Market Volatility,Investor Exits Dent Funds Profits

Barring HDFC & Reliance,several funds including ICICI,Tata,Kotak see double-digit declines

Most fund houses posted lower net profits in FY11,thanks to market volatility which eroded their assets and the loss of risk-averse investors who moved to safer havens.According to data provided by Amfi,investor portfolios fell by about 1.5% the first six months of the last fiscal (April 10-September 10) alone with fund houses like Tata and Kotak reporting a roughly 6-7 % drop.

Similarly,the average assets under management (AUM) of the MF industry as a whole dropped by 9% during FY11 with fund houses like ICICI and UTI posting a double digit decline ranging between 11% and 15%.The impact of the loss of AUM and investors is clearly visible on the financials of many of these asset management companies whose net profits have taken a severe beating in FY11 compared with the previous fiscal.An analysis of the financials of some of the prominent fund houses of the country reveals that barring the top two fund houses of the country by asset size Reliance MF and HDFC most others have posted a double digit decline in profitability.Prominent names include ICICI,Sundaram,Tata,Kotak and UTI.

Stagnant top-line growth,in terms of poor recovery of management fees during the year,can be cited as one of the key reasons.The revenues have clearly failed to compensate for the significant rise in the administrative expenses,thereby pressurising the margins of these asset management companies.

Core revenue or the management fees,of fund houses such as Kotak and ICICI saw a significant drop of around 37% and 18%,respectively.As a result,while Kotak asset managements net profit has plunged to around.11 crore in FY11 from.66 crore in FY10,ICICI Asset Managements net profit fell 44% to.72 crore from.128 crore.Net profits of Tata and Sundaram also declined by about 47% and 36%,respectively as revenue failed to keep pace with rising costs.

HDFC AMC is the only fund house in our sample list that has reported a 16% rise in management income and an equivalent rise in the profitability during the fiscal year.bakul.chugan@timesgroup.com

Global Headwinds likely to Keep Markets on Edge

Excitement over RBIs rate pause may subside as eurozones debt woes seen far from over

DEEPTHA RAJKUMAR MUMBAI

The domestic stock market will remain volatile in the near term and investors will keenly watch developments in Europe after EU leaders chalked out a deal last week to tackle the debt crisis plaguing the region,said equity analysts.Strategists term the eurozone deal more of a quick fix helping European leaders buy time to address the larger structural issues.Some feel that the deal does not address the underlying structural issues that peripheral countries,including Italy and Spain,face.

The fate of financial markets in coming weeks and months will be decided primarily by what is determined in eurozone,Christopher Wood,chief equity strategist at CLSA Asia Pacific Markets,said in a note to clients.The failure to find a magic wand has led policymakers into time-consuming debate over stopgap substitutes which tend to be more complex than productive, he said.

On Friday,the benchmark Sensex posted its largest weekly gain in two months on hopes that the plan announced by European leaders to solve the debt crisis may ease pressure on financial markets.Indian shares were also boosted by indications of a pause in interest rate tightening by the central bank and robust growth data in the US.In the week ahead,the domestic stock market will also take cues from the earnings announcements of Nifty majors,including HUL and ICICI Bank,US Federal Reserves meeting on Wednesday and G20 summit in France on Thursday.Markets could rally strongly in response to the change in (RBI) stance and some signs of relief to the issues in Europe, said Bharat Iyer,executive director and head-India equity research at JP Morgan.But the froth could subside as near-term data points that growth could likely disappoint, he said.Most equity strategists are sceptical about the sustainability of the stock market rally.

Trading environment will be volatile and markets nervous as global macro environment is going through big adjustments.Investors should be cautious but remain invested for the longterm in India, said Ramit Bhasin,managing director and head global markets at RBS.Bhasin,who is bullish in the near term,said a lot of bad news was priced in and the markets will chase returns going into year end.Even though most markets have bounced 10-15 % from their recent lows,we feel global investors have very little risk on,especially their exposure on India, he said.

Weekly Sector Outlook

Bank Stocks Outlook:

1. Bank stocks are expected to maintain their positive technical momentum from today's trade in the coming week, with short covering likely in most counters.

2. According to a NewsWire18 brokerage poll, ICICI Bank's Jul-Sep net profit is expected to rise 17% on year, but low fee income is seen affecting its margins. High provisions are seen denting Bank of Baroda's Jul-Sep net profit that is seen up just 6% versus up 20% in the previous quarter.

Pharma Stocks Outlook:

1. Shares of pharmaceutical companies are seen in a range next week as investors are expected to opt for non-defensive sectors on expectation local equities will rise further, market participants said.

2. Some profit booking is likely in shares of pharma companies after the BSE Healthcare index climbed 4% in this holiday-shortened week, dealers said.

3. Next week, stocks of some companies may react to their Jul-Sep earnings. Ipca Laboratories, Divi's Laboratories, Orchid Chemicals & Pharmaceuticals, Suven Life Sciences, and GlaxoSmithKline Pharmaceuticals are scheduled to detail their quarterly performance in the week.

Capital Goods Stocks Outlook:

1. Shares of capital goods and engineering companies are expected to trade in a narrow range next week, with news-based developments influencing select stocks, analysts said.

2. The outlook for capital goods sector, especially companies with exposure to the power industry, is seen dismal due to issues such as payment defaults by state-run utilities.

Steel Stocks Outlook:

1. Shares of steel majors are likely to gain in the next week on positive sentiments after Eurozone leaders struck a deal on Wednesday to resolve the debt crisis in the region, dealers and analysts said.

2. All the frontrunner steel stocks gained 6-10% today as the likely end of European debt crisis improved hopes of revival in demand.

IT Stocks Outlook:

1. Tracking the market, shares of major information technology companies are likely to remain rangebound with a positive bias next week, dealers and analysts said.

2. The sector will also take cues from Wipro Ltd's Jul-Sep earnings that will be announced Monday.

FMCG Stocks Outlook:

1. Shares of fast moving consumer goods companies are seen rangebound next week, with action likely to remain stock-specific due to Jul-Sep earnings, market participants said.

2. Hindustan Unilever and Dabur India will be in focus on Monday, with both the companies announcing their second quarter earnings.

Telecom Stocks Outlook:

1. Shares of telecom service provider companies are seen trading in a range next week, but the bias will be positive due to the optimism in broad market, dealers said.

2. Telecom stocks rose between 1%-6% during the week due to the positive sentiment in the market.

Oil Stocks Outlook:

1. Investors may continue to dump shares of state-owned oil retailing companies, which are expected to post losses in Jul-Sep, as government compensation for sale of petroleum products at subsidised rates eludes them.

2. Rise in crude oil prices is a gain for upstream companies like Oil and Natural Gas Corp, Cairn India and Oil India as it improves their realizations on crude oil sales.

Cement Stocks Outlook:

1. Shares of cement companies are likely to rise further next week tracking the bullishness in the market, and due to expectation of strong data on October despatches, dealers and analysts said. Strength in the market pushed the shares up 2-8% today.

2. The stocks are likely to get support also from value buying, some analysts said.

Auto Stocks Outlook:

1. Automobile stocks would largely track the broad market next week, but corporate earnings could trigger some stock-specific action, analysts said.

2. While the broad market would take cues from the US consumer spending data and the Eurozone debt deal, investors would eye the monthly sales data and Maruti Suzuki's Jul-Sep earnings before taking a call on auto stocks.

Oil Drops on Japan Output, Pares Biggest Weekly Gain Since March

Oil fell in New York, paring its biggest weekly gain since March, as a drop in Japanese industrial output countered bets that U.S. economic growth and a deal to tame Europe’s debt crisis will boost fuel demand.

Futures slid as much as 1 percent after Japanese factory production declined 4 percent in September from the previous month, almost twice as much as the median estimate from economists surveyed by Bloomberg News. Prices rallied yesterday after data showed the U.S. economy grew in the third quarter at the fastest pace in a year and European leaders agreed on a plan to curb the region’s debt crisis.

“Up here oil is expensive given there is no real pressure on demand yet, it’s just all optimism,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. The drop in Japanese manufacturing “would alleviate demand for crude. It should create softness in the price,” he said.

Crude for December delivery decreased as much as 96 cents to $93 a barrel in electronic trading on the New York Mercantile Exchange. It was at $93.09 at 3:38 p.m. Singapore time. Yesterday, the contract advanced $3.76 to $93.96, the highest settlement since Aug. 1. Prices are 6.5 percent higher this week, set for the biggest gain since the period ended March 4. Futures have climbed 1.9 percent this year.

Brent oil for December settlement on the London-based ICE Futures Europe exchange lost as much as 72 cents, or 0.6 percent, to $111.36 a barrel. The European benchmark contract was at a premium of $18.53 to New York crude, compared with $18.12 yesterday and a record settlement of $27.88 on Oct. 14.U.S. Growth

The U.S. economy, the world’s largest, expanded at a 2.5 percent annual rate, up from 1.3 percent in the prior three months, Commerce Department data showed yesterday. Household purchases, the biggest contributor to gross domestic product, rose at a 2.4 percent pace, more than forecast by economists.

European leaders cajoled bondholders into accepting 50 percent writedowns on Greek debt and agreed to boost a rescue fund to 1 trillion euros ($1.4 trillion) in a package intended to tame a crisis that threatens to slow the global economy and curb demand for commodities.

The U.S. is the world’s biggest oil consumer, using 19.1 million barrels a day in 2010, or 21 percent of global consumption, according to BP Plc’s annual Statistical Review of World Energy. The European Union accounted for 16 percent of the total and Japan for 5 percent.

Highlights of RBI's second-quarter review of FY12 monetary policy

Following are the highlights of the Reserve Bank of India's Second- Quarter Review of Monetary Policy for 2011-12 (Apr-Mar):

MEASURES

* Hikes repo rate 25 bps to 8.50% with immediate effect

* Reverse repo rate adjusts 25 bps higher to 7.50%

* Marginal standing facility available at 9.50%

* Cash reserve ratio unchanged at 6%

* Deregulates savings bank deposit with immediate effect

MAIN HIGHLIGHTS

* Likelihood of rate hikes at Dec review very low

* FY12 GDP growth projection lowered to 7.6% vs 8.0% earlier

* Mar-end inflation projection retained at 7.0%

* Retains FY12 Money supply growth projection at 15.5%

* Retains FY12 non-food credit growth projection at 18%

* Inflation to fall Dec onwards, seen 7% Mar-end

* Inflation to moderate below 7% in H1 2012-13

* Inflation to fall on past policy steps, commodity price fall

* Inflation fall to impact expectations "favourably"

* Inflation fall to give policy room to address growth risks

* Likelihood of rate hikes at Dec review very low

* Rate hikes beyond Dec not warranted if WPI meets projection

* Future policy steps to hinge on evolving macroeconomic condition

* Need concerted steps on all fronts to mitigate inflation risk

* M3, loan growth trends above indicative trajectories

* Loan growth slowed for sometime, then accelerated further

This Festive Season,Strike it Rich with Gold...

... silver and platinum.These precious metals are good long-term investments.But diamond can be tricky,say experts

PREETI KULKARNI & VIDYALAXMI

Diwali is here again.As always,many individuals would make a beeline to buy gold,silver or other precious metals and stones this festive season.However,given the phenomenal rise in the prices of some of these precious commodities,does it make sense to buy them now Read on to find out what experts have to say.

GOLD

The yellow metal be it in the form of coins,bars,or jewellery is always the first choice and is in great demand on the auspicious day.

FOR IT:

We are bullish for the medium term.There is growing uncertainty due to the Eurozone debt crisis and the effect of it is not yet built into the current price.Gold is moving in line with asset classes such as commodities and equities for some weeks now and there is ground for a rise in price, says Puneet Kapoor,executive vice-president,Kotak Mahindra Bank.He feels that while the threat of a stronger dollar continues to stand in golds way and risk sentiment may turn a little sour as investors become more nervous about Europe,as of now,gold's price should remain well supported with decent upside potential.For two-three years time horizon,we would say definitely buy gold,even at current levels.One can adopt a staggered buying strategy.We dont see prices going down soon, says Jigar Pandit,assistant vice-president,commodities and currencies,Sharekhan.Even for those looking from the consumption point of view,this is a good time to buy gold.Gold prices have corrected by almost 10% from their peak levels.Hence,it is a good entry point to buy or invest now as gold prices are expected to peak again, says Sanjeev Agarwal,CEO,Gitanjali Export Corporation.

AGAINST IT:

Gold per se doesnt have any economic value and,thus,there is no value addition.For the long term,one cant expect gold to multiply your net worth.The amount of gold sitting in vaults due to purchases by ETFs is at unprecedented levels.This is the result of other financial assets being liquidated and money being moved into gold.While we would not see a bubble popping in the near future,volatility will rule the roost and money could move out of ETFs just as easily as it found its way in, says Aditya Apte,partner with investment advisory firm The Tipping Point.

SILVER

Though not such a hot favourite like gold,some people also buy silver.Sure,the appreciation in value is the last thing in the mind of someone buying an article that would be used for special pujas,still it wouldnt hurt to find out what the future holds for the white metal.

FOR IT:

Its availability is limited and no new sizeable resources are being discovered.Silver has uses in industry and has some actual economic value apart from being just a precious metal.In fact,a lot of new-age industries in energy and technology use this metal and its requirement has gone up substantially as the adoption of these technologies has increased, says Apte.The economic use of silver makes it a good investment choice.Silver is extremely volatile and has fallen substantially from the peaks it made earlier this year.This would be a good time to purchase the metal if the objective is consumption, he says.People who cannot afford gold have shifted their demand to silver and this is also keeping the prices high.Compared with gold,there are fewer emotional strings attached to silver and,hence,it is more liquid.In the longer term,we are bullish on silver, says Jigar Pandit of Sharekhan.

AGAINST IT:

The use of silver in industry could get dampened as prices rise and if the economics do not work out,people will seek other alternatives.When this happens,the prices will fall as demand will be only due to its consumption as a precious metal.These are long-term considerations,but in the shorter term,one important point to remember is that price volatility will be high and,thus,only those who can stomach the risk should venture here (into silver), says Apte.The demand for silver usually comes from jewellery and industrial use.Hence,you can add silver to your kitty as an investment,but it cannot be given the same priority as gold, says Agarwal.Since its fortunes are linked to the industrys to some extent,you need to a keep an eye on developments concerning the industry,too.

PLATINUM

It has caught the fancy of the urban youth lately,but most analysts refuse to include it among assets meant for investment.They believe the market for platinum is still at a nascent stage.

FOR IT:

Till recently,platinum was sold at a premium to gold.But,after the bull run in the yellow metal,the gold and platinum prices are at the same level today.Platinum looks attractive at the current price levels, says Agarwal.

AGAINST IT:

In a country obsessed with the shimmering metal,the platinum market is now at a very nascent stage.Only a select few jewellers sell platinum in India,which means that the buy-back policy is not as customer-friendly as with gold.You cant just walk into any store and sell platinum jewellery.If you are planning to buy platinum from an investment perspective,you will have to wait for the market to mature, says Agarwal.

DIAMOND

They may be the best friend of women,and Bollywood A-listers may be hardselling them.But experts are unsure of its investment value,mainly because of a lack of transparency in determining the price.They also feel that investors will end up with inferior quality stones if they are novice to the field of diamonds.Diamond cannot be considered as investment since there is no strong price discovery mechanism and there is no standard benchmark price tracked on a daily basis,say experts.Rapaport price is a loose benchmark for the price of diamonds.The mean price is lower or higher to this price.It is based on external conditions such as demand-supply and foreign exchange.Moreover,De Beers swings the market to a certain degree given that it is the big boy of the industry.It artificially suppress the demand or supply depending upon the market condition.Hence,the pricing is not as transparent as gold, says technical analyst Vijay Bhambwani,CEO of bsplindia.com.Also,buying back diamonds is not as easy as gold because of concerns over quality.Branded stores refuse to buy diamonds not sold by them.They promise to buy back their diamonds at 85% of the prevailing rate,minus the making charges.The diamond market has attracted a lot of fraudsters because of its price.20 years ago,the market was flooded with American diamonds,which are not of superior quality.Also,a fraudster can craft fake diamonds,which are very difficult to identify even with several lab tests.One has to really have an eye for diamond to check its authenticity, says Bhambwani.preeti.kulkarni@timesgroup.com

New Rules Make Many Cos Vulnerable to Takeovers

Investors can now buy up to 25% in cos without triggering an open offer

The new takeover rules for listed companies,which came into effect on Sunday,have exposed nearly one-twelfth of the listed firms to the threat of corporate raids as promoters of such entities will now have to shell out a fortune to scale up stake,said experts.However,the new norms will give more leeway to investors by allowing them to acquire stake in firms without triggering an open offer till 25%,which is 10% more than the previous cap.Nearly 460 companies,out of 5,082 firms listed on BSE,have less than 25% promoters stake,according to an ET Intelligence Group study based on the latest shareholding patterns.The list includes Infosys,Mindtree,Redington India,Firstsource Solutions,Nagurjuna Constructions,Moser Baer and PTC India.

A holding of at least one-fourth stake is necessary for promoters as it makes them eligible to scale up stake by 5% every year under the new norms and empowers them to block a special resolution,in case one is mooted against them.Important business items ranging from changing a companys name to raising capital needs can be treated as special resolutions.Low promoters shareholding in a listed company is a matter of concern as it makes the entity vulnerable, said Sourav Mallik,senior ED,M&A,Kotak Investment Bank.Promoters with less than 25% equity control and no support from institutional investors are at risk of receiving takeover threats,said Vivek Gupta,partner (M&A ) with BMR Advisors.The new regulations stipulate that persons holding less than 25% voting rights in listed companies will have to make a 26% open offer if they cross the 25% mark, said Somasekhar Sundaresan,partner at legal firm J Sagar & Associates.However,sickcompanies and banks having less than 25% of promoters stake are not exposed to takeover threats for different reasons.Sundaresan,who was a part of the Sebi committee whose recommendations formed the base for the new takeover norms,said the regulations would not make banks with less than 25% holding soft target to corporate raids as lenders are governed by different regulations that dont permit any investor to buy more than 5% equity in a bank without the central banks approval.

The RBI is not expected to grant such approval at all.Those holding more than 5% in a bank are expected to come to below that level, he said.Sick companies being monitored by Board for Industrial and Financial Reconstruction (BIFR) and firms undergoing corporate debt restructuring (CDR) will be exempted from the new takeover rules,said Rajive Kaul,chairman at Nicco,a BIFR-firm.However,some experts did not concede to the view that the new rules are aimed at corporate takeovers.Sebi had announced the new norms in June,giving promoters with low holding ample time to scale up their stake.But most of the promoters did not use the opportunity,said the chairman of a company where promoters hold less than 25%,requesting anonymity.Mahindra & Mahindra is an exception where the promoters raised stake by a shade over 25% to make them eligible for creeping acquisition without triggering 26% open offer.Under the new norms,investors can scale up their stake to 25% from a previous cap of 15% without kicking off a mandatory open offer.The list of such companies include EIH (ITC and Reliance Industries hold a tad less than 15%),Hotel Leelaventure (ITC holds 13% stake) and JSW Steel (JFE owns below 15%).Traders have made positions in some of these counters,anticipating renewed interest of existing investors, said Motial Oswal,chairman and managing director,Motial Oswal Financial Services.They may offload shares if stock prices flare up. The increased threshold will give investors like PE funds,more headroom to have higher economic interest in companies,said Kotaks Mallik.

Under Siege

As much as 460 of the 5,082 firms listed on BSE have less than 25% promoters stake Promoters need at least 25% as it makes them eligible to raise stake by 5% every year and empowers them to block special resolutions Promoters of such entities will now have to shell out a fortune to scale up their stake to 25%

Weekly Sector Outlook

Bank Stocks Outlook:

1. Stocks of banks are likely to remain in a range next week in view of the Reserve Bank of India's second quarter monetary policy review on Tuesday, analysts said.

2. Besides the RBI's policy review, the quarterly performance of banks will be in focus next week. Axis Bank, Kotak Mahindra Bank, Union Bank of India , and Allahabad Bank are among the banks that will announce their Jul-Sep earnings in the week.

Auto Stocks Outlook:

1. Automobile shares are seen taking cues from the monetary policy review next week, analysts said. The Reserve Bank of India is widely expected to go in for at least another 25 basis points hike in policy rates during the upcoming review on Oct 25.

2. "A rate hike would always be negative for auto stocks. Whether it (RBI) hints at a pause is what the markets are keen to learn," an analyst with a domestic brokerage said.

3. Society of Indian Automobile Manufacturers has even downgraded its passenger car sales growth forecast for the current financial year to 2-4%, the slowest since 2008-09 when sales had risen by a mere 1.4%.

Pharma Stocks Outlook:

1. Shares of drug makers are likely to trade in a narrow range along with the broad market next week in the absence of much action in the sector. However, the street will keep an eye on the Jul-Sep earnings of the companies, analysts said.

2. According to Anand Rathi Research, profit growth of pharmaceutical companies is likely to be marginal due to higher interest costs led by rising interest rates, and a higher effective tax rate on account of the increased minimum alternative tax rate and the exhaustion of tax benefits for export-oriented units.

Capital Goods Stocks Outlook:

1. The festival of lights will bring no joy to capital goods stocks next week as poor quarterly performances and unfavourable macroeconomic conditions are seen weighing on the investor sentiment, analysts said.

2. "If further tightening is seen (in interest rates), there will be pain in the sector," said an analyst with a local brokerage. A hike in interest rates would force capital goods companies to put expansion activities on hold, which in turn will put pressure on their order books.

Cement Stocks Outlook:

1. Shares of most cement majors are seen moving in a narrow range with a positive bias next week, as the negative sentiment of UltraTech Cement Ltd's poor Jul-Sep earnings has been factored in, and analysts expect cement makers' performance to improve in the coming months.

2. "Cement producers have reduced production levels leading to shortage in the market with no sales in the non-trade segment and supplies being diverted to trade segment to exploit the premium of 10-15 rupees per bag," Emkay Global Financial Securities said in a note this week.

IT Stocks Outlook:

1. After a steep fall this week, shares of major information technology companies are seen trading range-bound with a positive bias next week, dealers and analysts said.

2. The market has factored in most of the disappointments of Jul-Sep earnings posted by sector majors and there should be some value-buying at these levels, a Mumbai-based analyst said.

FMCG Stocks Outlook:

1. The shares of fast moving consumer goods companies are expected to continue outperforming the market, with Hindustan Unilever and ITC being in focus due to their Jul-Sep earnings next week, analysts said.

2. "The FMCG stocks are seen to be favoured by investors due to strong fundamentals, which attract investors from other sectors such infrastructure, real estate, which have not performed well," said a dealer.

Oil Stocks Outlook:

1. Shares of state-owned oil marketing companies have come under pressure once again as crude oil prices have gained over the past two weeks, and the rupee has weakened further against the US dollar.

2. "Even after assuming higher oil prices and faster ramp-up, we believe that the stock does not offer significant upside from current levels," Elara Securities said in a report.

Telecom Stocks Outlook:

1. Shares of telecom service providers are seen trading in the positive territory next week, erasing some of the losses they suffered in the week gone by, dealers said.

2. "The December quarter is full of festivals and is thus the most rewarding for telecom companies as calls and SMS' increase substantially in this period. It is going to be keenly watched as the effect of price increases in the last quarter is now slowly going to roll out in this quarter," an analyst with a domestic brokerage said.

Diwali may Not Light Up Realty Deals

Industry braces for 25-30 % drop in transaction volumes in top six property markets

The period around Diwali is usually the best time in the property trade,but this festive season a triple cocktail of volatile markets,double-digit interest rates and poor consumer confidence in a slowing economy has hit sales volumes,portending hard times for Indias real estate sector.Some brokers and market experts are bracing themselves for a 25-30 % drop in transaction volumes in the countrys top six property markets during the October-December busy season,which,if it happens,could trigger a competitive spiral of discounting to get rid of mounting inventories and restore depleted cash levels.But builders are holding on to price levels,while buyers,reluctant to book flats at current price levels and interest rates firmly in double digits,remain convinced that its only a matter of time before the penny drops.

Which side will blink first is still not certain,even though some builders concede all is not hunky dory.There may not be much of a light for developers during this Diwali, said Niranjan Hiranandani,chief of Mumbai-based builder Hiranandani Group.It may not turn out to be a good one in terms of sales activity. Property developers are trying their best to woo buyers with festive offers,although these have failed to have much of an impact so far.With high inflation eating away at their earnings and high financing costs,buyers are looking for a significant correction in property prices rather than some festive season freebies.Builders need to accept reality.

This acceptance will lead to price correction and revival in volume, said Pankaj Kapoor,managing director of Liases Foras Real Estate Rating & Research.Kapoor attributes the drop in sales volumes to steep property prices,rising interest rates and poor supply of socalled affordable housing projects.Usually,during the festive season,prices firm up and there are new launches as well.But this season,both the inventory and prices of residential properties have remained static, said Samarjit Singh of Agni Property,a property brokerage.The National Capital Region,comprising the satellite towns of Noida,Gurgaon and Faridabad,bordering Delhi,which turned in good sales numbers in the past two years,is facing supply constraints.This is particularly true for Noida,which has seen a slew of regulatory actions,prompted by farmers agitation over land acquisitions.Singh said a lot of developers are repackaging their previously unsold inventory with special discounts to push sales.

Lodha Developers in Mumbai and Ansal API in Delhi are among the builders who are repackaging their older inventories with newer discounts.As far as sale of plotted land and mid-income housing is concerned,demand is intact in NCR and good sales traction is expected during this season, said Anil Kumar,chief executive of Ansal API.However,sales may take a hit wherever there are issues of land title.

NO PRICE CUTS

While property brokers said that booking momentum is low in most markets,builders have said that steep price cuts are out of the question.I dont know how prices can be reduced at a time when taxes,premium,input and labour costs are going up Supply needs to be augmented to see any price correction, said Hiranandani.Most developers said it is still early days in the festive season and expressed confidence that bookings will pick up.Dharmesh Jain,chairman and MD of Nirmal Lifestyle,a Mumbai-based developer,remains confident that demand exists.We are sure we will be able to convert most of the enquiries into bookings.

But lenders and analysts feel that the slowdown is for real and inventory levels are steadily rising on builders books.Every year neednt be a bumper year, said Sandeep Kotak,executive vicepresident (commercial real estate) at Kotak Mahindra Bank.Obviously,theres a slowdown compared to the previous year.As long as home loan rates continue to be over 10%,a significant improvement in home sales is unlikely. Madhukar Ladha,realty analyst at brokerage HDFC Securities,said it is only a matter of time before the pressures start showing.With inventory (in Mumbai) rising to 108 million sq ft equivalent to 40 months sales and increasing pressure (on developers) from banks and investors to sell in order to generate revenues,a correction of 10-15 % is expected during the festive season, he said.

TOUGH GOING

In centres other than Mumbai and Delhi,some signs of stress are showing.In Bangalore,some builders are offering discounts of 10-15 % on up-front payment to serious buyers.Incentives such as complete home furnishing,free stamp duty and registration are being offered by builders.A similar trend is seen in Chennai and Hyderabad.The festive season is unlikely to have any bearing on the real estate market, said Irshad Ahmed,president of Irshad Property Matter,a Bangalore-based brokerage.Farook Mahmood of Hyderabad-based brokerage Silverline Group said no discount is being offered by big builders in the city.There has been little slowdown due to multiple interest rate hikes.

Hyderabad has also seen a drop in sales due to the Telangana issue, he said.In Ahmedabad,developers are offering around 5% discounts.Experts said a price correction looks imminent,although developers are talking of a 10-15 % price rise after Diwali.In Kolkata,sales in the low-end segment have been affected,but only marginally because of high rates.Buyers are still in the market,although some of them have lowered their space requirements to adjust their budgets to high prices and rates.In Pune,another relatively stable market,the sales scenario is gloomy,but that has not prevented prices from going up.Bookings have slipped about 30% so far against the corresponding period last year, said Nitin Degaonkar,founder director of Home Buyers Combine.(Additional inputs from Meenakshi Verma Ambwani,Sobia Khan,Anuradha Himatsingka & Avinash Nair).

High Rates No Bar,Bank Loans Grow 20% on Retail Demand

Loans have grown over.50k cr in a fortnight to touch.41.5 lakh crore

Bank loans have surged more than.50,000 crore in just one fortnight,almost a third of what the banking system loaned in the first half of this fiscal,contradicting theories that high rates are keeping borrowers away.

For the fortnight ended October 7,loans grew 20%,or.55,442.58 crore,to.41.5 lakh crore,data from the Reserve Bank of India shows.Although new project proposals have come to a trickle due to various issues such as government approvals,demand for funds from consumers remain strong as well as for those projects that were announced in the past.Also,the numbers could have been partly inflated by banks as they attempt to show high growth to meet their firsthalf targets.

Despite high interest rates,sales of motorcycles,televisions and air-conditioners have been strong,as consumers flush with higher disposable incomes spend on improving lifestyle.Individual affordability and desire to own homes and cars and the positive sentiment continues to drive retail loan growth, said Paresh Sukthankar,executive director,HDFC Bank.Loan growth for the bank has been robust with retail loan growth outpacing the demand for corporate loans.

Surge in loans translates into an annual growth of 19.6%,higher than the central banks comfort level of 19%.It is a bit lower than 20.1% during the same period last year.On an incremental basis,loan growth works out to 5.2% compared to 6.9% a year earlier.The Reserve Bank of India has raised interest rates 12 times since March 2010 to tame inflation which has been running at more than 8% for about a year and a half.

While price pressures have not eased,companies have been seeking a pause in rate increases.But the central bank is not inclined to change its tightening stance.The demand is reflected in surging retail loans.

HDFC Bank,which reported September quarter earnings,said retail advances rose 34.2% to.92,878 crore.Rival IndusInd Bank's retail assets grew 30% in the same period.But the new projects,especially infrastructure ones such as roads,power plants and ports,seems to have stalled.New project-related enquiry continues to be sluggish.Corporates continue to fund on-going capex plans, said HDFC Banks Sukthankar.

Sugar Shortages Extend Across Europe as Global Glut Expands: Commodities

At a time when the world is facing its biggest sugar glut in at least four years, trade barriers mean the European Union is contending with a second consecutive annual shortage.

EU supply will fall 1.1 million tons short of demand in the 12 months ending in September, according to the Committee of European Sugar Users, whose members include Nestle SA (NESN), Unilever and Kraft Foods Inc. Global output will exceed usage by 5.32 million metric tons, Macquarie Group Ltd. predicts. As world sugar prices fell 22 percent in the past eight months, costs in the 27-nation bloc reached a two-year high.

The EU, once the second-biggest sugar exporter, spent about 5.2 billion euros ($7.1 billion) since 2006 to shrink the industry after theWorld Trade Organization ruled it was dumping subsidized supply on world markets. At the same time, the bloc failed to scrap import duties, leaving users with the choice of either paying about 60 percent more than in the international market or shunning purchase and shuttering production.

“We can’t buy sugar in the EU because there isn’t any,” said James Lambert, chief executive officer of Northallerton, England-based R&R Ice Cream Plc, Europe’s largest private-label producer. “Anything like fizzy drinks, ice cream and bakery products is going to rise dramatically.”

Two-Year High

White, or refined, sugar averaged 548 euros a ton in the EU in July, the most since September 2009, according to the latest data from the European Commission, the bloc’s regulatory arm. Some second-quarter contracts cost as much as 850 euros, Rabobank International estimates. Futures traded on the NYSE Liffe exchange in London and deliverable globally averaged $664 (479 euros) in the period, data from the bourse show.

The gap may widen further, with Goldman Sachs Group Inc. predicting a 14 percent drop in raw-sugar futures in the next six months and Barclays Capital anticipating three consecutive quarterly declines as the supply surplus expands.

While EU output will climb 16 percent to 17.8 million tons in the 12 months through September, production will still be 11 percent lower than where it was seven years ago, according to European Commission data. The EU’s policy to limit sales of domestic production in the internal market means increased output won’t translate into increased supplies to consumers.

U.S. Shortage

The U.S. is also facing shortages, exacerbated by trade barriers protecting farmers. U.S. stockpiles will contract this year to the lowest since records began in 1960 after rain and freezes damaged the beet crop, the USDA reported Oct. 12.

Domestic prices in the U.S. were last at 39 cents a pound, compared with 27.94 cents for international contracts, data from the ICE Futures U.S. exchange in New York show. Sugar is the only major agricultural commodity produced in the U.S. that is subject to import quotas, and the USDA increased the limit on cargoes by 45 percent this year as futures surged.

The EU shortage predicted by the European sugar committee, whose members include Coca-Cola Co. and PepsiCo Inc., may not be as big as anticipated should the region tip back into recession.

Euro-region growth will slow to 1 percent next year, from 1.7 percent this year, the median of 21 economists’ estimates compiled by Bloomberg show. That compares with a 4.2 percent contraction in 2009. EU sugar consumption fell 1.5 percent in the 12 months ended September 2009, Macquarie estimates.

EU Options

The European Commission may try to alleviate shortages by allowing domestic producers to divert more supply into human consumption and away from industrial uses such as ethanol. It authorized them to sell an extra 500,000 tons this year.

The commission may also increase the amount that can be imported without duties, currently set at 339 euros a ton on raw sugar and 419 euros on refined. It added 500,000 tons of zero- duty imports this year and a further 356,566 tons were approved at a reduced tax.

The commission plans to abolish output limits in 2015, part of proposals for modifying the bloc’s Common Agriculture Policy, a subsidy system that cost 58.2 billion euros in 2010.

Officials from Vevey, Switzerland-based Nestle and London- and Rotterdam-based Unilever, the maker of Ben & Jerry’s ice cream, declined to comment. Nestle, the world’s biggest food company, spends about 1.5 billion Swiss francs ($1.66 billion) a year on sugar globally.

The EU is also contending with declining imports from its preferred suppliers, which can ship to the bloc at preferential tariffs, said Edward George, a commodities analyst at Lome, Togo-based lender Ecobank Transnational Inc.

Drought Conditions

“A lot of southern and east African countries, which usually ship to the EU under preferential agreements, are not exporting as much sugar because domestic demand has been much higher than anticipated,” he said. “These countries are also facing shortages because of drought conditions and maintenance outages in several mills.”

Sugar imports at preferential tariffs are forecast to be 1.7 million tons in 2011-12, compared with the 3.3 million tons budgeted by the EU, the Brussels-based European Sugar Refiners Association said in September. The association represents 19 refiners that use imported raw cane.

EU stockpiles stood at 1.92 million tons last month and will probably decline to 1.24 million within a year, according to the European Commission. At least 1.8 million tons of inventories are needed as a buffer against smaller-than-expected imports, the Committee of European Sugar Users estimates.

“The impact on medium and small-sized enterprises can be even more drastic and can lead to the temporary closure of export businesses,” said Muriel Korter, the secretary general of the committee in Brussels. “If there are no changes in the market and the commission does not consider taking measures to guarantee sustainable supply, every year is going to be the same battle.”