August trade deficit shrinks as exports rise

 India's trade deficit narrowed to $10.9 billion in August, helped by a double digit rise in merchandise exports, provisional government data showed on Tuesday, offering some respite for the troubled rupee currency.

Merchandise exports rose 12.97 percent in August to $26.14 billion from a year earlier. Imports fell 0.68 percent year-on-year to $37.05 billion.

"We are closing the trade gap," Trade Minister Anand Sharma told reporters at a press conference.

The rupee has been hammered down in a sell-off in emerging currencies as foreign investors readjust their exposure to markets like India, anticipating higher interest rates in the United States.


The rupee hit an all-time low of 68.85 against the dollar last month on concerns over New Delhi's ability to fund its bloated trade deficit.

Food inflation falls by 3.36% on base effect

Food inflation shrank by 3.36% in the week ended December 24 after rising by 0.42% in the preceding week, the Commerce & Industry Ministry said today. Food inflation stood at 20.84% in the corresponding week last year.

Food inflation in India plunged into the negative territory in the fourth week of December mainly due to base effect, data released by the Government showed on Thursday. Fuel inflation edged up though.

The sharp drop in food inflation over the past few weeks is likely to provide some much-needed breather to consumers and the policymakers alike.

However, it will be a while before the RBI starts considering a cut in its policy rates. For that to happen, the headline WPI print should also fall sharply.

Food inflation shrank by 3.36% in the week ended December 24 after rising by 0.42% in the preceding week, the Commerce & Industry Ministry said today. Food inflation stood at 20.84% in the corresponding week last year.

Inflation in the Primary Articles group fell to 0.1% in the week under review, from 2.70% in the week ended December 17, according to the Commerce Ministry statement. It was at 22.68% in the year-ago period.

Inflation in the Fuel & Power group stood at 14.60% in the week ended December 24 versus 14.37% in the previous week, the Government data showed. It was at 11.63% in the comparable week of the previous year.

“There has been substantial improvement. Food inflation has turned negative for the first time in recent memory,” Finance Minister Pranab Mukherjee told reporters in New Delhi today.

Headline WPI inflation could ease below 7% by the end of March, C.Rangarajan, chairman of the Prime Minister's Economic Advisory Council said today.

Rangarajan also said that India's economic growth in the current fiscal year (FY12) could be slightly above 7%.

Deputy governor of the RBI, Subir Gokarn said today that stubbornly high inflation may prevent the central bank from reversing the hawkish monetary policy.

He added that a weaker rupee and elevated crude oil prices are further undermining policy maneuvering for the RBI.

“The monetary cycle has peaked,” Gokarn said at a conference in Singapore today. “That does not necessarily say that a quick reversal is in order because inflation risks are still visible, still high.”

The RBI is very concerned about the impact of rupee depreciation on inflation, Gokarn said today.

The rupee was Asia’s worst performing currency last year, after sliding more than 14%.

High oil prices are limiting scope for Asian officials to ease monetary policy, Gokarn said.

India's headline WPI inflation rate fell to a one-year low of 9.11% in November from 9.73% the previous month. Food inflation eased for a ninth straight week to its lowest in nearly six years in mid-December.

The RBI, which has raised its interest rates 13 times since March 2010, left its key lending rate, the repo rate, steady at 8.50% last month.

The central bank policy makers next meet on January 24 to take a call on interest rates.

BSE Sensex is 600 pts up; capital goods, auto scrips strong

Some positive buying is seen in auto, capital goods, FMCG, consumer durables, power, realty, bamking, teck, PSU and IT sectors on BSE

At 2:42 PM (IST), S&P BSE Sensex is 621 points up at 19,891, while 50-share Nifty is 192 points up at 5,872.

BSE Mid-cap is 70 points up at 5,521, whereas BSE Small-cap is 57 points up at 5,401.

Some positive buying is seen in capital goods, auto, FMCG, consumer durables, power, realty, banking, metal, teck and IT sectors on BSE.

Tata Motors, L&T, HDFC, HUL, ITC, Hero MotoCorp, Bharti Airtel, M&M and Maruti Suzuki are up on BSE, whereas Dr Reddy's Lab, BHEL, TCS and Gail are showing some weakness.

Jaiprakash Power Ventures spurted 12.21% on reports the company may sell its two mega operating hydro-power projects in Himachal Pradesh to Abu Dhabi Water & Electric Authority.

Car-makers sold 133,486 cars in India last month, up 15.4% from a year ago, data from the Society of Indian Automobile Manufacturers (SIAM) showed on Tuesday.
Tata Motors is 9.19% up, whereas Mahindra & Mahindra is 4.28% higher.

Report said that TRAI has recommended reducing by up to 60% the base price of airwaves used by GSM operators which may bring relief to operators. Bharti Airtel is 4.66% up, Idea Cellular is 4.77% higher and Reliance Communications is 1.11% up on BSE.

Hero MotoCorp gained 5.13% on the news that the two-wheeler manufacturer has commenced construction of its Rs. 4.5 billion ‘Hero Centre of Global Innovation and Research & Design (R&D)’ at Kukas, near Jaipur in Rajasthan.

Pratibha Industries surged 9.28% on the news that it has won order worth Rs. 4.18 billion from PHED, Ajmer, Rajasthan.

Indraprastha Gas has revised prices of its compressed natural gas and piped natural gas in Delhi, Noida, Greater Noida and Ghaziabad. The scrip is 1.36% up on BSE.

Reliance Power, which is 0.87% down on BSE, has pulled out from proposed LNG terminal with Shell on the east coast, according to a media report.

Banks borrowed Rs. 552.78 billion from the Reserve Bank of India's marginal standing facility (MSF) window on September 6 for four days, higher than the Rs. 245.31 billion on September 5 for one day.

Nikkei closed 218 points up at 14,423, while Hang Seng closed 226 points up at 22,976.

Tata Motors market cap breaches Rs 1 lakh cr

Second Tata group co in plus-Rs 1 lakh cr league of 15

Tata Motors  today stormed into the league of companies that have market capitalization of more than Rs one lakh crore.

India's largest automobile company is the 15th company in the league, which is topped by another group company Tata Consultancy Services, which commands a market cap of Rs 3.9 lakh crore.

Shares of Tata Motors today surged nearly 10% to Rs 348 on BSE.

The salt to software conglomerate Tata group now has two companies with market value of more than Rs 1 lakh crore, while the group's third biggest company is Tata Steel, which has market cap of around Rs 28,900 crore.

Reliance Industries is the country's second-biggest company in terms of market cap of Rs 2.81 lakh crore.

ITC (Rs 2.63 lakh crore) is third on the list, followed by two PSUs -- ONGC (Rs 2.52 lakh crore) and Coal India (Rs 1.81 lakh crore).

The Rs one lakh plus market cap list includes four lenders -- HDFC Bank (Rs 1.51 lakh crore), HDFC (Rs 1.25 lakh crore), SBI (Rs 1.14 lakh crore) and ICICI Bank (Rs 1.12 lakh crore).

Infosys, Hindustan Unilever, Bharti Airtel and Sun Pharma also feature in the elite league.

Canara Bank to charge Rs 60 a year for SMS alerts

State-owned Canara Bank today said it will charge Rs 60 per year for SMS alerts beginning October 2013.

“We wish to inform that in line with the industry trend, our bank is compelled to charge Rs 15 per quarter per customer with effect from October 1, 2013, for SMS services and those who have opted for SMS alerts,” Canara Bank said in a notification.

However, the bank said senior citizens, small savings account holders, basic bank accounts holders, and financial inclusion savings account holders will not be charged any such fee.

Among other state-owned banks, IDBI Bank, State Bank of Patiala and Vijaya Bank also charge customers for sending SMS alerts.

In March 2011, the Reserve Bank of India had issued guidelines to banks on online alerts to customers for all types of transactions, irrespective of the amount, involving the usage of cards, the Finance Minister, P. Chidambaram, had said in Parliament recently.

However, the RBI has not issued any guideline on charges for SMS alerts, he added.

TCS shines on buzz of bagging Rs 200 crore deal from the tax department

TCS is currently trading at Rs. 1992.35, up by 4.80 points or 0.24% from its previous closing of Rs. 1987.55 on the BSE.

The scrip opened at Rs. 1990.10 and has touched a high and low of Rs. 2017.00 and Rs. 1975.00 respectively. So far 92,000 shares were traded on the counter.

The BSE group 'A' stock of face value Rs. 1 has touched a 52 week high of Rs. 2075.85 on 04-Sep-2013 and a 52 week low of Rs. 1197.60 on 18-Dec-2012.

Last one week high and low of the scrip stood at Rs. 2075.85 and Rs. 1976.60 respectively. The current market cap of the company is Rs. 3, 89,946 crore.

The promoters holding in the company stood at 73.96% while Institutions and Non-Institutions held 21.57% and 4.47% respectively.

Tata Consultancy Services (TCS), a leading IT services, consulting and business solutions firm, reportedly has piped Infosys in bagging a large deal worth Rs 200 crore for the tax department. The term for the contract is approximately 5 years, but is likely to be extended further.

The deal bagged is to set-up setup and manage a software platform called the ITBA in order to ease tax payers process of tax application, of e-filing etc and also to kind of tighten the noose around tax evasion, etc, something that tax department has been focusing on. Further, this deal is expected to give TCS a big leg up in terms of expanding in this particular area.

Tata Consultancy Services is an IT services, consulting and business solutions organisation that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT, BPO, infrastructure, engineering and assurance services.

Sensex spurts 552 points on heavy FII inflows; Capital goods, auto stocks rally

Continued buying interest in equities in a truncated week pushed the Sensex and the Nifty up over 2 per cent in the noon trade.

The Sensex was quoting at 19,821.77, up 551.71 points or 2.86 per cent and the Nifty was higher by 167.50 points or 2.95 per cent at 5,847.90 at 1.40 p.m.

The volatility index, India Vix, was at 29.31 up 2.3 per cent.

Tata Motors, L&T, Hero MotoCorp, HDFC and ITC were the top five Sensex gainers, while Dr Reddy's and GAIL were the only two losers.

All sectoral and broader indices were in the green. Among BSE sectoral indices, capital goods index rallied by 5.34 per cent, followed by auto 5.08 per cent, FMCG 4.06 per cent and consumer durables 3.66 per cent.

The market sentiment remained bullish since the RBI announced a slew of measures last week to attract capital inflows, boost economic growth and arrest the rupee’s fall.

Besides, a firm trend on other Asian bourses driven by a string of bullish global economic data as well as signs that a US-led strike on Syria could be averted also influenced the trading sentiment.

European Markets were trading in the green.

Stoxx 50 rose 33.13 points or 1.18 per cent to 2,831.44, FTSE 100 jumped 50.95 points or 0.78 per cent to 6,581.69 and DAX climbed 117.25 points or 1.42 per cent to 8,393.57.

In the Asian trade, Japan's Nikkei surged 218.13 points or 1.54 per cent to 14,423.40, Hong Kong's Hang Seng jumped 118.49 points or 0.52 per cent to 22,869.10 and Australia's S&P/ASX 200 was up 19.73 points or 0.38 per cent at 5,201.20.

US markets gained 1 per cent across the board on Monday driven by upbeat Chinese exports data.

The Dow recorded its best day in two months and closed above the 15,000 mark. The European markets closed lower weighed down by uncertainty over Syria and fears of Fed tapering.

Investors await the Chinese factory output and retail sales data, which is expected to show growth in August.

Ashoka Buildcon emerges as lowest bidder for project worth Rs 609.62 crore

Ashoka Buildcon has emerged as lowest bidder for the project worth Rs 609.62 crore from TANGEDCO. The project is for execution of distribution strengthening works under Re-structured Accelerated Power Development and Reforms Programme (R-APDRP) Part-8 in Chennai North & South Regions of Tamilnadu Generation and Distribution Company (TANGEDCO) on Total Turnkey basis.

Earlier in August, the company emerged as the lowest bidder for HVDS scheme under O&M Division Akaltara in state of Chhattisgarh, aggregating to Rs 47.04 crore from MSEDCL.

Ashoka Buildcon builds and operates roads and bridges in India on a build, operate and transfer (BOT) basis. It currently operates one of the highest numbers of toll-based BOT projects in India.

Rising engineering imports adding to high current account deficit: EEPC

The Engineering Export Promotion Council (EEPC) said that high imports of engineering goods besides crude oil and gold, are adding substantially to the country's current account deficit (CAD). India’s CAD widened to a record high of $88 billion or 4.8 percent of the GDP in the previous fiscal from $78.2 billion in FY12, about 4.2 percent of the GDP. India’s engineering import-export gap remained negative at $17 billion in FY13, despite the fact that engineering goods exports constitute around one-fourth of the country's total merchandise shipments followed by gems and jewellery, textiles and chemicals. During April to July period, engineering exports declined by 5.77 percent with total consignments of $18.03 billion for the four months against $19.14 billion in the corresponding period in the previous fiscal.

EEPC said there are no domestic alternatives available to reduce the imports of crude oil and gold, however, India can contain the imports of engineering goods by giving a boost to the capital goods sector. Referring to the rising engineering items imports, EEPC said that there are at least 79 tariff lines of different engineering products such as automotive engines, which have shown an annual compound average growth as high as 35 percent in some cases. Imports of engines of cylinder capacity greater than 250 CC were only $114 million in 2005-06, which has now crossed $1 billion, it added.

By adding further, EEPC said that India should lower the manufacturing/engineering trade deficit by promoting the production of capital goods sector in the country and therefore recommended the government to immediately launch a Technical Upgradation Scheme.

Pratibha Industries bags order worth Rs 418.36 crore

Pratibha Industries has bagged a new contract worth Rs 418.36 awarded by PHED, Ajmer, Rajasthan. The contract is scheduled to be completed in 36 months from the date of commencement.

The contract awarded is for work of Cluster Scheme of 326 villages of Bhilwara, Raipur and Sahara Tehsils along with augmentation of UWSS of Gangapur town from Kishnawato Ki Khedi Headworks under Chambal - Bhilwara Water Supply Projects Phase - II with operation and maintenance for 10 years on single point responsibility turnkey basis.

Pratibha Industries is engaged in the business of integrated infrastructure solutions. As the company moves ahead, it has laid increased emphasis on devising its business strategy on aggressive top line growth, a de-risked business model and increased operational efficiencies.

Asian markets trade higher in early deals as Syria tensions ease

Asian markets are trading mostly in the green in the early deals on Tuesday as sentiments got boosted by signs that the US will wait before launching a military strike against Syria. The US government has suggested that it might hold back if Syria cedes its stock of chemical weapons. Moreover, decline in international crude prices too aided the sentiments across the region. Meanwhile, Chinese benchmarks were trading higher in morning deals as investors were hopeful that industrial output and retail sales will provide more evidence that world's second biggest economy has averted a sharp slowdown.

Shanghai Composite rose 5.00 points or 0.23% to 2,217.52, Hang Seng jumped 134.74 points or 0.59% to 22,885.39, Jakarta Composite soared 83.57 points or 1.99% to 4,274.83, KLSE Composite increased 13.37 points or 0.77% to 1,760.40, Nikkei 225 surged 166.30 points or 1.17% to 14,371.53, Straits Times added 7.46 points or 0.24% to 3,095.66 and Seoul Composite was up by 3.89 points or 0.20% to 1,978.56.

On the flip side, Taiwan Weighted was down by 24.14 points or 0.29% to 8,167.97. 

Factory output likely shrank 0.8% in July

Infrastructure sector output rose 3.1% year-on-year in July from 0.01% in the previous month

 India's factory output likely shrank for the third straight month in July, albeit at a slower pace than the month before as production in the country's core industries picked up, a Reuters poll found.

The poll showed output at factories, mines and utilities shrank an annual 0.8%, after contracting 2.2% in June, according to the median consensus of 22 economists.

"Underlying industrial production momentum is expected to remain weak, despite a slight improvement in the infrastructure index," economists at Barclays said in a note to clients.

Growth in Asia's third-largest economy has slowed to below 5% in each of the past three quarters and with the central bank concentrating on propping up the battered rupee currency many economists have slashed GDP forecasts for this fiscal year.

Infrastructure sector output rose 3.1% year-on-year in July from 0.01% in the previous month, government data showed last week.

The sector is made up of the eight core industries - coal, crude oil, oil refinery, natural gas, steel, cement, electricity and fertilisers - and accounts for 37.9% of India's industrial output.

Other data on Thursday is expected to show that consumer inflation probably eased to 9.55% year-over-year last month, only just below July's 9.64%, as food prices continued to rise, the poll also found.

"A weak rupee and significantly higher food and fuel prices are likely to maintain upward pressure on CPI inflation," wrote Barclays' economists.

The rapidly falling rupee has aggravated price pressures since rising crude oil and gold prices, two of India's most imported items, have swollen the country's already huge import bill.

An exodus of funds from emerging markets, triggered by the US Federal Reserve's hint at paring back its stimulus, has left the Indian rupee suffering more than its peers as it is weighed down by a bloated current account deficit.

Walmart Inc, Bharti Group may end India partnership

Walmart Stores Inc is mulling to pull out of its six-year-old wholesale joint venture with Bharti Group amid speculation that the world’s largest superstore chain has begun talks with other companies for its front-end retail foray in India.

The US-based retail giant is likely to make an announcement by this month-end on its decision not to convert into equities $100 million it had lent to the Bharti Group in 2010 in a deal which Indian authorities are probing for flouting rules.

This would effectively rule out Walmart partnering with the Sunil Mittal-led group to set up mega stores in India.

The deadline for converting these funds lent through compulsorily convertible debentures (CCD) ends on September 30.

Walmart, sources indicated, is likely to press for Bharti Group returning the funds through a “buy-back” option.

Walmart’s investment in Bharti has come under a scanner amid allegations that the global retail chain may have entered India’s front-end multi-brand retail business two-and-a-half years before the government actually lifted the ban on foreign investors in the sector last year.

This was in addition to investments in Bharti Walmart, an equal partnership joint venture between Bharti Group and Walmart, which runs wholesale stores under the Best Price Modern Wholesale brand.

Walmart is examining various options to exit its investments in the wholesale business as well as pulling out its funds from Bharti’s retail arm, sources said.

“Walmart is optimistic about growing our Best Price Wholesale cash and carry business in India as well as future retail investment opportunities that can be made possible through a clear and predictable FDI policy,” a Walmart spokesperson told HT.

“As a policy, we do not comment on market speculations,” a Bharti spokesperson said.

Indian authorities including the Enforcement Directorate, which tracks money-laundering deals, are probing charges against  Walmart’s investment of `455.80 crore ($100 million, at that time) in March 2010 in a company called Cedar Support Services through CCDs.

Cedar, through a 100% subsidiary Bharti Retail, operates front-end retail stores under the brand name Easy Day. On conversion of the CCDs into equities, Walmart would have become a 49% shareholder in the company.

Walmart India chief Raj Jain left the company recently in a sudden move and Bharti Walmart, suspended five executives as part of an ongoing investigation against alleged corrupt practices that the US retail giant has launched globally including in China, Brazil and Mexico.

Muthoot Finance to install 250 ATMs by December

Muthoot Finance, a leading gold financing company is planning to set up 250 white label ATMs in the next three months. In this regard, the company has received Foreign Investment Promotion Board’s (FIPB) and Reserve Bank of India’s (RBI) approval.

The company has also identified locations in two states and intends to operationalise 250 ATMs by December, while the total number of ATMs would go up to 1,000 by the end of September next year.

These ATMs will be deployed at public locations like bus-depots, shopping malls, educational institutions, offices, small kirana stores, cinemas, public parks and even at own branches of the company.

RCom gains on expecting 30% growth in enterprises division in 5 years

Anil Ambani owned Reliance Communications (RCom), the country’s third-biggest mobile phone operator by customers, is anticipating 30% annual growth in revenues and profitability from its enterprises division over the next five years. The company is ideally positioned in the enterprises domain, already serving over 45,000 large, medium and small enterprises in India.

Reliance Communications is India’s foremost and truly integrated telecommunications service provider. The company, with a customer base of about 150 million, including over 2.5 million individual overseas retail customers, ranks among the Top 4 Telecom companies in the world by number of customers in a single country.

New Companies Act draft hits small auditors more

The new rules say auditors will have to take highly costly indemnity insurance against third-party liabilities, feasible only for large firms

Auditors  have to be compulsorily changed by a company at the end of two five-year terms, say the new rules.

The five-year period for rotation in the case of an individual and 10-year period for a firm will be calculated retrospectively.

Auditors fear this will impact smaller firms and they will be forced to consolidate, as they will not be able to attract new talent for auditing. Says N Venkatram, managing partner, audit, Deloitte, Haskins & Sells: "The increased demands on the audit profession and the churn in audit clients that is mandated will cause hardship for a few years. The retrospective application of rotation rules would necessarily result in increased cost and hardship to both companies and clients, and have the unintended consequence of harming audit quality."

RULES UNPLEASANT
The Union government on Monday released draft norms for clauses of the new Companies Act that replaces a six decade-old legislation
The bones of contention :
Auditors will now have to face penalties ranging from Rs 25,000 to Rs 25 lakh for non-compliance on issues such as filing and reporting.
Concept of class-action lawsuit introduced. Shareholders and depositors can claim damages and compensation from auditors for negligence.
Auditors will not be able to provide allied services such as consultancy and management accounting systems to the companies they audit.
Rotation of auditors is now mandatory. Auditors fear this will increasingly see a shift towards bigger players.
A whistle-blower policy has been introduced where auditors will have to report any wrongdoings to the central government.
Number of audits per partner has been restricted to 20, which crimps the earnings potential of an auditor.

How much it will cost
Auditors will now have to take indemnity insurance that will increase their costs, to which only the big firms will be able to adjust.
Audit firms will have to increase the support staff to do a more rigorous checking of the accounts.
Auditors are more likely to become conservative and ask for more details of expenses and statements from managements.
The new rules have given some breather in terms of reporting on fraud by auditors to the Union government. Auditors are required to report material fraud within 30 days to the government. Materiality shall mean frauds happening frequently or those where the amount involved or likely to be involved is not less than five per cent of net profit or two per cent of turnover of the company for the preceding financial year.

Says Harinderjit Singh, partner, Price Waterhouse: "A mere allegation or suspicion will now have to be reported to the government. Professional guidance will need to be given to auditors."

Also, the new Companies Act imposes severe penalties on auditors of companies for various issues such as non-filing of documents.

It has also introduced the concept of class-action lawsuits. For negligence in their duties, auditors are liable to pay damages to the company or any other person for losses arising from incorrect statements in the audit report.

Company auditors are clearly worried that this is going to impact the business of auditing for small and big firms.

Says Shailesh Haribhakti, chairman, DH Consultants: "It's going to be very difficult for the auditing profession to attract, retain and deploy new talent, as the risks have gone up tremendously. Auditing will become more time-consuming and the costs will go up."

Auditors fear the Act will also increase their workload considerably - they will have to go through a larger number of transactions and keep extensive details on many. Auditors also have to take indemnity insurance against third-party liabilities, likely to be highly expensive. Auditors fear only the larger firms will be able to afford higher insurance costs.

The Act also mandates that an audit firm and all its partners are jointly liable for any fraudulent action of even a single partner.

Earlier only the partner in question had to face the consequences of negligence; with this new rule, an entire firm of auditors might have to down shutters for the errors of one partner. Says Singh: "It was always the individual who was signing the accounts. Now, with the concept of an entire firm being held responsible, the existence of the firm itself can be in jeopardy, without the relevant due process being defined."

The auditor is now also required to report on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

Says Venkatram: "It is necessary that the rules clearly lay down the processes that need to be followed by the management of companies to make this evaluation. Based on the US experience, this is likely to be an onerous responsibility on both management and auditors, which will be expensive to implement."

TRAI recommends up to 60% cut in base price

The Telecom Regulatory Authority of India said that spectrum trading should be allowed and recommended a flat spectrum usage charge.

Report said that TRAI has recommended reducing by up to 60% the base price of airwaves used by GSM operators which may bring relief to operators, including Bharti Airtel and Vodafone India.

The Telecom Regulatory Authority of India said that  spectrum trading should be allowed and recommended a flat spectrum usage charge.

The regulator has recommended Rs 1,496 crore per MHz as the floor price for pan-India spectrum in the 1800 MHz band, about 37% lower than the March auction price, according to reports.

Rajan Matthews, director-general of Cellular Operators Association of India, said the GSM operators it represents are "relatively pleased" with valuation of the 1800 MHz spectrum.

Hindustan Zinc buyout crucial for Sesa Sterlite to repay loans

Latter facing double whammy of high dollar debt and no progress in Lanjigarh alumina project

For the London-headquartered Vedanta group, acquisition of the government’s stake in  Hindustan Zinc Ltd (HZL) is important, as it will give the Anil Agarwal-led company access to HZL’s cash reserves to pay the loans taken to acquire Cairn India.

With its Lanjigarh alumina project showing no sign of revival due to lack of bauxite, HZL is turning out to be the key company for Vedanta’s India operations. Post the restructuring of its India business under the newly merged entity, Sesa Sterlite, analysts say the new company is getting a mix of good firms with high return, high cash flowing oil and gas division and weak ones like high debt Vedanta Aluminium.

But with the Goa and Karnataka mining issue expected to be sorted in the next three months, the cash flow of Sesa Sterlite will improve. A reduction of export tax for iron ore will help the company to improve its cash flow.

According to Morgan Stanley, Sesa-Sterlite’s Indian zinc assets are among global cost leaders and growing at a robust pace.

“We forecast compounded annual growth of about seven per cent in 2013-15 for volumes of total mined metal. The division will also gain from a depreciated rupee. Zinc will continue to be among the cash cows for Sesa-Sterlite, and will be amongst the highest contributors to Sesa-Sterlite’s good return ratios,” says a Morgan Stanley analyst.

Sesa Sterlite had acquired the loan from Vedanta worth $5.9 billion and it will have access to Rs 13,000 crore from Cairn India’s balance sheet to repay loans. But this will not be enough and it wants access to HZL’s cash reserves — a company which turned around under Vedanta's management.

As the government is still holding 29.5 per cent stake in HZL, the group was unable to access the Rs 21,000 crore of cash and investments.

Bankers say after buying the government’s stake, Sesa Sterlite will be able to dip into the cash reserves of HZL to help it repay Cairn’s loans as almost $3.5 billion, which are coming up for repayment in the next three years. A merger of HZL and  Sesa Sterlite will be initiated by the first quarter of next financial year, bankers say.

The prospect of its three large projects under Vedanta Aluminium — the $2.92-billion aluminum smelter, $1.57-billion  alumina refinery, and $0.15-billion debottlenecking project — remaining bleak primarily due to unavailability of bauxite is what’s worrying analysts.

While the company has made efforts to secure alternative sources of bauxite by acquiring a 24.5 per cent stake in Larsen & Toubro’s Raykal Aluminum that holds certain prospecting licences for bauxite, analysts say they will not be surprised if the company decides to write down some part of these assets in the next one-two years.

According to the company, $3.37 billion has already been spent on these projects till March this year. With the Niyamgiri hill bauxite mines now out of bounds, the company has asked the Orissa government to arrange for bauxite mine. If the bauxite issue is not sorted out soon, it will financially impact the new merged entity negatively.

Another important factor is that about 60 per cent or about $8 billion of Sesa-Sterlite’s loans are in US currency. For every five per cent depreciation in the rupee, the long-term liability of Sesa Sterlite goes up by about $400 million.

But the good news is that zinc and aluminum prices in India are set on the basis of import parity, and hence, can gain from rupee depreciation.  In addition, almost 35 per cent of sales volumes are sold in the export market, thus having a favorable impact on the Sesa Sterlite.

Equity Funds continue to lose shine in Southeast Asia: Research

Assets under management (AUM) in the segment now account for just under a quarter of the region's total AUM.

Allocation to equity mutual funds hit its lowest level for four years in 2012 as investors showed a preference for more conservative products. Assets under management (AUM) in the segment now account for just under a quarter of the region's total AUM.

Strong gains in the stock markets of Thailand and the Philippines in 2012 did not have much of an impact on the overall asset allocation to mutual funds in the region. This was one of the key findings in Cerulli Associates' recently released report, Asset Management in Southeast Asia 2013. The report assesses the state of the mutual fund industry in five countries, namely Malaysia, Thailand, Indonesia, the Philippines, and Vietnam.

Cerulli also found that the mutual fund industry in each country had its own unique set of drivers. "The Philippines remain a relatively small market, while equity funds in Thailand took a hit, partly because of redemptions within the Long-term Equity Fund (LTF) and Retirement Mutual Fund (RMF) segment in 2012," says Felix Ng, a senior analyst with Cerulli who led the report.

Ng notes that the strong interest in equity trigger funds in Thailand also limited asset retention due to the inherent structure of such funds. In the meantime, "the recent sell-off in Indonesian equity is expected to create a drag on the country's equity fund AUM in 2013 as well, given the small exposure to overseas investment for its mutual funds," he adds.

Still, the mutual fund industry should grow strongly over the next five years. Cerulli expects the region's AUM to show a compound annual growth rate of 13.2% during the period, due in large part to growing affluence in the region.

"Southeast Asia no longer lives in the shadow of its bigger and brighter siblings to the north. There is renewed vigor to the region, and this is evident through the wealth that is being generated," says Ken Yap, Singapore-based director and head of Asia-Pacific research at Cerulli.

How much of this wealth finds its way into the mutual fund industry is a moot point. "The appetite for international investing is still very much a work in progress. Building and managing relationships at a local level is key, and the ability to take the long view is crucial," Yap adds.

To play the long game, redefining the value proposition for clients in terms of services or products is something that managers are beginning to embark on to cater for an increasingly diverse client base.

For instance, in Malaysia, some managers are working with multimanager platforms and offer affluent clients a "core-satellite" approach to portfolio management. In Indonesia, managers are showing their creativity on the product front by launching mutual fund retirement savings plans (RSPs) that also provide free insurance coverage for accidents and dismemberment.