Factory PMI up but remains weak as orders shrink

Indian factory activity remained weak in June as output contracted for the second month running and order books shrank for the first time in over four years, a survey showed on Monday. The HSBC Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, edged up to 50.3 in June from 50.1 in May. The index, which gauges business activity in Indian factories but not its utilities, has been flirting with the 50 mark that separates growth from contraction for two months but has held above it for over four years. "Manufacturing activity was broadly flat in June. Output continued to contract due to power shortages, albeit less so than last month. Moreover, new orders contracted led by weaker domestic demand," said Leif Eskesen, a chief economist at HSBC. Total new orders fell for the first time since March 2009 during June, although marginally. Panel members commented that economic conditions in India were fragile, resulting in lower demand. There were also reports of increased competition for new work.

Export business, however, rose at the sharpest rate since January as demand from key foreign clients strengthened. Orders from abroad expanded at consumer and intermediate goods producers, but in the investment goods sector a decline was registered. 

Reduced output levels were recorded for the second month running in June, amid evidence of tougher economic conditions and persistent power cuts. That said, the overall pace of contraction was slight and eased since May.

Production fell across all three monitored sub-sectors, with the fastest decline recorded among consumer goods producers. 

Nevertheless, the quantity of items purchased for production rose in June, taking the current expansionary sequence to 51 months. The rise in input buying was solid, and picked up pace since May. Surveyed firms reporting higher buying activity linked this to increased foreign demand and forecasts of better economic conditions in the coming months. 

On the price front, input cost inflation accelerated to the sharpest since February. Monitored companies indicated that raw material prices in general had increased over the month, with some comments of unfavourable exchange rates. After discounting their prices charged in the previous month, manufacturers attempted to pass on to their clients their increased cost burden during June. The rate of charge inflation was, however, modest as competition for new work persisted and weighed on pricing power.

Amid reports of power, raw material and water shortages, backlogs of work were accumulated again in June. Sharp rises were registered across all three monitored sub-sectors. Subsequently, manufacturers added to their workforce numbers in June. A lack of labour availability, however, restricted hiring. Whereas job creation was recorded in the intermediate and consumer goods sectors, a moderate contraction was registered at investment goods producers.

June data highlighted further accumulations of both pre and post-production stocks. Holdings of raw materials and semi-manufactured goods, nonetheless, increased modestly with panellists citing a scarcity of key raw materials.

ONGC, OIL & RIL to gain most from rise in gas price

According to industry estimates, every $1 increase in gas price is going to add Rs 3,000 cr to the net profit of PSUs

Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL) and Reliance Industries Limited (RIL) are expected to be the major gainers of a rise in gas prices. According to industry estimates, every $1 rise in the price of gas would add Rs 3,000 crore to the net profits of public sector undertakings and Rs 2,000 crore to those of private companies; the overall industry would see an addition of Rs 5,000 crore a year.

ONGC, OIL and RIL together produce about 85 per cent of India’s total domestic natural gas. These are followed by companies such as Cairn India.

It is likely the Cabinet Committee on Economic Affairs would take up the issue of a rise in gas prices tomorrow. The government is likely to opt for a price of about $6.7 a million British thermal unit (mBtu), against the current $4.2 an mBtu, as the petroleum ministry is batting for such a price. A $2.5 per mBtu rise ($6.7 an mBtu, against $4.2 an mBtu) would add Rs 12,500 crore to the profits of both public and private companies a year.

A price of $6.7 an mBtu would be much below the $8.8 an mBtu suggested by the Rangarajan panel.

The rise in gas prices would hit the power and fertliser sectors. For every $1 rise in the price of gas, fertiliser subsidy is expected to rise by Rs 3,155 crore and the power sector’s losses would soar by Rs 10,040 crore a year.

ONGC Chairman and Managing Director Sudhir Vasudeva said any price above $4.2 an mBtu would be good news, as the company’s average production cost stood at $3.7 an mBtu. “It would add to our future investments. Per-dollar rise would add Rs 2,000-2,200 crore to our net profit, but it would have an impact on our cash retention, owing to our subsidy burden,” said A K Banerjee, director (finance), ONGC.

For ONGC and OIL, the prices would be applicable immediately, buy for others like RIL and Cairn India it would be from April 2014. "The gains are calculated on the simple thumb rule because 60 per cent of the gas produced in the country are by PSUs, while the remaining 40 per cent is by private sector," said a senior official from a private sector company.

An IHS CERA report states that the future gas discovery is dependent upon the price of domestic gas due to high exploration and development costs in the country. “Of the estimated 64 trillion cubic feet (TCF) of gas remaining to be found, 24 Tcf is estimated to be found at a gas price of $8 per mmbtu, 36 Tcf at $10 per mmbtu and 64 Tcf at $12 per mmbtu or higher,” the report adds. 

“About 40-45 per cent of whatever the company gets due to a hike would go to the government exchequer only,” said T K Ananth Kumar, Director (Finance), OIL. However, analysts are still skeptical about the profit figures. “All these calculations on revenue front are done simply based on production figures. But we have to add operating expenditure, the rise in production figures etc. Apart from ONGC, RIL, OIL and Cairn India, I do believe that small players like Niko and HOEC are also going to reap benefit out of a hike,” said said Deepak Mahurkar, who heads oil & gas industry practice at PricewaterhouseCoopers India.

Meanwhile, a decision is likely to bleed the power and fertilizer consumers too. “The common man is going to pay Rs 2 more for power just for the sake of companies like RIL. Even fertilizer prices would also increase by Rs 6000 per metric tonne. At least they have to wait till the next Parliament session before taking such a crucial decision,” said CPI MP, Gurudas Dasgupta.

Spice to Seek Banking Licence,in Talks to Rope in Spore Investor

Co and promoters to own 49% in the venture while the rest will be held by domestic and foreign investors 

The BK Modi-promoted Spice Group will apply for a banking licence in India and is in talks with an unnamed bank in Singapore to offer a stake in the venture if it manages to get an approval from the central bank,the chairman of the group has said.Spice Group,which is headquartered in Singapore,has already brought on board former Sebi chief DR Mehta and former senior executives of Citibank and HDFC Bank to prepare a blue print for its banking foray,using Spices existing telecom and retail business,said Modi,who is chairman of the group.Modi,his company and other promoters will own 49% in the venture and the rest will be held by domestic and foreign investors,including a foreign bank.

The company will have to submit its proposal for a banking licence in the next few days before the June 30 deadline,joining some large corporate houses such as the Aditya Birla Group,L&T,Shriram Group,Religare,ADA Group,Srei Infra,India Infoline,IndiaBulls as well as state-owned PFC and LIC.The company is in talks to rope in a Singapore bank for this venture as it would add to its credibility,given that the Monetary Authority of Singapore (MAS) is one of the toughest regulators in the world,DR Mehta said.

Mehta,who is advising the group,however,declined to reveal the name of the potential partner.The group plans to leverage its expertise in the mobile business,through Spice Telecom,to set up a high technology bank in the country,keeping an eye on the high cost of transaction in traditional banking.

A traditional banking transaction costs a bank.40-45.But if the transaction is routed through mobiles,it would help lower the cost to anything between.6 and.8 and it can be brought down further to something in the region of.2 if its internet-based.The Reserve Bank of India (RBI) recently issued final guidelines for licensing of new private sector banks under which both private and public sector entities will be eligible to set up a bank through a wholly-owned,non-operative financial holding company (NOFHC).

RBI had said in a recent release that NOFHC should be fully owned by the promoter group.The NOFHC shall hold the bank as well as all the other financial services entities of the group.Entities or groups should have a past record of sound credentials and integrity,be financially sound with a successful track record of 10 years.For this purpose,RBI may seek feedback from other regulators and enforcement and investigative agencies, the central bank had said.The minimum paid-up equity capital norm has been pegged at.500 crore.According to these rules,NOFHC should hold a minimum of 40% of the equity capital of the bank with a lock-in period of five years at the start of the banks operations.Later,the stake of NOHFC has to be brought down to 15% within 12 years.

Earlier this week,Mahindra Finance became the first large business house to pull out of the race for a banking licence,saying Reserve Bank of Indias regulations might have an adverse impact on its NBFC business.RBI rules specify that existing financial service businesses will have to be transferred into the new bank.

Sensex Reels as China,FIIs Deal a Double Blow

Last weeks Fed hint at curbing bond buys is the main reason for the fall in all asset classes,except the dollar,feel experts 

Continued foreign fund outflows and fears of credit tightening by Chinas central bank dealt a double blow to stock markets,which sank to twomonth lows.The 30-share Sensex fell 233 points,or 1.29%,to 18540.89,while the broader Nifty index declined by 1.37% to 5590.25 after foreign investors sold shares worth.1,768.6 crore on continued fears of the US Fed winding down its billion dollar bond purchases and credit tightening by Chinas central bank.The rupee closed at a record low of 59.68 because of the FII outflows and dollar demand by jewellers.

The decline in benchmark indices to their lowest levels since April 15 was led by JP Associates,which declined by 11.5% on reports of Jaypee Cement having shelved plans to sell its Gujarat unit because of not getting the right price and JP Powers Uttarakhand plant having to shut down because of floods in the hill state.Drugmaker Ranbaxy fell 7% to a three-and-ahalf year low on concerns its Mohali plant was under watch by the US FDA.

DLF fell 6%.Jewellery stocks slumped,led by a 20% lower circuit close by Gitanjali Gems on concerns that the governments recent measures against gold import would hit the industry.Whatever be the immediate triggers,the overarching reason for Mondays fall is the decline in all asset classes,save the dollar,across the globe on fears the Fed may begin winding down its stimulus measures, said VK Sharma,head of business,private broking & wealth management,HDFC Securities.

The tumble in most financial markets began in the latter half of May after the Fed first indicated it would scale back $85 billion in monthly bond purchases if the US recovery continued.This strengthened the US currency,pushing up US bond yields and forcing foreign investors to pull out funds from emerging market equity and debt in favour of US treasuries.The story in India was no different.FIIs purchased G-secs worth.30,471 crore on a net basis between January 1 and May 21 this year.

Post Fed chairman Bernankes announcement on a likely winding down of bond buys on May 21,FIIs have sold bonds worth.30,857 crore through June 21,resulting in net outflow of.116 crore.Though RBI has cut the rate at which it lends to banks by 125 basis points since April 2012,the latter have not transferred that to rates at which they lend to companies and retail customers,spooking company growth prospects and consumer demand.Apart from the rupee decline,this has also resulted in FIIs selling equities worth.6,797 crore over the past nine consecutive trading sessions.

The fall in markets come close on the heels of comments by Raghuram Rajan,chief economic advisor to the government,that fundamentals would reassert themselves after investors digest the Feds recent statement on scaling back the stimulus.After the initial period of volatility as they digest the Fed statement,according to Rajan,investors will return to fundamentals.Few emerging markets have better medium-term prospects than India.However,despite the recent carnage in stocks because of the Fed statement and an impending election at the Centre,some analysts remain optimistic on the market prospects.We believe that the monetary stimulus by the Fed will not be disorderly and is a few months away.The weakness in the rupee has partly been due to the weak trade deficit numbers and with gold imports expected to drop,that data may improve,going ahead.FII flows have been likely impacted by the rupee weakness and the lacklustre corporate earnings performance.We believe that FII flows will return and markets will move up sustainably once government initiatives start coming in,especially for the infrastructure sector, said Dipen Shah,head of private client group research,Kotak Securities.

SoBo Property Rates Crash 30% as Buyers Miss the View Point

Marquee flats lose premium tag as new,taller buildings block their once-awesome views 

Marquee apartment buildings in south Mumbai with views to die for (of the sea,the Queen's Necklace,the Race Course) fetched its owners unheard-of prices till a few years ago.But not any more as new apartments which tend to block the views are depressing property values by up to 30%. The art deco Kamal Mahal,which was once the home of the Ambani and Godrej families,on Carmichael Road now has the high rise Imperial Towers by Shapoorji Pallonji on its east side blocking the view residents had of the citys skyline over Tardeo.

Views from apartments at the relatively new Lodha Bellissimo in Mahalaxmi would soon be blocked by the new 82-storey Minerva tower being built by Lokhandwala Infrastructure.Residents of Prabhu Kutir and the 40-yearold Crystal building on Altamount Road have a similar story.They have lost a lovely view of Marine Drive and the famous Queens Necklace because of a project by Rohan Lifescapes.This is what one paid for at these marquee locations,the view, says Sanjay Dutt,executive managing director - South Asia,at property advisory firm Cushman & Wakefield.With the view gone,prices will be under pressure. 

Apartments on the east side of Kamal Mahal on Carmichael Road today have no takers,says a property agent,who has been helping a few owners find buyers.Rates in the building are down from.1 lakh per sq ft to.70,000 per sq ft today but even at such low rates for the area its been tough finding buyers,he says.

The 25-storey Usha Kiran building on the same street,which was one of Indias first skyscrapers and has residents such as film producer Pritish Nandy and Vijay Mehta of Lilavati hospital,has a similar storey to tell.The Lodha Bellissimo with three 48-storey towers at Mahalaxmi promised exclusive views of the race course below and the sea to its residents.To the utter dismay of apartment owners which includes the likes of cricketer Ravi Shastri and Murali Kartik and actor Juhi Chawla the view of the race course has been blocked by 82-storey towers that Lokhandwala Infrastructure is developing.A major part of the C-wing and some part of the B-wing has been impacted.Rates are down 30%, says Akhil Kapur,owner of real estate brokerage firm AJ Housing.Rates for affected apartments here are down from.55,000 per sq ft to.35,000 per sq ft.Shivang Rajan,a resident of the C-wing of Lodha Bellissimo is a disappointed man.

When he bought the apartment,the C-wing was the most sought-after and had a higher price compared to the other two as it offered a better view of the race course and its greens.Then,six months ago Rajan and his neighbours came to know about the new building.After spending more money and purchasing a C-wing especially for the view,its a complete disappointment to see a new construction blocking it, says the Rajan,the owner of a construction business himself.The view,especially the sea view,does fetch a premium in Mumbai,says Anshuman Magazine,chairman and managing director of property advisory firm CBRE South Asia.Dutt of Cushman & Wakefield explains that the price and premiums of residential apartments are a factor of pin code or location,the quality,specifications,amenities and profile of residents but a major factor is still the view.

One More Reason to Worry in Fall Season

Re slide to hurt capital-intensive sectors & cos with high foreign borrowings most 

For India Inc,the rupees slide comes as another blow at a time revenue growth is slowing and margins are being squeezed.The currency has lost 11% since May.This will adversely impact capital-intensive sectors and firms with foreign borrowings and those who import raw materials heavily.Automobiles,capital goods,petroleum,power and telecom companies will bear the brunt of a weak rupee.But,sectors such as software services and pharma,with major export revenues,will benefit,though the extent of gains at the net profit level will hinge greatly on their foreign exchange hedging policies.The ET Intelligence Group analysed the impact of a weak currency on select sectors.

PHARMA 

Most companies in the sector will gain from the rupees fall,since a substantial proportion of their revenues comes from exports.A strong US dollar and yen will boost net sales and operating margins.

GAINERS : 

The major gainers will be Dr Reddys Lab,Sun Pharma,Lupin,Glenmark,Wockhardt and Cadilla Healthcare as they derive significant earnings from overseas markets.Analysts reckon that with every.1 movement,the earning per share of these companies will change by 1-2 %.For Cipla,which focuses mostly on the domestic market,rupees fall could be largely neutral.Aurobindo Pharma and Jubilant Lifescience may not gain much since they have huge foreign borrowings of up to $600 million (about.3,600 crore).

SOFTWARE 

The operating margins of software service exporters tend to go up by 30-35 bps when the rupee falls by 1% against the US dollar.What may limit the positive impact of a weak rupee on margins will be the strategy the companies adopt to pass on the benefits to clients.Besides,the amount of foreign exchange hedging and the rate at which receivables are sold in the currency forward market will also impact net profit.

GAINERS : 

Front-end companies,such as TCS,Infosys,Wipro,and HCL Tech,may report improved performance in rupee terms for the quarter to June.However,the impact on net profits will be determined by the extent of hedging losses.

TELECOM 

Major telcos,including Bharti Airtel,Idea Cellular and Reliance Communications (RCom),have substantial foreign currency debt on their books.The sharp fall in the rupee in a short span against major hard currencies will expose these debt positions.The impact on Bharti will be partially offset by its overseas revenue from the African region.But,the companys net loss will get wider.Its debt-related currency exposure is limited to borrowings of over $500 million (about.3,000 crore) contracted in India,of which 50% is hedged.For Idea and RCom,external borrowings are 60-70 % of their corresponding total debt.Idea has hedged over half of this exposure,while the impact on RCom will be partially offset by revenue from its overseas subsidiary Globalcom.

AUTOMOBILES 

The automobile industry,which is a generous importer of auto components,could be hit because of a fall in the rupee not only against the US dollar but also against other global currencies,including the yen,euro and pound.The stress will be reflected in the financials of companies such as Maruti Suzuki,which has a sizeable exposure to the Japanese currency,and also on Tata Motors to the extent of foreign currency borrowings the company may have on its books.Other unlisted automobile companies,which rely heavily on imported components for their products,will also be hurt and may have to raise prices despite the severe slowdown in the Indian auto industry.

GAINERS : 

Bajaj Auto,with a decent exposure to the export market,will benefit because of the rupees fall.

PETROLEUM INDUSTRY 

The rupees fall will have a major negative impact on the sector as 84% of the countrys oil requirements is met through imports.Most companies have foreign currency debt,which will result in higher mark-to-market provisioning.Yet,the impact will vary.Oil producers will actually benefit,although for ONGC and Oil India,a surge in the subsidy burden will negate such benefits.For mid-stream refiners such as Reliance Industries,the impact will be marginally positive,while downstream oil marketing biggies will have to bear the biggest brunt.

GAINERS : 

Reliance Ind,Cairn India 

NEUTRAL IMPACT: 

ONGC,Oil India,Gail 

COS TO BE HIT : 

Indian Oil,BPCL,HPCL,MRPL,Essar Oil,Chennai Petroleum 

CAPITAL GOODS & ENGINEERING 

The negative impact of the rupees depreciation on the sector will be limited to the extent of unhedged foreign currency borrowings the companies may have,though this could be neutralised to an extent by foreign exchange receipts from off-shore projects,if any.While L&T could be impacted a little because of foreign currency borrowings,this could be neutralised by its offshore receipts.

GAINERS : 

For Thermax,which has been strengthening exports,a sliding rupee will have a positive impact.The impact will be netural for Bhel.

INFRASTRUCTURE 

Most infrastructure companies will have little operational impact because of the weak rupee as their projects are mainly based in India.But companies such as JP Associates,NCC,HCC,IRB Infra,and GMR Infra,that have raised capital through foreign currency loans,will have to pay higher interest.These companies have already been hit by the high working capital requirement and a slowdown in the awards of new projects.

POWER 

Power utilities like Adani Power and Tata power that use imported fuel and do not have a fuel pass-through will see lower earnings due to the weak rupee.Companies such as Lanco Infra,Jaypee Power Ventures and GVK Power have foreign currency loans that will result in higher interest expense.Also,companies such as JSW Energy,which use imported coal and sell power on merchant basis may not be able to pass on the hike in fuel costs entirely.This is because state distribution companies that are financially weak may not be able to buy high-priced power.

METALS 

The revenues of companies dealing in non-ferrous metals,like aluminium,copper,lead and zinc,should improve as the prices of these metals are linked to the London Metal Exchange prices.Steel companies that import iron ore will see an increase in costs and,given the slowdown in the global steel demand,their ability to pass on the cost will be limited.Most of these companies have huge foreign debt and will have to take a hit.The losses could exceed gains from overseas earnings.For instance,Hindalco has foreign currency borrowings of over.50,000 crore,which will soar in rupee terms,and its earnings are declining due to weaker global demand.

Trai turns the game in big telcos' favour

Far from benefitting consumers, the new rules on roaming charges have opened another front in the battle between large and small operators

It was being touted as a bonanza for the over 112 million mobile customers who use the roaming facility across the country. And when the Cabinet cleared the new telecom policy last year to eventually move towards a "roaming-free regime", telcos had hoped it would bring millions of others who kept away because of steep tariffs to join the party and talk more.

But, in a hurriedly-convened press conference on Monday, Telecom Regulatory Authority of India (Trai) Chairman Rahul Khullar threw a spanner in the works by coming out with a halfway measure which has deeply divided the telcos and has killed any hope for a fall in roaming tariffs. The big three operators- Airtel, Vodafone and Idea-who together take away 80 per cent of the roaming revenues of the industry have got what they wanted: no free roaming for the time being. And pitted against them are players like Reliance Communications who have been pushing for free roaming as it currently constitutes a minuscule portion of their earnings, hoping it will help them in generating additional revenues as consumers will now talk more.

So what has Trai done? Well, Khullar has clearly said that free roaming is not practical at the moment, and he will review the decision after a year; he has given no timeline for its complete implementation. Instead, he has slashed the cap on roaming chargesimposed in 2007 by 29 to 59 per cent, which he says will help in increasing competition and bringing down prices. He has also permitted operators to charge upfront for roaming services from subscribers or offer them a fixed tariff whenever they choose to use the roaming facility. "With the caps going down I see many of the new players coming up with attractive offers. This will lead to competition amongst telcos and roaming tariffs are bound to fall," predicts Khullar.

Misplaced hopes

But Khullar's hopes that tariffs will fall might not happen. What it has done instead is divide the industry. Telcos who have low roaming incomes say that he has merely assuaged the fears of incumbent big players who have claimed that free roaming would lead to a financial burden of over Rs 13,000 crore on the industry. They say big players have exaggerated the numbers and, based on Trai's study, the impact is a moderate Rs 2,000 to Rs 2,500 crore.

So is Trai merely protecting the big companies who earn large revenues from roaming? After all, for the three big boys roaming constitutes 10 per cent of their revenues. For the smaller players, it would not be more than 5 per cent. Post-paid customers contribute 90 per cent of the roaming revenues and bulk of them, especially the high ARPU (average revenue per user) customers, again reside with these three big players.

RCom is leading a strong attack on the big boys. Gurdeep Singh, president and chief executive (wireless division) of Reliance Communications, which gets 5 per cent of its revenues from roaming, says: "The views expressed by some operators that free roaming would adversely impact revenues is biased and wrong. Trai's recommendation is a token reduction. Free roaming will have a positive impact on revenues as usage will increase and volumes will kick in".

His views are endorsed by other smaller players who say that the policy is skewed against customers and in favour of a few operators. Says a senior executive of a new telco who does not want to come on record : "It's a battle between Airtel and RCom; we are small players. But surely with free roaming, telcos like us who are not present all over India would have been able to reduce our over-dependence on competing telcos in circles we don't operate in; these telcos dictate the terms and conditions today". He also added that with ARPUs of less than Rs 80, his telco has just a few roaming subscribers; so it would have made additional revenues with customers talking more which it has now been deprived of.

Also, smaller telcos do not have NLD services of their own which puts them at a disadvantage with the big players who can offer outgoing roaming at cheap rates as they do not have to pay for STD carriage or termination charges within their network. However, the smaller players have to pay.

Lower tariffs?

But it is is also pretty clear that the big telcos which have been increasing their effective tariff realisation will drop prices. Says Rajan Matthew, director general of Cellular Operators Association of India: "Trai has tried to do a balancing act. We will see changes in the tariff plans, but they will be done smartly so that they are revenue neutral for the companies," Matthew admits that companies with a pan-India network will surely have an edge over their rivals who operate in a few circles as they would have to pay for NLD carriage.

However, Goldman Sachs says it does not expect most telcos to reduce tariffs to meet the new guidelines. "The only exception is incoming calls (where they have to adjust tariffs downwards). As telcos would be able to charge a "one-time"fee to subscribe to special tariff vouchers, they should be able to partially offset any negative impact from incoming roaming rate cut," says a recent report by the investment bank.

The reason for scepticism on the Trai move is understandable. Telcos, for instance, always charged much lower for roaming than what was stipulated in the caps imposed in 2007. What Trai has simply done now is to bring the caps down to the current prevailing roaming rates charged by telcos (see table). So, for instance, subscribers wanting to make outgoing STD calls had to fork out Rs 1.50 on an average per minute, even though the cap was at Rs 2.40 per minute. What Khullar has now done is to bring down the cap at par with what telcos charge currently-Rs 1.50 a minute. However, on incoming calls telcos might have to make some cuts in tariffs. Trai has slashed roaming charges by a substantial 57 per cent to Rs 0.75 per minute. Telcos currently on an average charge Rs 1; so they have to make an adjustment in their tariffs.

Trai has also not done anything new by allowing telcos to take upfront payments for giving roaming services either. That is because telcos were already touting such schemes even earlier. For instance, Aircel is offering a "One Nation One Rate Plan" in which you pay a one-time upfront fee of Rs 39 and get incoming calls free and pay 1 paisa per second for outgoing calls. The offer is valid for 180 days. Even BSNL has a "Roam Free Plan" available with an upfront payment of Rs 199 with incoming free.

To be fair, there have been concerns about making roaming free. Some operators say that this could have led to a massive migration of customers to circles (they would buy SIM cards of these circles) where overall tariffs are low, as roaming would be free . So the regime is impractical to implement. But experts say this fear is misconstrued as all SIM cards need registration of the customer with documents where they reside. Two, Trai could have imposed roaming charges on incoming calls and spared outgoing calls to resolve the problem.

Khullar, of course, says that he was not left with much choice. But by making a tentative move, Trai has neither benefited the consumers which is what Union Communication Minister Kapil Sibal had been touting with "free roaming" and has created yet another battleground between the big three operators and the smaller and newer players.

A weak rupee holds RBI from cutting key rate

Despite the rate of headline inflation falling within its comfort zone in May, the Reserve Bank of India (RBI) on Monday decided to keep the key policy rate unchanged, mainly because of the rupee’s recent fall against the dollar. In the mid-quarter review of itsmonetary policy, RBI maintained the repo rate at 7.25 per cent. The cash reserve ratio — the proportion of deposits banks have to mandatorily park with the central bank in cash — was also left untouched at four per cent.

The Indian currency has depreciated more than 7.5 per cent against the dollar since May, due to heavy sell-off by foreign institutional investors on concerns the US Fed might lower the pace of itsquantitative easing.

“Upside pressure on the way forward from the pass-through of the rupee’s depreciation and recent increases in administered prices and persisting imbalances, especially relating to food, pose risks of second-round effects,” RBI said while explaining Monday’s policy decision.

The biggest concern for RBI came from the external front. It observed capital flows, which met the external financing requirement in April and May, moderated in June. The trade deficit in May sharply rose to $20 billion, mainly on account of a 90 per cent increase in imports of gold and silver. RBI, however, acknowledged that gold imports might moderate soon, as the import duty on the yellow metal had been raised by two percentage points to eight per cent.

The central bank declined to give any indication on possible future rate cuts. It said: “Only a durable receding of inflation will open the space for monetary policy to continue to address growth risks.”

Banks were quick to point out that they would not cut lending rates immediately, as the cost of funds had yet to come down.

“Net interest margins are already under pressure. The cost of funds has yet to come down… certificate of deposit (CD) rates are still above eight per cent. More than Rs 3 lakh crore worth of CDs will be rolled over at this rate,” State Bank of India MD & CFO Diwakar Gupta told Business Standard, explaining why lending rate cut was not possible at this juncture.

India Inc also expressed its disappointment over the status quo.

“RBI’s decision to hold policy rate is disappointing. At a time when both growth and inflation dynamics call for an accommodative monetary policy, RBI has taken a cautious approach of attending to the prospect of a possible resurgence in inflation over reviving growth in the economy,” said CII Director-General Chandrajit Banerjee.

Market participants, however, expect RBI will cut rate as factors turn more favourable.

“We still believe the possibility of 50-75-bp rate cuts over the rest of the year remains. We also wouldn’t rule out the possibility of a couple of cuts in CRR as liquidity tightens sometime in the second half of the financial year,” said HDFC Bank Chief Economist Abheek Barua. RBI’s decision to hold policy rate is disappointing. At a time when both growth and inflation dynamics call for an accommodative monetary policy, RBI has taken a cautious approach of attending to the prospect of a possible resurgence in inflation over reviving growth in the economy,” said CII Director-General Chandrajit Banerjee.

Inflation drops to over 3-year low of 4.7% in May

Wholesale inflation dropped for a fourth straight month in May to a more than three-year low of 4.70% from 4.89% in April on cheaper manufactured and fuel products, showed the data released by the industry ministry on Friday.

Still, analysts reckon the central bank will likely refrain from trimming the benchmark lending rate in its next policy review meeting on June 17 despite the calls to stimulate growth, thanks to a weakening rupee.

The estimate for March was also revised down to 5.65% from 5.96% announced earlier, showed the data. Wholesale inflation last month, however, was also sharply lower than the 9.31% rise in consumer inflation for May.

Inflation in manufactured items, which have a 65% weightage in the inflation basket, slowed to a 41-month low of 3.11% in May, compared with 3.41% a month before. Fuel products saw a 7.32% inflation last month, compared with 8.84% in April.

However, after the fourth straight month of decline through April, wholesale food inflation--which has also been a major driver of retail inflation due to a high weightage in the consumer price inflation index--picked up to 8.25% in May from 6.08% a month before as prices of onion and cereals surged.

Sharp price rise in food items has been blamed in recent months for the elevated reading in retail inflation, as such products have a higher weightage in the consumer price inflation index than the wholesale price index.

World Bank Cuts Indias Growth Outlook to 5.7%

Greater dependence on foreign investment to finance CAD has increased Indias vulnerability,says report 

The World Bank,on Thursday,lowered Indias growth outlook for the current fiscal to 5.7% from 6.1% estimated earlier and also lowered the growth projection for the world economy to 2.2% from 2.4% that it estimated in January this year.

Citing slower-than-expected expansion in China,India and Brazil,and a stubborn contraction in Europe as reasons for the slower growth,the bank said that Indias gross domestic product in factor cost terms is projected to grow 5.7% in the current fiscal (ending March 2014),and then accelerate to 6.5% and 6.7%,respectively,in the subsequent two financial years.In its latest 'Global Economic Prospects' report,which comes twice a year and had last come in January,the World Bank has predicted developing countries would collectively expand by 5.1%,less than the 5.5% it estimated in January. This will be on the back of lower growth in China at 7.7% now vis-vis the 8.4% projected in January while Brazils economic growth has been cut to 2.9% from 3.4% estimated earlier.

Exports and private investment,which slowed sharply in 2012,are projected to strengthen between 2013 and 2015 and boost growth.However,how robust that recovery will be,will depend on the pace of policy and fiscal reforms,and remains subject to significant uncertainty and downside risks,it said,adding that some upside risks to the outlook include a faster-thanprojected pick up in global demand and a larger than expected decline in commodity prices.

According to the report,Indias greater dependence on foreign investment inflows to finance its significantly larger current account deficit compared to the past has increased its vulnerability to a sudden reversal of investor sentiment.Several factors could result in a slowing or reversal of investment inflows -- an unanticipated monetary tightening in some high income countries;resurgence of debt tensions;escalation of geopolitical conflict;and even disenchantment with the pace or nature of domestic reforms, it said.

The bank,however,feels that the continued progress in implementing reforms that relieve supplyside constraints,such as reducing energy supply bottlenecks,labour market reforms,improving the business climate,and investing in education,health and infrastructure would be the key to growth.

Foreign Portfolio Investors can Invest $5B More in G-Secs Now

Separately,a Sebi panel suggests allowing FIIs to trade in stocks without having to register with market regulator 

The government has increased the investment limit of foreign portfolio investors in government bond by $5 billion to $30 billion in an attempt to attract more foreign capital in to the country at a time of heightened worries over currency weakness and a widening current account deficit,even as a Sebi panel proposed ways to relax entry rules for such investors.

The government said the enhanced limit will be available for investments only to foreign central banks,sovereign wealth funds,multilateral agencies,endowment funds,insurance funds and pension funds.In a late evening release,the market regulator said the unutilised amount will be put on auction on June 20.For foreign institutional investors that have exhausted their reinvestment limits,as a one-time measure,a special window of up to $250 million per FII would be available.However,such investments made by FIIs using the special window would have a 90-day lock-in,Sebi said.A Sebi panel,headed by former cabinet secretary KM Chandrasekhar,has proposed that foreign investors should be allowed to trade in Indian stocks without any prior registration with capital market regulator.

The committee also proposed that foreign venture capital funds (FVCI) should be permitted to invest in a large number of sectors.At present,tax benefits given to FVCIs are restricted to investments in only nine sectors.The panel has suggested clubbing different categories of investors like foreign institutional investors (or FIIs),sub-accounts (or an investment vehicle) and qualified foreign investors under a new category,foreign portfolio investor (or FPIs).Such investors,the panel felt,should only need to register themselves with their depository participants (that hold stocks on their behalf).By combining FII and QFI regime,Sebi has taken the first step in its journey to simplify the regulatory maze that investors face while investing in India.Delegating registrations to designated depository participants (DDP) and simplifying the KYC (know-your-client ) documentation will ease foreign investor entry into India, said Suresh Swamy,executive director,PwC India.

Foreign investors will look forward to quick implementation of these recommendations, he said.FIIs have invested invested $15 billion since January.Foreign portfolio investors can buy up to 24% in a company,which can raise the permissible limit to the foreign direct investment cap in the specific sector.The panel has not proposed any change to the investment limit for NRIs,which stands at 5% for an individual investor and 10% at an aggregate level.The panel,which had representatives from the government,Reserve Bank of India and various market participants,said non-resident Indians (NRIs) and foreign venture capital investors should continue as two separate classes considering their special nature of investments.The approach to know-your-client (KYC),under the proposed rules,would be risk-based with the panel segregating FPIs into three categories low,medium and high risk.

Factory output growth slows to 2% in April

The industrial production growth has slipped to 2% in April on account of dismal performance of manufacturing, mining and power sectors coupled with lower output of capital goods. The factory output measured in terms of index of industrial production (IIP) had seen a contraction of 1.3% according to official data released on Wednesday.

Meanwhile, the IIP growth rate for March this year has been revised to 3.4% from the provisional estimates of 2.5% released last month.

The industrial growth in 2012-13 has also been revised slightly upwards to 1.1% from provisional estimates of 1 per cent released in May. IIP growth in 2011-12 was 2.9%.

Manufacturing sector, which constitutes over 75% of the index, grew by meagre 2.8% in April against a decline in the output by 1.8% in the year-ago month.

Power generation grew by just 0.7% in April this year compared to a growth of 4.6% in same month last year.

The mining sector output contracted by 3% in April this year compared to a decline in the production by 2.8% in April 2012.

The capital goods output saw a growth of just 1% in April this year compared to a decline in production by 21.5% in the year-ago period.

Overall, 13 out of the 22 industry groups in manufacturing sector have shown positive growth during April

Rupee hits record low, makes it difficult for RBI to cut rate

In toay's opening trade the partially convertible rupee was at 58.35 per dollar, a life low

The rupee on Monday hit a record low to close at 58.14 a dollar, as foreign institutional investors (FIIs) withdrew from the country and the outlook on India’s current account deficit continued to be bleak. The fear that the US Federal Reserve might lower the pace of quantitative easing also weighed.

After opening at Rs 57.26 a dollar on Monday, the rupee touched an intra-day high of Rs 57.16 before closing at Rs 58.14 — down 1.87 per cent from Friday’s close of 57.07. On Monday’s closing level beat the Indian currency’s previous worst of 57.32 per dollar on June 22 last year. This was also the sharpest single-day fall of the rupee since September 22, 2011, when it had weakened 2.57 per cent (124 paise) against the dollar.

FIIs have withdrawn $ 2.7 billion from the Indian debt market since the end of May. The government, however, tried to play down the rupee’s depreciation, calling the panic among investors unwarranted.

“There is weakening of all currencies vis-à-vis the dollar. So, the rupee, too, is affected. But there is a panic in the market that is unwarranted. This started off with a misinterpretation of what the Fed chairman spoke of in terms of quantitative easing. They have now more than clarified that this (early withdrawal of quantitative easing) is not imminent,” said Economic Affairs Secretary Arvind Mayaram.

According to bankers, the rupee’s weakness will make decision-making difficult for RBI, which expected to further ease its stance in its mid-quarter review of monetary policy on June 17, to revive growth. After India’s economy grew at the slowest rate in a decade last financial year, the central bank has cut the repo rate by 75 bps this year.

“The sharp and sustained weakening of the rupee will make it difficult for RBI to cut rates in June. It complicates near-term macro management — pushing up inflation, increasing fuel subsidies, and putting pressure on unhedged corporate balance sheets,” said JPMorgan India Economist Sajjid Chinoy.

Market participants see the rupee weakening further on dollar demand from importers and as FIIs continue to withdraw from India.

“The rupee will continue to trade weak till RBI is able to recoup the $60-billion forex (including forwards) sold since 2008. Keeping rates high will only defer recovery, deter FII equity inflows and delay re-accumulation of forex reserves,” said Indranil Sen Gupta, India economist, Bank of America-Merrill Lynch.

Japan current account surplus doubles; GDP revised up

Japan's current account surplus doubled in April from a year earlier, and bank lending posted its biggest annual rise in over three years, in a fresh sign the government's aggressive policies to stimulate growth are paying early dividends.

Separate data showed the world's third-biggest economy grew 1.0 percent in the first quarter, revised up slightly from a preliminary estimate, underscoring a steady recovery driven by a pickup in global growth and sweeping stimulus policies by Prime Minister Shinzo Abe.

The current account surplus stood at 750 billion yen, up 100.8 percent from a year earlier and much bigger than a median market forecast of a 320 billion yen surplus, data from the Ministry of Finance showed on Monday.

Hefty income gains including returns from Japanese investments abroad, which were boosted by a weak yen, more than made up for trade deficits, analysts say.

"There isn't much change in the trade balance trend, where the weak yen is boosting import costs," said Junko Nishioka, chief economist at RBS Securities Japan.

"Exports are gradually recovering as overseas growth picks up, so that's a positive sign. But the growth in exports isn't strong enough to offset the rising import costs."

The latest data comes as volatile markets are casting a cloud over 'Abenomics', a policy prescription of sweeping monetary and fiscal expansion aimed at ending years of entrenched deflation and economic stagnation.

Japanese equities have suffered big falls since May 23, with investors worrying over a slowdown in China and uncertainty on when the US Federal Reserve would roll back its stimulus.

The effects of a weak yen have had a bigger impact on boosting the cost of imports than driving export growth, posing a challenge to Abe's ambitious goal of putting Japan on a sustainable long-term growth track.

However, there are encouraging signals for the economy.

Bank lending rose 1.8 percent in May from a year earlier, the biggest annual increase since August 2009, in a sign the Bank of Japan's ultra-loose monetary policy is prompting companies to spend more.

For decades, Japan had accumulated solid current account surpluses, but the surplus for 2012 more than halved from a year before to 4.7 trillion yen, the smallest on record.

Separate data from the Cabinet Office showed Japan's economy grew 1.0 percent in January-March from the previous quarter, revised up from an initial estimate of a 0.9 percent gain due to revision to corporate capital spending.

Abe's growth strategy unveiled last week - 'the third arrow' of his three-pronged policies aimed at stimulating the Japanese economy - has so far failed to impress investors who want the prime minister to tackle bolder reforms including corporate tax cuts and higher labour mobility.