Fundamentals March 1, 2013

Nik's Diary

The Indian market opened in the red mirroring negative opening trades in the SGX Nifty and most of the Asian markets as $85 billion of US spending cuts are set to begin. Also, a decade-low Indian GDP of 4.5% in 3QFY2013, reported after market hours yesterday, is expected to put pressure on Indian markets today. The US market showed a relatively lackluster performance over the course of the trading day on Thursday, as traders seemed somewhat reluctant to make any significant moves. The choppy trading on Wall Street came on the heels of the release of a mixed batch of US economic data, with traders weighing weaker-than expected GDP data at 0.1% against upbeat reports on jobless claims which dropped to 344,000 (against 366,000 last week) in the week ended February 23, 2013; and Chicago-area business barometer rising to 56.8 in Feb’13 from 55.6 in Jan’13. The European markets ended in positive territory on Thursday, on the back of better than expected economic data from the US. Meanwhile, Indian markets fell sharply on Thursday as the Union Budget proposed a 10% surcharge on individuals with `1cr income and slapped an added surcharge on local companies with taxable income of over `10cr. Also, bigger-than-expected outlay in the Budget for FY2014 continues to stoke fears of inflation and a tight monetary policy.

… But GDP growth at 4.5% in 3QFY2013 makes a case for more reforms 

Hit by poor performance of farm, mining and manufacturing sector, economic growth in the October-December period of the current financial year slipped to 4.5 percent -- decade's lowest quarterly growth. Concerned over the low growth, Finance Minister P Chidambaram Thursday said efforts are being made to achieve higher growth and hoped that GDP will grow by over 6 percent in the next financial year. The GDP had grown by 6 percent in the October-December period of last fiscal. The economic growth in the first nine months of this fiscal (April-December) stood at 5.1 percent, lower than 6.6 percent in the year-ago period. The economy had grown by 5.5 percent and 5.3 percent in the first quarter and the second quarter, respectively, of 2012-13. "The first half is 5.4. The second half must be below 5 if the prediction is 5 percent for the annual growth," Chidambaram said. "The growth rate for the next year, I am as confident as my Chief Economic Advisor advises me to be confident. I am as confident as the advice given by the Prime Minister Economic Advisory Council," he said. The Economic Survey of 2012-13 tabled in Parliament yesterday has predicted a growth rate of 6.1-6.7 percent for the next fiscal. During October-December quarter of 2012-13, manufacturing sector grew marginally by 2.5 percent, against 0.7 percent growth in the same period of 2011-12, according to data released by the Central Statistical Organisation (CSO) today. Farm sector output expanded by just 1.1 percent in the October-December period this fiscal, against 4.1 percent in the same quarter last fiscal. Mining and quarrying sector, however, showed some improvement and contracted by 1.4 percent during the quarter, as against a decline in output by 2.6 percent in the third quarter of 2011-12. Trade, hotels, transport and communications segment also witnessed lower pace of growth at 5.1 percent in the quarter against 6.9 percent in the same quarter in year ago. The growth rate of electricity, gas and water supply also dipped to 4.5 percent in the third quarter, from 7.7 percent witnessed in the same quarter of 2011-12. Construction sector expanded by 5.8 percent in Q3 of 2012-13, as against 6.9 percent in the year-ago period. Growth rate of services sector, including insurance and real estate, stood at 7.9 percent in the third quarter, against 11.4 percent in same quarter last fiscal. According to the CSO data, during April-December period of this fiscal manufacturing sector grew by just 1.2 percent against 3.6 percent in the same period last fiscal. In the first nine months of the current fiscal, mining and quarrying marginally recovered to a growth of 0.1 percent from a contraction in the output by 2.8 percent. The farm and allied sectors growth declined to 1.7 percent in the nine month period under review cent compared to 4.3 percent a year ago. Electricity, gas and water supply segment growth plunged to 4.7 percent in the nine month of the current fiscal compared 7.6 percent in the same period in 2011-12. Referring to fiscal deficit, the Finance Minister said that 4.8 percent target for 2013-14 is unlikely to be breached. "I have said the 5.3 percent is the red line that cannot be breached. Likewise 4.8 is the red line for this year that cannot be breached," he said. Commenting the GDP figures, Ficci said the numbers puts forth the persisting gloomy situation in the economy. "Though some initial signs of optimism were indicated in the declining inflation numbers and a mild upturn was seen in exports, current GDP data has once again come as a mood dampener. It reaffirms the fact that we might just record a growth of 5 percent this financial year," Ficci President Naina Lal Kidwai said in a statement. Assocham President Rajkumar Dhoot said that the figures reflect that the downslide of the Indian economy is yet to see the bottom and hence recovery remains elusive."Given the nature of policy proposals contained in the Union Budget for 2013-14, it seems that revival is going to be a long drawn process unlike in the case of 2009," he said. Source: Zeenews

MM hikes utility vehicle prices by over 2% with immediate effect

Super rich cars such as Aston Martin and Lamborghini and sports utility vehicles like Mahindra's XUV 500, Scorpio and Toyota Innova have become more expensive after the Budget announced a hike in customs and excise duties. Finance minister P Chidambaram increased excise duty on sports utility vehicles to 30% from 27%. "Space occupied' was the reason to tax SUVs," Anand Mahindra tweeted. "And yet, larger, more luxurious sedans are exempt. Neither an equitable nor an inclusive rule..." "The 3% increase in excise duty for SUVs came as a surprise. It will certainly have a dampening effect on the industry. While the tax in itself is a concern, what I am perplexed about is the criterion for ground clearance. I fail to understand why a higher ground clearance is a demerit!" says Pawan Goenka, president, automotive and farm equipment sector at Mahindra & Mahindra. This excise hike applies to all vehicles that carry 1500cc engines (both petrol and diesel), are over 4 m in length and have a ground clearance of 170 mm. It may include variants of sedans like Maruti SX4 (petrol) and Honda Civic. SUV prices could increase by Rs 20,000 to Rs 60,000. "Instead of giving sops to the auto industry to boost growth, the Budget has increased rates," says Kasturilal Wasan, dealer for Toyota, Ford and Tata Motor vehicles. The SUV segment has been the bright spot in the auto industry, which is in the throes of a slowdown. Superbikes and top cars were not spared either. Import duty on fullybuilt cars went up to 100% from 75% and motorcycles above 800 cc to 75% from 60%. The Porsche 911 will see prices go up by Rs 28.75 lakh to Rs 72.25 lakh, if the duty hike is passed on to customers. The Harley Davidson FXD, which retails in the Rs 10 lakh-Rs 12 lakh range, will see prices go up by Rs 1.5 lakh to Rs 1.75 lakh. "The Budget is negative for the auto sector," says Michael Perschke, head, Audi India. "Over the past two years, absolute duties have gone up by over 67%," adds Pavan Shetty, head, Lamborghini India. The swanky Aston Martin may see a price increase of Rs 45 lakh to Rs 1 crore. "As per the WTO agreement, customs duty was expected to progressively come down from 80% to 60%. Instead, it has gone up to 100%. This is a blow for us," says Sharad Kachalia, a Rolls Royce dealer in Mumbai. Source: Economic Times

Cairn India plugs a Sri Lankan well 

Against the backdrop of Sri Lanka going for a second licensing round to auction more blocks, the fourth well drilled in Sri Lanka’s Mannar basin by Cairn Lanka, a fully owned subsidiary of Cairn India, has been plugged and abandoned as a dry hole. “The well was plugged and abandoned and the rig is being demobilised. The Petroleum Resourced Development Secretariat (PRDS) is being notified,” said Cairn India in a statement. It further noted that they encountered multiple thick high quality reservoir sands, which were not hydrocarbon bearing. Cairn Lanka entered into the second phase of oil exploration in the Mannar basin with the drilling of the fourth well on February 2, three months before the scheduled date due to the early availability of a rig. In a recent Interview with Daily Mirror, Cairn India and Cairn Lanka Director Sunil Bharati speaking of the possibilities lying beyond the second phase said that there were several paths Cairn Lanka could take in going forward. “Depending on the results of the second phase, there could be two or three different paths available to us, as envisaged in the Petroleum Resources Agreement. Either we can choose to proceed to the third phase, which will again require drilling a commitment well and have a time period of one to two years, or not to enter the third phase but enter into an appraisal phase followed by a development phase.” “If we opt to enter the development stage, we will have to do a detailed appraisal to establish the volume of oil or gas available in the block, which will take one to two years. Only then will we know whether the block is commercially viable,” he said. He further added that both paths had timelines clearly defined in the PRA Cairn Lanka had entered into with the Sri Lankan government, with six months to one year extension periods. The statement released by Cairn India yesterday noted that the data, along with the results of the prior two discoveries, were being integrated to fully understand the future block potential. In October 2011, Cairn Lanka announced that it had discovered natural gas deposits in Dorado, an exploratory well located in the SL 2007-01-001 block in the Mannar basin. This was followed by a further announcement in November that the firm had discovered gas deposits with hydrocarbon potential in the second exploratory well, Barracuda. A third well was also drilled and subsequently abandoned as a dry hole.Meanwhile, Sri Lanka is currently preparing to launch a second licensing round to auction more blocks in the Mannar and Cauvery basins amidst interest expressed by oil majors in the world.  Source: dailylink

CCI approves United Spirits – Diageo deal

United Spirits has rallied 6% to Rs 1,943 in opening deals after Competition Commission of India (CCI) has approved UK major Diageo Plc's proposed majority stake purchase in the company. Under the deal, Diageo would acquire up to 53.4% stake in Vijay Mallya-led United Spirits, one of the largest spirits firm, within five years. “Approving the deal, CCI in an order dated February 26 said the proposed combination is not likely to have an appreciable adverse effect on competition in India,” the PTI report suggests. The stock opened at Rs 1,885 and touched high of Rs 1,999 on BSE. A combined 528,551 shares have changed hands on the counter on BSE and NSE. Source: Business Standard