The Indian market opened flat to positive, mirroring flat opening in the SGX Nifty and positive opening trades in most of the Asian bourses. Asian stocks are trading higher as South Korea’s industrial output has climbed unexpectedly. The US stocks edged higher over the course of the trading session on Tuesday. The strength that emerged on Wall Street reflected a positive reaction to the some of the latest earnings news, although buying interest remained somewhat subdued. The European markets ended the trading session on Tuesday with mixed results, as investors remained cautious ahead of U.S. FOMC announcement due today. Investors are also watching for some key U.S. economic data this week, including GDP on Wednesday and the jobs report for January, which is due to be released Friday. Meanwhile, the Indian markets ended a volatile session lower on Tuesday after the RBI reduced repo rate by 25 basis points, as expected widely, for the first time in nine months to support the government's renewed thrust to the reforms agenda. The central bank also unexpectedly reduced the CRR rate by 25 basis points, but signaled there was less room for aggressive policy rate cuts in future due to high inflation and the high level of current account and fiscal deficits.
RBI cuts Repo, CRR by 25bp each
Lending rates are set to fall after the Reserve Bank of India (RBI) on Tuesday trimmed both the repo rate and the cash reserve ratio (CRR) by 25 basis points each to 7.75% and 4%, respectively. The central bank last cut the policy rate by 50 basis points in April 2012 and has injected R1 lakh crore into the system since mid-September through a combination of open market operations and CRR cuts. Bankers believe there’s room to ease loan rates with R18,000 crore being freed up as a result of the latest cut in the CRR. “There will be monetary transmission because our costs will come down,” Aditya Puri, CEO and MD, HDFC Bank, observed at a press conference, while State Bank of India (SBI) chairman Pratip Chaudhuri said that the bank’s asset-liability committee will meet on Wednesday to decide on a rate cut. The good news for small savers is that they will continue to earn what they do now on fixed deposits because banks can’t afford to cut interest rates on these instruments. Concerns on slowing growth, well below trend, together with the government’s roadmap on fiscal consolidation convinced the central bank to opt for a rate cut, RBI governor D Subbarao said at a press conference. The central bank now expects the economy to grow at just 5.5% in 2012-13 compared with 5.8% earlier. “One of the main considerations for the rate cut was that growth has decelerated and consumption demand, in particular, has slowed,” the governor said, adding that lower interest costs and, therefore, lower working capital costs would help push up capacity utilisation currently at levels of 73-74%. “Economic activity has slowed, trailing well below its potential and opening up a negative output gap. What the economy needs most of all and most urgently is new investment,” Subbarao said. As for further cuts in the policy rate, the governor made it clear this would depend on the inflation trajectory and the size of the current account deficit (CAD. Inflation, he said, would need to fall more than currently anticipated while the CAD would need to narrow significantly for any further monetary easing. There would be “limited space for easing”, he said, if inflation and the CAD came in on expected lines though he refrained from defining an acceptable level for the latter. Together with the quality of the widening CAD — which came in at a shockingly high 54.4% of GDP in Q2FY13 — Subbarao said there was also concern on the kind of flows that were financing the deficit.The central bank, which has pared its inflation projection significantly for March 2013 to 6.8% from 7.5%, expects the price rise to gain some momentum next year before tapering off since the impact of the hike in diesel prices would kick in. Subbarao observed that while headline and core inflation had moderated, food inflation remained high and a concern. The governor said that the CRR had been trimmed since it was felt the system would continue to be structurally short of liquidity. This tightness could potentially hurt credit flow to productive sectors of the economy. The structural deficit in the system provided a strong case for injecting permanent primary liquidity into the system. While the equity markets sold off, the bond markets rallied with the yield on the 10-year benchmark inching lower, assuaged by the rate cut as also the comfort of additional liquidity. Governor Subbarao said the RBI would continue to infuse liquidity as and when needed. The government’s cash balances with the RBI, he noted, were unusually high and had been that way for some time. “We are discussing the spending pattern with the government to gauge what liquidity conditions will be like,” Subbarao said. Economists believe the central bank will cut rates by around 50-75 basis points more in 2013. “Given the elevated levels of the CAD and the CPI, we maintain our view of a further modest easing of 50 basis points in 2013,” wrote Citigroup economist Rohini Malkani. “A sticky inflation path may be ahead, with inflation hovering in the 6-7% range this year. Policy room, as a consequence, will be limited and the stance of monetary policy has to be cautious,” Deutsche Bank economists wrote.Source: Financial Express
TTMT plans to hire over 500 people for R&D at JLR
Tata Motors-owned Jaguar Land Rover plans to hire over 500 engineers and designers by March 2013, taking the total strength of R&D people to over 5,500, to support its new product development programme. In a filing to the US-based Securities and Exchange Commission (SEC), Mumbai-based Tata Motors said its British subsidiary may look for possibility of assembling of more models in India in addition to the existing sports utility vehicle Freelander and luxury sedan XF. Meanwhile, Jaguar Land Rover (JLR) has raised USD 500 million (over Rs 2,600 crore) through issue of bonds to support its operational costs and future growth plans. "By the end of fiscal 2013, JLR intends to grow its team of engineers and designers to over 5,500, up from approximately 5,000 at present to support its product development programme," the Indian auto major said. JLR's total employee headcount across the world has gone up by 21.24 percent to 25,368 people as on September 30, 2012, from 20,923 people as on September 30, 2011, it added. "JLR's employee cost increased by 38.17 to 615 million pound in the six months ended September 30, 2012, from 445.1 million pound in the equivalent period in 2011. The increase is attributable to greater production volumes and the recruitment of new employees both in manufacturing and engineering," the company said. The marque has recently announced to hire 800 people at Solihull plant to support the introduction of new model programmes. It has already recruited about 1,000 employees at each of its Halewood and Solihull sites and has added an additional shift at each site as well. JLR currently operates three major production facilities -- Solihull, Castle Bromwich and Halewood, employing a total of around 14,000 people as on September 30 last year, and two advanced design and engineering units, employing around 10,500 people, including the staff at its corporate headquarters at Whitley, the UK. Last week, JLR had said it is expecting to invest around 2.75 billion pounds (over Rs 23,300 crore) in 2013-14 fiscal on development of new products, expand Chinese business and explore production bases in new markets, among others. It is looking to invest around 2 billion pounds in 2012-13. Talking about its assembly operations at Pune, the firm said: "Freelander and XF vehicles have been assembled in a facility in India, operated by Tata Motors, since April 2011 and January 2013, respectively, with the possibility of expanding production to other models in the future." The company, however, did not share other details such as which could be the next model and when the assembly of that vehicle likely to start. "JLR aims to establish new manufacturing facilities, assembly points and suppliers in selected markets. For example, JLR has established a manufacturing and assembly joint venture in China with Chery Automobile Company Ltd. JLR is also exploring assembly operations in selected other markets," it said without sharing details. In a separate Tata Motors filing to the BSE, JLR said it has completed the transaction of issuance of USD 500 million senior notes, due for 2023, and priced them at a coupon of 5.625 percent per annum. "We are pleased to have completed this transaction successfully, which we believe demonstrates the confidence of the market in our company and plans," JLR Chief Financial Officer Kenneth Gregor said. The net proceeds from the issuance and sale of the notes will be used for general corporate purposes, including supporting Jaguar Land Rover's on-going growth and capital spending plans, the company said. Shares of Tata Motors were trading 0.05 percent down at Rs 308.40 apiece on the BSE during afternoon. Source: Zeenews
IDBI Bank reduces lending and deposits rate by 25bp
Bankers, on Tuesday, promised to reduce their lending rates soon after the Reserve Bank of India (RBI) cut repo rate and Cash Reserve Ratio (CRR). IDBI Bank was the first to take the cue and slash the rate. IDBI Bank’s loans, linked to Base Rate / Prime Lending Rate, will become cheaper following a 25 basis point reduction in its Base Rate to 10.25 per cent with effect from February 1, 2013. “IDBI Bank has taken this pro-active step, keeping in view the policy measures announced by the RBI in its third quarter review of Monetary Policy on Tuesday,” said IDBI Bank in a release. Foreign lender Royal Bank of Scotland (RBS), too, reduced its base rate by 0.75 percentage points to 9 per cent. “Today’s move by the RBI to cut repo and CRR by 25 basis points is in sync with our expectations,” it said. “The rate cut would be helpful in improving investment climate and start the capex cycle. SBI would do full monetary policy transmission and reduce cost of capital,” said Pratip Chaudhuri, Chairman, State Bank of India. Stating that there was room for monetary transmission, he said, “The overall cost of funds gets lowered by Rs.300 crore following the CRR cut which we will pass on to our borrowers without compromising on the net interest margin (NIM). “But how and in which pocket will it be, would be decided soon. Our ALCO (risk management committee in banks) will be meeting tomorrow [Wednesday] to finalise the details,” Mr. Chaudhuri told reporters. “Given that there has been a cut in both the CRR and repo rates, there will definitely be monetary transmission. There will not really be any pressure on the margins and will remain within the range,” said Aditya Puri, Managing Director, HDFC Bank. “Both the CRR and repo cut will definitely reduce our costs by about Rs.70 crore. So even if we reduce the rates, it will be on the incremental and not on existing portfolios in large cases,” Mr. Puri added. “There is a case for transmission this time, though policy rate in itself does not directly benefit the banks but the repo rate cut coupled with a CRR cut will help banks improve the earnings and banks might attempt at transmitting this benefit to the customers,” said K. R. Kamath, Chairman of India Banks’ Association. Source: The Hindu
RIL raises Rs 4,300 cr through perpetual bonds
Reliance Industries Ltd
(RIL) raised $800 million (Rs 4,300 crore) through perpetual bonds from
investors abroad to fund a Rs 1-lakh-crore capital expenditure plan to expand
its petrochemicals business and ramp up oil and gas exploration in the next
three to four years. The company, India’s most valued, raised the capital at a
coupon rate of 5.875 per cent, making it the first issuance of perpetual bonds
below six per cent in the world. Perpetual bond, by definition, has no option to repay the
principal amount and is seen as one of the cheapest ways to raise capital.
However, Reliance has a call option at the end of five years, which it may
exercise if it finds cheaper options of financing available in the market. The bond holders can sell their holding in the
secondary market. The issue was distributed primarily across the world, with
Asia having over 50 per cent share. It had participation from both retail and
intuitions such as life insurance companies. Citi, Bank of America Merill Lynch, HSBC, J P Morgan, RBS and Barclays were bankers
to the issue. The company's debt
profile also includes 10- and 30-year bonds and bank loans of five to six years
of maturity period. Reliance had Rs 58,627 crore as debt on its balance sheet
at the end of March 2012. Including the current issue, it further raised $4.8
billion in the current financial year. "We want 50 per cent of our debt to
be held by public in the next three to five years," said a company source
who did not wish to be quoted. “Currently, it is 20 per cent with public while
the rest is through syndicated loans," he said. The company also has a
natural inclination for longer duration debt. Reliance is also sitting on a
cash pile of Rs 75,000 crore and is using the low interest rates in the markets
to cut costs of its debt. Soon after its third quarter results, it said that it
expected KGD6 gas volumes to weaken till FY15,
pending completion of booster compressors at D1-D3 fields. Reliance is drilling
a development well in the satellite fields and plans to file an integrated
field development plan in the current quarter. When developed, IFDP will drive
new volumes after FY16. In addition, the company has low leverage, and strong
cash flows and liquidity. Standard & Poor’s ratings services had assigned
its 'BBB' long-term issue rating to Reliance’s unsecured perpetual notes.
"The rating on Reliance reflects the company's strong competitive position
and good business diversity,” it said in a statement. S&P added that there
were factors that could temper these strengths. Reliance’s vulnerability to the
cyclical nature of its industries and commodity prices, exposure to country
risks in India, falling production at Krishna Godavari basin, and the company’s
aggressive growth strategy were some. “The company’s ‘satisfactory’ business
risk profile reflects the company's competitive strength, which we attribute to
its large scale and integrated and efficient oil refining and petrochemicals
operations,” the statement added. Reliance’s ‘intermediate’ financial risk
profile reflects the company’s low debt. “We expect Reliance’s ratio of debt to
Ebitda (earnings before interest, taxes, depreciation, and amortisation) to be
below 1.2x for the next two years. We have adjusted the debt for cash and cash
equivalents exceeding Rs 75 billion (Rs 7,500 crore). Nevertheless, the
company’s use of its high cash holdings of more than $14 billion will highly
influence its financial metrics,” S&P said. According to the rating agency,
the positive rating outlook on Reliance reflects its view that the company has
a large cash surplus to protect its financial strength against any potential
deterioration in operating conditions.Source: Business Standard
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