Having believed in the FM’s promises, foreign brokers suffer a rude awakening

Foreign brokers and institutions’ expectations were dashed when the recent Union Budget did not meet their expectations after being seduced by the finance minister not so long ago. Why is it not a surprise to us?

Just when foreign brokers and investors were getting ready to toast their cocktails to the possibility of the finance minister pandering to their expectations, they were taken aback by a ho-hum budget that addressed the vast majority of the electorate instead. Earlier, we had written how the finance minister was wooing foreign capital and broking firms like Citi were falling for it. In a pre-budget meeting Palaniappan Chidambaram, finance minister, had addressed several foreign institutional investors (FIIs), debt investors and corporates in Singapore and Hong Kong and briefed them of the status of India’s economy and how he hopes to fix it by magically reducing the fiscal deficit to 3% by 2016-2017. At that time we had said that this would not be possible given that the general elections nearing and that the government was draining away coffers to win votes. Hence, there was no way that any rational investor could buy the logic. But foreign investors indeed fell for this and got their hopes dashed.

The reality is captured by the words of Manishi Raychaudhuri, Asia Pacific Strategist, BNP Paribas, who wrote in a report on Friday: “Following FM Chidambaram’s meetings with investors across the globe in January, the financial markets were hopeful of a strong pro-growth message and fiscal consolidation signals in the budget. Disappointment came on both counts. The pro-growth message was diluted by sharp cuts in planned expenditure in FY13. The attainability of a 4.8% fiscal deficit looks suspect—though more achievable than previous years’ targets. In summary, we see no explicit direction to the budget and we are back to considering fundamental drivers and global cues.” The BNP report is titled: “Let’s Forget the Budget and Move On”.

However, this isn’t surprising to us, given our understanding of finance minister, P Chidambaram. In the Fortnightly Market View column readers were cautioned that the finance minister is not exactly a good ‘listener’. Anybody who has observed the finance minister carefully over the years would have seen this coming.

BNP Paribas was disappointed that the budget did not address growth concerns (i.e. lack of growth). The report stated: “The budget for FY14 didn’t quite give a sense of direction. Ostensibly the thrust was on growth—with a 29.4% increase in planned expenditure, but in reality that increase was on the back of a 17.5% reduction in FY13 planned expenditure.”

Furthermore, with respect to double-taxation, the BNP Paribas report mentions: “The classification of Tax Residency Certificates (TRC) as “necessary but not sufficient” documents for claiming tax benefit under DTAA is bound to create uncertainty in the market about fund inflows from countries that have double taxation agreements with India. Such uncertainty is already visible in Friday’s market reaction.” It is pertinent to note that GAAR has been pushed and postponed to 2016, and therefore caused enough uncertainty so far, and will continue to be uncertain till it is finally implemented. It is also pertinent to note that domestic investors were actually taking the opposite tack as foreign investors—by selling in droves. Perhaps, domestic investors know the ground realities better than foreign investors and brokers. We had written about this earlier as well. Click here to read about the differences between FIIs and DIIs in terms of fund flows.

This isn’t the first time that foreign investors’ expectations were belied and it won’t be the last either.


Cash-strapped GMR sells Singapore power unit to FPM for S$660million

GMR group sold its 70% in GMR Energy FPM Power Holdings for 660 million Singapore dollars, earning a profit of Rs1,356 crore

Cash-strapped GMR group said it sold its 70% interest in GMR Energy (Singapore) Pte Ltd to FPM Power Holdings for an equity value of 660 million Singapore dollars (S$). Out of this, FPM Power would invest S$60 million in GMR Energy as balance equity, the group said in a release.


GMR said, “this sale translates to an enterprise value of S$1,612 million (or $1,293 million) for GMR Energy on project completion by end 2013. The transaction, expected to close by end of March 2013, is subject to approval from the project finance lenders to GMR Energy. This divestment of our stake results in a profit of Rs1,356 crore and releases capital of around Rs1,616 crore.”


GM Rao, chairman of the GMR Group, said, “The divestment is the offshoot of the Group’s well thought out strategy of an Asset Right-Asset Light and Cash Flow based model that the Group has embarked in the recent times. This is the second such strategic move after last month's divestment of 74% stake in the GMR Jadcherla road project at a premium. The cash flows will help GMR Energy to focus on our domestic energy business and accelerate ongoing projects totalling to 5790 MW.”


GMR Infrastructure, which manages three airports, five power generating stations and five highways, is deep debt of Rs37,000 crore under a gearing of 3.5 times. It is looking to slash this number by Rs10,000 crore during next fiscal through its “asset light - asset right - asset churn” strategy.


For the quarter to end-December, GMR reported a net loss of Rs217 crore while its consolidated revenues increased 7% to Rs2,378 crore.


GMR Infrastructure (Singapore) Pte Ltd owns 66.4% of GMR Energy and 3.6% is held by GMR Infrastructure. Petronas, which holds the balance 30% stake would continue to stay invested in the project.


FPM Power is a 60:40 joint venture between First Pacific Co and MERALCO Power Gen Corp, a wholly-owned subsidiary of Manila Electric Company.


Nifty, Sensex making an effort to form a base: Monday Closing Report

Nifty made a fresh low today. For a rise, it has to stop making fresh lows and close above any previous day’s high

The market settled marginally lower on dismal global cues which threatened to derail the growth momentum. The Nifty made a fresh low today. For a rise, it has to stop making fresh lows and close above any previous day’s high. The advance-decline ratio on the National Stock Exchange was 362:1159 and volume was 84.64 crore shares.


The market opened flat tracking its Asian peers which were lower in morning trade following new initiatives by the Chinese government to rein in property prices. The rupee, which was trading near its two-month lows in early trade, also weighed on the sentiments.


The Nifty opened 15 points lower at 5,705 and the Sensex resumed trade at 18,921, up two points over its previous close. The benchmarks hit their intraday highs in initial trade itself with the Nifty inching up to 5,712 and the Sensex going up to 18,931.


Selling pressure in realty, power, fast moving consumer goods and metal sectors soon pushed the market in the negative. The indices touched their lows at around 10.00am. The Nifty fell to 5,664 and the Sensex was down to 18,760 at their respective lows.


However, select buying in banking and IT stocks saw the market make a struggled northward journey, though the bias remained negative. A negative opening of the European markets kept a tab on the local market in post-noon trade.


The market closed in the red as the recovery from the lows of the day lacked strength to pull the benchmarks in the green. The Nifty closed 21 points (0.37%) lower at 5,699 and the Sensex finished the session at 18,878, down 41 points (0.21%) from its previous close.


Among the broader indices, the BSE Mid-cap index declined 1.375 and the BSE Small-cap index dropped 1.89%.


With the exception of the BSE Bankex (up 0.27%), all other sectoral gauges closed in the negative. The top losers were BSE Metal (down 2.54%); BSE Realty (down 2.25%); BSE Consumer Durables (down 2.15%); BSE Capital Goods (down 1.85%) and BSE PSU (down 1.14%).


Eleven of the 30 stocks on the Sensex closed in the positive. The main gainers were Dr Reddy’s Laboratories (up 1.52%); Bharti Airtel (up 1.46%); HDFC Bank (up 0.94%); TCS (up 0.71%) and ITC (up 0.69%). The main losers were Hindalco Industries (down 4.55%); Jindal Steel & Power (down 4.26%); Sterlite Industries (down 2.74%); Hindustan Unilever (down 2.63%) and Larsen & Toubro (down 2.52%).


The top two A Group gainers on the BSE were—Core Education Technologies (up 8.83%) and GMR Infrastructure (up 4.74%).

The top two A Group losers on the BSE were—NHPC (down 18.84%) and Essar Oil (down 11.71%).


The top two B Group gainers on the BSE were—Raj Rayon Industries (up 19.05%) and Saamya Biotech India (up 18.91%).

The top two B Group losers on the BSE were—Readymade Steel India (down 19.99%) and Royal India Corporation (down 19.97%).


Of the 50 stocks on the Nifty, 16 ended in the green. The key gainers were Bharti Airtel (up 1.88%); TCS (up 1.20%); Dr Reddy’s (up 1.16%); ITC (up 0.94%) and Axis Bank (up 0.87%). The leading losers were Jaiprakash Associates (down 5.95%); Hindalco Ind (down 5%); JSPL (down 4.71%); ACC (down 3.66%) and Reliance Infrastructure (down 3.40%).


Markets in Asia, barring the Nikkei 225, closed lower as the Chinese government tightened norms governing the housing sector in a bid to keep a tab on property prices. Japanese shares rose on speculations that the country’s central bank might enhance its bond buying initiatives.


The Shanghai Composite tumbled 3.65%; the Hang Seng dropped 0.50%; the Jakarta Composite declined 1.04%; the KLSE Composite shed 0.09%; the Straits Times tanked 0.90%; the Seoul Composite fell 0.66% and the Taiwan Weighted settled 1.22% lower. Bucking the trend, the Nikkei 225 gained 0.40%.


At the time of writing, the CAC 40 of France was down 0.04%; DAX of Germany fell 0.48% and UK’s FTSE 100 was trading 0.40% lower. At the same time, the US stock futures were negative, indicating a soft opening for the US markets later in the day.


Back home, foreign institutional investors were net buyers of shares totalling Rs696.89 crore on Friday whereas domestic institutional investors were net sellers of equities amounting to Rs45.84 crore.


Videocon Mobile Services has signed an in-principle agreement with European telecom gear maker Nokia Siemens Network to roll out its 4G services in the country. Videocon has won spectrum in six telecom circles—Bihar, Gujarat, Haryana, Madhya Pradesh, Uttar Pradesh (East) and Uttar Pradesh (West) for Rs2,221.44 crore in the November 2012 auction.  Videocon Industries gained 0.26% to close at Rs196.10 on the NSE.


Essar Oil has received Phase III environmental clearance from the Union ministry of environment and forests for fully developing coal bed methane (CBM) gas field at Raniganj in West Bengal. It has been allowed to increase drilling to 650 wells. The company will raise gas production to 3 million metric standard cubic meters per day (mmscmd) from 60,000 mmscmd. The stock tumbled 10.24% to close at Rs74.10 on the NSE.


Tata Global Beverages today said it has tied up with cardamom growers from South India to source and market the product across the country. It will also associate with turmeric growers from the north-eastern region going forward. The stock declined 1.21% to settle at Rs126.40 on the NSE.


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