The markets in 2007-08 were trading way ahead of reality but this time it does not look so. Though the mutual funds have seen quite a bit of selling, but the majority of the retail investors do get it right.The markets after touching 10-12 price to earnings multiples do not touch the same levels in a hurry. The worst seems to be behind us.There has been urgency shown by the government and it would be good if they can sort out issues related to coal price pooling and reduction in subsidies which may help control the fiscal and current account deficits.

Ridham Desai:
The three essential ingredients for sustainable bull market seem to be in place. On valuation criteria, markets have seen extensive period of time correction and price correction with current price to earnings multiple nearly half of that in January 2008. The flows, especially to emerging markets, seem to be benefiting India and the profit margins after hitting a decade low have troughed. Growth would be next leg-up for markets as growth forecasts right now are pegged at all-time lows. With interest rate still near to peak levels, any reduction in interest rates would boost profit margins for corporate India.

However, there are certain things to be taken care of. We cannot lose sight that quantitative easing has given India time to adjust its macro economic factors and equities have run up sharply. So there are near-term risks if risk aversion in the West leads to outflows. On a longer-term basis, we need to take urgent policy action on building infrastructure. I would still be buying stocks at reasonable prices and am sector agnostic. However, in the near-term, from a 12-month perspective, will favour cyclicals.

Raamdeo Agrawal:
I think there is currently huge risk aversion with people … they are not touching equities. I would say that the downside is limited but the upside can be substantial from here on. The year 2013 is likely to see the markets hitting new highs and probably the start of bull market as the factors for same are in place. The valuations are alright, earnings growth is likely to revive and interest rates and inflation are likely to come down from here on. The next 14 months would be exciting. Stocks move up and down not because of buying-selling but because of change in opinion...we saw what happened on Friday morning where in Infosys’s better results led to massive change of opinion about it and led to 16-17%. There is a good likelihood of change in political progress in coming months, leading to change of opinion further. I would still prefer picking up the stocks on fundamental factors rather than timing the market. Oil and gas stocks are likely to do well if the government is able to put reforms into action.

Sunil Singhania:
Investors are currently quite under-invested in equities as an asset class. What markets look at is the future. The reforms process has suprised the markets and there could be many such factors ahead with interest rates and inflation likely to head down. It’s quite sensible to be overweight equities vis-a-vis other asset classes. Corporate earnings are set to see improvement as there are many companies right now whose interest costs take away nearly half of the operating profits. So if interest rates come down, these will benefit. I think one needs to marry fundamentals with market technicals to judge them and not only look at the price to earning levels. India being a capital-dependent country, there is always a risk of capital flows but I feel the biggest risk is not to invest in equities.

http://www.dnaindia.com/money/report_mavens-are-bullish-on-equities_1788114

$80bn biosimilars bounty .....INDIA AWAITS...

$80bn biosimilars bounty ahead

Published: Thursday, Jan 17, 2013, 6:35 IST 

By KV Ramana | Place: Hyderabad | Agency: DNA

Local drug makers have their eyes set on yet another off-patent opportunity – in biosimilars, the generic versions of biologics.

Biologics are therapies typically derived from living organisms or organic substances and include therapeutic proteins, DNA vaccines, monoclonal antibodies and fusion proteins, as well as new experimental modalities such as gene therapy, stem cell therapy, antisense nucleotides and RNA viruses.

Biologics worth $80 billion are slated to go off patent by 2015 in the US alone. The global biosimilars market, on the other hand, was worth around $500 million in 2012 and is expected to scale to about $10 billion by 2015, according to sources. Currently, China and South Korea dominate the biosimilars market. India is at a distant No.3, with a share of about 3%.

The country has around 100 companies involved in research and development of biosimilars, though only seven – Avesthagen, Intas, Biocon, Cipla, Dr Reddy’s, Reliance Lifesciences and Wockhardt – have so far launched products in the market. Together, these companies have launched 16 products in the market. With an eye on the impending patent expiries, innovator multinationals are increasingly looking for partnerships, including with companies from India, the generic capital of the world.

“We have already seen some such deals being signed by Mylan, Merck and Pfizer. The opening up of the biopharma market to generic players is also attracting several venture capitalists to fund the biopharma companies in India,” said an industry source. The Pharmaceuticals Export Promotion Council of India (Pharmexcil) is upbeat on the opportunity. “Industry analysts expect biosimilars to replace about 70% of the existing chemical pharma molecules. We expect Indian pharma companies to garner 20-25% of the total market in the next five years. It is a fact that there is no clarity on the guidelines for approvals in several countries and the regulators of these countries are working on finalising the guidelines. Indian companies are already exporting biopharmaceuticals to various countries, including Nepal, Nigeria, Kenya and Russia,” said P V Appaji, director general, Pharmexcil.

The council is working on a plan to take up the issue for further discussion and create a platform for finalisation of guidelines at BioAsia 2013, to be held in Hyderabad from January 28 to 30. “We are expecting representatives from about 50 countries and over 40 regulators, including the USFDA, EMA and NIH, to attend BioAsia. We will take up various issues that would help the growth of biosimilars market at the conference,” said Appaji. The players, though, are wary of the likely price erosion once biosimilars are launched. “Biosimilars are expected to face an erosion of about 70-80% in price as against the price of biologics,” said the source.

Regulatory approvals pose another roadblock. “Not many countries, including the US, are ready with guidelines for biosimilars,” said the source. In fact, many countries are still revising their draft guidelines and the US is believed to have revised the guidelines thrice so far. In India, though the final guidelines are out, there is still no clarity on the existing products. “We still don’t know if the existing products launched by various companies have to once again go through the approval process, since they were launched prior to the finalisation of the guidelines for approvals,” said a senior executive of another pharma company  

http://www.dnaindia.com/money/report_80bn-biosimilars-bounty-ahead_1789644

BOOM TARGET Nifty ABOVE 6500 LEVEL.....

Wed, Jan 16, 2013 at 14:50

ICICI Sec eyes 6550 on Nifty by Dec; bullish on IT, cement

After the Sensex breached the psychological resistance of 20,000 on Tuesday and the Nifty found support around 6050, the bulls seem to be on the driving seat.

After the Sensex breached the psychological resistance of 20,000 on Tuesday and the Nifty found support around 6050, the bulls seem to be on the driving seat. Varatharajan Sivasankaran of ICICI Securities however, believes there could be a period of consolidation by the end of 2013, maybe around December. He further added that they are looking at a target of around 6550 on the Nifty for the end of this year.

“We are looking at a target of 6550, assuming we do not see a serious risk playing out on the political front in the second half. The primary drivers, in our view, would be the cement space, telecom and IT sectors where we were quite bullish,” explained Sivasankaran.

Also Read: Investors stick to India, but look at China: BofA-ML

Besides, Sivasankaran opined that FY14 could see around 11 percent earnings growth, though he remains more optimistic about FY15.

As far as private banks are concerned, Sivasankaran maintains a neutral view. He also believes that the public sector banks are still plagued with non-performing assets (NPA) and therefore, they would like to stay away from this sector at the moment.

Here is the edited transcript of the interview on CNBC-TV18

Q: Could you elaborate with regards to what exactly would be your parameters which would see consolidation in 2013? Would it be just equities or maybe even extended to currencies? How exactly would you see the fiscal scenario panning out at the same time, that is Current Account Deficit (CAD) and fiscal deficit?

A: I think it will be a year of consolidation, largely driven by some kind of an improvement in GDP growth. It will probably not be a raging kind of recovery, but a moderate recovery, maybe to 6.2-6.3 percent levels next year and some inflation settling down below 7 percent and earnings growth being significantly better than what we had last year.

We believe those would be the primary drivers of a consolidation. Of course, we have other concerns which could impact the market as we go forward. Definitely, we are very worried about the currency. We are quite concerned about the fiscal situation as well and probably you would look at some kind of a risk on the political front in the second half. Those are the key concerns and if those concerns do not seriously play up, we could potentially look at the consolidation this year, somewhere around the end of the year.

Q: What are you expecting by way of earnings growth in FY13 and FY14?

A: As you are aware, the consensus number as well as ISEC number is largely for a 14 percent growth in FY14. Once again we believe, the downgrade cycle will continue and we are not very comfortable at this point in time with these estimates. We could potentially be looking at a 2 to 3 percent lower kind of a number.

We are working with 11 percent kind of a growth for FY14. FY15 definitely looks better and there is a lot of optimism too, but at this point in time it is going to be difficult to pin it down to say either it is going to be better than 14 percent, or maybe marginally weaker. We go with a more conservative marginally weaker scenario, maybe at 13 percent and based on that we are looking at a target of around 6550 by the end of this year assuming 14 times multiple for FY15. So that is our December target.

Q: What did you say about FY13?

A: It will be in single digit for FY13. I am talking more about the FY14 number of 11 percent and FY15 number of 13 percent kind of a growth

Q: What are your thoughts on Yes Bank and other private sector banks? Do you have a buy on this one?

A: No, we are more neutral on them, primarily because of the reasons you mentioned. They have done extremely well and the stocks have run up a lot. From that point of view, they probably are already reflecting most of the positives we are looking at and incrementally, we will be looking at some kind of a margin squeeze. If you look at a 25 to 50 basis points cut going forward in the near-term, that is a bit of a concern and there is not much of a scope in terms of a rerating. That is what we feel especially about the private sector banks. Public sector is another story anyway.

Q: What are your thoughts on the Public Sector Undertakings (PSU) banking space? We touched upon it briefly but are you expecting a negative surprise from the likes of SBI or do you think you would play SBI on the positive side ahead of its numbers this quarter?

A: Valuations are very, very comfortable. One way of looking at banking exposure would be with a bias towards looking at a PSU bank. Having said that, the Non-Performing Asset (NPA) concern is definitely big and it is most likely to look at a negative surprise. That is what we believe at this point in time. So that is a concern and we are not going big on public sector banks at this point in time.

Q: What are your expectations in terms of a high for the Sensex or the Nifty, whichever you track in 2013 and which will be the flag bearers of a rally if you are expecting one?

A: As I mentioned, we are looking at a target of 6550, assuming we do not see a serious risk playing out on the political front in the second half. The primary drivers, in our view, would be the cement space, telecom and IT sectors where we were quite bullish.

IT ran up quite a bit in a very short period of time. But, even then we would believe, if there is confirmation to the extent that discretionary is picking up, it could essentially give you a significant upside even from the current level. So these three sectors are the ones we are overweight on.

http://www.moneycontrol.com/news/market-outlook/icici-sec-eyes-6550nifty-by-dec-bullishit-cement_808622-1.html

Sensex target 22,200 -POSITIVE NEWS

Wed, Jan 16, 2013 at 14:58

Macquarie: 'Elephant' to turn 'tiger'; raises Sensex target

Macquarie says Indian 'elephant' to turn 'tiger' in 2013; ups BSE Sensex target to 22,200 versus 21,600 earlier and Nifty target to 6,900 points as against 6,600 previously.

Macquarie says Indian 'elephant' to turn 'tiger' in 2013; ups BSE Sensex target to 22,200 versus 21,600 earlier and Niftytarget to 6,900 points as against 6,600 previously.

Investment bank expects reforms push would take India to 8 percent per annum growth over the next three years, improving to 6.7 percent in FY14 from 5.6 percent projected in FY13.

Corporate earnings growth may surprise on upside around 16-17 percent as street not factoring in improvement in EBITDA margins with neither falling core inflation nor reduction in interest costs getting built in, the note says.

Cyclical sectors are even cheaper and are at 10-year low as compared to defensives, it says.

Adds Axis Bank State Bank of India and property developer DLF to its top 10 ideas, replacing ICICI Bank Dr.Reddy's Laboratories and HDFC Bank .

http://www.moneycontrol.com/news/market-outlook/macquarie-39elephant39-to-turn-39tiger39-raises-sensex-target_808626.html#toptag

World's billionaires ...PASSIONS...POFFESSIONS...

Well, if you are a billionaire by 23 and considered one of the 100 most influential people in the world, you can walk into a board room in a hoodie.

13 JAN, 2013, 06.23PM IST, YUSUF BEGG, 

World's top billionaires and their wacky ideas!

Elon Musk wants to build a town in Mars for vegetarians. He isn't the first moneybags with a wacky idea. ET Magazine lists a few of them.

Mark Zuckerberg
Net worth: $9.4 bn

Well, if you are a billionaire by 23 and considered one of the 100 most influential people in the world, you can walk into a board room in a hoodie. But that's not the only eccentricity the Facebook co-founder has.

If he is really keen on hiring someone, he takes him for a stroll in the woods behind his headquarters. Also, there is the resolution to only eat meat he has killed himself!

Richard Branson Net worth: $4.2 bn As if owning a tropical island — Necker Island, hideaway for the rich and the brash — was not enough for the flamboyant Brit billionaire. Now Branson wants to colonise Mars. He has already launched Virgin Galactic, a tour company that will take people on space flights. The queue is getting longer with 500 already signed for the galactic adventure.
	Yuri Milner Net worth: $1 bn After investing in various digital startups, including $200 mn in Facebook and $800 mn in Twitter, the Russian venture capitalist decided to trump Alfred Nobel. And how? By founding the Fundamental Physics Prize. It is by far the most lucrative academic prize. At $3 mn each, it is way ahead of the Nobel at $1.2 mn.
Peter Thiel Net worth: $1.5 bn From funding studies in superintelligence to seasteading or floating cities to finding a cure for ageing, this German-born American entrepreneur is as whacky as they come. Founding and then selling off PayPal and early investment in Facebook have given Thiel enough loose change to fund his dreams.
	Roman Abramovich Net worth: $13.4 bn Owning a football club — Chelsea FC — and sacking managers is only one part of the Russian tycoon's many fancies. He has a marina full of luxury yachts. Eclipse, the world's largest private yacht, has helicopter pads, swimming pools and — hold it — military-grade weapons system and a private submarine. Also, to keep prying eyes at bay there is an anti-paparazzi photo shield also in place.
Nicolas Berggruen Net worth: $2.3 bn No, not even an MIG flat or even a log cabin for him. Founder and president of investment company Berggruen Holdings, the "homeless billionaire" prefers to stay in hotels and lives out of an overnight bag. Plans to donate his fortune to various charities.
	Howard Hughes Net worth: $1.5 bn* The aviator-cum-filmmaker-cum entrepreneur was the embodiment of eccentricity. He didn't shower or cut his hair or nails for months on end. He supposedly watched Ice Station Zebra 150 times, with the film at times running in a continuous loop. When a Las Vegas hotel wanted to evict him, he bought the hotel.
William Koch Net worth: $4 bn His investments in oil take care of the champagne and caviar. An avid sailor and an America's Cup winner, it is only natural that he collects maritime memorabilia. But what did he do about his passion for the Wild West? Wear a Stetson or ride a horse to work? No way. He built himself a brand new town modelled on the frontier ones. So there in the middle of a ranch in Colorado, Koch has a town with its saloon, church, jail, firehouse and even a railway station.

(Net worth as of March 2012; * at the time of Hughes' death in 1976)

Crazy kings (and a queen)

Charles VI of France: Among his many delusions was his belief that he was made of glass. Afraid that he might shatter to pieces, he wore padded clothing.

Joanna the Mad: The Spanish queen so in love with her husband that she opened his coffin on a number of occasions to kiss his feet. Concerned that her husband's corpse might stray, she forbade women, including nuns, from coming close to the coffin.

Muhammad bin Tughlaq: The Urdu word for eccentricity — tughluqi — is derived from his name. Though a polyglot and an able administrator, the sultan is more famous for the disastrous attempt to shift his capital from Delhi. And then there was his coinage system that left the exchequer drained of bullion.

Caligula: The Roman emperor was notorious for his sexual excesses. What is less well known was his love for Incitatus, his favourite horse. Incitatus was dressed in blankets and lived in a special marble stable. It was also made a consul of the Roman empire.

George Tupou V: The king of Tonga loved ornate military uniforms with miles of gold braids. There was also the bit of insisting to be driven around in a London cab. Adding to his kooky image was the fact that he used his swimming pool to sail model boats and bought toy soldiers to wage mock wars.

Alfonso VI: Among the many potty things the Portuguese king did was to wear a number of coats, one over the other. The same with hats. And his visits to various nunneries were more to do with the carnal than the spiritual.

http://economictimes.indiatimes.com/news/news-by-industry/et-cetera/worlds-top-billionaires-and-their-wacky-ideas/articleshow/17999029.cms?curpg=2