The Indian market opened flat mirroring flat to positive opening in most of the Asian markets. US markets ended on a flat note yesterday as Apple Inc.’s near 4% drop wiped out US$17bn off the bourses. A report stated that Apple had cut iPhone production plans because sales had come in below expectations. The European markets ended with a mixed result on Monday. They were positive early after Chicago Fed President Charles Evans said the US central bank should keep policy accommodative to boost employment while lawmakers and take steps to cut back spending. Meanwhile, investors will be watching for comments by US Federal Reserve Chairman Ben Bernanke today on the monetary policy and the US economy. Indian shares rallied on Monday as the government deferred implementing the controversial GAAR by two years to April 2016. Moreover, India's WPI inflation eased marginally in December to 7.18% from 7.24% in the previous month, leaving space for RBI to ease monetary policy to support growth.
WPI inflation moderates raising hope for rate cut
Latest economic data has raised expectations that the Reserve Bank of India (RBI) may cut key rates in the policy review on January 29.Led by a moderation in the prices of fuel and manufactured goods, the headline inflation slowed to its lowest level in three years. The wholesale price index (WPI), the main inflation indicator, came in at 7.18% for the month of December 2012 – lower than 7.4% rise estimated by analysts. Meanwhile, as per data released last week, the industrial output contracted to a four-month low of 0.1% in November due to poor performance of manufacturing and mining sectors and decline in production of capital goods. All this has raised expectations that the Reserve Bank of India (RBI) may slash key rates in the policy review on January 29. But with the central bank oblige and is there enough reason for a rate cut? “Although the WPI inflation has eased on monthly basis, the food inflation which is the major component of WPI remains a concern for the economy,” states a report from India Forex Advisors. Says Robert Prior-Wandesforde, Head of Economics Research for Southeast Asia and India, Credit Suisse, “The RBI may slash rates probably by 50 basis points (bps) to 7.5% in the January review.” “We believe the central bank’s failure to act on October 30 probably reflected a fear that the government could fall when parliament returned in November, while it may also have wanted to see whether the February budget contains the promised consolidation measures,” he adds. Notes Sonal Varma, economist, Nomura, “In our view, underlying inflation expectations remain sticky as evidenced by highCPI readings. Yet, with core WPI inflation clearly moderating – indicative of weak demand-side pressures, we stick to our view that the RBI is likely to cut the repo rate by 25 bps on January 29. However, we do not see this as the start of a long rate cut cycle and expect a total of only 50 bps cut in H1 as we expect inflationary pressures to re-emerge in H2.” However, on the other hand, Shubhada Rao, chief economist at YES Bank feels that the data presents a mixed picture. “It’s a mixed picture with CPI tending higher. However, if we look at the numbers closely, the core CPI (month-on-month) has been at a nine-month low at 0.51%. Likewise, WPI was a fairly positive number though marginally lower than our expectation. The core WPI was at 4.2%, which was lower than the preceding month. The developments do suggest that the inflation is probably now going to provide some comfort for the RBI to begin easing rates.” Upasna Bhardwaj, an economist at ING Vysya Bank expects a 25 bps cut in March 2013 if the Government continues its effort to reign in fiscal deficit at 5.3%. Even if the figure is around 5.5%, markets will take that as a positive, she suggests.
Market Reactions
So, how are the markets players interpreting these numbers? Is it a good time to start accumulating interest rate sensitive stocks? "With weak economic activity and WPI easing to 7.18%, it seems that the RBI will trim rates by 25 basis points in Jan 29. The RBI The will watch the Budget, assess the fiscal situation, and if convinced, another 25-50 bps cut is likely by March," says Phani Sekhar, Fund Manager - PMS, Angel Broking. Kishore Ostwal, CMD of CNI Research, however, is cautious in his approach. “I will adopt wait and watch policy. Inflation numbers easing to 7.18% does not indicate that the RBI will reduce rates. I expect that the Central Bank will maintain its hawkish stance in the next policy review meeting. Increase in fuel prices and train fares could prevent inflation from moderating in the near term,” he says. Among the rate sensitive stocks, while Shekhar of Angel is bullish on private sector banks like HDFC Bank, ICICI Bank and Axis Bank; Ostwal prefers Karnataka Bank and DLF.Source: Business Standard
Government defers GAAR implementation to April 2016
The government will delay by two years implementation of controversial rules on tax avoidance to 2016, Finance Minister P Chidambaram said on Monday, a decision which earned a positive market reaction and is likely to help attract more capital inflows. Announcing the decision to defer the GAAR, Chidambaram said the government had “accepted the major recommendations with some modifications” of a high-level committee headed by noted tax expert Parthasarathi Shome.fThe finance ministry said GAAR would override the double-taxation avoidance agreement if an arrangement was solely aimed at avoiding taxes but according to this Business Standard report, “experts said those coming under Indo-Singapore tax treaty and having tax residency certificates from Mauritius would escape GAAR. It would, however, not be invoked on those investing in stock markets through participatory notes.” The BSE Sensex rose as much as 1 percent after the news of the delay and after a slower-than-expect rise in inflation cemented hopes for an interest rate cut this month. “The indication from the government seems to suggest attracting capital flows is imperative for the economy and to fund the current account deficit,” said Dhananjay Sinha, co-head of institutional research at brokerage Emkay Global. Sinha added that the deferral was in line with India’s stated objectives and recent policy measures like opening up its supermarket and aviation sectors, which were also aimed at attracting increased foreign capital inflows. The current account deficit hit an all-time high of 5.4 percent of gross domestic product in the July-September quarter, putting the rupee under pressure and increasing the reliance on volatile capital flows to fund the shortfall. This reliance on foreign capital inflows to bridge the gap is regarded as a serious fault line in the economy, haunted by memories of a 1991 balance of payments crisis when the central bank sent 47 tonnes of gold to Europe as collateral for a loan to avert a sovereign default. Chidambaram said the anti-avoidance rules would not apply to foreign funds that were not taking tax benefits from India’s various tax treaties with other nations. The rules would also not apply to non-resident Indians running foreign funds, he told a news conference. According to the proposed rules, investments made before August 30, 2010, would not attract tax provisions under the rules. However, they would apply to investors who route through tax- havens such as Mauritius for getting tax benefits.
Outcry:
Outcry:
Chidambaram also said officials
from India and Mauritius would meet by March to review the provisos of a
bilateral tax treaty, signed in 1982. Since the island nation does not tax
capital gains, the treaty has been misused by many investors to evade
taxes. India gets nearly 40 percent of its total foreign direct investment
inflows through Mauritius, besides large portfolio investments. The minister
said the minimum threshold to come under the GAAR would be 30 million rupees,
and that would mean large number of taxpayers would not be
effected. India’s moves to toughen tax collection last year triggered an
outcry from global industry groups and were blamed for a fall in investment
flows into India. In response, Prime Minister Manmohan Singh set
up a panel to look at ways of addressing concerns that the new laws were
arbitrary. Another issue that displeased investors last year was an
amendment to income tax laws that empowers the government to retroactively tax
investments. The government is likely to approach parliament next month to
water down the rules that damaged investor confidence, which may help settle
British-based Vodafone Group long-running $2 billion tax dispute. Source:Firstpost
Tata Motors to undertake block closure at Jamshedpur plant
Persisting weak demand has forced Tata Motors take a three-day block closure at its heavy and medium commercial vehicles plant here between January 14 and 16, making it the fifth plant closure this fiscal. The plant has so far already seen a total of 16 days’ block closures in the current year, the last one for six days from December 25 to 31. In a notice put up at the company's plant here, Tata Motors said that it will go for a block closure for three days starting January 14. The plant will resume production on January 17. It is believed that the shutdown is being done to ensure that supply of trucks matches demand and the company wants to make sure that inventories remain at current levels. “We are doing the shutdown at Jamshedpur and it is to ensure that the production is made to align with the demand. Our inventory is under control and these steps are taken to make sure that it remains under control,” said a Tata Motors spokesperson. Telco Workers’ Union (TWU) sources said the unit, which had produced around 3,900 HCV/MCV chassis in December 2012 is targeting a production of around 4,000 chassis in January, which is way down from the average monthly production figure of around 9,000 in favourable times. In April-December 2012, Tata Motors' commercial vehicles sales fell 3% to 3.26 lakh units, according to the Society of Indian Automobile Manufacturers. The slowdown in industrial activity, especially in the mining sector, led to a 26% fall in Tata Motors' M&HCV segment. In this segment, Tata Motors sold 1.09 lakh units in April-December 2012 as against 1.47 lakh units sold during the same period last year. “We expect the M&HCV segment to remain under pressure until certain policy measures relating to mining and infrastructure are announced by the government in the coming budget,” said Sudarshan Shreenivas, associate director – corporate, India Ratings. “We expect the trend of shutdowns to continue for now on both cars as well as M&HCVs,” he added. “The market situation isn’t okay as yet; we are still in recession; we are producing chassis strictly as per market demand as raising inventory levels would only block funds,” said Chandrabhan Singh, general secretary, TWU, adding that an Army order the management was expecting hadn’t materialised so far. Singh said though the government had announced some measures to kick-start the economy, there wasn’t enough mining activity taking place yet either in the coal or iron ore belts in the country which would spur demand. Slow offtake of commercial vehicles has also forced adjunct units here like that of Tata Cummins, which supplies engines to the auto major, as well as that of subsidiary TML Drivelines, which produces axles and transmission systems, to act in sync and observe a similar production shutdown. RK Sinha, president, Adityapur Small Industries Association (ASIA), a forum of around 1,000-odd medium and small ancillary units supplying aggregates and parts to Tata Motors here told FE that though the current three-day block closure matched with Makar-Tusu-Lohri festivities, which generally kept the workforce away from the Adityapur industrial area here, the commercial vehicles industry was in a “delicate health” and if things didn’t get better financially from April, many units would have to close down.” Sinha said that Tata Motors’ output of around 3,900 chassis here in December, 2012 had been at 50% of its normal December output of previous years. “At Tata Motors’ 50% output, we are unable to meet ancillary units' expenses; if they are not achieving at least 70% production we will continue to incur losses”, explained the ASIA president. Sinha said though banks had become cooperative in rescheduling loans, the interest rate commencing from 13.5% onwards was hurting several of the ancillary units as they were “technically” competing in an international market today where the interest rate was much lower. “Several ancillary units with ASIA membership which had undertaken expansion in recent times were not able to justify their capital investment as they aren’t able to utilise the additional capacity set up by them. That too is killing us,” said the ASIA president, adding that while no industry could run without a loan, especially for working capital and for making capital investments, units often got closed only due to high interest rates. According to the ASIA president the current recession in the commercial vehicles industry was expected to continue “till at least the next six months”, with the chance however of a “small recovery” in February-March 2013 when all units associated with production of commercial vehicles in the country could, for showing a respectable production figure for 2012-13, go into production. Source: Financial Express
M&M to raise capacity of Quanto, XUV500 and Rexton
Mahindra & Mahindra (M&M) announced on Monday that it had hiked its production capacities
with immediate effect. This is in response ``to the overwhelming demand for the
Quanto, XUV500 and Rexton cross
the country,`` the company said
in a statement. Accordingly, the capacity of the Quanto has been aised to
3,500 units per month, the XUV500 to 4,500 units and the SsangYong Rexton to 500 units. The increase in
capacity is expected to bring down the waiting period for these popular
products. Bookings for these brands have been opened across more
centres in India. Mahindra`s Quanto has receivedbookings of more than
12,000 units within the first two months of its launch while deliveries for the
XUV500 are as per schedule. The
company`s premium SUV, the SsangYong Rexton,
with over 1,500 bookings across nine cities, is to be launched in
more cities this month,M&M said. In a statement, Pravin
Shah, Chief Executive, Automotive Division, Mahindra & Mahindra said,
``While we have been overwhelmed at the response from our customers to all the
three products which are at different price points, we thought it best to
expand capacities so that prospective customers are not inconvenienced with
long waiting periods. Shares of the company declined Rs 6, or
0.64%, to trade at Rs 935.25. The total volume of shares traded was 42,728 at
the BSE (Monday). Source:Myiris
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