Forex kitty tops $ 50 bn
Cement prices again head south
IBP selloff propels UTI Petro fund
India Cements to cut debt burden
Tea finds saviour in UBI
India Inc split over FDI in retail industry

Mumbai, Feb. 23: 
The economy may have little to cheer about, but finance minister Yashwant Sinha has one real feel-good factor to tout: the country’s foreign exchange reserves are at a never-before level of over $ 50 billion.

On Saturday, the Reserve Bank of India announced that the country’s forex reserves had, for the first time, breached the $ 50-billion limit for the week ended February 15 and touched $ 50,208 million, up $ 442 million over the previous week.

This is a little ironic: back in 1991, when Sinha was finance minister in the Chandra Shekhar government, forex reserves had dipped alarmingly to $ 5,834 million, which could cover less than a month of exports. That drove him to a decision which he has tried to live down ever since: he mortgaged 20 metric tonnes of the country’s gold reserves with overseas banks to obtain emergency loans to tide over the situation.

The new forex level is largely a culmination of the high level of inflows, particularly from foreign institutional investors (FIIs) and dollar mopping by the central bank from the forex markets. Latest data from the Securities and Exchange Board of India (Sebi) shows that FII inflows are at around $ 297 million during the first three weeks of February compared with $ 137.4 million in the whole of January.

However, the forex reserves front is about the only area from where the finance minister can draw comfort: the economy has stuttered, inflation has stumbled to less than 2 per cent (which is a less-than-virtuous fallout of the crumbling demand in the economy), the government’s finances are badly out of sync and should show up in a ballooning fiscal deficit, and industrial growth in the first nine months is down to less than 2 per cent.

“The record attained today certainly goes to the credit of the government and particularly the RBI. It shows that we are comfortable on the external front. What now needs to be done is to concentrate on the domestic economy,” says a senior banker from a nationalised bank who did not wish to be identified. Put simply, the record high level of reserves means that the country can manage better in times of exigencies and it can dip into its forex reserves in the event of any emergency. Bankers here state that close to around 60 per cent of the country’s foreign exchange assets are held by FIIs and NRIs.

“In times of crisis, they are the first to withdraw funds as seen during 1991-92. Therefore, we need to build on adequate reserves,” avers P.H. Ravikumar, head corporate banking at ICICI.

Hence, bankers are of the view that there should not be any complacency despite the high level of forex reserves. Experts point to China that has reserves of more than $ 200 billion. “Though there is no cloud on the horizon, we should not be complacent. We still need to continuously build up liquidity in case there is an outflow,” Ravikumar added.

In fact, the $ 50 billion milestone created could also be attributed to the RBI which has been buying dollars from the market to boost the nation’s forex reserves. The large scale buying could perhaps be seen from the fact that during the past four weeks, reserves increased by $ 1 billion. For the week ending January 18, the reserves had crossed $ 49 billion.

Although this buying by the central bank has led to the rupee weakening in recent times (yesterday it closed at a new low), the RBI has pointed out that the buying was primarily being done to build up a cushion in the event of any crisis.

Reserve Bank governor Bimal Jalan recently said that it was building up these reserves to ensure that even if the country goes through a period of uncertainty, it will have strong reserves to meet any liquidity needs.


Calcutta, Feb. 23: 
After staging a brief comeback from a two-year low, cement prices in the city are downhill again. Prices are hovering around Rs 140 per 50kg bag now, but dealers say another fall is likely soon.

Cement prices in Calcutta had fallen to Rs 120 per 50kg bag—a two-year low—in November last year. Thereafter, the leading manufacturers joined hands to pull prices up.

After several attempts to cut despatches, the companies managed to increase prices here.

The recovery, however, was short-lived.

“There is too much supply in the market now, which is weakening prices again,” dealers in Calcutta said. The companies intended to push prices past the Rs 150-level, but that did not happen.

Prices in other cities too—Mumbai for instance—have fallen in the recent past. In Mumbai, a 50kg bag of cement costs around Rs 145 now.

Cement manufacturers were trying to jack up prices by another Rs 5 per bag, when they fell by Rs 10.

Mumbai dealers too attributed the fall in prices to excessive supply of the commodity in the market.

Cement prices traditionally firm up in December and hold out till the monsoons arrive, as constructions gains momentum during this period.

A year ago, cement prices in Calcutta stood at around Rs 170 per 50kg bag.

“The ongoing polarisation in the industry is aimed at improving price realisations, but the companies do not seem to trust each other, and no one is willing to lose market share even by one bag. With production capacity exceeding consumption by at least 20 per cent, cement prices are bound to be weak unless the manufacturers present a united front,” an industry analyst said.


Mumbai, Feb. 23: 
Indian Oil Corporation Ltd’s bulge bracket bid for IBP Ltd has not only helped the government to bridge somewhat the burgeoning fiscal deficit, but has also propelled the NAV of Unit Trust of India’s sectoral fund—UTI Growth Sector Fund-Petro—by over 50 per cent this year.

UTI Growth Sector Fund-Petro is one of the best performing funds in the UTI stable this year, with its NAV moving very sharply to touch Rs 17.03 this week.

Sounding ecstatic, Sanjay Sinha, assistant general manager at UTI and in charge of the fund, told The Telegraph: “We are betting on the administered price mechanism (APM) being dismantled,” a step that could shore the bottom line of petroleum refinery stocks.

IBP, Bharat Petroleum, Indian Petroleum, Hindustan Petroleum, Indian Oil Corporation, Reliance Industries, Gas Authority of India Ltd and Reliance Petroleum Ltd comprise a major chunk (over 80 per cent) of the NAV of UTI GSF-Petro.

As on January 28, the NAV of the fund was Rs 13.07 and the total funds under management were Rs 22.18 crore.

In less than a month it has now shot up to Rs 17.03 and the corpus has grown to Rs 36 crore this week. Sinha said the fund has consistently outperformed the BSE sensex since its inception and over the last one year.

Petrochem stocks rallied in the January in anticipation of prices being deregulated from April.

Already, the government had reduced retail prices of petrol and diesel this month.

This is significant, as the downward revision in retail prices, despite an upward revision of excise duty, is the first step to aligning domestic prices of petroleum products with international prices. Secondly, this will pave the way for revision of prices, something to which the consumer has not been exposed till now, he added.

Sinha says while the corpus has appreciated mainly on the back of an accretion in the value of investments, his investment horizon for the fund is currently pegged at one year.


Mumbai, Feb. 23: 
In line with its plans to bring down staggering debt levels, the Chennai-based India Cements Ltd has repaid close to Rs 200 crore to banks and financial institutions.

The company is now working on additional internal measures to bring down its debt levels, placed at a whopping Rs 1,800 crore as on March 31, last year. One such move being contemplated is to take recourse to low cost borrowings and thus pay off the high cost debt.

Industry circles say the company could also consider a public issue in future. However, this could not be confirmed by company officials.

India Cements sources here said the current round of payment to the institutions arose following the sale of its stake in Sri Vishnu Cements. Though the official did not divulge the amount that has been repaid to the institutions, they said it was close to what the company got from the sale of its former subsidiary.

“So far we have obtained over Rs 200 crore from the deal and most of this has mainly gone towards meeting debt obligations from institutions and banks,” an official told The Telegraph.

Sources said the company is discussing various avenues for bringing down debt levels further, adding this would be finalised in a few months’ time.

India Cements has set a target of around five years in which it plans to wipe out its entire debt burden. Sources were of the view that following the debt reduction moves being contemplated, interest costs which stood at Rs 190 crore in March last year, will come down to more satisfactory levels in the short to medium term.

The company had, in January, sold close to 95 per cent of Sri Vishnu Cements to Zuari, for an enterprise value of Rs 385 crore. While over Rs 330 crore is expected to flow into the books of ICL, debts of around Rs 36 crore which are in the books of Sri Vishnu will be picked up by Zuari.

India Cements acquired SVCL in the course of its hostile bid for Raasi Cement, which held a large stake in SVCL. It resorted to large-scale borrowings to finance these takeovers.


Calcutta, Feb. 23: 
The city-based United Bank of India (UBI) has worked out a funding scheme for the tea industry, which is currently passing through a crisis due to low price realisation as well as a fall in exports.

UBI, the city’s oldest bank, is a major financier for the tea industry in the eastern region.

Speaking to The Telegraph, UBI chairman and managing director Madhukar said, “The tea industry had made several representations to us regarding their present situation. They said they needed funds to run operations smoothly, but at the same time wanted favourable terms of repayment. Since we have a long-standing relationship with the tea industry, we decided to give them a chance.”

“We decided to give them a working capital term loan. The loan is being offered at market rate (13-14 per cent at present). We have also worked out a flexible repayment programme for the industry based on cash flow,” he said.

Madhukar explained that in good times, most tea firms failed to avail of working capital loans. Rather, they took loans from the bank for buying additional land to expand their cultivation. “They should have taken working capital from us at that time. Since they failed to avail of that, we decided to provide them with working capital term loan. The move will help correct the structural imbalances in the tea industry,” he said.

The bank has taken such a decision because most tea accounts are standard accounts. “The NPA (non-performing asset) level is not high in the tea industry. Very few of them are sub-standard assets. Security-wise, the tea industry is very strong,” he said.

Tea industry officials are however, happy with the developments. “We were apprehensive that banks will not provide us with working capital in the next season since returns were not satisfactory this season. But this at least has come as a breather,” the industry officials said.

The current fiscal has been a bad one for the tea industry, with tea prices at auctions falling by Rs 25-30 per kg from that in the previous season.

Production had been good at 850 million kgs, but an oversupply in the market depressed the prices of tea. Moreover, while price realisations have come down drastically, the cost of production has substantially gone up.

In the retail segment too, the realisation has not been satisfactory, with companies resorting to freebies to sell their teas. Tea exports have also seen a sharp decline compared with the previous year.


New Delhi, Feb. 23: 
The entry of foreign direct investment (FDI) spells a big threat to the retail industry, with business houses vertically split on the issue. A Federation of Indian Chambers of Commerce and Industry (Ficci) survey shows that while big retailers favour the entry of FDI, small retailers are strongly opposed to it.

An overwhelming 88 per cent of the big retailers are in favour of allowing FDI in the retail sector, while the remaining 12 per cent feel that FDI should be allowed, but with a sectoral cap of 26 per cent.

Of those who basically support the idea of allowing FDI in the retail sector, 50 per cent say there should be no investment restrictions. Thirty-six per cent of the respondents say the sectoral investment cap should be pegged at 49 per cent, while the remaining 14 per cent feel it should be kept at 51 per cent.

Eighty-six per cent of those who support FDI inflow into retail feel this will provide a big boost to the sector, while the other 14 per cent felt it would only provide a moderate boost.

Again, more than 70 per cent of respondents in favour of FDI say it will create more jobs, while the rest are less gung-ho on this front. As regards the improvement in services and the availability of choice a customer will have, about 86 per cent are completely in favour while the remaining 14 per cent had a lukewarm response.

On the tax collection front, the reaction seems more or less in the ratio of 50:50. While 50 per cent of the respondents feel that collections will go up, the remaining do not see in it a big opportunity.

Small traders are overwhelmingly against permitting FDI in retail trade. While 63 per cent respondents feel that their entry will squeeze the profit margin of small retailers, the remaining were not worried on that front. Small traders were also very apprehensive on the employment scenario. Some of those surveyed felt that restrictive conditions should be imposed with a minimum lock-in period of five years or more while permitting FDI. However, a few suggested a minimum lock-in of three years.

Sixty per cent of respondents felt that a minimum investment requirement of $ 2 million should be imposed, whereas 40 per cent said it could be kept at $ 1 million only. Also, about 75 per cent respondents felt it was not necessary to restrict FDI to certain regions. Eighty-five per cent of respondents also feel FDI should be restricted to companies having a minimum net worth of Rs 50 lakh while the remaining said it should be kept at Rs 1 crore or more.


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