Weekly Indian Economic Newsletter

1. Top Headlines
 Baring PE India Leads Race To Buy Majority Stake In Future Capital
 Cyrus Mistry re-designated as Tata Sons MD
 India overtakes Japan to become third-largest economy in
purchasing power parity.
 Sistema To Take $1B Writedown On India.
 SBI officials drive Rs 1 cr NRI acct scam.
 KEC International bags new orders worth Rs 1,416 crore
 India clears 22 FDI proposals worth $112.5 million
Weekly Economic Review
The bad news just doesn’t seem to end for India’s biggest company
Reliance Industries. It’s crucial hydrocarbons businesses are in
doldrumsand it has now reported a fall in profits for a second quarter in
a row. RIL’s net profit dropped 21.2% to Rs4, 236crore in the three
months to March. That came along with a 16.7% rise in net sales to
87,833crore. RIL has taken a beating largely because of its key
hydrocarbons operations. The company says revenues from its oil and
gas exploration business were down 36.5%. And downstream, its gross
refining margin was at just $7.6 per barrel compared to $9.2 in the year-
ago period.
Meanwhile in another development, RIL has asked Supreme Court to
appoint an arbitrator for its dispute with the government over the KG
D6 gas field. RIL has been at loggerheads with the petroleum ministry
over the costof developing KG D6. Gas output from the block has been
falling, which has, in turn, prompted the government to consider a cap
on RIL’s compensation claims. Authorities have also rejected RIL’s pleas
for arbitration.
Moving on, the Reserve Bank has made a dramatic shift in its monetary
stance. On Tuesday it announced a surprisingly big cut in interest rates.
RBI slashed the repo, which is its key lending rate to banks, by a full 50
basis points to 8%. That means the reverse repo is also down by 50
basis points to 7%. RBI’s cuts in rates exceeded most expectations. But
the Reserve Bank has also made it clear that more reductions may not
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2. Come anytime soon. Meanwhile, governor D.Subbarao added that the
government needed to work on its commitment to bring the fiscal
deficit down to 5.1% by the end of the financial year.
The reduction in the repo rate has had its intended effect on some
lenders. On Thursday, both ICICI Bank and Punjab National Bank cut
their loan rates by 25 basis points. ICICI Bank’s base rate will now be at
9.75%. And PNB’s will stand at 10.5%.
Staying with the industry, private lender HDFC Bank kicked off earnings
season for India’s big banks on Wednesday. And it beat most street
estimates with better-than-expected numbers. Net profit went up 30.3%
to Rs1,453crore. That came along with an 18% rise in deposits.
Meanwhile, HDFC Bank’s net interest income rose 19.3% to
Rs3,388crore. While its net interest margin, the key indicator of
profitability, was at 4.2%.
Moving to the economy, inflation has eased slightly, but remains
elevated. Figures released on Monday showed India’s wholesale price
index for March stood at 6.89%. That’s only marginally lower than the
previous month’s 6.95. The latest numbers give reason for both cheer
and concern. On the one hand, manufacturing inflation has slipped by
nearly a percentage point to 4.87%. But food prices in India remains
high and could put more pressure on overall inflation.
Telecom giant Vodafone is taking on the Indian government’s plan to
retrospectively change tax laws. The company says it has served a so-
called “notice of dispute” on tax proposals in the Union budget.
Vodafone says the proposals violate an international treaty. Vodafone is
worried because the planned changes to tax rules could reverse a
Supreme Court verdict that absolved it of a tax liability of $2.2 billion.
And finally, India has taken a crucial step towards developing a stronger
nuclear deterrent. On Thursday it test-fired the nuclear-capable Agni
Five missile off the coast of Orissa. The government’s Defence Research
and Development Organisation said the test was a success. Agni Five has
a range of 5,000 km and can reach the Chinese heartland. But it’ll be
another two years before the missile can be inducted.
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3. Inside The Story
Baring PE India Leads Race To Buy Majority Stake In
Future Capital
Private Equity firm Baring Private Equity Partners India Ltd has
emerged as the front runner to acquire a majority stake in Kishore
Biyani promoted financial services provider Future Capital Holdings
Ltd. Others in the race include L&T Finance Holdings Ltd and Dewan
Housing Finance Ltd.Earlier, private equity investor CX Partners was in
talks to buy a stake in the public listed firm.“The talks with CX Partners
are off and the company is now talking to other industry players and
private equity investor,” one of the persons said on condition of
anonymity as the deal is yet to be signed.
Cyrus Mistry re-designated as Tata Sons MD
In a quiet move, the board of Tata Sons has re-designated Cyrus Pallonji
Mistry as the managing director of Tata Sons. The new designation
became effective from April 1, 2012.On November 23, 2011, Tata Sons
named Mistry the successor to Ratan Tata, the current non-executive
chairman of Tata Sons. Tata will retire by the end of calendar year 2012,
when he attains 75 years on December 28.Mistry is currently learning
the ropes directly under Ratan Tata, shadowing the chairman as he
prepares Mistry to take on the mantle for bigger responsibilities within
the Tata group.
India overtakes Japan to become third-largest economy in
purchasing power parity
Its economy may be in the grips of a slowdown, its polity paralysed and
markets morose, but all this hasn't prevented India from
overtaking Japanto become the world's third-largest economy in
purchasing power terms. Data just released by the International
Monetary Fund(IMF) shows that India's gross domestic product in
purchasing power parity (PPP) terms stood at $4.46 trillion in 2011,
marginally higher than Japan's $4.44 trillion, making it the third-biggest
economy after the United States and China. India’s share in world GDP
in terms of PPP, a measure of relative consumer prices across countries,
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4. Stood at 5.65% in 2011 against Japan's 5.63%, with the gap expected to
widen significantly by 2017. In five years, the IMF estimates the share of
India's GDP in PPP terms would grow to 8.09% compared with 4.8% for
Japan.
Sistema To Take $1B Writedown On India
Russian services conglomerate Sistema will take a writedown of nearly
$1 billion related to the suspension of its Indian licences.The writedown
is a non-cash item that will be recognised in Sistema's fourth-quarter
results, eroding earnings, one of the sources told Reuters. Sistema
declined to comment. Around half of the write-down is related to a
licence revaluation and the rest to goodwill, the Vedomosti newspaper
quoted a source as saying.
SBI officials drive Rs 1 cr NRI acct scam
The CBI has arrested three State Bank of India (SBI) officers for their
alleged involvement in siphoning off money to the tune of Rs 1.35 crore
from the Non-Resident Indian (NRI) accounts, sources said today. The
accused including alleged mastermind and in-charge of NRI section of
the main branch Anup Rajurkar, deputy manager Prakash Bhalkar and
senior executive Mamata Motwani were apprehended yesterday for
their alleged role in fraudulently withdrawing the money from the NRI
accounts of the bank, they said.
KEC International bags new orders worth Rs 1,416 crore
Infrastructure major KEC International on Friday said it has bagged
orders worth Rs 1,416 crore across all its divisions.The company won
orders worth Rs 320 crore from Power Grid Corporation of India Ltd.
(PGCIL) for design, supply and construction of 765 kV double circuit
transmission line on turnkey basis between Wardha and Aurangabad in
Maharashtra, it said in a regulatory filing.The total line length is 178 km
and the completion period is 32 months.From Bangladesh, the firm
bagged an order worth Rs 243 crore from Power Grid Company of
Bangladesh Ltd. for design, supply and construction of 230 kV double
circuit transmission line on turnkey basis between Barisal-Bhola-
Borhanuddin.The project is to be completed in 24 months.
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5. India clears 22 FDI proposals worth $112.5 million
The Indian government Friday approved 22 foreign direct investment
(FDI) proposals amounting to Rs.586.137 crore ($112.5 million). The
proposals were cleared following recommendations of the Foreign
Investment Promotion Board (FIPB) at its meeting March 30, 2012, the
finance ministry said. FDI is considered stable in comparison to foreign
institutional investor (FII) funds, which are called "hot money". The
government cleared Shantha Biotechnics' proposal of Rs.514 crore to
increase its foreign equity in brownfield pharmaceutical sector to carry
out the activities of research, development, manufacturing and
marketing of bio-tech products and other bio-generics.It also cleared
Mahindra and Mahindra's Rs.25.99 crore proposal for setting up a joint
venture (JV) company to develop, manufacture and provide service
support for radar systems and various kinds of defence electronic
systems.
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