Inflation to moderate only in early 2012: BNP Paribas

“It is not until early 2012 when favourable base effect kicks in that spot inflation should genuinely fall back, but remain well above the RBI’s comfort zone,” BNP Paribas said in its latest issue of ‘Asian Instant Insight’

New Delhi: Global banking major BNP Paribas has said inflationary pressure in India will moderate early next year, but will stay above the Reserve Bank of India’s (RBI) comfort level of around 5%-6%, reports PTI.

“It is not until early 2012 when favourable base effect kicks in that spot inflation should genuinely fall back, but remain well above the RBI’s comfort zone,” BNP Paribas said in its latest issue of ‘Asian Instant Insight’.

The banking major’s projection is at variance with the forecasts made by the government and the RBI.

Both the government and the central bank expect inflation to start cooling by the third quarter of this fiscal (October-December).

While RBI has said that overall inflation will moderate to around 7% by March, the government expects it to be around 6.5% by then.

Inflation soared to 13-month high of 9.78% in August. It has been above 9% since December 2010.

“Despite signs of a cooling economy, elevated inflation expectations and upward pressure on administered electricity prices are...likely to retard the desired disinflation process,” BNP Paribas said.

It added, “Despite building downside risks to growth, it is not until early 2012 when base effect from onion and cotton prices kicks in that WPI inflation should realistically fall back towards more comfortable levels but remain well above the RBI’s comfort zone of 5%-5.5%.”

The RBI has hiked key-policy rates 12 times since March 2010 to drain out excess demand, which many consider could be stoking the inflation.

Corporate India has said that frequent rate hikes, which have led to an increase in the cost of borrowings, are hindering fresh investments and affecting economic growth.

The country’s economic growth was 7.7% in the April-June period, the slowest in six quarters. Growth in industrial production also fell to 21-month low of 3.3% in July.

In the mid-quarterly policy review earlier this month, the RBI said that the Rs3.14 per litre hike in petrol price, announced recently, will further fuel inflation.

It said the current level of high inflation makes it imperative to continue with the anti-inflationary stance and tight monetary policy.

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Rupee fall may inflate India Inc’s foreign loan bill by $2 billion

Corporates have been increasingly tapping overseas loans—mostly in the US currency—to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits

New Delhi: The falling value of rupee may impact hard the profitability of the Indian companies, which have tapped overseas loans, and their bottomlines are likely to take a hit of over $two billion this year, reports PTI.

Corporates have been increasingly tapping overseas loans—mostly in the US currency—to save costs arising out of higher interest rates and liquidity constraints in the domestic market in the recent months, but the falling value of rupee seems to have negated the benefits, experts believe.

The rupee has depreciated by over 12% to close to 50-per-dollar mark currently from its near 44-level against the US currency at the beginning of August.

It was the worst performer among major Asian currencies with a decline of 5% in the past week alone and this downtrend has added to the woes of the companies having gone abroad for their borrowing needs.

Indian companies have borrowed close to $21 billion in foreign currencies through ECB (External Commercial Borrowing) window between January and July this year, as against a total amount of $18 billion in entire 2010.

The entities having raised such overseas loans this year include Reliance Industries, NTPC, Mundra Port and SEZ, Indian Oil, Bharat Aluminium, Vodafone Essar, Air India, GAIL, Adani Power, JSW Steel, Aircel, Tata Tele, Idea Cellular, Suzlon, IDFC, RCom, REC, Indian Railway Finance Corp, M&M and BPCL, as per data available with the Reserve Bank of India (RBI).

In July itself, as many as 100 companies tapped overseas loans totalling over $4 billion. This included Mukesh Ambani-led RIL raising $1.09 billion for refinancing its old loans, Mundra Port ($150 million for ports business) and Indian Oil ($500 million for import of capital goods).

Besides, a number of telecom companies have raised overseas loans in recent months to refinance earlier rupee loans for payment of their third generation (3G) spectrum fees.

The analysts said that liquidity deficit and relatively higher interest rates in domestic market were prompting the Indian companies to tap cheaper dollar loans for funding their domestic business activities, imports, overseas acquisitions and refinancing of existing rupee loans.

However, the situation has turned around with sharp rupee depreciation in past few weeks from a relatively stable trend in earlier months of the year, because of which many of the companies did not even hedge against the currency fluctuation risks, analysts said.

As a result, many of the companies might have to book mark-to-market losses on their books for this year unless the rupee reverses its downward trend, experts said, while adding that the current level of rupee depreciation pegs the estimated hit on their profits at over $2 billion.

Experts are of the opinion that those corporates which did not hedge their forex exposure, will have to bear the brunt of the current volatility in the Indian currency in the form of large forex-related liabilities.

“Most of the corporates, especially the PSU players, had kept their forex exposure unhedged and had expected the rupee to remain stable. But now most of them would see their liabilities shooting up significantly and many of them would be forced to mark-to-market losses on their income statement in the current year,” SMC Global Securities strategist & head of research Jagannadham Thunuguntla said.

Religare Capital Markets’ director and strategist (institutional research) Tirthankar Patnaik said, “A depreciating rupee would mean a hit on the equity of the borrower on account of increased foreign currency liability (part that is not hedged) and higher interest rate payments.”

He said that some companies have a policy of passing this increase liability to equity through profit and loss account (for payment of interest to be done in foreign currencies) which would mean a “hit on the profitability this year”.

“The increasing interest rates globally would only add to the injury,” Mr Thunuguntla said, while adding that 12%-14% depreciation in the rupee would inflate their existing overseas borrowing exposure by about $2 billion.

Ashika Stock Broking Research head (equities) Paras Bothra also said that the rupee depreciation would be negative for the Indian companies with regards to their overseas loan, raised specifically in the US dollar.

Mr Bothra pegged the impact at 5%-10% of the companies’ overseas loans, depending on the exchange rate at the time of their borrowings.

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Indian bourses beat global leaders with CEO pay hike

NSE’s Ravi Narain was the top-paid CEO, with gross remuneration of about Rs7.35 crore for the year 2010-11, followed by BSE MD and CEO Madhu Kannan (Rs2.04 crore) and MCX-SX chief Joseph Massey (Rs1.80 crore)

New Delhi: Indian stock exchanges may not rank high on international charts in terms of the volume of business done, but they have beaten global market leaders in terms of pay hikes given to their top executives, reports PTI.

The two largest stock exchanges of the world—the NYSE Euronext and Nasdaq OMX Group—cut down the remuneration paid to their respective chief executive officers (CEOs) last year.

At the same time, the annual remunerations paid by Indian bourses, including market leaders National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) as well new entrant Multi Commodity Exchange Stock Exchange (MCX-SX), rose during the financial year ended 31 March 2011.

NSE’s Ravi Narain was the top-paid CEO, with gross remuneration of about Rs7.35 crore for the year 2010-11, followed by BSE MD and CEO Madhu Kannan (Rs2.04 crore) and MCX-SX chief Joseph Massey (Rs1.80 crore).

NSE CEO Ravi Narain was paid a net remuneration of Rs3.85 crore, but the BSE and MCX-SX did not specify whether the remuneration figure for their chiefs was a gross or net amount.

The remuneration figures for all three stock exchange chiefs rose from the levels seen in the previous year, 2009-10, when Mr Narain's package stood at Rs6.60 crore, Mr Kannan’s at Rs1.60 crore and Massey’s was Rs1.50 crore.

In contrast, NYSE Euronext CEO Duncan Neiderauer saw his total compensation decline to $7.05 million (about Rs 31 crore) in 2010 from $7.2 million in the previous year.

Nasdaq OMX CEO Robert Greifeld’s total compensation fell more sharply to $5.8 million in 2010 from $13.8 million in the previous year.

The NYSE Euronext and Nasdaq OMX are the world’s two largest stock exchanges on a number of parameters, including trading volumes, traded turnover value and the market capitalisation of listed stocks.

On the other hand, Indian bourses NSE and BSE do not figure among the top ten in the world in terms of market cap or turnover value, but are ranked 4th and 7th in terms of the number of trades, as per the first-half figures for 2011.

Interestingly, the latest statistics report from the World Federation of Exchanges (WFE) showed that the trading volume and turnover value fell in the first six months of 2011 at both the US stock exchange giants NYSE Euronext and Nasdaq OMX, as also on the top Indian bourses NSE and BSE.

While the decline in top executive pay at the US bourses was in sync with the decline in their business volumes, a reverse trend has been seen at the Indian exchanges.

The figures for MCX-SX, which trades only in currency market, were not available in the WFE report for the first half of 2011.

Among other major global bourses, London Stock Exchange CEO Xavier Rolet’s salary remained unchanged at 670,000 British pounds in the last financial year, ended March 2011.

However, Mr Rolet’s total remuneration rose to 1.97 million British pounds (from 1.71 million British pounds in the previous year) due to a higher performance bonus payment.

The salary figures were not available for a host of other major exchanges, including the Tokyo Stock Exchange and China’s Shanghai and Shenzhen stock exchanges.

The figures were not comparable for the Hong Kong Exchanges and Clearing (HKEX) either, as it appointed a new CEO last year.

While Paul Chow, who retired as its CEO on 16 January 2010, got a total of 4.89 million Hong Kong dollars, his successor Charles Li’s total remuneration was 16.62 million Hong Kong dollars for 2010.

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