More Goodies for 1st-time Investors

People investing in Rajiv Gandhi Equity Savings Scheme can reap tax benefit for three years now 

NOVICE TO THE STOCK MARKET stands to gain the most from the budget.As widely expected,the finance minister offered some goodies to investors in Rajiv Gandhi Equity Savings Scheme (RGESS). 

Investors with an income of up to 12 lakh can now put their money in RGESS and they can reap tax benefits for three years.Earlier,only those with 10 lakh or less could invest 50,000 in the scheme and claim 50% tax deduction on the amount invested. Also,they could invest only once in the scheme.Another positive factor has been a sharp reduction in the securities transaction tax (STT) in mutual funds.

The finance minister has reduced the STT on mutual fund redemption at the counters from 0.25% to 0.001%.For mutual funds sold on the exchange,the STT will be 0.001% compared to 0.1% earlier,by the seller only.This will further boost returns as transaction costs go down, says Aashish Somaiyaa,CEO,Motilal Oswal AMC A lon g- st a nd i n g demand of fund distributors has been fulfilled,as they will be allowed to become members of the stock exchange minus the equities seg ment.

This will give mutual fund distributors access to multiple cities across the country.With stock exchange terminals present across 2,000 locations,it is a good opportunity for mutual fund distributors, says Vishal Dhawan,Chief Financial Planner,Plan Ahead Wealth Advisors.

However,on the flip side,stock exchange platforms on BSE and NSE see negligible volumes.There is a slight negative impact on debt mutual funds as the finance minister hiked the dividend distribution tax (DDT) from 5% to 10%.

It will push up effective rate of tax on dividends for individual investors in liquid funds to 28.3250% from 27.0375%.For other debt mutual funds,dividends will be taxed at 14.1625% as against earlier rate of 13.5188%.For debt funds,on an investment of 1 lakh if one earns 5,000 as dividend,DDT will increase by a mere 25, says Rajiv Deep Bajaj,vicechairman and managing director,Bajaj Capital.Being a very small amount,this will not dissuade debt fund investors,experts say.Prashant Mahesh and Nikhil Walavalkar

Budget 2013: Highlights

Finance Minister P. Chidambaram presented one of the most highly anticipated Indian budgets of recent years on Thursday, as the government looks to rein in a bloated fiscal deficit and restore confidence in Asia's third-largest economy.

He started his speech by saying that average economic growth rate in 11th Plan period is 8%, highest ever in any Plan period and that economic space is constrained due to high fiscal deficit, lower savings and investment and tight monetary policy.

He said that current account deficit continues to be high due to excessive dependence on oil, coal and gold imports and slowdown in exports and that India does not have choice between welcoming and spurning foreign investment. He termed FDI as 'imperative'.

He said that faced with huge fiscal deficit, he has no choice but to rationalise expenditure, for which "battle against inflation must be fought at all fronts".

Chidambaram claimed that during the last one fiscal year, UPA has brought down headline WPI inflation to 7% and core inflation to 4.2%. However, he termed food inflation as 'worrying'.

The Plan expenditure in 12th Five Year Plan has been revised to Rs 14,30,825 crore or 96% of budgeted expenditure and Budget expenditure is Rs 16,65,297 crore and Plan expenditure is Rs 5,55, 322 crore.

The revised expenditure target is Rs 14,30,825 crore or 96 per cent of Budget estimate for this fiscal. In 2013-14, the budget estimate is Rs 16,65,297 crore.

He said the one overarching goal of the UPA government is to provide education and skills to youth for securing jobs in the 2013-14.

Rs 37,330 crore has been allocated for Ministry of Health & Family Welfare in FY14.

Chidambaram allocated Rs 3,511 crore to Minority Affairs Ministry which is 60% of the revised estimates.

Rs 65,867 crore allocated to Ministry of HRD in 2013-14.

In other allocations, Rs 4,727 crore for medical education and research and Rs 1,069 crore to be given to Department of Ayush.

In the key area of agriculture, Chidambaram allocated Rs 27,049 crore and for rural development programmes he set aside Rs 80,194 crore. About Rs 33,000 crore has been provided to UPA's flagship programme National Rural Employment Guarantee Act. To improve agricultural production in eastern Indian states and spawn a green revolution they will get Rs 1,000 crore. Chidambaram said rice output increased in Assam, Odisha, Jharkhand and West Bengal during FY13.

A Rs 7 lakh crore target has been fixed for agri credit for 2013-14 as compared to Rs 5.75 lakh crore in the current year, said Chidambaram.

The finance ministry is providing Rs 13,215 crore to the mid-day meal scheme. Chidambaram claimed foodgrain production in 2012-13 will be over 250 million tonnes.

Jawaharlal Nehru National Urban Renewal Mission got an almost double allocation with Rs 14,873 crore for urban transportation for FY14 as against Rs 7,880 crore in the current fiscal.

For the corporate sector, Chidambaram plans to issue inflation-indexed bonds and proposes capital allowance of 15% to companies on investments of more than Rs 100 crore. In a major boost for infrastructure sector, four Infrastructure debt funds have been registered. What more, tax free bonds issue will be allowed up to Rs 50,000 crore in 2013-14 strictly based on capacity to raise funds from the market.

In order to encourage SMEs a company investing Rs 100 crore or more in plant and machinery in April 1, 2013 to March 31, 2015 will be allowed 15 % investment deduction allowance apart from depreciation. SIDBI's re-financing facility to MSMEs will be doubled to Rs 10,000 crore. Also, small and medium companies to be allowed to listed on MSME exchange without making a public offer

Rs 10,000 crore have been set aside for incremental cost for National Food Security Bill over and above food subsidy. Rs 5,387 crore are to be allocated for integrated watershed programme for farmers in 2013-14, a whopping increase from Rs 3,050 crore in the current fiscal. Rs 5,000 crore will be made available to NABARD to finance construction of godowns and warehouses.

The Finance Minister lamented that many manufacturing projects have been stalled due to regulatory processes due to which the government has decided to constitute a regulatory authority for the road sector.

The Rajiv Gandhi Equity Scheme (RGESS) will be liberalised to allow first time investor to invest in mutual funds and equity.

To encourage home buyers, a first housing loan of up to Rs 25 lakh would get additional deduction of interest of up to Rs 1 lakh in 2013-14. The Department Of Industrial Policy & Promotion and Japan International Cooperation Agency are preparing a plan for Chennai- Bengaluru Industrial corridor.

The FM promised that oil and gas exploration policy will be reviewed and moved from profit sharing to revenue sharing. He also assured that a policy on exploration of shale gas is on the anvil. Chidambaram said the contentious natural gas pricing policy will be reviewed and the uncertainty shall be removed.

On shipping industry front, two new major ports will be set up in West Bengal and Andhra Pradesh. The coal imports during Apr-Dec 2012 have crossed 100 million tonnes and are expected to go up to 185 million tonnes in 2016-17.

In a first of its kind, the government will set up India's first women's bank as a public sector bank by October 2013. Chidambaram asked state governments to prepare financial restructuring plan for power distribution companies at the earliest. He promised that the 5 million tonnes Dabhol LNG import terminal to be operate at full capacity in 2013-14.

Incubators set up by companies in academic institutions will from now on qualify for Corporate Social Responsibility (CSR) activities. There will be a capital infusion of Rs 14,000 crore in public sector banks in FY14 and Rs 6,000 crore to be allocated for rural housing fund in 2013-14.

National Housing Bank (NHB) to set up urban housing bank fund and Rs 2,000 crore will be allocated in this regard, Chidambaram said. Insurance companies will be empowered to open branches in Tier-II cities with approval of Insurance Regulatory and Development Authority. For speedy redressal of insurance claim disputes public sector general insurance companies will set up adalats to clear them. The Rashtriya Swasthya Bima Yojana benefit shall henceforth be extended to rickshaw pullers, auto and taxi drivers and sanitation workers.

The foreign institutional investors will be allowed to participate in exchange traded currency derivatives. An investor with stake of 10% or less will be treated as FII and any stake more than 10% will be treated as FDI. A Rs 86,741 crore capital expenditure committed to Defence in 2013-14.

A National Institute for Sports to train coaches will be set up at Patiala at a cost of Rs 250 crore. Grant of Rs 100 crore each to AMU (Aligarh), BHU (Varanasi) and TISS (Guwahati) and INTACH. A 'Nirbhaya Fund' of Rs 1,000 crore to empower women and provide safety in the wake of the Delhi gang-rape incident. The fund is named after the moniker was given to the girl who was gang raped in Delhi.

Rs 5,87,082 crore to be transferred to states under share of taxes and non plan grants in 2013-14. Chidambaram said 11 lakh beneficiaries have received benefit under Direct Benefit Transfer scheme in FY13. The non plan expenditure is pegged at Rs 11,09,975 crore for 2013-14.

No change in slabs and rate for personal income tax. A tax credit of Rs 2,000 will be provided to every person to having income of up to Rs 5 lakh. The move, Chidambaram says, will benefit 1.8 crore people. He gave a few numbers during the speech. In 2011-12, tax-GDP ratio was 5.5 per cent for direct taxes and 4.6 per cent for indirect taxes.

Chidambaram promissed to reduce fiscal deficit to 3% by 2016-17 and revenue deficit to 1.5% of GDP. In other tax reforms a Tax Administration Reform Commission will be set up to regularly review tax law applications. He felt transactions on immovable properties is usually undervalued and therefore a TDS of one per cent will be levied on value of properties above Rs 50 lakh. However, agriculture land is exempted. A surcharge of 10 per cent is imposed on individuals whose taxable income is over Rs 1 crore and a 5 to 10 per cent surcharge on domestic companies whose taxable income exceeds Rs 10 crore.

The Securities Transaction Tax (STT) will be reduced on equity future, mutual fund and the Investor Protection Fund set up by depositories will be exempt from tax.

He gave a few estimates. Chidambaram said fiscal deficit will be 5.2 per cent in current year and 4.8 per cent in the next fiscal. The FM said education cess will continue at 3%. Chidambaram said the modified GAAR norms will be introduced from April 1, 2016.

The import duty on set-top boxes has been raised from 5 to 10 per cent to safeguard interests of domestic producer, Chidambaram said.

The duty free limit on gold has been raised to Rs 50,000 in case of male and Rs 100,000 in case of female. Chidambaram had the import duty raised from 75 to 100 per cent on luxury vehicles. Excise duty on SUVs has been increased to 30 per cent from 27 per cent but SUVs registered as taxis are exempted. The Specific excise duty on cigarettes and cigars has been raised by 18 per cent.

Chidambaram said direct tax proposals will yield Rs 13,300 crore and indirect tax proposal to give Rs 4,700 crore. The duty on mobiles above Rs 2,000 has been raised from one to six per cent, based on their maximum retail prices and a service tax will be levied on all air-conditioned restaurants.

Worst is over: Survey

Focus on curbing current account deficit and widening the tax base

The pre-Budget Economic Survey for 2012-13, tabled in Parliament on Wednesday, exuded confidence that the Indian economy would bounce back to achieve higher growth of 6.1-6.7 per cent, up from the advance estimates of five per cent in the current financial year. However, the improved growth number, the Survey noted, would be contingent on a normal monsoon, further moderation in inflation, which should induce relaxation of the tight monetary stance, and a mild recovery of global growth.

Without mincing words, the 294-page Survey said the current environment was difficult and the future held promise only when "we can answer the question that is foremost in the minds of India's young population: Where will my job come from?" In a grim reminder to the recently released data on past growth failing to produce an adequate number of jobs, the Survey noted the current pace and quality of job creation in India were not satisfactory and it was necessary to create better and high-productivity jobs to ensure the "best form of inclusion".

This year's Survey is Chief Economic Advisor Raghuram Rajan's first major official document assessing the state of the Indian economy and introduces a completely new chapter on jobs, titled 'Seizing the Demographic Dividend'. It has argued that India has to focus on an agenda to create productive jobs outside of agriculture, which will help it reap the demographic dividend and improve livelihoods in agriculture. There is also the need to review regulations that constrain businesses excessively and how these should be stripped away while ensuring "adequate protection and minimum safety nets for workers". 

The Survey reiterated India could not take the external environment for granted and had to move quickly to restore domestic balance through fiscal consolidation. The other policy imperatives, it noted, were lower inflation through demand compression and augmented agricultural production, giving the Reserve Bank of India the necessary flexibility to reduce interest rates. The Survey hoped that lower interest rates could provide an additional fillip to investment activity for the industry and services sectors, especially with the easing of regulatory, bureaucratic and financial impediments.

On the crucial question of fiscal consolidation, the Survey said open-ended commitments like uncapped subsidies were problematic for fiscal credibility and, significantly, favoured fiscal deficit reduction through a higher tax-to-GDP ratio rather than a cut in expenditure, in view of the large unmet development needs. "Raising the tax-GDP ratio to above the 11 per cent level is critical for sustaining the process of fiscal consolidation in the long run," it noted, adding it was much better to raise this ratio through a broadening of the base, rather than by increasing marginal tax rates significantly. "Higher and higher tax rates impinge more and more on incentives to undertake taxable activity while encouraging tax evasion," the Survey observed.

In a candid assessment of what caused the recent economic downturn, the Economic Survey identified three factors that led to the slowing of the Indian growth engine. One, the large monetary and fiscal stimulus in the wake of the global financial crisis contributed to robust consumption growth at an average of eight per cent annually between 2009-10 and 2011-12, fuelling inflation and provoking a strong monetary policy response which, in turn, slowed consumption demand.

Two, corporate and infrastructure investment started slowing from 2011-12 as a result of policy bottlenecks and tighter monetary policy, even as the economy faced the twin shocks of a slowing global economy and a weak monsoon.

Three, the government's revenues did not keep pace with spending as growth slowed and the fiscal deficit threatened to breach the target. Worse, with the falling government and private savings rate, the current account deficit, too, widened.

The way out, according to the Economic Survey, is to shift national spending from consumption to investment and remove the bottlenecks to investment, growth and job creation.

This could be achieved through structural reforms, tackling inflation through monetary policy measures and improved supply-side steps, reducing the borrowers' cost for raising funds and increasing the opportunities for savers to get real investment returns, hinting at, perhaps, how investors might have preferred gold to other forms of financial investments, which, in turn, had contributed to the widening of the current account deficit.

The broad message that the Economic Survey left for the government was to recognise that the Indian economy was in a difficult situation and measures had to be taken to bring the macroeconomy back into balance and growth on track.

"What is important is to recognise that a lot needs to be done and the slowdown is a wake-up call for increasing the pace of actions and reforms," it concluded.

Sensex Tanks 316,Mid-caps Add to Mess

BSE benchmark hits 3-month low,rupee loses 21 paise to close at 54.09 vs $

Stock markets hit a threemonth low on weak global cues and negative sentiment back home following a sharp fall in small- and mid-cap stocks which has spooked retail and high net worth investors (HNIs).The Rail Budget,which raised freight charges by 4-5 %,had a marginal impact.

The Sensex slid 316.55 points,or 1.64%,to 19015.14 while the Nifty shed 93.4 points,or 1.6%,to close at 5761.35.Market breadth was negative with 2,072 stocks having declined against 774 advances on BSE.The rupee slipped 21 paise to close at 54.09.Benchmark indices tracked peers in Asia like Straits Times,Hang Seng and Nikkei which shed 1-2.3% and Europe where FTSE,DAX and CAC traded down 1.3-2.3% on fears a hung parliament in Italy could impact the nations reform process and reignite eurozones broader debt crisis.

Top Nifty losers included Ranbaxy,Bajaj Auto and Hindalco,which fell 4.3-4.8%,while gainers included TCS,Infy and Bharti Airtel which rose between 1.3% and 1.75%.Shares of mobile operators rallied on news that the government may be forced to reduce the base price for spectrum after poor response to its.40,000-crore auction scheduled next month.Bharti Airtel stock surged as much as 9% intraday,but settled 1.3% higher at.311.

Idea Cellular ended 3.69% up at.118.Stocks such as Kalindee Rail Nirman,Kernex Microsystems,Titagarh Wagons and BEML fell between 3% and 15% on a disappointing Rail Budget,which,apart from marginally raising rates,did not announce any major expansion plans.Small- and mid-cap shares remained under pressure on talk of financiers selling pledged shares belonging to speculators.Domestic investors have been singed by the fall in midcap and small-cap stocks and this has added to the negative sentiment ahead of the Budget, said Yogesh Radke,head,quantitative research,Edelweiss Financial Services.A fractured verdict in Italy adds to concerns of the eurozone crisis gettingworse. 

This years Budget coincides with the derivatives expiry,an event last seen 11 years ago,in 2002.After the global sell-off following the fractured election verdict in Italy,domestic investors are jittery ahead of Thursdays Budget.Nifty March futures have seen a rise of 22% in open interest on Tuesday and if the Union Budget fails to pep up sentiment,Nifty could seen more down side,said Radke.According to Rikesh Parikh,VP-equities,Motilal Oswal Securities,The market had been finding support near the 5820 level for the past 3-4 days,but today (Tuesday) it opened lower and saw selling which accelerated in the latter half of the day as the European markets opened negative.With events such as Budget and F&O expiry coinciding on Thursday,we expect volatility in market to persist.

Rail Budget 2013: Highlights

On the cards: 67 new express trains, 27 passenger trains, 5 memo services, increase in frequencies 

East-west corridor underway, will be taken forward 

First AC electrical multiple unit (EMU) will be introducted in mumbai in 2013-14

To meet growing demand 72 new trains in Mumbai, 18 new services in kokata

500 km of new line for 2013-14, will convert 450 kms of metre gauge to broad guage

Target of 800 km of ace conversion scaled down to 527 km in 2012-13; target of 700 km of track doubling will be marginally increased

Passenger fares increased in January, so no more hikes for now, but will increase supplementary charge in superfast train, reservation fee, cancellation charge

Planned investment pegged at Rs 63,600 for 2013-14

Railways hopes to end 2013-14 with a balance of Rs 12,506 crore

Electrification of 1,200 km to be completed this year

Looking at potential application of Aadhar: Rlys Minister

1800-111-321 toll free for complaints and suggestions on catering services started functioning on 18th January

Minister proposed to launch "Aazaadi Express" to enable the youth to travel to places of historical importance across the country.

Freight target set 1,447 mn tonne in 2013-14, 40 mn tonne more than current year

This year Indian Railways is set to achieve the 1 billion tonne club, joining Chinese, Russian and the US railway.

Freight revenues pegged at 93,500 cr, growth of 9%

Number of passengers to increase 5.2%

Working expenditure 14% more than current year

Operating ratio to come down to 88% next fiscal

Gen-next e-ticketing service by Decemeber, says Railway minister

Freight income pegged at for FY13 target Rs 89,976 crore, says Railway minister

Bansal: Gross traffic receipts at Rs 1.26 lakh crore in FY13

Concessional travel for sportspersons, military personnel who have won awards, new rail factories,sops to Railway employees

Awarded railway sportspersons to travel free in First Class

Railways has been able to repay the entire Rs 3,000 crore loan with interest to the Finance Ministry in the current financial year.

Freight earnings growth lower than estimated, reflecting the overall slowdown in GDP growth

To set up electromotive unit in joint venture with BHEL: Rlys Minister

Rs 2,000 crore allotted for land and station development

Dronacharya awardees to be given free passes to travel on Rajdhani trains

Complimentary card pass to soldiers, enabling travel in first class, AC cars

Railway gallantry awardees -- one card pass with one companion

Freedom fighters have to renew pass every year, will now have to renew only every 3 years

Mountain railways exclusive club of india, will preserve them in good shape and health

National railway museum showcases indian railway history.. revamp plan to be rolled out in 2013-14

Austerity will be observed by railway, no wastage

347 ongoing projects have been recognised as priority projects

Will energise 1,000 level crossing with solar power

Pushes for use bio degradable, environment friendly products in railway, ban plastic completely

Says 14 lakh employees are most valuable asset, however 1.52 lakh vacancy yet to be filled. Railway recruitment was held at 60 cities in the country; Backlog of 40,000 vacancies for to be filled by physically handicapped and weaker sections.

Staff quarters to be constructed at a cost of Rs 300 cr

Proposes air-conditioned locomotive coaches, provide water facility

National skill development scheme of railway would impart skills in drills held in 25 locations across the nation -- multi disciplinary institute in nagpur for providing railway maintainence, equipment skills

Exclusive secunderabad indian railways institute of financial management, five fellowships in national universities

Expansion in the number of centres for conducting railway recruitment exams has resulted in as many as 47,000 vacancies filled up 

New manufacturing units, maintainence units to be set up to generate more employment

Railway production units have contributed to generating employment; all of them achieved production targets in 2012

Target of 4,500 cr has been set up for Railway production units 2013-14

Will address concerns of private sector with respect to recently established projects connecting mines, ports, to cities -- will ensure payback of investment 9,000 cr including 3,800 cr for port connectivity project with frieght allotment to the companies.

Rs one lakh crore to be raised from public-private partnership, Rs 1.05 lakh crore through internal resources in the 12th Plan

12th Plan railway size to be Rs 5.19 lakh crore, with gross budgetary support of Rs 1.94 lakh crore

Cleanliness at stations, trains -- commited to bring about a marked change:

Will focus on cleanliness at stations, trains, says is commited to bring about a marked change in the quality of travel

Inititives to include: Bio toilets on trains; 200 stations with mechanised cleaning services; clean train stations; Launching pilot project in trains to contact personnel on trains for coach cleaning on sms, and get immediate feedback

Electronic display in trains for giving real time updates of coming trains, stations

Free wifi on select trains

First aid services at railway stations

One coach in select trains to provide excellent ambience, will be named anubhuti

Amenities for differently abled passengers, icluding facilty for boarding, exiting trains, braille stickers

for blind passengers, to figure coaches, toilets

Railways to strive to provide better interface with employees

Extending internet booking time: now book online between 12:30 am to 11:30 pm, prebooking from mobile phones

Sms alerts to passengers to provide reservation station to be rolled out shortly

New support system to facilitate 7,200 tickets per minute against 4,000 currently; server will support 1,20,000 visitors against 40,000 currently

System to make use of advance fraud control and security management to improve transparency in online booking

Food testing laboratories with third party audits; State-of-art kitchens, to monitor quality.

Four Companies of RPF personnel for safety of women already in place, another 8 to be set up. 10% reservation for women RPF personnel in these companies; Security helpline numbers made available to facilitate passengers to report any incident

40% accidents, 60% fatal incidents reported at level crossing

Estimated requrirement Rs 37,000 cr, eliminating 31,846 level crossing, 134, 530 crossings are unmanned, will only be possible with support from central road

Elimination of 10,700 unmanned level crossings targeted during the Plan; no more new such crossings to be created

TTWS automatic signalling systems

Upgradation of track structures

Fast and reliable disaster management systems

17 bridges which have been identified as distressed and marked for rehabilitation to be completed in next one year

Corporate plan for 10 year period 2014-24 to enhance safety plans

Railways market borrowing of 2 lakh cr, could allocate only 10,000 cr in the first year of 12th plan; next four years calls for a paradigm shift

Bansal slams Allahbad station stampede, says: "The incident has shaken us, safety is a necessary mandate for running the Railways"

During 11th Plan, Railways could meet target of new lines and electrification, but fell short of targets for doubling

and gauge conversion, achieving only 2,758 km and 5,321 km respectively

Number of passenger trains increased from 8,897 in Fy12 to 12,335 in FY13. Yet, losses to railways continue to mount and are expected to reach Rs 24,600 crore in 2012-13 from Rs 22,500 crore in 2011-12.

Growth of Railways does not conform to economic principles, says Pawan Kumar Bansal, cites steep hike in input costs

Railway Minister Pawan Kumar Bansal gets ready to present the Railway Budget for 2013-14.

Banking license benefits priced in most NBFC scrips

Post announcement of final guidelines on Friday, the stocks rallied by 2-10% in Monday's trading session

Stocks of non-banking finance companies (NBFCs) such as L&T Finance, Shriram Transport Finance (STFC), Mahindra & Mahindra Financial Services (MMFS) and Bajaj Finserv among others have rallied significantly since the Banking Amendment Bill was passed in the winter session-outperforming the Sensex.

Post announcement of final guidelines on Friday, the stocks rallied by 2-10% in Monday's trading session. This investor enthusiasm is driven by the potential benefits that these NBFCs will derive after bagging a banking license such as lower cost of funds, diversified lending book, better regulatory environment, etc.

Interestingly, companies that won the banking license previously have given handsome returns post listing (see table). However, experts believe, this time around the new banking license aspirants will have quite a few hurdles along their way as the RBI's objective of financial inclusion is likely to impact their profitability. What's more is that the rally in stock prices also factors in most of the expected near-term gains.

"We believe companies such as L&T Finance have run ahead of their fundamentals as investors have already factored in the benefits of a banking license. We advise investors to tread with caution given that it will take a lot of time before the new banks will be able to leverage the benefits of a banking license," says Santosh Singh, Banking analyst at Espirito Santo Securities.

While most NBFCs have delivered consistent financial performance in the recent years and have a profitable business model, some of the requirements of the new banking licenses can dilute their profitability significantly.

"We understand that the requirement of 25% branches being in centres of sub-10,000 population could impact the economics of the business (of the aspirants) negatively versus existing banks", believes Ashish Gupta, research analyst at Credit Suisse.

Additionally, if the NBFCs will have to meet the priority sector lending requirements from the start, their profitability is again likely to be hurt, believe analysts. Similarly, providing for the statutory lending and cash reserve ratios will also have an impact on their return ratios in the near-term.

"We believe the re-rating potential underpinning the current rally in NBFCs may not be realised. The only way to play this theme is to buy the stocks of front-runners now and sell on the day of license announcement. It is important to identity these potential license holders correct. We believe well-capitalised, retail-focussed NBFCs with reputable promoters such as Aditya Birla Nuvo, Shriram Transport, MMFS, Cholamandalam will be the front-runners. However, we believe the economic returns of being a bank will only come 4-5 years after operations", says Saurabh Mukherjea, Head of equities at Ambit Capital.

Among the new bank aspirants, Singh of Espirito Santo Securities, says, "We believe MMFSL is the best placed company to achieve the government's intention of financial inclusion, and is our top pick to play this theme." He is neutral on Shriram Transport Finance.

Overall, analysts say the company’s ability to build a feasible business model will be the key driver for its stock's long-term re-rating.

Margin calls drive down mid-cap shares

Reason not clear, with firms in question denying any sale of pledged holdings

Selling sparked by margin calls took a toll on stock markets on Monday. Shares of mid-cap and small-cap companies plunged on speculation that financiers sold a portion of pledged holdings after some promoters and traders could not cough up more money to make up for the shortfall in margins.

The Bombay Stock Exchange’s mid-cap index fell 1.2 per cent and the small-cap index 1.4 per cent against the Sensex’s marginally higher closing. Among stocks, CORE Education dived 62 per cent, and Welspun Corp, Aanjaneya Lifecare and ABG Shipyard tumbled 20 per cent each.

While promoters pledge their shares as collateral for loans, large traders take bets on stocks through margin financing, where the financier part-funds their stocks or derivative positions. When bets turn awry and they are unable to bring in additional collateral or margin money, financers sell these.

A top CORE official denied market talk that financiers had sold a portion of the company promoters’ pledged shares. The CORE promoters have pledged about half their holdings. 

“None of the shares it has pledged with institutions has been sold and it has confirmed with all the institutions that they continue to hold the same,” said Nikhil Morsawala, director, finance, CORE.

He said the company was yet to ascertain the reason behind the fall in the stock. “We are trying to find out the reason. We have spoken to the exchanges. We cannot confirm the reason, unless we have market data for it,” he said.

ABG Shipyard’s chief financial officer and executive director, Dhananjay Datar, told a channel he was not aware of any selling in pledged shares. He said he did not know the reason for the steep fall in its shares.

Another theory doing the round is that financiers sold pledged shares of a trader who had been banned by Sebi in the past and is known for his interest is some of the above stocks. Lenders also sold shares of a Mumbai-based broker past his prime, said brokers. It is also said that the majority of the funding has been done by some deep-pocketed financiers from Kolkata.

As selling triggered by margin calls happen when shares are already falling, the pace of decline is quick and steep. Brokers said when margin-related selling happens in large numbers, it has a cascading impact on the market, even on unrelated shares. The decline in mid-cap and small-cap shares of late has caught several operators unawares, forcing their financiers to dump the stock. The buzz is that most operators and large traders have been trimming their holdings in the past three weeks, in the run-up to the Union Budget on Thursday.

For the quarter ended December 31, the value of pledged shares as a percentage of the market cap of stocks of the companies with pledged shares fell to 10 per cent, said a report from Morgan Stanley. Of the 813 companies which had reported pledging in September 2012, about 20 have revoked these. An additional 30 companies reported fresh promoter pledging during December, said the report.

Markets may Bounce Back on Budget Hopes

Reserve Banks move on new bank licences will also boost sentiment,but investors may book profits at 6000 levels 

The Reserve Bank of Indias proposal to issue fresh bank licences to corporates and other entities,and investor expectations of market friendly measures being implemented as part of the Union Budget later this week could lift sentiment a tad on D-Street,after last weeks sharp correction.

However,doubting markets could sustain at high levels of 6000 for Nifty post the event,analysts and heads of research of brokerages feel investors should book profits around those levels,given market valuations have shot up significantly over the past six months.

Though markets could trade in a tight range of 5800-6000,most analysts expect benchmark indices to bounce back after the debacle later last week,which saw the Sensex suffer its sharpest single-day correction in seven months.

Sentiment would be positive from here to the Budget because of the RBI move and hopes of market-friendly measures in the Budget, said Motilal Oswal,chairman & MD,Motilal Oswal Financial Services.After suffering its biggest single-day fall since last July on Thursday,the Nifty ended with a weekly loss of 0.63% at 5850.3.

The Sensex closed the week 0.78% lower at 19317.01. Sonam Udasi,head,research,IDBI Caps,echoes Oswals view.Some measures to prop up infra companies,like maybe allowing them access to cheaper capital,is a likelihood during the Budget.However,profit-booking could set in at 6000 levels once the event is over as we have moved up sharply during the past six months. 

Analysts expect the index to trade between 5800 and 6000 in the run up to the Budget,which will be presented on Thursday.At Fridays close,Nifty traded just 10 points above its 100-day moving average,which,if breached,could see the index testing 5700 either before or after the Budget,said AK Prabhakar,senior vice-president,Anand Rathi Financial Services.

Markets late last week were spooked by a global sell-off amid indications that the US Fed could cut back its bond purchases worth $85 billion a month for fears of escalating inflation.If the global risks continue analysts like Prabhakar fear markets could correct further from last weeks levels.Some market experts feel the recent correction offers investors a chance to build their portfolios by choosing value stocks in the midcap sector.Names such as Karur Vysya Bank,City Union Bank and Balmer Lawrie can be considered among mid-caps ahead of the budget, said Chokkalingam G,chief investment officer,Centrum Wealth Management.

Investors will focus on changes,if any,in excise duty and service tax in the Budget.However,it remains to be seen if the government announces measures to revive weak investment growth and more economic reforms.The key figure eyed in the budget would be fiscal deficit and divestment target for fiscal year 2013-14.Markets will closely watch whether the Budget provides a clear roadmap to cap the government's subsidy bill and measures to increase agriculture production to rein in food inflation.

Volatility may remain high on the bourses during the week as traders roll over positions in the futures & options (F&O) segment from the near-month February 2013 series to March 2013 series.The February 2013 F&O contracts expire on Thursday,February 28,2013.Auto and cement stocks will be in focus as companies from these two sector start unveiling monthly sales volume data for February 2013 from Friday,1 March 2013.Federal Reserve chairman Ben S Bernanke will give half-yearly testimony to US congressional committees about the outlook for the worlds largest economy on February 26.

Govt to Go Ahead with Divestment

Stake sale in SAIL,RCF,Nalco & MMTC to help meet FY12 target of raising.30k cr 

The government will go ahead with stake sale in four state-run firms to achieve its target of raising.30,000 crore through divestment in the current fiscal,the finance ministry has said.Minister of state for finance SS Palanimanickam said on Friday that the government has cabinet approval for selling 10.82% stake in Steel Authority of India,12.5% in Rashtriya Chemicals and Fertilizers,12.15% in Nalco and 9.33% in MMTC.

Sale of shares in these companies will be conducted through the offer for sale,or auction route.Central trade unions have demanded stoppage of disinvestment as a matter of their policy.However,disinvestment of minority stakes is carried out as per policy of the government, Palanimanickam,said.Earlier,divestment secretary Ravi Mathur had said that the government might not be able to achieve the divestment target.The.30,000-crore disinvestment target may be difficult to reach.

My calculation is.25,000 crore or.26,000 crore.We will try to cover.27,000 crore. Of the current years target,the government has already raised.21,504.3 crore through disinvestment in five companies.Palanimanickam said the proceeds would be used for funding capital expenditure in social sector schemes identified by the Planning Commission and the department of expenditure.

The government,which is targeting about.3,500 crore from share sale in SAIL and about.1,400 crore from sell-off in Nalco,is hopeful of greater participation from foreign investors.The divestment offers of NTPC,OIL India and NMDC had evinced a good response from FIs.Foreign institutional investors snapped up almost half of the 9.5% stake the government has divested in NTPC.

In the case of Oil India,the foreign participation was 60%,but the issue size was considerably less,compared with the NTPC offer.Earlier,state-run financial institutions such as LIC and public sector banks had to bail out the divestment offers of ONGC and Hindustan Copper.

RBI Welcomes New Banks,With Caution

Anyone can apply for a banking licence,but RBI will have veto 

The Reserve Bank of India has spelt out norms for new bank licences after years of waiting,allowing business houses,state-run enterprises and non banking finance companies to set up banks,in a bid to extend banking services to half of the population that is excluded from them.The final rules allow companies from any sector to apply for new bank licences,dropping language in earlier drafts that would have kept out brokers and those in the real estate business.

Though these changes are in line with the views of the finance ministry,which had batted for brokers and realtors, the new guidelines contain enough subjectivity for RBI to reject applications from those it deems unsuitable for the banking business.

The central bank will issue licences only to persons deemed to be fit and proper,and will seek feedback on applicants from various investigative agencies such as CBI,ED and I-T Department before granting a licence.Further,RBI has empowered itself to reject those whose business model and culture are not in line with banking.Promoter Groups business model and business culture should not be misaligned with the banking model,and their business should not potentially put the bank and the banking system at risk on account of group activities such as those which are speculative in nature or subject to high asset price volatility, the guidelines said.

RBI guidelines are sensible and realistic and I believe the norms are well thought through, said Deepak Parekh,the chairman of HDFC,which floated HDFC Bank the countrys most valuable bank now in the first wave of private banks in 1994.I understand the rationale for keeping bank licence norms precautionary. We welcome the long-awaited new banking guidelines,which are very forward-looking.We will actively pursue our interest in banking as it will complete our financial services' portfolio, said Kumar Mangalam Birla,chairman,Aditya Birla Group.

Reviving growth priority: Pranab

Flagging economic growth as the highest priority of the government, President Pranab Mukherjee on Thursday said the government would rely on the Budget (2013-14), the Direct Benefits Transfer scheme and the performance of the agriculture sector to steer the country out of its current trough.

The economic challenge facing India, he suggested, had bottomed out. Already, there were signs of this — core inflation had moderated and recovery in growth is likely. But he warned of the possibility of the global economic crisis slowing Indian recovery. In his first address as President to the joint session of Parliament (which is read out by him but is cleared by the Cabinet), Mukherjee said the Cabinet Committee on Infrastructure and the Infrastructure Debt Fund would address the infrastructure deficit.

Efforts were on to get manufacturing to contribute 25 per cent of the gross domestic product (GDP), which would create 100 million jobs, he said, adding an E-Biz project would serve as a 24x7 online single window system for providing services to investors and businesses. Construction of over 1,000 km of the 3,300-km dedicated freight corridor was expected to begin shortly, the President said.

In 2012-13, 2,600 km of roads are to be constructed and contracts for 3,000 km of new roads are expected to be awarded.

A new system had been put in place to provide a new approach to road construction, he added.

The direct benefits transfer scheme that would run in parallel with the public distribution system would make entitlements easier to access and make growth inclusive, Mukherjee said. This scheme would help cut leakages, bring millions of people into the financial system and lead to better targeting of beneficiaries, he said, adding it will eventually be expanded to cover most services.

The economy had grown at 4.5 per cent in the first half of the current financial year.

To attract investment, the government was resolved to do more, Mukherjee said. Keeping the fiscal deficit at the targeted 5.3 per cent and reaching a consensus on the Goods and Services Tax (GST) with states were among the measures taken to strengthen investor faith.

Agriculture had performed spectacularly, the President said, and the National Food Security Bill, new initiatives in the Rashtriya Krishi Vikas Yojna, a National Centre for Cold Chain and more godowns to store food had been visualised under the National Mission on Food Processing. Grain storage capacity of about 18.1 million tonnes would be created over the next two years, with additional storage space of 540,000 tonnes in the Northeast, Mukherjee announced.

Several measures to augment power generation and ensure the benefits of power are available to all Indians would be taken by the government. After resolving pending issues, 46 fuel supply agreements have been signed by Coal India Ltd with power utilities, he said. “Following the notification of the new auction by competitive bidding rules, my government is in the process of allocation of 17 coal blocks to government companies, as a first step.”

Mukherjee announced several measures to make the society more inclusive. Addressing “an aspirational India”, which “demands more opportunities, greater choices, better infrastructure, and enhanced safety and security”, he said the benefits of inclusion would extend from small and medium entrepreneurs to the need for habitat and infrastructure in small and medium towns.

The Rajiv Awas Yojana would be extended to all small and medium towns, and a separate fund of Rs 1,000 crore would be created for urban local bodies. Under the Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006, more than 3.2 million claims had been filed and nearly 1.3 million titles distributed.

Over Rs 880 crore has been disbursed as scholarships to more than 5.5 million students from minority communities till December 31 in 2012-13. Priority sector credit to minorities during 2012-13 reached Rs 1.7 lakh crore till September 2012, more than 15 per cent of the total priority sector lending.

The mid-day meals scheme would be extended to pre-primary schools. A new programme called the Rashtriya Uchchatar Shiksha Abhiyan will address higher education in the states.

To create skill development, technical training institutions had doubled from 5,114 in 2006-07 to 10,344 by the end of 2012. Not only had infant and maternal mortality rates come down, life expectancy at birth has increased from 61.9 years in the period 1996-2000 to 66.1 years in the period 2006-2010.

The President took special note of development in Jammu and Kashmir--a railway line, more skill development institutions and more roads.

The speech was circumspect on controversial political issues. “Through suitable policy interventions, my government is targeting significant reduction of our dependence on imported oil and gas, which is presently more than 75 per cent of our requirement,” Mukherjee said about a move that has attracted widespread criticism.

Metals in Need of Infra Push to Regain Shine

The Indian steel industrys performance this year is regarded as one the best when pitted against global peers.While global steel production grew by a mere 0.9% in the first 11 months of 2012 and Chinese production rose by 2.9%,the Indian steel industry posted an impressive 4.2% growth.

The demand story has not been that encouraging though: steel demand in India grew by 5.25% during the first 11 months of 12 at 66.72 million,which was lower than Fitchs estimate of 6-7 %.But whats worrying steel makers is the surge in imports,especially from countries like Japan and Korea with whom India has signed a Free Trade Agreement (FTA),and have even requested the government to keep steel out of the FTA product ambit.

Local finished steel prices are under pressure due to low-cost steel imports and Indian companies may be forced to rethink their strategy regarding capacity additions in the wake of cheap imports.So,its imperative for the government to support the local steel industry by increasing import duties on steel, said Venkatesan Subramanian,global leader,metals & minerals practice,Frost & Sullivan.India imported around 5 million tonnes of steel,including 2 mt of Chinese consignments during April-November of 2012.

In its pre-budget memorandum,industry body Ficci had said there has been a 300% increase in import of steel in just one year from Japan & Korea.It recommended removal of steel products from the ambit of FTA with Japan & Korea in view of discriminatory treatment which has severely affected the domestic industry. Ficci has also suggested a rise in basic customs duty to 15% from 5% in stainless steel flat products,given the surge in imports over the past 3 years.

Import duties on steel were raised to 7.5% from 5% in 2012.On January 4,2013,the government had imposed import duty on hot rolled (HR) products for 200 days and followed it up five days later by imposing a 20% safeguard duty on stainless steel.While biggies like Tata Steel,SAIL and JSW Steel are unlikely to benefit from this move,a clutch of other steel players can gain from it.Also,export duty on all varieties of iron ore (except pellets ) had been increased to 30% from 20% ad valorem w.e.f December 30,2012.

Duties in other Asian countries like Japan and South Korea are at 3-4 % levels though.The movement of the rupee against dollar has also given rise to fears of low-priced imports.A key demand is that the government should accord infrastructure status to the steel industry.This will allow companies to raise funds in global markets, said Seshagri Rao, joint MD of JSW Steel.Analysts tracking the metals sector say low capacity additions and lack of progress on new projects will become a major problem in the medium to long-term.Stalled projects pose a big problem when demand improves.

Cost overruns due to regulatory hurdles,especially due to land acquisition issues could prove costly in the medium to long-term.The government should take steps to break this deadlock, said a metals analyst at Angel Broking.Domestic steelmakers have also been forced to cut down production due to restricted and irregular supply of iron ore due to ban on illegal mining in states like Karnataka and Goa.

Costly raw material has led to higher cost of production with steel industry losing out on its cost competitiveness.Non-ferrous metals like aluminum,copper and zinc too have been hit by stagnant domestic demand,largely due to slowdown in infrastructure investment.While investment in construction and utilities like power and railways will boost aluminium and copper demand,zinc is likely to benefit from a pick-up in auto and consumer durables sector which use galvanised (zinc coated ) flat steels.The government's thrust on infrastructure may bring cheer as it would increase overall metals demand,especially before crucial general election in 2014.

Brokers Make RIL Buy Call on 4G Voice Option

Analysts say voice option on 4G is a game-changer and will benefit RIL but could upset Bharti 

 

Leading brokerage houses have become bullish on Reliance Industries after the government cleared a proposal to allow 4G licence holders to offer voice calling services.The shares of Reliance,Indias largest company by market capitalisation,surged 3.13% to close at.875.35 on Wednesday.It has been rising for the past two days,ever since the announcement came.But Indias largest telecom company Bharti Airtels stock was under pressure for the third straight day on Wednesday,as it ended down 1.04% at.304.

Mukesh Ambani-controlled Reliance Industries is the only company that holds a pan-India 4G permit,while Bharti Airtel,after its merger with Qualcomms India unit,has only eight 4G circles.The Telecom Commission,the highest decision-making body in the communications ministry,on Monday allowed holders of 4G spectrum,until now permitted to provide only high-speed internet services on mobiles,to offer voice calls to customers by paying an additional.1,658 crore for a pan-India licence,a move analysts think could be a game-changer for the telecom industry.

The nod for Reliance to provide voice and data together on 4G network can be a game-changer for the telecom industry,provided they give affordable handsets to the masses and have carpet coverage, said Rishi Tejpal,principal research analyst at Gartner.

Its a big positive for Reliance,but we have to see what marketing strategy the company adopts, he said.So far,only Bharti Airtel has launched 4G services,but in a limited manner.RIL has been testing the service for months and is widely expected to shake up the market in the same way it did a decade ago when it rolled out low cost voice services bundled with low-cost handsets.Reliance is going to be a big beneficiary of the new telecom policy,and we are positive on the stock, said Rikesh Parikh,vice-president,equities at Motilal Oswal Securities If Bharti Airtel does not acquire additional circles to compete with Reliance,then its going to be big negative for the stock, he added.According to reports, RIL is striking deals on the technology and tower fronts,and its 4G longterm evolution (LTE) services are likely to be launched anytime between June and August,at least in Mumbai,Delhi and Jamnagar.

Reliance is a formidable competitor,it will create lot of pressure among existing players like Bharti Airtel and Idea,as these companies are facing problems of high operational and debt costs, said Sonam Udasi,head of research at IDBI Capital.Any telecom operator,for competitive advantage,should have pan-India licence.Here,Reliance Industries has a great advantage over existing players, said Karan Mittal,telecom analyst at ICICI Securities.

Power Producers Urge Scindia to Fix Snags

The high-level power sector advisory group,consisting of top industrialists led by Cyrus Mistry of Tata Group, Anil Ambani of Reliance Power and GM Rao of GMR Group,urged Jyotiraditya Scindia to resolve problems faced by the sector such as fuel scarcity,delays in green clearances and difficulties with bidding documents.Industrialists,along with top bankers and heads of state firms,will meet the power minister again after two weeks,Scindia told reporters after the meetings.

The advisory group has been constituted by the power ministry to help resolve the issues impacting the sector.We discussed the concerns of the sector and decided to meet again in couple of weeks to discuss standard bidding documents.We are open to hear the power producers and deal with their concerns.Power producers also conveyed their wish list for the budget, said the power minister.

Industry officials said former power secretary RV Shahi has been asked to seek feedback from power producers on standard biding documents,before the ministry of power approaches the empowered group of ministers after budget session.

ICICI Bank chief executive officer Chanda Kochar voiced concerns of bankers,who have lent large amounts to projects that are struggling.Scindia said he had assured power producers that they and ministry are not opposed to each other and need to find out ways together.

Scindia disagreed with the West Bengal governments allegation that price pooling,in which low-cost domestic coal and imported coal are sold at a uniform average price,is a ploy to help some companies at the cost of consumers.As a minister of power for India,my priority is to ensure adequate electricity for every citizen of the nation.

For that I must ensure fuel for all the power producers,be it state or privately owned.In every decision,there will be people who are satisfied and dissatisfied. He added that ministry will ensure that tariff do not rise exponentially and was trying various permutations and combinations for pool pricing mechanism.

The ministry of power intends to give more powers to Power Grid Corporation subsidiary Power Operation System Co and turn it into regulator for transmission in the next one year.Scindia said state utilities must tie up for 80% of their power requirements for the long term since expensive short-term power compels them to opt for load shedding to reduce losses.The ministry is hopeful that all the state utilities will come on board for financial restructuring plan soon as majority of the state governments have given nod for the same.

Post Vadinar Expansion,Essar Oil Hopes to Match RIL Refining Margin

In December quarter,Essar Oil reported refining margin of $9.75 per barrel,while Reliances stood at $9.6 per barrel 

Essar Oil believes that with the completion of its Vadinar refinery expansion,the company is poised to match its old rival Reliance Industries enviable margins from its Jamnagar refinery.In the quarter-ended December, Essar Oil reported current price gross refining margin (GRM) of $9.75 per barrel,as against $2.82 a year ago,comparable with Reliance Industries GRM of $9.6 per barrel in the quarter.

We aimed to be close to their range and we would continue to be there.All refineries are different,depending on what we produce and market,there would be some differences,but more or less we should be in the range, LK Gupta,Essar Oils MD and CEO,told ET.We used to be $3-4 above IEA (International Energy Agency benchmark) while Jamnagar would be $7-8 above IEA.We used to say that if we become as complex as Reliance,then we should be somewhere close to their range.

This quarter we were at $9.75,they were $9.6,but if you factor the backwardation cost,then they may be a little ahead of us. GRM is the difference between total value of petroleum products and price of crude,and is the key profit indicator for crude oil refiners.Essar Oil,a part of the energy conglomerate controlled by billionaire brothers Shashi Ruia and Ravi Ruia,completed the expansion and upgradation of it refinery last year.

The refinery capacity stands expanded to 405,000 barrels per day from 300,000 previously and its complexity has increase to 11.8 from 6.1.Mukesh Ambaniled RIL operates the Jamnagar refinery,which has a capacity of 660,000 barrels per day and complexity of 11.3,as defined by the Nelson Complexity Index.Essar Oil can potentially earn similar GRMs to RIL as the complexity of the two refineries is similar.

Comparing the two companies is a stretch given the manifold advantage RIL has in terms of scale and balance sheet strength, said Sandeep Randery,head of research,Brics Securities.Essar Oil recognises its biggest challenge and has plans of replacing its high-cost rupee loans equivalent to $2.27 billion with external commercial borrowings.The next two years our focus is to run Vadinar at the most optimised manner.

We have to refinance our debt and replace it with ECB and then we have to correct our leverages,which are slightly high right now, Gupta said.Gupta said that as against a current interest rate of around 12% on loans,the foreign debt may be raised at around 6%,resulting in an annual saving of $150 million for the company.

Last month,Reliance Industries raised $800 million (.4,292 crore) by issuing senior unsecured perpetual bond that have no maturity date and pays an annual coupon of 5.875%.Essar Oil may not be able to tap the perpetual bond route as it does not enjoy high credit rating like RIL. Gupta said that the company aims to exit from the corporate debt restructuring programme by March and subsequently raise the funds from overseas market.We have just started generating funds after completing our project and our rating agency has upgraded our rating two notches.We are only waiting for our CDR exit to be completed and we will do the fund raising as soon as possible, Gupta said.

Local Electronics Units Pin Big Hopes on NOFN

21,000-CR PROJECT TO BRING BROADBAND TO 2.5 LAKH VILLAGES 

First Made-in-India electronics project to give leg-up to fledgling domestic industry 

It is one of the most expensive and ambitious projects in Indias technology history connecting 2,50,000 gram panchayats in the country with a fibre optic network.It would need Rs 21,000 crore and as it is being planned now,the project needs exceptional project management,cuttingedge technology,and close coordination between several government agencies.

While the government is preparing to start the project in the next two months,a set of big players with substantial investment plans are watching the progress closely.The reason : The National Optic Fibre Network (NOFN) is being considered as a test case for the governments ability to deliver.

Tenders have been called for the NOFN and the final bidders will be known over the next two months.At the moment,the network is being planned as a largely domestic exercise.Homegrown telecom research agency Centre for the Development of Telematics (C-DoT ) has been developing all the relevant technologies needed for NOFN,and it has inked technology transfer pacts with six Indian vendors ITI, Tejas Networks,VMC,Sai Systems,United Telecoms and SM Creative who will manufacture the gear if they win the contracts.

The NOFN project is being overseen by a new entity called Bharat Broadband Network (BBNL) and is being executed by BSNL and MTNL. With 2.5 lakh villages to be covered,the eco-system that this project will spawn is going to be massive.Besides those involved in laying optical fibres, players ranging from those involved in testing,civil work,logistics,local vendors, an tenna suppliers and technicians are going to benefit from the project, said a government official who is closely involved in this project.

Of the Rs 21,000 crore earmarked for this two-year project,almost 70% would be spent on domestic players.Among those who will be sharing the rest will be the global chip-makers and the electronics industry as India lacks a fab to source chips from.

The NOFN project involves bringing optical fibre connectivity to villages and extending broadband to the required locations using wireless technologies.A technology called GPON (Gigabit Passive Optical Network Technology) and broadband wireless terminals are needed for this.Once the fibre connectivity is brought to villages,the broadband connection is distributed to several points through a service provider.C-DoT has been using Freescale Semiconductor devices for delivering broadband content to rural areas,Sai Jayram,who is heading the broadband and 4G projects at C-DoT,had told ET during India Telecom Show 2012.

One positive fallout,if this project succeeds,will be the impetus it will give the semiconductor and electronics industries.Broadcom,the worlds largest provider of chipsets which enable GPON,is among the many players bidding for a share of this project.We have invested a good amount of time and energy studying this for the Indian market, says Rajiv Kapur,managing director of Broadcom International PTE.

The success of this first made-in-India project will decide whether India has the capability to deliver high quality services in electronics.The NOFN project will be the lead vehicle which will show the world that India has the capability to indigenously handle mega projects, says Rajiv Kapur.The stakes are huge since leading global telecom equipment vendors have been barred by the Indian government from supplying GPON gear for this mega venture.Ericsson,Nokia Siemens Networks, Alcatel-Lucent,Huawei and ZTE are missing from a telecom department certified list of vendors eligible to supply GPON,which is the chosen fibre technology for this project.

In line with its recently unveiled preferential market access norms,DoT has mandated 100% domestic sourcing for this project by 2014-15 on security grounds,and the list of certified GPON vendors reportedly include Himachal Futuristic Communications, ITI, Tejas Networks,C-DoT,VMC Systems,Prithvi Infosystems, Sai Systems,United Telecoms and SM Creative.Meanwhile,, the department of electronics & IT is dangling several baits before the industry,be it in the form of the modified special incentive packages to start units in electronics clusters where they have been assured a 25% reimbursement on the capex (on some products) or a 30% preference for local industries while sourcing products.Many domestic players like Tejas Networks are keen on availing the benefits of these MSIPs.We are waiting for the government to notify the Bangalore cluster to avail of the benefits of MSIPs, says Sanjay Nayak,CEO and MD,Tejas Networks.Vivek Tyagi,director (India sales),Freescale Semiconductor India,says: Clusters like Noida do not have a testing facility for electronics.It would be great if two or three players pool in resources to create such a facility. 

The main reasons for the low growth in the electronics sector is the zero tax on imports of electronic goods which makes it easy for electronic goods manufacturers to source parts from abroad,lack of a level playing field for domestic players and the absence of a Fab in India,says Dr Satya Gupta,chairman of the Indian Electronics and Semiconductor Association.The policy is finally in place and concrete developments can be witnessed before the end of this year, says Dr Gupta.

Petrol Price Rises by 1.9,Diesel to Cost 55p More

GLOBAL CUE Surge in international crude prices pushes oil cos to increase local rates 

State oil firms have raised diesel prices by 55 paise per litre and petrol by.1.89 per litre (with taxes in Mumbai) from Saturday.Indian Oil Corp (IOC),the countrys biggest fuel retailer by volume,said in a statement that prices of diesel,before including local taxes,have been raised by 45 paise across the country,while petrol is costlier by.1.5 a litre.

Local taxes vary between 12.5% and 20%.We have raised diesel prices in the range specified by the cabinet in January where the government will give subsidy on our revenue losses.But we are forced to raise petrol prices sharply because we need to recover past revenue losses of about.1,100 crore by March 31 because the government does not provide any compensation on petrol, a senior executive working in a Mumbai-based oil company said,requesting anonymity.

Oil marketing firms were losing about.1.15 a litre revenue on petrol and over.10.7 a litre on diesel.IOC said in a statement that petrol prices were raised because of rising international crude oil rates.India,which imports more than 80% crude oil it processes,pays its import bill in dollars.Prices of Brent,the international benchmark for crude oil,soared to a nine-month high last week,touching $119 per barrel.

The Corporation (IOC) has been compelled to pass on the increase in MS (petrol) prices to consumers as it has already suffered losses on sale of MS so far and trends in international oil market as well as INR-USD exchange rate indicate continued strength, IOC said in the statement.IOC executives hinted at another round of petrol price hike by March,if international crude oil prices continue to surge and rupee depreciates further.In fact,currently MS prices are hovering around $132.80/bbl.

The trends of international oil prices and INR-USD exchange rate shall be closely monitored and the same shall be reflected in future price changes, IOC said.Oil companies had last increased diesel rates by a similar amount on January 18.With current upward revision of diesel prices by.0.45/litre,our revenue loss is.10.27/ litre, an IOC official said.

SBI Net Up Just 4% in Q3 on Higher Bad Loans,Retail Slip

But the countrys biggest lender says worst may be over on bad-loans front,aims to log.15,000-crore profit in FY13 

State Bank of Indias December quarter net profit rose 4% boosted by treasury gains,but higher bad loans and lower profitability in retail lending bruised the stock.SBI said its fourth quarter net profit may rise 28% as it aims at a profit of.15,000 crore for the whole year as the worst may be over on bad-loans front.It is on course to dominate the retail market in home and automobile loans and improved profitability,its chairman said.

The nations biggest lender with about a fifth of the industry assets said net profit for the fiscal third quarter rose to.3,396 crore,from.3,263 crore.That was lower than analysts estimates of.3,610 crore.Shares fell 1.8% at.2,214.

The worst is over, Pratip Chaudhuri,chairman of the State Bank of India told reporters.We believe that NPA levels have peaked for SBI. The Indian banking system is in the throes of pain due to soaring bad loans as projects get stuck due to failed clearances from various government departments.State-run banks are hit more than private lenders as they bankrolled the governments infrastructure agenda while the likes of ICICI Bank and HDFC Bank chose less risky retail borrowers.

We expect slippages to decline quarter on quarter,but still remain at an elevated level,given the challenging macro environment, Rikesh Parikh at Motilal Oswal Securities.Improvement in upgrades and recoveries would be critical, Parikh added.SBI has set aside funds for a possible loss on loans to Kingfisher Airlines worth about.1,700 crore.

Gross bad loans at the bank rose 15 basis points to.53,457 crore,or 5.3% of its assets,from.40,098 crore,or 4.61%,of the assets,it said in a filing.Net bad loans,i.e., after providing for a possible default,were at 2.59% of the assets,up from 2.22%.The rise in bad loans is accompanied by a fall in overall provisions to.2,766 crore,down from.3,086 crore.Fresh gross slippage was at by competing with lower interest rates,fell 37% to.2,114 crore,from.3,385 crore.

It had some operational challenges too,with its net interest income falling 3.16%.Profitability was also squeezed with the net interest margin failing to 3.40% from 3.84% a year ago.SBI has been promised.3,000 crore of equity capital by the government by March as it requires the funds to grow assets while rivals such as Axis raise thousands of crores from private investors effortlessly..8,175 crore,and net slippage,post recovery was at.4,256 crore.It expects to recsat about.2,500 crore of assets in the fourth quarter.Its dominant position in the market and falling yields improved its treasury operations with pre-tax profit rising to.1,406 crore,from.692 crore.But earnings from retail business,grown