India’s factory output grows slowest in 20 months in July

Commenting on the slowdown, Leif Eskesen, chief economist for India & ASEAN at HSBC said: "These numbers confirm that inflation pressures remain firmly in place despite the ongoing moderation in growth. The RBI will, therefore, have to maintain its tightening bias for a while still to anchor inflation expectations."

The HSBC factory Purchase Managers' Index (PMI), a headline index to measure the country's factory output, slipped to the lowest in 20 months at 53.6 in July from 55.3 in June. The latest fall in the index was the third in successive survey periods, led by a slowdown in new order growth. However, July's reading pointed to a further strengthening of business conditions in the Indian manufacturing sector, with expansion sustained since April 2009.

While there was a rise in new business orders received in the month under review, the rate of growth slowed sharply since June to the weakest in the current 28-month period of expansion. Also, new export orders contracted for the first time since May 2009, amid softer demand in key export destinations like the US and Europe.

July data indicated the first increase in Indian manufacturing sector employment for nine months. Labour shortages have restricted firms' ability to fill vacant positions in recent survey periods. The increase in staffing levels suggested that the lack of suitable workers had improved to an extent, but the rate of job creation was modest, with the majority of respondents indicating no change in employment at their units since June.

Backlogs of work at manufacturers rose for a 16th consecutive month in July, albeit only slightly. Panellists commented that the continued rise in new work intakes and ongoing production constraints had led to the latest accumulation of outstanding business. Inventories of finished goods also rose, but at a modest rate.

Input costs rose substantially in July, driven by higher raw material costs. The rate of input price inflation was slightly faster than that recorded in June. The latest rises in both input and output prices remained higher compared with their respective long-run series averages.

Commenting on the India Manufacturing PMI survey, Leif Eskesen, chief economist for India & ASEAN at HSBC said: "The momentum in the manufacturing sector eased further in July as sequential growth in output and new orders slowed, although employment picked up. In turn, backlogs of work grew less fast and supplier delivery times shortened.

"On the inflation front, input costs and output prices accelerated. These numbers confirm that inflation pressures remain firmly in place despite the ongoing moderation in growth. The RBI will, therefore, have to maintain its tightening bias for a while still to anchor inflation expectations."

User

Exports up by 46.4% to $29.21 billion in June

Though imports grew by 42.4% to $36.8 billion in June, the trade deficit of $7.6 billion was almost half the level of $14.9 billion seen in May, lessening concerns over the country's balance of payments situation

New Delhi: India's exports grew by an impressive 46.45% to $29.21 billion in June 2011 compared to exports worth $19.94 billion in June 2010. The performance was despite uncertainty in the US and European markets, reports PTI.

During the April-June quarter, overseas shipments grew by 45.7% to $79 billion, according to commerce ministry data released today.

Though most sectors posted robust expansion-be it petroleum products, ready-made garments, engineering or pharmaceuticals-commerce secretary Rahul Khullar sounded a cautionary note, saying that news from the largest two markets the US and Europe "is far from cheerful... Summer is not over. It is still not going to be easy".

The US and Europe together account for about 35% of the country's exports which stood at $246 billion in 2010-11.

Though imports grew by 42.4% to $36.8 billion in June, the trade deficit of $7.6 billion was almost half the level of $14.9 billion seen in May, lessening concerns over the country's balance of payments situation.

In April-June 2011-12, inbound shipments rose by 36.2% to $110.6 billion, led by the import of $30.5 billion worth of petroleum products. The trade gap during the period stood at $31.6 billion.

Oil and non-oil imports increased by 30% and 47.8%, respectively, during the month under review to $10.18 billion and $26.6 billion.

During the first quarter, oil imports grew by 18.1% to $30.52 billion from $25.84 billion. Non-oil imports, too, increased by 44.68% to $80 billion from $55.35 billion in April-June 2010-11.

User

A makeover for the takeover code

The Securities and Exchange Board of India continues to act in the interest of the business community rather than provide equity for investors

The changes in the takeover code, announced by the Securities and Exchange Board of India (SEBI) last week are noteworthy for two things.

First, SEBI is just a regulator and not a protector of investor interest. And SEBI acts in the interests of big business and investment bankers rather than provide equity for investors.

One of the problems with the takeover rules has been the vexing issue of acquirers having to only deal with the main shareholder and not caring about the interests of the non-promoter shareholders. The Ranbaxy takeover was a prime example. The promoters got a price which was not available to each and every shareholder. The law merely said that the acquirer had to make an 'open' offer to buy an additional 20% of total capital. This led to a situation where the promoter got a 100% exit at one price and the non-promoter shareholder got only partial exit.

Now, SEBI has increased the 20% to 26%. There was no logic for 20%, and there is none for 26%. At least SEBI is being consistent! Why is SEBI still fighting shy of legislating that the acquirer should be willing and able to buy out each and every shareholder who tenders his holdings, in toto? Is SEBI playing up to the interests of the investment bankers who want more M&As to happen by making acquirers get away with a meal, without paying for it. As of now the acquirer has just to pay the main promoter. The others can be dealt with partially.

Here, SEBI has clearly put the interests of the business community at the forefront. Anyways, with news reports announcing that the retail investor presence is diminishing, SEBI may be thinking that there are fewer and fewer people to hurt. So, why not favour one group which can provide regulators with a livelihood? After all, investors are only a nuisance for SEBI, with their umpteen pleas.

One investment banker has said that 26% and not 100% is right because the 'poor' Indian promoter does not get 'bank funding' for these kind of activities, so making him buy all the shareholders would make it 'costlier". Such a foolish argument and the normally hyper-critical media carry it without any comment!

SEBI has also said that there cannot be a 'non-compete' payout to the promoters. While this looks good to the investor, I am not sure that this is a legally tenable amendment. If I am a majority shareholder, I can always demand a premium for giving up control. As a promoter, it is my brains and my sweat that have built the business, so I have a right to get something more than a mere financial investor. This is a debatable issue and I think we have not heard the last of it.

Now we will have private deals struck between promoters and the acquirers, where payouts are made in a manner that the law will not detect. There are cases where promoters have been paid off overseas, or have got some benefits that are not apparent.  

However, in a way, I support the SEBI ban on non-compete, since most Indian promoters have built businesses with public money, grown the brands spending company money and enjoyed everything from marriage party expenses to a private jet at company expense. And most often, they will take a high non-compete when there is a large public shareholding, so that the acquirer has an easy task of having to acquire not more than 20% (now 26%) of other shareholding.

The second big takeaway is the change of the trigger point for an open offer from 15% to 25%. This is great for hostile takeovers.  We have seen many 'promoters' owning miniscule stakes in their company and depending on the government to fight hostile buyers (like the old Escorts deal of the Indira Gandhi era, when Swaraj Paul was denied Escorts due to government intervention). Now, it's going to be exciting.

Twenty-five per cent  s as close to a 'blocking' minority as one can get. Promoters will find it difficult to push through special resolutions which need a 75% approval from shareholders. If someone owns 25%, all that has to happen is that he votes against the proposal and the promoter has to ensure that each and every other shareholder votes the other way! We can witness some nice corporate battles, which will ultimately be good for the non-promoter shareholder.

I am sure that many people are already picking up targets for acquisition and greenmail. I hope the government would step back and let free market forces operate. With this change, even a company like Infosys would become a target. Savvy investors with a healthy risk appetite can start building positions in companies which can be buyout or greenmail targets. This brings some action to a stock market that is threatening to become home to Rip Van Winkle.

(R Balakrishnan is a regular contributor to Moneylife. His email address is balakrishnanr@gmail.com.)

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)