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‘A third of top 500 firms’ books dodgy’The report shows over a third of India’s top 500 companies, including those in the top 100, are “managing” their accounts.

http://indianexpress.com/article/business/a-third-of-top-500-firms-books-dodgy/3/

Written by Subhomoy Bhattacharjee  | New Delhi | Updated: April 10, 2015 4:42 am

A forensic report prepared for the Serious Fraud Investigation Office (SFIO) shows over a third of

India’s top 500 companies, including those in the top 100, are “managing” their accounts.

It finds that companies where promoters hold more than 50% of total shareholding are more likely

to take such steps to impress markets with their performance. Both domestic companies and

subsidiaries of multinationals listed in India show similar trends when their shareholding is

concentrated in a few hands.

The report by rating agency India Ratings, part of the Fitch Group, is the first which raises

questions on the overall health of the corporate sector. It is buttressed with extensive statistical

analysis.

It has created consternation within the government for two reasons. The report notes that almost all

companies whose financial numbers are questionable underreport tax liabilities. Also, allsuch

efforts have been approved by the board of directors of these companies, raising questions about the

effectiveness of corporate governance norms in some boardrooms.

Speaking on the report, lead author Deep Mukherjee notes “the possible incentives of

management to manage these earning numbers could be to meet market expectations”. The agency

analysed data for BSE 500 companies going back up to 12 years to figure ways how the numbers

are managed.

The report also states that audit by four big firms of these 500 companies is not necessarily superior

to that of home grown auditors to catch these aberrations. A top revenue department official told

The Indian Express they are also studying the report and have commissioned an agency to examine

the revenue angle further.

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Among sectors, FMCG, pharma and automobiles are more likely to see such aberrations since

these companies have significant controls over their supply chain partners. “In

aneconomic downturn, these weak players (partners) may be made to bear the brunt of the

slowdown so as to insulate the earnings of large players,” the report stated.

“Questionable operational practice” followed by many companies also include those on

depreciation, interest cost, employee cost and selling and distribution expenses besides their tax

scores as shown in their financial statements.

Some auto companies resort to “channel pushing, that is supplying finished goods to distributors so

as to book higher revenue during year or quarter end”. It argues for caution in giving weightage to

inter-company loans. “One may be cautious of companies, where a significant portion of the

promoter holding is pledged for promoter loans.”’

There are significant numbers of black sheep in the BSE 100 list too. While it does not offer any

details, an independent source, analysing the financial statement, notes that the total number of

such companies is above 15.

“The fact that a corporate has market capitalisation in the top 100 does not necessarily mean that

the quality of financial reporting is among the best in the class… many mega cap companies have

entered into financial distress or have fallen from grace with alleged

corporate governance violation,” the report states.

Using stiff statistical tests, the report finds that the common “discrepancy” resorted to by some of

these top companies is in reporting their interest payments due and of their profit after tax.

Surprisingly, companies that are smaller, the mid caps, tend to have better quality of reporting

their financial numbers. “Corporates ranking between 101-200 in market cap have relatively the

least discrepancies in financial reporting, as per the statistical tests.”

The report builds on an analysis made in a Sebi-commissioned research project in 2013 that looked

into earnings, management practices of Indian companies as well as an Indira Gandhi Institute

of Development Research paper.

Both surveyed a larger number of companies but for less number of years to arrive at similar

conclusions.

All these reports argue that when the economy takes a nose dive, these trends rise. “Since some of

these earnings measures form components of credit metrics and any deterioration of metrics could

trigger a covenant breach”, the Ind-Ra report states.

The antidote to keep companies off such mischief, the India Ratings report notes, is to bring in more

pension, insurance and mutual funds into the boardrooms.

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Deep Mukherjee notes that since promoters often have large pledged shares “they could present a

less than accurate representation of the health of the company” to keep up share prices. Institutional

investors, as the report notes, will not accept such window dressing.

Because of the sensitivities involved, the credit rating agency has qualified its report at several

places. “Flagging a variable does not necessarily imply fraud but indicates a statistical possibility

that it may have been biased or managed willingly or coincidentally”.

It also refuses to take an alarmist position stating instead “if a significant number of variables are

flagged off in some of these sectors, it is not implied that all corporates in the sector would have an

issue with financial reporting. Each of the sectors may have several corporates with high quality

of financial reporting and disclosures”.

M Damodaran, former Sebi chief, said he wouldn’t agree that promoter shareholding is an issue.

“Of more salience is the role of independent directors. High quality independent directors and

not just marquee names are critical along with presence of strong audit committees to ensure

numbers are faithfully reported.”

For shareholders, the report concludes that compared with data like profit and revenue numbers,

investors in all companies would be better off by studying cash-based measures. These are cash

flow from operations and fund flow from operations. Also,companies that have taken on additional

debt would be safer. It is because companies which borrow from banks or from abroad face added

scrutiny from those borrowers and rating agencies.

Jagvinder Brar, partner of forensic audit business at KPMG India, said their analysis of company-

wise report cards have begun to throw up identical issues. “The Reserve Bank of India needs to

write in a stringent and comprehensive right to audit and inspection clause in bank loan contracts.”

Sandeep Parekh, former executive director of Sebi and founder of Finsec Law Advisors, said he

agreed that loss recognition practices don’t alter much between Indian and foreign firms. “Instead it

is companies with wider shareholding that would have the incentive to demonstrate transparent

business practices.”

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If You Listen Carefully, The Bankers Are Actually Telling Us What Is Going To Happen Nexthttp://www.talkmarkets.com/content/global-markets/if-you-listen-carefully-the-bankers-are-actually-telling-us-what-is-going-to-happen-next?post=58534&utm_source=outbrain&utm_medium=referral

By Michael Snyder of The Economic Collapse, Tuesday, February 10, 2015 5:00 AM EDTAre we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead. As you will read about below, the big banks are warning that the price of oil could soon drop as low as 20 dollars a barrel, that a Greek exit from the eurozone could push the EUR/USD down to 0.90, and that the global economy could shrink by more than 2 trillion dollars in 2015. Most of the time, very few people ever actually read the things that the big banks write for their clients. But in recent months, a lot of these bankers are issuing such ominous warnings that you would think that they have started to write for The Economic Collapse Blog. Of course we have seen this happen before. Just before the financial crisis of 2008, a lot of people at the big banks started to get spooked, and now we are beginning to see an atmosphere of fear spread on Wall Street once again. Nobody is quite sure what is going to happen next, but an increasing number of experts are starting to agree that it won’t be good.Let’s start with oil. Over the past couple of weeks, we have seen a nice rally for the price of oil. It has bounced back into the low 50s, which is still a catastrophically low level, but it has many hoping for a rebound to a range that will be healthy for the global economy.

Unfortunately, many of the experts at the big banks are now anticipating that the exact opposite will happen instead. For example, Citibank says that we could see the price of oil go as low as 20 dollars this year…The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February.

Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.

The oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range — after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while.

Even though rigs are shutting down at a pace that we have not seen since the last recession, overall global supply still significantly exceeds overall global demand. Barclays analyst Michael Cohen recently told CNBC that at this point the total amount of excess supply is still in the neighborhood of a million barrels per day…“What we saw in the last couple weeks is rig count falling pretty precipitously by about 80 or 90 rigs per week, but we think there are more important things to be focused on and that rig count doesn’t tell the whole story.”

He expects to see some weakness going into the shoulder season for demand. In addition, there is an excess supply of about a million barrels of oil a day, he said.

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And the truth is that many firms simply cannot afford to shut down their rigs. Many are leveraged to the hilt and are really struggling just to service their debt payments. They have to keep pumping so that they can have revenue to meet their financial obligations. The following comes directly from the Bank for International Settlements…“Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets, for example, more production is sold forward,” BIS said.

“Second, in flow terms, a lower price of oil reduces cash flows and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments. Debt service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market.”

In the end, a lot of these energy companies are going to go belly up if the price of oil does not rise significantly this year. And any financial institutions that are exposed to the debt of these companies or to energy derivatives will likely be in a great deal of distress as well.

Meanwhile, the overall global economy continues to slow down.

On Monday, we learned that the Baltic Dry Index has dropped to the lowest level ever. Not even during the darkest depths of the last recession did it drop this low.And there are some at the big banks that are warning that this might just be the beginning. For instance, David Kostin of Goldman Sachs is projecting that sales growth for S&P 500 companies will be zero percent for all of 2015…“Consensus now forecasts 0% S&P 500 sales growth in 2015 following a 5% cut in revenue forecasts since October. Low oil prices along with FX headwinds and pension charges have weighed on 4Q EPS results and expectations for 2015.”

Others are even more pessimistic than that. According to Bank of America, the global economy will actually shrink by 2.3 trillion dollars in 2015.One thing that could greatly accelerate our economic problems is the crisis in Greece. If there is no compromise and a new Greek debt deal is not reached, there is a very real possibility that Greece could leave the eurozone.If Greece does leave the eurozone, the continued existence of the monetary union will be thrown into doubt and the euro will utterly collapse.

Of course I am not the only one saying these things. Analysts at Morgan Stanley are even projecting that the EUR/USD could plummet to 0.90 if there is a “Grexit”…The Greek Prime Minister has reaffirmed his government’s rejection of the country’s international bailout programme two days before an emergency meeting with the euro area’s finance ministers on Wednesday. Should Greece stay firm on its current anti-bailout course and with the ECB not accepting Greek T-bills as collateral, the position of ex-Fed Chairman Greenspan will gain increasing credibility. Greek Fin Min Varoufakis said the euro will collapse if Greece exits, calling Italian debt unsustainable. Markets may gain the impression that Greece may not opt for a compromise, instead opting for an all or nothing approach when negotiating on Wednesday. It seems the risk premium of Greece leaving EMU is rising. Our scenario analysis suggests a Greek exit taking EURUSD down to 0.90.

If that happens, we could see a massive implosion of the 26 trillion dollars in derivatives that are directly tied to the value of the euro.We are moving into a time of great peril for global financial markets, and there are a whole host of signs that we are slowly heading into another major global economic crisis.So don’t be fooled by all of the happy talk in the mainstream media. They did not see the last crisis coming either.

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Satyam case has made accounting practices better in Indian IT firmshttp://economictimes.indiatimes.com/news/company/corporate-trends/satyam-case-has-made-accounting-practices-better-in-indian-it-firms/articleshow/46872661.cms?prtpage=1

By Anirban Sen, ET Bureau | 10 Apr, 2015, 10.18AM IST

Experts also said that despite all the checks and balances put in place by top IT firms, a fraud like Satyam is impossible to prevent when conspiracy and collusion are involved.

BENGALURU: Global experts and customers tracking India's $146billion information technology

(IT) industry hailed a special CBI court's decision on Thursday to sentence BRamalinga Raju,

cofounder of erstwhile Satyam Computer Services, and nine others to seven years of

imprisonment and fine them Rs 5 crore each.

Often referred to as India's equivalent of the Enron scandal, the Rs 7,136-crore Satyam scam that

came to the open in January 2009 sent shock waves through the Indian ITindustry and spooked

investors, who sold the shares of the company and those of rival software exporters.

The episode prompted an overhaul of accounting practices of companies across the sector and

forced regulators to crack down harder on IT firms and their financial disclosure practices.

"What happened at the time (of the Satyam scandal) was a struggle for the whole industry,

because it raised a lot of questions and a lot of issues on accounting practices in India -at the time

it caused a bit of a scare and a bit of consternation on the part of clients to verify and feel

comfortable about the checks and balances that exist in India," said Frances Karamouzis, vice-

president and distinguished analyst at Gartner.

Experts tracking the incident and the IT industry feel that Indian IT firms have taken a lot of steps

since then to reassure top outsourcing customers of watertight accounting practices at their

companies.

"I think a lot of work was done back then to alleviate fear after the scandal happened. But since

then, I don't think people have given it a lot of thought and now that the verdict has come out, I

don't think it'll have a major impact on the industry," said Karamouzis.

Fred Giron of Forrester Research said, "A lot of ink has been put on paper around this case -from

an investor perspective, the players are taking steps to clean up and get their act together. So, I

don't think there's much to worry about as far as the future is concerned."

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Customers of India's outsourcing industry said the Satyam case had a lot of lessons for top Indian

IT firms, which need to keep improving their internal financial processes. "I think you can't have

double standards as far as ethics and processes and operations are concerned -because everyone

gets impacted in this kind of businesses. Companies like Satyam, now Tech Mahindra, need to

think longer and harder about the consequences of their actions on stakeholders and how they

affect everyone across the board," said the CIO of a top US-based insurance firm, which

outsources back-office projects to Indian IT firms.

He requested anonymity as his company does not allow him to speak to reporters.

Experts also said that despite all the checks and balances put in place by top IT firms, a fraud like

Satyam is impossible to prevent when conspiracy and collusion are involved.

"The reality is that what happened in the case of Satyam was collusion and fraud in general. If

people want to perpetrate a certain fraud and there's collusion involved, there isn't a mechanism

in place to necessarily find that out," said Karamouzis. "A fraud like this can happen anywhere."

"This case harbours several key learnings: First, illegal and unethical business practices come with

serious consequences. While compliance is getting a lot of attention these days, an organisation

culture based on professional integrity and an ethical mindset is really what guides decision-

making and behaviour, and can effectively impede these kinds of problems," said Peter

Schumacher, chief executive of Germany-headquartered Value Leadership Group.

"The second learning is that effective crisis management is critical and can mitigate the fallout.

Immediately following the blowup, key managers rose to the occasion and did an outstanding job

addressing the crisis," he said.

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April 7, 2015 1:00 pm JST

Acquisitions hit record

Three factors driving Japan companies' buying spree

http://asia.nikkei.com/Business/Deals/Three-factors-driving-Japan-companies-buying-spree

TOKYO -- Japanese companies are on an acquisition spree. According to U.S. market research

company Dealogic, the acquisitions announced in the first three months of 2015 doubled from a

year earlier to $40.4 billion, a record high in yen terms on a quarterly basis. The full-year

acquisition amount was record high at 8.6 trillion yen ($71.6 billion) in 2014.

The acquisition of the world-renowned companies, funds generated by the Bank of Japan's

monetary easing, and being short and intensive have been the keys to Japanese companies' mega

deals that involve hundreds of billions of yen.

"Axis is the bluest of the world's blue-chips," Canon Chairman and CEO Fujio Mitarai stressed at a

news conference when the Japanese camera and printer maker announced the acquisition of

Swedish network video solutions company Axis on Feb. 10.

In fiscal 2014, Japanese companies acquired numerous world-renowned Western companies:

Unilever's North American pasta sauce business; the rail and traffic signal businesses of

Finmeccanica, the Italian aerospace and defense equipment manufacturer; and Royal Bank of

Scotland's North American loan assets.

Since the 2000s, Japanese companies have mostly acquired companies in fast-growing

countries such as Southeast Asia and India. Last fiscal year, however, most large acquisitions by

Japanese companies were big companies in developed countries, such as Europe, the U.S. and

Australia.

"More Japanese companies are placing more emphasis on developed countries with larger

markets rather than on emerging countries, where high growth rates can be expected," said

Kensaku Bessho, managing director of the investment banking unit at Mitsubishi UFJ Morgan

Stanley Securities.

In addition to the fact that Japanese companies already have a large foothold in the global

market including emerging markets, business risk is smaller in developed countries than in

emerging markets, where there are still concerns over legal systems and infrastructure.

The acquisition amount is swelling naturally. The average acquisition amount per overseas

acquisition deal stood at 14.4 billion yen in fiscal 2014, having more than doubled in the past four

years.

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The series of large acquisitions by Japanese companies is supported by the vast amount of

money generated by the Bank of Japan's quantitative and qualitative monetary easing. The

historically low long-term interest rates allowed Japanese companies to raise acquisition funds

through various means, such as bank borrowing and bond issuance. For example, Japanese

logistics company Kintetsu World Express decided to buy Singapore's APL Logistics for 144 billion

yen, equal to 80% of the company's market capitalization of 180 billion yen before the

announcement. "Synergistic effects and low interest rates have given us a nudge in that direction,"

said Kintetesu World Express Director Katsufumi Takahashi.

The Japanese government and investors are also urging Japanese listed companies to use some

100 trillion yen in cash reserves effectively. As the government and the BOJ are trying to kick-start

inflation, cash that does not create value could become dead money.

Quick and intensive

This is resulting in increasing acquisition costs. Hitachi, the Japanese electronics and heavy

machinery conglomerate, said in February that it would acquire the rail and traffic signal

businesses of Finmeccanica of Italy. During a news conference, Hitachi Chairman and CEO Hiroaki

Nakanishi confessed that the acquisition cost his company more than it had expected.

Local media reports on the progress of negotiations, as well as the yen's weakening, sent shares

in a rail traffic signal company, one of its target companies, surging. The total acquisition amount is

expected to exceed 260 billion yen, compared with an initial projection of less than 200 billion yen.

The acquirers seem to have decided that moving quickly is their best bet. For example, it took

Japanese chemical company Asahi Kasei only two months after initial contact to agree on the

acquisition of U.S.-based Polypore International, a maker of lithium-ion battery separators.

Suntory Holdings' acquisition of Beam, the U.S. maker of Jim Beam bourbon, announced last

January, was finalized in only two months.

Many Japanese companies used to wait for brokerages to bring M&A deals, but "now many

companies are spending a lot of time researching the target companies and industries beforehand

to set priority," said Shunsuke Uchikawa, managing director of Citigroup Global Markets Japan.

Nowadays it is common for top executives to spearhead acquisition negotiations. The

improvement in Japanese companies' knowledge in acquiring foreign companies may have helped

them close the deals faster.

(Nikkei)

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Why Direct-Sold Funds Often Beat Those Peddled by Advisorshttp://online.barrons.com/articles/why-direct-sold-mutual-funds-often-beat-those-peddled-by-advisors-1428719781

Emphasis on performance, rather than commissions, benefits investors. Two examples are the Disciplined Growth Investors fund and the Bruce fund.

The Disciplined Growth Investors Fund is an endangered species. You can’t buy it at a broker or fund supermarket—only from its management company. Nor will you see it advertised anywhere. But like the timber wolf or Bengal tiger, it’s a thing of beauty. The fund has beaten 97% of its peers in Morningstar’s moderate allocation category in the past three years with a 13.1% annualized return.Its success is no accident. A study published last August in the Journal of Finance found that actively managed stock funds sold directly to shareholders outperform their broker-sold peers by 1.15 percentage points a year.

Not only that, the study—called Mutual Fund Performance and the Incentive to Generate Alpha—found that if you eliminate all of the broker-sold funds from the universe, returns for actively managed funds matched those of index funds. In contrast, broker-sold funds underperformed index funds by 1.12 percentage points a year.

Why? The study’s authors, Jonathan Reuter and Diane Del Guercio, found that asset flows to direct-sold funds came from more discerning do-it-yourself investors who rewarded strong risk-adjusted performance—the fabled “alpha.” Shops with a direct sales model are incentivized to seek alpha, and their interests are aligned with shareholders. Meanwhile, flows from brokers went to funds that paid the greatest commissions. Alpha wasn’t a priority.

The White House’s Council of Economic Advisers is using this study as ammunition in the fight to create a fiduciary rule for financial advisors. Citing the study in a report published in February, the council stated, “Underperformance among actively managed funds is limited to the segment of the mutual fund market where the conflicted payments are the largest.” A fiduciary rule would require advisors to put their clients’ needs before their own. Thus, when faced with a choice between an actively managed broker-sold fund with high fees or a cheaper index fund, the rule might require them to use the index one.

There could be challenges to implementing such a rule. Though his study was published recently, co-author Reuter used 1992-2004 data, in part to coordinate his results with those of previous studies, but also because fund-distribution channels have changed in recent years. “During that period of time, the distinction between broker-sold and direct-sold funds was less gray,” says Reuter. “Today, it’s a lot grayer.”

Consider T. Rowe Price (ticker: TROW). Back in 1992, investors mostly bought its funds from the Baltimore-based company itself. Gradually, the funds became popular at online discount brokers like E*Trade and TD Ameritrade. Then, in 2000, T. Rowe began offering a new advisor share class for

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certain funds, such as T. Rowe Price Value (PAVLX). This share class was sold by financial advisors and charged an additional 0.25% 12b-1 fee to compensate them. The company paid $144 million in such fees to advisors in 2014—a not insignificant sum.“The study’s argument doesn’t hold up as well today,” asserts Brian Reid, chief economist of the Investment Company Institute, a fund industry trade group. “Most direct-sold funds are also sold through the advice channel via fee-based advisors. There’s a lot more crossover.”

On the other hand, discount brokers like Schwab or Fidelity have gradually been boosting their charge for funds to be on their platforms, even if they have just one share class. Sometimes, the cost is as high as 0.4% of assets per year. Obviously, spending that much on distribution is detrimental for investors in the funds, and yet Reuter’s study considers such funds as direct-sold.

THAT’S WHY the Disciplined Growth Investors fund (DGIFX) is an endangered species. “When we called Fidelity after launching this fund to negotiate the costs of being on their brokerage platform, they said, ‘We don’t negotiate,’ ” says Evan Almeroth, one of only two marketing people at Disciplined Growth Investors’ parent firm. “‘It’s 0.4% of assets—take it or leave it.’ We weren’t going to eat half our fee, or up our fee, just to increase sales.” The fund’s current expense ratio is 0.78% on $114 million in assets—low for a retail fund of its size.

Excluding closed, institutional, and new funds, an analysis of Morningstar data found only one other fund—the Bruce fund (BRUFX)—that didn’t have any share classes offered through brokers. It’s also a top performer with low expenses.

Selling funds directly helps managers build relationships with shareholders. “We wanted to limit the hot money in the fund,” says Fred Martin, Disciplined Growth’s lead manager. “Hot money is terribly costly; it forces you to buy stocks at high prices and then sell when you have a rough period.” In the past three years, Disciplined Growth has lost only one of its 350 accounts to a shareholder sale, Martin says. As a result, he’s able to run the fund much as he does for large institutions. Its portfolio turnover rate is 10%—indicating an average holding period of 10 years. The identical separate account portfolio he manages has delivered a 10.7% annualized return since February of 1997, versus 7.5% for the Standard & Poor’s 500.

Martin’s lack of interest in marketing is almost comical. His firm ran only one ad for the fund—when it was launched in 2011. It was in the Fargo Forum, a North Dakota newspaper. DGI once managed a private account for a local hospital, and Martin wanted to reach its employees. Marketing to a handful of doctors for whom you once ran money—that’s about as direct as you can get.

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February IIP growth at 5%: Analysts cheer data, but cautious about sustained industrial recoveryBy ECONOMICTIMES.COM | 11 Apr, 2015,While the 5% growth in IIP data is largely being attributed to a low base effect, the green-shoots of economic recovery & sustained IIP growth can't be ignored.

With the Index of Industrial Production (IIP) for the month of February growing at a robust 5%, analysts and economists expect that the industrial sector has seen its worst and the economy may indeed be witnessing a turnaround.

IIP in February 2014 contracted at (-2)%, leading economists to attribute the 5% growth figure to a low base effect. While the 5% growth in the IIP data is largely being attributed to a low base effect, the green-shoots of economic recovery and the sustained growth in IIP cannot be ignored, feel economists.

"5% IIP is certainly good news because it is the highest in the last four months. It shows the fourth successive month of growth. By almost any criterion this can be seen as good news," said Mythili Bhusnurmath, Consulting Editor of ET Now.

Mythili feels that the positive IIP data is exactly what the Modi government was looking for. "Coming on top of Moody's revision in the rating outlook, clearly it would seem that the Modi government is getting the rewards close to its first birthday," she said.

Jyotinder Kaur, Principal Economist at HDFC Bank believes that the data should be taken with a pinch of salt. "I take this monthly bounce with a little bit of a pinch of salt. But having said that, the 5% reading is indeed heartening. I would also like to put this number in perspective. There are fresh headwinds brewing with unseasonal rainfall impacting rural purchasing power. Let's laud the number, but look at it with a little bit of cautiousness," she told ET Now.

Asked about the base effect, Jyotinder Kaur said, "The argument that this month was supported by a favourable base, does make one vary about the 5% number. But, let's give merit where it is due. The 3% odd average that the market was expecting was keeping base effect in mind. Any bounce over and above that 3%, does indicate some traction on a sequential basis as well."

Jyotinder was also quick to point out that how much of the sequential traction will continue through in the year is an open question. "There is little support from exports and consumer demand. The recovery almost wholly hinges on investment momentum. While there is policy intent, how it transfers to investments is a function of execution and implementation," she pointed out.

"On the face of it, 5% growth looks very attractive and it is very satisfactory. However, there is a base effect. We cannot comment about the IIP next month onwards," said RK Gupta, ED of Bank of

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Maharashtra.

RK Gupta lauded the government for its policy initiatives. "At the same time the steps have been taken by the government to make installed projects take off and by the regulator so that banks credit should pick up. If the credit picks up and infra growth takes place, positive sentiments are there, so probably in the coming months IIP can be improved further," he told ET Now.

Talking about the role of base effect in the 8.8% growth exhibited by the capital goods sector, Jyotinder said, "The negative base effect puts into focus that capital goods growth comes with a lot of volatility. It is best to look at the average growth over the last couple of months. That indicates a slight bounce, but not perhaps the kind of bounce you would expect from an investment-led recovery."

"We are now almost exclusively counting on investment, particularly infrastructure investment picking up. That is going to be the only source that will drive the turnaround. Has there been traction? Indeed. Is it enough to pull us out of trenches? Perhaps not quite," she cautioned.

"I am hopeful of growth picking up in two areas, mining and power, due to the successful coal auction," said DK Joshi, chief economist,Crisil, adding that he also expects consumer goods production to start picking up after two years of negative growth.

Soumya Kanti Ghosh, chief economic adviser at SBI, said that early indications point to a positive start to the new fiscal while adding, "However, I would not like to read too much into the February data."

Industrial production growth accelerated to a three-month high of 5% in February compared with 2.8% in the previous month on the back of strong manufacturing, data released by the statistics office showed.

The growth was led by robust performance of the capital goods and consumer non-durables segments, indicating a pick-up in investment activity in the economy. Capital goods production grew 8.8% in February, fourth successive month of rise. Only seven of the 22 manufacturing sub-sectors posted a negative growth in the month.

Consumer non-durables production rose 10.7% but that of consumer durables declined 3.4%, adding up to a 13.3% contraction over April-February. A rebound in mining growth to 2.5% from the previous month and 5.9% rise in electricity generation also pushed up the numbers.

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India’s Rate Swaps Slump as RBI’s Unscheduled Cut Boosts BondsbyKartik Goyal9:28 AM IST March 4, 2015Share on Facebook Share on Twitter

 (Bloomberg) -- India’s interest-rate swaps slumped the most since October 2013 and sovereign bonds rallied after the Reserve Bank of India reduced interest rates in an unscheduled move for the second time this year.

One-year swaps, derivative contracts used to guard against swings in funding costs, fell 21 basis points to 7.55 percent as of 10:03 a.m. in Mumbai, data compiled by Bloomberg show. The yield on government notes due July 2024 declined nine basis points to 7.66 percent, according to the RBI’s trading system. That’s the biggest decrease since Dec. 2. The rupee snapped a three-day loss.

Governor Raghuram Rajan cut the benchmark repurchase rate to 7.5 percent Wednesday from 7.75 percent. That’s less than a week after Prime Minister Narendra Modi’s government pushed back its fiscal-deficit target in the federal budget to spur economic growth. The RBI acted due to weakness in the economy and after it agreed upon a formal inflation target with the government, Rajan said in a statement. He last cut the rate on Jan. 15.

“Today’s surprise decision shows the RBI’s comfort with the inflation trajectory and its faith in the quality of the fiscal consolidation” being undertaken by the government, said N.S. Venkatesh, the Mumbai-based head of treasury at IDBI Bank Ltd. “The rally in bonds is likely to continue on further rate cuts,” he said, adding that the central bank may lower the repo rate by another 50 basis points by end-2015.

The rupee gained 0.1 percent to 61.8625 a dollar, prices from local banks compiled by Bloomberg show.

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 India’s Sensex Retreats as Lenders Decline on Bad Debt Concerns Youtube

byRajhkumar K Shaaw, 8:02 AM IST , February 5, 2015http://www.bloomberg.com/news/articles/2015-02-05/india-nifty-futures-little-changed-after-benchmarks-extend-fall(Bloomberg) -- Indian stocks slid for a fifth day, erasing an intraday advance, after an increase in bad loans at Indian Overseas Bank renewed concern about lenders’ asset quality.

Indian Overseas Bank plunged the most in six years and UCO Bank fell the most in five months after bad-debt ratios widened at the state-owned banks. Tata Power Co., the biggest non-state generator, plunged the most since August 2013 after its sales missed estimates. HDFC Bank Ltd. climbed on plans to raise as much as $1.5 billion to bolster its capital.

The S&P BSE Sensex fell 0.1 percent to 28,850.97 at the close, reversing gains of as much as 1.4 percent in the final hour of trade. A gauge of 12 lenders declined for a third day, the longest streak of losses in four months. Emerging-market stocks dropped for the first time in four days as the European Central Bank curbed Greece’s access to financing and oil slid.

“People had gone long on banks on expectation things are turning out to be normal, but there’s a gap between expectations and the results,” Deven Choksey, managing director at KR Choksey Shares & Securities Pvt., said by phone. “The selloff was also because of a standoff between Greece and Germany, which is causing anxiety in the currency market.”

IOB plunged 9.8 percent, the most since October 2008. The lender’s bad-loan ratio widened to 8.1 percent in the December quarter from 7.3 percent a year earlier. The bank reported its second straight quarterly loss.

UCO Bank decreased 5.6 percent, the biggest loss since Aug. 27, after its bad-loan ratio widened to 6.5 percent from 5.2 percent in the previous three months. Allahabad Bank fell to a three-month low after its third-quarter net income almost halved to 1.6 billion rupees.

Stressed Assets

Bad loans have increased at Indian lenders as the highest interest rates among major Asian economies amid slower economic growth eroded borrowers ability to repay loans. Stressed assets at government banks rose to almost 13 percent of

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lending as of Sept. 30, the highest level since 2001, central bank data show. The ratio stood at 4.4 percent for privately owned banks.

The banking system isn’t close to a crisis, Reserve Bank of India Governor Raghuram Rajan said in a Bloomberg TV interview in Mumbai yesterday after three of the nation’s five-biggest lenders posted an increase in bad-loan provisions in their latest earnings filings.

HDFC Bank rose 0.8 percent after the nation’s top lender by market value, sold about $1.5 billion of shares in the U.S and India to boost capital. The stock rose 2.4 percent earlier.

Ownership Limit

The sale opens room for additional purchases by foreign investors. In December 2013, the RBI curbed overseas investors from buying shares after their stake in the lender exceeded the 49 percent limit. Foreigners own 33.75 percent of HDFC Bank, while an additional 16.84 percent is held by way of American and Global depositary receipts, data compiled by Bloomberg show.

“Foreigners are finally getting a chance to raise their stake,” Asutosh Kumar Mishra, a Mumbai-based analyst at Reliance Securities Ltd., said by phone. There’s “pent-up demand from overseas investors.”

Global investors sold a net $3.2 million of local shares on Feb. 4, paring this year’s inflows to $2.75 billion, still the second-most among eight Asian markets tracked by Bloomberg. Foreign investors bought $16 billion of stocks last year.

The Sensex has gained 4.9 percent this year and trades at 16 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 11.7.

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Big gains on D-Street with mid-cap indices and small-cap index making new highshttp://economictimes.indiatimes.com/markets/stocks/news/big-gains-on-d-street-with-mid-cap-indices-and-small-cap-index-making-new-highs/articleshow/46883273.cms?prtpage=1By Jwalit Vyas, ET Bureau | 11 Apr, 2015

MUMBAI: Small is big. Investors and market experts worried over the tepid performance of the Nifty and the Sensex need only to look at the broader market where the picture appears to be considerably brighter.The mid-cap indices on both the BSE and the NSE have been hitting new all-time highs for the past three days while the Nifty smallcap index is at a seven-year high.

The BSE small-cap index is still off its all-time high but all the four indices have been rising continuously for the past eight days, gaining 7-13.5%.

The gloom surrounding large-cap stocks does not seem to be getting reflected in the broader market and there could be a number of reasons for this.

Big gains on D-Street with mid-cap indices and small-cap index making new highs The Nifty and the Sensex have been dragged down by the performance of public sector banks, capital goods and metal and mining firms.

Financial sector stocks have a weightage of 28% in both the Nifty and the Sensex.

The weightage of capital goods is over 7%. These sectors have performed poorly in the past one year and concerns over non-performing loans and investment revival are weighing on investors' minds.

It is no surprise therefore that the Nifty and the Sensex have gained only 5.2%.

In comparison, the mid-cap indices comprise of companies from diverse industries. The BSE mid-cap index has 247 companies and the small-cap index has 477 companies.

The NSE small- and mid- cap indices have 100 companies in each.

As a result, weightage of banks and finance industry is less than 8% in these indices. Stocks such as Bharat Electronics, United Breweries, Century Textiles, Reliance Communications have led the gains for the mid-cap indices.

The other top mid-cap performers in the last eight days are Vakrangee, Advanta, HDIL, Network 18 and JK Tyre, each gaining 32%-40%. Ess Dee Aluminium, Panacea Biotec, Zen Technologies, Visagar Polytex and Kitex Garments are among the top small-cap performers.

Historical data suggests that the midcap and the small-cap indices underperformed the benchmark indices in bearish times and outperform in the bull runs.

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Since the lows of August 2013, the BSE mid-cap index has gained 109% and the small-cap index has gained 128%. The Sensex has gained only 56% in this period.Macro data, Q4 earnings and rupee to set the trend on Dalal Street this weekBy Rajesh Mascarenhas, ET Bureau | 13 Apr, 2015, 04.01AM ISTPost a Comment

http://economictimes.indiatimes.com/markets/stocks/news/macro-data-q4-earnings-and-rupee-to-set-the-trend-on-dalal-street-this-week/articleshow/46901604.cms?prtpage=1

MUMBAI: Crucial data points, corporate earnings, crude oil prices and how the rupee shapes up against the dollar are some of the markers that will set the trend on the bourses this week. Though the market is likely to remain range-bound, experts are anticipating a correction this week. However, with Indian companies getting ready for the earnings season, it could largely be a stock-specific action, experts reckon. "Though CPI and WPI inflation could induce some volatility in the market, Dalal Street is keeping a close eye on the 4Q earnings season which kickstarts this week for its short-term direction," said Hitesh Agrawal - head research, Reliance Securities. "Nifty is currently placed in the 8,750-8,800 range, which is an intermediate hurdle in our view, and it could look to consolidate or witness some correction this week."

India Inc's earnings are also not poised for a major recovery, given that weak rural demand, lower government expenditure and high real interest rates continue to impact corporates across sectors. ACC and DCB Bank will announce their quarterly results on Tuesday, Tata Consultancy Services (TCS), IndusInd Bank, Gruh Finance and MindTree on Thursday, and Crisil on Friday. Two crucial macroeconomic pointers — CPI and WPI inflation to be released on April 13 and 14, respectively — will also dictate the mood on the Street. The RBI reiterated that inflation will continue to remain soft at its current levels in the 1QFY16, moderating thereafter to around 4% by August, but firming up to reach 5.8% by the end of 2016.

"Going ahead, we expect the macro-economic fundamentals and their impact on corporate earnings to be key determinants of the market's performance," said Srinivasan V, head of research, Cholamandalam Securities. "We expect a fall in interest rates and increased government investment towards capital formation to revive the investment cycle, which is currently beset by high NPA in banks." Foreign investors, who have been pumping money here, too slowed their pace, investing Rs 9,000 crore each in February and March against Rs 18,000 crore in January. They have bought stocks worthRs 2,700 crore so far in April. "We reiterate that market direction will be determined by global events and strength of FII inflows," said R Sreesankar, head - institutional equities, Prabhudas Lilladher. "The pipeline of new issues, offer for sale of equity in SOEs by the government and further capital raising by the leveraged corporates are going to be crucial as this could cushion the increased appetite for Indian equities." Shares of public sector oil marketing companies will be in focus as fuel price review is due at the middle of the month, said a note by HDFC Securities.

"If in the coming sessions Nifty trades above the 8,600 level, then traders may see continuation of the current trend, which could lead Nifty to 8,630 followed by 8,690 levels. If the index faces resistance at 8,600 level, then traders may see a correction in Nifty up to 8,540 level followed by 8,450 level," said the HDFC Securities note.

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Editorial: India Inc’s poor monsoon

http://www.financialexpress.com/article/fe-columnist/editorial-india-incs-poor-monsoon/63129/By: The Financial Express | April 13, 2015 1:04 am

Despite the most tempered expectations, earnings for the December 2014 quarter were so disappointing that estimates for not just FY15 but FY16, too, needed to be trimmed by around 3.5-4%. In an indication of how weak demand is, whether for consumer and capital goods, and how pricing power seems to have been altogether eroded, the top-line growth, for a sample of 3,008 companies (excludingbanks and financials) net sales grew by just 0.4% yoy.  Companies such as Hindustan Unilever opted for price cuts since volumes were not picking up as anticipated. And although the  tax outgo was smaller, net profits collapsed by 26% yoy.

That corporate India’s performance is so poor at a time when prices of almost all commodities have come off by 30-40% and crude oil prices are down by 50% from their peak is more than worrying and suggests there are serious structural issues that need to be sorted out before a revival can begin—the lack of fuel linkages for power plants, for instance. Any talk of capacity addition appears premature, partly because there is enough spare capacity across sectors and partly because industry is so apprehensive of changes in regulation. Also, given how so many companies are fighting tax cases, the environment for expansion is hardly encouraging.

While commentary from corporates has been cautious for close to two years now, the likes of a Larsen & Toubro toning down the guidance for order inflows to 15-20% from 20% earlier, makes it clear the turnaround in the economy could take far longer than expected. Indeed, bankers who are getting very few proposals for capex funding say it could be several quarters before demand for project finance picks up; SBI’s loan growth in Q3FY15 was just 7.3% yoy.

For demand to pick up meaningfully, the capex cycle has to turn since it is the manufacturing sector that will create jobs and, consequently, demand. Since there is little sign of that, it is no surprise that Kotak Institutional Equities forecasts earnings for the Sensex set of companies will stay flat year-on-year for the three months to March. The numbers will be dragged down by companies in the metals and mining space as also utilities and automobiles with pharmaceuticals and IT companies continuing to fare well. Given steel prices aren’t about to recover in a hurry and fuel linkages aren’t likely to be in place soon, it is surprising analysts are pencilling in a 16-17% growth in earnings in FY16. Even though the base is low, it doesn’t look like corporate profits will grow by more than 13-14% next year. An overly-

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leveraged corporate sector that is low on confidence can’t be expected to deliver more than that, especially now that the rabi harvest will be less than bountiful.