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Economy to grow by 7.5% next fiscal, says Fitch

According to Fitch, after a period of pause in reforms the government has again taken up initiatives on special economic zones and increasing foreign participation in the government and corporate debt market and these are likely to have a positive impact

New Delhi: The economy is likely to grow by 7.5% in 2012-13 and public finances of various state governments are likely to see consolidation during the next fiscal, reports PTI quoting ratings agency Fitch.

“Fitch expects Indian economic growth to rebound to 7.5% in FY12-13 from 7% in FY11-12 ... the Indian economy is expected to perform better than the developed economies,” Fitch Ratings said in its ‘2012 Outlook: Indian Sub-nationals’.

According to Fitch, after a period of pause in reforms the government has again taken up initiatives on special economic zones and increasing foreign participation in the government and corporate debt market and these are likely to have a positive impact.

The agency had earlier revised down its growth projection for the Indian economy in 2011-12 to 7%, from 7.5% earlier, on account of sustained inflation, the global slowdown and high domestic interest rates.

The Indian economy had expanded by 8.5% in 2010-11.

It said that though growth will rebound in 2012-13, the economic performance in the states will vary.

“States with better infrastructure and growth-oriented policies are likely to grow faster and will improve their fiscal performance. The smaller states, especially the special category states, will depend on the federal government for revenue and their performance will mirror the federal government,” it said.

It said that “the reform-oriented economic growth” in the next financial year will help states to achieve faster fiscal consolidation.

“The expected improvement in economic growth will result in further fiscal consolidation,” the report said.

According to Fitch, the gross fiscal deficit of the state governments is likely to be 2.2% in 2011-12 as against 2.6% in the last year.

“An improvement in deficit quality, with a faster improvement in the current balance is highly likely. However, due to specific structural issues for each state, the extent of improvement will vary.

“Faster growing and better fiscally administered states will lower their deficits more quickly than the laggard states,” it said.

The agency, however, said that the two key reform bills in taxation—the Direct Tax Code (DTC) and the Goods and Services Tax (GST)—are likely to miss their rescheduled date of implementation of 1 April 2012.

“Fitch expects that all issues will be sorted out in FY12-13. The implementation of the DTC and GST would be credit positive for India and its sub-nationals,” it said.


IPOs planning to raise an aggregate of Rs32,200 crore called-off in 2011

As many as 28 IPOs, largely featuring real estate and power companies, refrained from going public this year citing poor markets conditions. At the same time, two others have cancelled their IPOs post issue

The markets have witnessed volatile trade throughout the entire year. Over the course of the year the Sensex has gone from 20,500 in the beginning of the year to around 15,800 as of now after slumping to its two-year low a few days back. Under these market conditions companies were diffident about going public despite the fact that the approval from the Securities and Exchange Board of India (SEBI) is valid for only a year.

The list of the companies whose approvals have expired this year includes real estate companies like Lodha Developers, Ambiance Real Estate, Kumar Urban Developers, Neptune Developers, BPTP, Raheja Universal and Lavasa Corporation. A number of power companies were a part of the list, as well, and include names such as Sterlite Energy, Jindal Power, Avantha Power and IND Bharat Power Infra. Other major companies include Reliance Infratel, Glenmark Generics, Gujarat State Petro Corp, One97 Communications.

According to a report by SMC Global Services, the negative mood of the capital markets have led to 28 companies calling-off their initial public offers (IPOs). The probable amount that these 28 companies were planning to raise was to an aggregate of Rs32,200 crore. Apart from these, there were two IPOs that opened their issues but later on withdrew their IPO plans due to poor response. Galaxy Surfacants, a cosmetic manufacturer, was under subscribed. The other—Swajas Air Charters—a non-scheduled airline operator, cancelled its issue despite getting a subscription of 1.72 times.

Reliance Infratel was the first company that failed to launch its Rs5,000 crore IPO before the regulatory approval lapsed on 11th January this year. Endurance Technologies, which was the latest addition to the list, expired on 13 December 2011. The approval of AGS Transact Technologies expires on 30 December 2011, the company still shows no signs of opening to the public in the few days that remain. In fact, the last two months have not seen any company opening its public issue.

According to the report, this will impact the Indian corporate's ability in fund raising to finance their expansion projects resulting in slowdown in capacity building and job creation. Private equity (PE) firms which have invested in these companies would have to wait a while as many of them wait for an IPO to make their exit. This may even defer future PE investments.

Further, the government’s disinvestment program which was supposed to bring public issues of several blue-chip PSUs couldn’t take off. The government has called off much anticipated FPOs (follow-on public offers) of ONGC, BHEL, SAIL, etc. Many investors anticipating these big issues would be left disappointed.


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