INDUSTRIAL GROWTH CONCERNS...!!!

Industrial growth falters

Friday's data present a mixed picture - while CPI inflation falls to 7.8%, IIP growth of 0.5% and low indirect tax collections remain concerns

BS Reporter  |  New Delhi  

September 13, 2014 Last Updated at 00:40 IST

In July, India's industrial growth fell to 0.5 per cent, the lowest this financial year, owing to contraction in manufacturing after three months, official data showed on Friday. While industrial growth in June stood at 3.9 per cent, it was 2.6 per cent in July 2013.

For the first four months of this financial year, the Index of Industrial Production (IIP) expanded 3.3 per cent, against contraction of 0.1 per cent in the corresponding period last year. The rise in IIP in the April-June period was primarily due to a low base.

In August, Consumer Price Index (CPI)-based inflation fell to 7.8 per cent from 7.96 per cent in July. During this period, CPI-based food inflation, however, rose from 9.36 per cent to 9.42 per cent. It is expected the sub-normal monsoon this year will raise food inflation further.
While food inflation rose, core inflation (which does not take into account food and fuel inflation) declined to 6.89 per cent in August (the lowest since the series was launched) from 7.41 per cent in July, said a note by YES Bank. This showed pressure on inflation was from food items alone, as inflation for fuel fell to 4.15 per cent in August from 4.47 per cent in June.

The Reserve Bank of India is targeting CPI-based inflation of eight per cent by January, 2015.

If excise duty collections are any indication, the outlook for the IIP for August isn't bleak. In August, excise duty collections rose eight per cent, against 7.5 per cent in July. During the same period, overall indirect tax collections rose from 4.9 per cent to nine per cent. But this growth, as well as that in the April-August period (4.6 per cent) pales in comparison to the 20 per cent pegged in Budget 2014-15. July IIP data didn't have a one-to-one relation with excise duty collections.

"It (IIP data) is not such a negative surprise for us. We were expecting one per cent growth, but it turned out to be 0.5 per cent. Sustaining IIP growth at 3.5 per cent was difficult. The recovery from the second half will be meaningful," said YES Bank chief economist Shubhada Rao.

The IIP for July was primarily dragged down by manufacturing, which contracted one per cent, against 2.4 per cent in the previous month. Of the 22 manufacturing sub-groups, 10 saw contraction, against seven in June.

Consumer durables contracted 20.9 per cent, against 23.4 per cent in June, even as automobile sales are seen rising. Consumer non-durables rose just 2.9 per cent in July, against 4.8 per cent a month earlier. To assess any positive impact on both categories of consumer goods, one has to wait for the festival season to begin.

The capital goods segment contracted 3.8 per cent in July, against 23.26 per cent in the previous month. This segment has traditionally been volatile.
"The disappointing IIP growth and the contraction in capital goods output in July reinforce our view that the pick-up in GDP (gross domestic product) growth in the June quarter did not signify the start of a broad-based economic revival," said Aditi Nayar, senior economist, ICRA.
For the quarter ended June this year, India's economy grew at a two-year high of 5.7 per cent, prompting the finance ministry to exude confidence that this financial year, growth would be 5.8 per cent, against sub-five per cent growth in the previous two financial years. Nayar projected FY15 GDP growth at 5.3-5.5 per cent.

Rao said while she was watchful of the emerging trend in the consumer goods segment, her optimism on a gradual improvement in the Indian economy in FY15 remained intact. "We believe the government's policy measures, amid a revival in the investment sentiment, are likely to guide a recovery in industrial production during the second half of 2014-15," she said.
In July, only the basic goods segment and the electricity sector provided a boost to the IIP. While basic goods rose 7.6 per cent, against 9.8 per cent in June, generation in the electricity sector increased 11.7 per cent, against 15.7 per cent in June. The mining sector expanded 2.1 per cent, against 4.54 per cent in June. Continued uncertainty over coal block allocations might dampen sentiment in the sector further.

OTHER INDICATORS

• HSBC Purchasing Managers' Index (PMI) for manufacturing down to 52.4 points in August from 53 points in July
   
  • PMI services down to 50.6 points in August from 52.2in July
•  
  • Excise duty collections rise to 8% year-on-year in August from 7.5% in July
•  
  • Customs duty collections increase to 9.9% in August from 0.2% in July
•  
  • Services tax collections rise 9% in August from 8.4% in July
•  
  • Overall indirect tax collections rise 9% in August from 4.9% in July
  • • http://www.business-standard.com/article/economy-policy/industrial-growth-falters-114091300020_1.html

Shankar Sharma says...GOOD TIME...add on corrections..!!!

It's a good time to get into the market and add on corrections: Shankar Sharma

Interview with Vice-Chairman & Joint Managing Director, First Global Group

Puneet Wadhwa  |  New Delhi  

September 10, 2014 Last Updated at 22:47 IST

On a year-to-date basis, Indian markets are among the top-performing ones. Shankar Sharma, vice-chairman and joint managing director of First Global Group, believes the rally is a continuation of the bull market that began in 2004. In an interview with Puneet Wadhwa, he says in India, small-caps seem the best bet. Edited excerpts:

How is India as an investment destination, given the macroeconomy might shape up and have a bearing on the markets? Do you expect the markets to consolidate till the next Union Budget, or will the run-up continue at the same pace?

In my view, the markets in India will remain strong in the foreseeable future. Of
course, it is important to remember we are in the middle of a global bull market, which was rekindled from March 2009 and has picked up pace in the past three months, since emerging markets (EMs) started catching up with US markets. So, while we should be happy that India is doing well, it is not in isolation; every major market has been in a bull phase. In terms of performance, India ranks sixth within EMs since May 16. Also, since May 16, the rupee has been the second-worst performing currency, after the rouble. But Russia has had major problems in the past few months, while India hasn’t. Despite record flows and low oil prices, the rupee seems very fragile. This is something to be a tad concerned about.

Overall, I think India will do well on the economic front, owing to a combination of the lagged effect of the United Progressive Alliance (UPA) government hastening clearances in 2013 and the National Democratic Alliance (NDA) government improving efficiencies now.

Do you think the pace of flows will slow, as foreign institutional investors (FIIs) look for alternative destinations within EMs? What are the next triggers for India? Which sectors and stocks will FIIs look to park their money in?

This is not a new bull market; it is merely the continuation of the bull market that began in 2004. The reason is in the current market, the sectors that should have done well because of the BJP (Bharatiya Janata Party) government (power, infrastructure, etc) have actually petered out after the initial burst. So, it is back to old favourites such as automobiles, consumer goods, pharmaceuticals, information technology; these are driving the markets. These have driven the markets for 10 years!

By definition, a new bull market has to be driven by a new list of stocks/sectors, not old ones. If the same ones are still driving the market, we can conclude we are basically seeing a continuation of the bull market that began in 2004.

Even in the aftermath of the 2008 crisis, India’s performance, compared to that of its peer group (Brazil, Russia and China) was off the charts. That was because India managed the crisis better than any country I know of. We didn’t bust our national balance sheet in stimulating growth; we kept our internal and external debt ratios low; we narrowed our current account deficit considerably, albeit a bit belatedly.

Basically, the NDA government has inherited a pretty good economy; now, it only has to straighten some kinks, and we should be well past six per cent annual growth. The April-June gross domestic product numbers, which can obviously be attributed to the UPA, since the current government had assumed power in June, is a pointer of things to come.

Do you think given the run-up seen in the frontline stocks and indices, the next six months will belong to mid- and small-cap stocks?

In my view, India looks fine; within India, what looks the best are small-caps. We have been very bullish on these through the past few months, with a number deeply undervalued areas, and have been rewarded handsomely. I see this as being the sweet spot in markets. Small-caps had been crushed during the 2008 crisis. With the return of liquidity, these were ripe for a re-rating. We like several stocks in this segment.

What is your advice to a) an investor who has already been invested in the markets since the beginning of this year and; b) one sitting on the fence, who wants to jump in now?

It is a good time to get in now and add on every correction.

How will earnings growth take shape through the next few quarters? Have you revised your estimates in the wake of the June quarter results? Which sectors and companies will lead a recovery and why?

We don’t pay any attention to aggregates such as ‘market P/E (price/earnings) multiple’ and ‘market earnings growth estimate’; we don’t spend any time calculating nonsensical ratios and metrics such as these. It never fails to surprise me how the entire financial world continues to rely on such absurd measures to gauge the direction of markets.

As I have said earlier, in large caps, we have liked automobiles, consumer goods and pharmaceuticals for years. We continue to like those. On the other hand, we haven’t liked infrastructure, power etc, and continue to dislike those. So, we are still stuck to a rather boring investment style, with the only departure being our big liking for small caps through the past few months.

In terms of policy, India is still undecided on retrospective tax issues. The banking sector, especially public sector banks, has, of late, seen skeletons tumbling out of the closet. Isn’t all this making foreign investors wary of investing in India, despite all the euphoria surrounding acche din (good days)?

FIIs aren’t blessed with a mind of their own. In 20 years of our dealing with them, we have seen there aren’t more than a handful of really independent thinkers in this space. The rest chase momentum (and there is nothing wrong with this, as long as you know when to jump off the roller coaster). Therefore, things such as retrospective tax and non-performing assets don’t matter as long as markets keep running. Deep, core analysis is a luxury we have only in bear markets. In bull markets, there is no time to be reflective and thoughtful about issues such as these. Or, for that matter, any issues at all.

The Supreme Court’s decision on coal block allocation will have far-reaching implications on the power, banking, metal and mining sectors. Despite the possible roadblocks, are the long-term prospects attractive enough for you to look at these in terms of a two-three year horizon?

I have maintained the Supreme Court’s decision on 2G telecom licence cancellations was a complete travesty, based on
patently wrong understanding and wrong facts. It should have been overturned completely (it was only partially overturned insofar as auctions were concerned). The coal block allocation order is on the same lines.

I have never believed courts are the best places for commercial matters, as such matters are terribly complex and chances of arriving at wrong conclusions by non-business experts are always high. And, such orders have the effect of destroying the business confidence of domestic and foreign investors alike.

As I have mentioned earlier, there are many better places in the market to spend one’s money on than power, coal and infrastructure.

As an investment theme, how do the capital goods, automobiles and oil & gas sectors look from a fresh-investment perspective? Among these sectors, which stocks make it to your investment list?

The automobile segment is our preferred area, and old favourites such as Tata Motors, Bajaj and Maruti Suzuki continue to entice us. We don’t have a great deal of interest in oil & gas, capital goods, etc.

How will you approach real estate and infrastructure as an investment theme, given the run-up in these stocks? Are there any potential multi-baggers here on a two-three year horizon?

These sectors are for the young and fearless. Now, we are too old, too hidebound, and too gun-shy to start dreaming of multi-baggers in these spaces.

http://www.business-standard.com/article/markets/q-a-shankar-sharma-vice-chairman-and-joint-managing-director-first-global-group-114091000147_1.html

Stake sale in Coal India, ONGC, NHPC; may get Rs 43,000 cr..!!!

Govt clears stake sale in Coal India, ONGC, NHPC; may get Rs 43,000 crPTI | New Delhi | Updated: Sep 10 2014, 22:51 ISTClearing the decks for mega disinvestment drive, the government today approved diluting its equity stake in bluechip companies Coal India, ONGC and NHPC, which is likely to fetch Rs 43,000 crore to exchequer.The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi approved the disinvestment of 10 per cent paid-up equity capital in Coal India (CIL), an official statement said.At present, the government shareholding in the coal mining company is 89.65 per cent."The decision to disinvest would help the government realise an optimum price for the offer for sale of 10 per cent of the government's shareholding in the company," it said.The CCEA also cleared selling government's 5 per cent paid-up capital in ONGC and "this would further broad base the shareholding of the company and would enhance disinvestment receipts". Government's stake in the company stands at 68.94 per cent.Besides these two, 11.36 per cent disinvestment in hydro power generator NHPC was also approved. Government holds 85.96 per cent stake in company.At current market prices, the sale of shares in state- owned CIL, ONGC and NHPC could garner over Rs 23,000 crore, Rs 18,000 crore and Rs 2,800 crore respectively, helping the government meet its disinvestment target of Rs 43,425 crore for this fiscal.Meanwhile, sources said the stake sale in the three companies would be done through the Offer For Sale (OFS) process, popularly known auction route.The government has already selected merchant bankers for managing ONGC and NHPC disinvestment and is in the process for doing so for CIL.ONGC shares closed at Rs 445.30, down 0.79 per cent at BSE. CIL shares last traded at Rs 373.85 (down 1.80 per cent) and of NHPC at Rs 22.40 (down 0.44 per cent).The previous government had cleared disinvestment in SAIL and according to sources the 5 per cent stake sale in the state-owned steel maker is likely to hit the markets this month.The sale of 5 per cent stake or about 20.65 crore shares of SAIL at the current market price of around Rs 80.95 a piece would fetch the exchequer over Rs 1,600 crore.The Cabinet had in July 2012 approved 10.82 per cent stake sale in SAIL. Accordingly, the first tranche of disinvestment of 5.82 per cent was completed in March 2013.The government has missed its disinvestment target for five consecutive financial years.In 2010-11 and 2011-12 fiscals, the government had raised Rs 22,144 crore and Rs 13,894.

http://www.financialexpress.com/news/govt-clears-stake-sale-in-coal-india-ongc-nhpc-may-get-rs-43000-cr/1287654   ===============

THE GOVT. DISINVESTMENT IN BLUE-CHIPS IS A WELCOMING SIGN TO BRIDGE THE FISCAL DEFICIT BUT WILL SUCK MORE THEN 45000 CR FROM THE MARKETS MEANS A THREE MONTH AVERAGE FII INVESTMENTS. THE TELECOS WILL SPEND CLOSE TO 50000 CR FOR BUYING AIRWAYS IN FEB-MARCH-2015 MEANS THE MARKETS WILL GET DRY SPELL OF FUND IN FLOW. NOW THE OTHER EMERGING MARKETS ARE ALREADY WITNESSING THE OUT-FLOWS DUE TO USA RATE HIKE AND THE BETTER OPPORTUNITIES IN OTHER ASSET CLASSES.

THE NIFTY HAS WITNESSING HUGE UNWINDING AT CURRENT LEVEL MEANS, NEXT LEG IS RIPE FOR SHORTING. THE EXPERTS ARE EXPECTING 5-7% CORRECTION MEANS CLOSE TO 700 POINTS CORRECTS AT NIFTY MEANS 7200 LEVEL SUPPORT WILL HOLD OTHERWISE 7000-6900 IS A RIPE PLACE TO INVEST.....UNTILL THEN TRADE AND EARN...!!!!==================

NPA's haunt banks...

Loan quality pressure continues to haunt banks

OUR BUREAUMUMBAI, SEPTEMBER 5:  Loan quality pressures continue to haunt public sector banks despite the improved sentiments in the market after measures were taken to revive the economy from policy paralysis, said rating agency ICRA in a report.The rate of generation of fresh non-performing assets (NPAs) remained elevated for public sector banks (3.5 per cent), and as a result their gross NPAs increased by 20 basis points (bps) to 4.6 per cent in Q1 FY2014; the NPAs of private banks also increased by 20 bps to 2 per cent for the same quarter, ICRA said in the report.ICRA analysed the performance of 26 PSBs and 15 private banks for the quarter ended June 30, 2014.“Going forward, ICRA expects PSBs’ gross NPAs to be at 4.4–4.7 per cent as on March 31, 2015, as against 4.4 per cent as on March 31, 2014 and 4.6 per cent as on June 30, 2014. Overall, the Gross NPAs of the banking sector (PSBs + private banks) could be at 4–4.2 per cent in March 2015, as against 3.9 per cent as in March 2014 and 4 per cent as in June 2014,” the report said.Drop in CDR referralsHowever, ICRA highlighted that there was a significant drop in fresh referrals to the CDR (corporate debt restructuring) Cell for restructuring during Q1 FY2015. If the current trend were to continue, one may expect some containment of the standard restructured book.Overall, the Gross NPA percentage plus 30 per cent of standard restructured advances remains large at 5.5–5.7 per cent (around ₹3.5-3.7 lakh crore as of June 2014) and may continue to impact profitability over the short term.Moreover, new investment norms for asset reconstruction companies too could add to the NPA pile-up.

(This article was published on September 6, 2014)

http://www.business-standard.com/article/finance/monetary-stimulus-may-backfire-provoke-savings-glut-says-rajan-114090600831_1.html

Monetary stimulus ...RATE HIKE by USA..!!!

Monetary stimulus may backfire, provoke savings glut, says Rajan
Fears that the world might be setting the stage for a repeat of the years after the Asian crisis of the '90sBloomberg  |  Washington  September 6, 2014 Last Updated at 23:05 ISTAggressive monetary policy by developed economies might hurt global growth by pushing emerging markets to pile up foreign-exchange reserves, instead of spending, Reserve Bank of India (RBI) Governor Raghuram Rajan said.
A regular critic of the unprecedented monetary stimulus the world's richest nations have put in place, Rajan said the world was "setting the stage for a repeat" of the years that followed the Asian financial crisis of the late 1990s. At that time, developing economies, traumatised by capital outflows and painful bailouts, started accumulating reserves as insurance, leaving it to US consumers to buoy global consumption.
"Any emerging market today is going to look at the currency volatility and say 'whatever money comes in, I am going to be careful about it, I am going to build some reserves,'" Rajan said in a speech in Chicago on Friday. "That kind of policy will depress global demand."
Overseas investors pulled $8 billion from rupee-denominated debt last year, pushing the currency to an all-time low, as theUS Federal Reserve signalled it would begin paring its record monetary stimulus. Rajan, who took office a year ago, has overseen a recovery of the currency, raising interest rates three times in his first five months, as he also seeks to tame Asia's fastest inflation.
"We have had six or seven years of this and we still have a weak recovery, so you have to ask if this is the answer," he said of developed economies' stimulus policies, such as record low interest rates and asset purchases.
How much more?
"How much more can you do of this stuff and of course what is the payback when you are unwinding," he asked at the event, organised by the Chicago Council on Global Affairs.
Indian policy makers have now rebuilt foreign-exchange reserves to near a record high as investors weigh the timing of an interest-rate increase by the Federal Reserve. India will probably be less vulnerable to a global shift of funds, Rajan said last month.
"I don't want to jump up and down," Rajan, a former chief economist at the International Monetary Fund, said of data released last month that showed India's economy grew 5.7 per cent in the quarter ended June. Still, the figure is "reassuring" and should help the country meet a 5.5 per cent (growth) forecast for the (current) financial year, and "maybe a little better".
Expansion might be in the six per cent range next year and about seven per cent after that, he said.
BUILDING THE CUSHION
Raghuram Rajan has been building foreign exchange reserves since he took over as the RBI governor last September, amid a currency crisis. From a 39-month low of $274 billion on September 6 last year, the country's forex reserves had risen to $318.64 billion as on August 29, a level close to an all-time high. Rajan pushed the average duration of bond holdings to three years and built up an adequate level of reserves to curb exchange-rate volatility. The reserves would help in times when there are outflows from the domestic market on account of a rate increase by the US, expected in the first half of 2015.

http://www.business-standard.com/article/finance/monetary-stimulus-may-backfire-provoke-savings-glut-says-rajan-114090600831_1.html