25 companies call-off IPOs due to sluggish market conditions

“The bad mood of capital markets has led 25 companies to call off their IPOs during the 2011 calendar year. The probable amount that these companies were planning to raise was to an aggregate of Rs31,000 crore,” brokerage firm SMC Global Securities said in a report

New Delhi: Owing to a sluggish trend in the stock market, at least 25 companies have called off their initial public offer (IPO) plans so far in 2011, reports PTI.

Mostly from the real estate and power sectors, these 25 IPOs were together estimated to raise about Rs31,000 crore worth capital to fund the companies’ business expansion plans.

The BSE benchmark Sensex has lost more than 23% since the beginning of 2011 and hit its 52-week low of 15,478.69 on 23 November 2011.

“The bad mood of capital markets has led 25 companies to call off their IPOs during the 2011 calendar year. The probable amount that these companies were planning to raise was to an aggregate of Rs31,000 crore,” brokerage firm SMC Global Securities said in a report.

Even after getting approval from market regulator Securities and Exchange Board of India (SEBI), these companies could not launch their IPOs within the valid period of one year from the date of approval, mainly on account of the ongoing turmoil in the capital markets.

These 25 companies having cancelled their IPOs included a host of the real estate players, such as Lodha Developers, Ambiance Real Estate, Kumar Urban Developers, Neptune Developers, BPTP, Raheja Universal and Lavasa Corporation.

Besides, a number of power sector companies, such as Sterlite Energy, Jindal Power, Avantha Power and Ind Bharat Power Infra, have also called off their IPO plans.

Also, the government’s disinvestment programme to bring public issues of several blue-chip PSUs couldn’t take off.

“If the government is not getting enough confidence to bring FPO (follow-on public offer) for ONGC, how will the promoters of any smaller companies stick their necks out? This is surely impacting the confidence of the promoters of the smaller companies,” SMC said.

Besides, a few companies such as Micromax have already announced IPO deferrals even though approval for SEBI validity still remains.

There are at least 10 companies who have valid approval from the market watchdog and are left with just two months in their validity period of one year from the date of SEBI approval like Pride Hotels, Tara Jewels.

SMC said that the cancellation of IPOs could impact the companies’ ability to raise capital to finance their expansion projects, which could eventually result in a slowdown in capacity building and job creation.

It also noted that the trend in the IPO market may lead to panic in the minds of the private equity (PE) funds, as they would be unable to exit from their investments.

The PE funds generally invest in unlisted companies in the hope of a later exit through IPOs.

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ICRA lowers growth projection to 7.3-7.5% for FY11-12

In light of the dampening business sentiments, sluggish domestic industrial growth, intensifying macroeconomic headwinds and the likelihood of lower monthly merchandise exports in second half of FY11-12, ICRA has revised its forecast for the pace of GDP growth in FY 11-12 to 7.3%-7.5% from the earlier expectations of a 7.5%-7.7%

Mumbai: Ratings firm ICRA on Monday revised downward its growth projection for the Indian economy to 7.3%-7.5% for this fiscal on the back of dampening business sentiment and sluggish industrial growth, reports PTI.

“In light of the dampening business sentiments, sluggish domestic industrial growth, intensifying macroeconomic headwinds and the likelihood of lower monthly merchandise exports in second half of FY11-12, ICRA has revised its forecast for the pace of gross domestic product (GDP) growth in FY 11-12 to 7.3%-7.5% from the earlier expectations of a 7.5%-7.7%,” the firm said in the latest report.

This is the lowest projection so far as the forecasts from the government, the Reserve Bank of India (RBI), CMIE and Crisil stand above or at 7.6%. The Indian economy had expanded by 8.5% in the last fiscal (2010-11).

ICRA said the GDP growth in the second quarter (July- September) is likely to be a modest 7% because of easing of manufacturing growth, contraction in mining and quarrying output and moderation in the services sector. The Q2 growth data is scheduled for release on 30th November.

GDP grew at 7.7% during the first quarter of the current fiscal, the lowest in 18 months.

Industrial output also showed signs of slowdown with growth in factory output rising by a meagre 1.9% in September, which was the lowest monthly rate of expansion in two years.

Experts have blamed the high interest rate regime, which has increased the cost of borrowing, for hindering fresh investments and leading to a fall in industrial output.

The RBI has hiked its lending rates 13 times, totalling 350 basis points, since March 2010 to curb inflation.

Headline inflation has been above the 9% mark since December last year and stood at 9.73% in October this year.

The government and RBI have conceded that the high interest rate regime is hurting growth but reiterated that inflation control in the biggest priority.

ICRA said it expects inflation to moderate to around 7% by March 2012, in line with RBI’s projections.

“ICRA expects headline inflation related to the Wholesale Price Index (WPI) is likely to have peaked and would decline to around 7% by March 2012, unless commodity prices increase sharply in the coming months,” it added.

The ratings firm, however, warned that any further depreciation of the Indian rupee beyond current levels would exacerbate inflationary pressures.

The rupee has depreciated by over 15% in the past three months against the US dollar. This has become a matter of concern as a weaker rupee makes import expensive and India depends on imports for over 80% of crude oil needs.

Warning that the next fiscal may also be tough, ICRA said, “While the execution of ongoing projects and healthy order books may support growth in the current year, investment growth is likely to moderate substantially in FY 12-13 unless policy issues are addressed and there is a substantial pick up in the pace of implementation of big ticket economic reforms.”

ICRA has also warned that the government will not be able to meet the fiscal deficit target of 4.6% and said it will shoot up to 5.5%. The fiscal deficit in first half of FY 11-12 has reached 68% of the Budget estimates for the year.

“Given the anticipated moderation in growth of tax revenues, low likelihood that government of India would meet its disinvestment target and the additional expenditure proposed under the two Supplementary Demands for Grants, ICRA expects the fiscal deficit for FY 11-12 to worsen to around 5.5% of GDP,” the report said.

It added that considering the prevailing market conditions, the government is likely to fall considerably short of its disinvestment target of Rs40,000 crore in the current fiscal.

While almost eight months of the fiscal has passed, the government has been only able to mop up a little over Rs1,100 crore through the follow-on public offering of Power Finance Corporation.

Although the fiscal policy remains expansionary, higher outgo towards items such as subsidies (particularly fuel) and salaries (reflecting higher DA), limit the fiscal space available for boosting infrastructure spending to support investment growth, the rating agency warned.

On the global front, it said the economic environment remains bleak owing to the deepening sovereign debt crisis in Europe, impacting global trade and financial flows.

The report warned that the rupee fall may only help maintain the competitiveness of merchandise exports, demand for which is likely to suffer in light of the uncertain growth outlook for the advanced economies.

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RBI’s limited forex market intervention credit positive: Moody’s

“Had authorities used official reserves to maintain the exchange rate at a level higher than dictated by market forces, they would have assisted importers and foreign borrowers at the expense of exporters and import-competing domestic producers,” Moody’s noted

New Delhi: Global ratings agency Moody’s on Monday said the Reserve Bank of India’s (RBI) limited intervention in the currency market to stymie rupee depreciation is ‘positive’ for the country’s credit outlook, reports PTI.

The rupee, which has slumped about 15% against the US dollar in the past three months, touched an all-time low of 52.73 against the greenback on 22nd November. The steep fall is hurting importers as well as entities who have borrowed in foreign currency.

Noting that RBI has limited its “intervention in currency markets to periods of extreme volatility”, Moody’s said such restraint is credit positive.

The decision not to spend large amount of international reserves to support a higher rupee is credit positive for two reasons, it said.

“First, intervention would have expended reserves without reversing the depreciation effectively, since global risk aversion and India’s widening current account deficit would have forced the rupee to fall further against the dollar despite the intervention,” Moody's Investors Service said in a report.

Further, it pointed out that effective globalisation requires market participants to adjust their investment, consumption and borrowing plans as per the availability of foreign capital and import costs.

India’s foreign exchange reserves stood at nearly $309 billion as on 18th November, as per official data.

“Had authorities used official reserves to maintain the exchange rate at a level higher than dictated by market forces, they would have assisted importers and foreign borrowers at the expense of exporters and import-competing domestic producers,” Moody’s noted.

Such a move would have delayed or distorted private sector adjustment to global market signals.

“We expect that currency depreciation, by making imports more expensive and exports cheaper, will ultimately force an adjustment, and help narrow the current account deficit over the next few quarters,” the report said.

On the other hand, sliding rupee also widens the country’s already high fiscal deficit, as the scenario raises the government’s petroleum products related subsidy burden.

The rupee depreciation could also result in higher inflation, which is hovering over 9%, Moody’s said.

Earlier in the day, the prime minister’s advisory panel chief C Rangarajan said movement in global commodity prices, and not the declining value of rupee against dollar, would have bigger implications for the inflation.

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