INVESTMENTS THROUGH P-NOTES RISING IN INDIA

Investments through participatory notes (P-notes), typically used by foreign investors not directly registered with the stock market regulator in India, touched a near two-year high in October.

These investments stood at Rs 183, 862 crore at October-end, the highest since May 2011. The P-note route is generally used by wealthy investors abroad, hedge funds and other investors who want to participate in the Indian markets but without being registered with the Securities and Exchange Board of India (Sebi) as foreign institutional investors (FIIs).

Flows into Indian equities through the P-note route have been rising, due to currency depreciation and continuation of the stimulus programme of the US Federal Reserve, say market watchers

LEVELS FOR NIFTY FUTURE 21 ST NOVEMBER 2013

Watch :6124 ,6110 as Support levels.

Now SUPPOSE Breaks 6110 with volumes and stays below for 20 minutes …………………………Then ??

Nonstop Slide upto 6066———6052 not ruled out.

Three Consecutive close above 6219 will take to 6290—–6313 level  (valid only if not breaks 6008 level )

INDIA INC FINANCIAL HEALTH SLIPS

Even as the September quarter earnings of Sensex companies managed to beat Street estimates, the financial health of India Inc deteriorated. According to a Credit Suisse report released on Tuesday, corporate financial health worsened in Q2 as 34% of loans were with firms with interest coverage (IC) ratio of less than one. In previous quarters, corporates with a lower ability to service debt had 31% of loans.

Interest coverage ratio compares the interest expense during a period to a company’s operating profit and reflects a company’s ability to service interest on its outstanding debt. A lower value indicates lower debt servicing ability.

The CS report observed that within the category, 80% of loans were with companies whose interest coverage was lower than one for at least four quarters in the last two years and 26% of loans were with companies that had dismal interest cover in the last eight consecutive quarters.

It further noted that concerns over debt-servicing ability of infrastructure and real estate firms persisted. “In Q2, the share of infra and real estate companies among the IC<1 companies rose as JPA, DLF and HCC were added, while Adani Ports and R Comm went off the list,” added the report prepared by analysts Ashish Gupta, Prashant Kumar and Kush Shah.

Moreover, with the loss-making companies accounting for nearly 26% of the sample debt, the net worth of these companies witnessed an erosion of 22-80% in the last two years while their debt levels went up, said the report.

On the back of continuing cash-flow strains and currency depreciation, debt levels for most of the stressed corporates increased by 5-12% in the first half of the current fiscal. These consists of eight of the nine largest companies, including Adani Enterprise, GMR Infra, Lanco Infra and JSW Steel with an interest coverage ratio of less than one.

Meanwhile, a slowdown in the economy put stress on sectors such as power and metals, which continued to depend on bank loans. “Bank loan growth to stressed sectors like power (26% y-o-y) and metals (21% y-o-y) remained high,” the Swiss-based brokerage added.

FIRST ALL WOMEN BANK IN INDIA

Bharatiya Mahila Bank, the country’s first all-women commercial bank, commenced its operations on Tuesday with seven branches. However, doubts remain if the bank will succeed in achieving its objective of economic empowerment of women in remote villages.

The setting up of the Bharatiya Mahila Bank is a small step towards the economic empowerment of women. It is also a reflection of our commitment to this cause. I am sure that the bank will fulfill the objective with which it is being established, namely financial inclusion of women and providing them equal and easy access of financial services,” said Prime Minister Manmohan Singh while inaugurating the bank's first branch in Mumbai's Nariman Point.

Bharatiya Mahila Bank has been set up with an initial paid-up capital of Rs 1,000 crore. Led by Usha  Ananthasubramanian, all the eight on the board of directors of the bank are women. The bank aims to increase its branch count to 25 by March 2014.

This is time to Lay the foundation for a Wealthy Future....

PENALTY FOR RELIANCE

The government has slapped an additional penalty of $792 million on Reliance Industries Ltd (RIL) for producing less than targeted natural gas from its eastern offshore KG-D6 block.

A notice disallowing $792 million out of the cost already incurred on the Bay of Bengal fields was sent to RIL on November 14, an oil ministry official said here.

With this, a total of $1.797 billion penalty in form of cost being disallowed has been levied on RIL for producing less than targeted output during the past three years.

The company has till date spent $10.76 billion on the block, which it can contractually recover from sale of oil and gas. It is obliged to share the profits with the government only after recouping those expenses.

The official said the cost has been disallowed as RIL and its partners BP plc of UK and Canada’s Niko Resources did not drill the committed number of wells, which led to output dropping by over 80 per cent from the main Dhirubhai—1 and 3 (D1&D3) gas fields in the KG—D6 block.

D1&D3 fields have in the first fours years of production (2009—10 to 2012—13) produced a total of 1.853 trillion cubic feet of gas, 1.196 Tcf short of 3.049 Tcf that RIL had committed to produce in the 2006 development plan.

But for the first year, the output has lagged the targets in all subsequent years, which has led to a huge chunk of facilities built lying unutilised, the official said.

RIL had built facilities to handle 80 million standard cubic metres per day of gas from D1&D3 but the present output is just 8.78 mscmd.

As per the production sharing contract, RIL and its partners BP Plc and Niko Resources are allowed to deduct all of the capital and operating expenses from sale of gas before sharing profits with the government.

Creation of excess or unutilised infrastructure impacts government’s profit share and this is being sought to be corrected by disallowing part of the cost.

According to the approved field development plan, the output should have reached 80 mscmd last fiscal.

The government had previously issued a notice to RIL disallowing $1.005 billion in cost for shortfall in production during 2010—11 and 2011—12 ($457 million for 2010—11 and the rest $548 million for 2011—12).le

TAPERING - SECOND ROUND

But the path With just six weeks of 2013 left, the question of when the Federal Reserve will begin to drain stimulus from the US economy remains the dominant one in financial markets. And with good reason.

It’s hard to find a financial market that wasn’t jolted in the early summer, when departing Fed chairman Ben Bernanke first signalled that five years of easy money was coming to an end.

US Treasury yields soared more than a percentage point; riskier assets, including emerging market bonds, equities and currencies were clobbered and the dollar jumped.

While the conversation about when the Fed will begin to slow – or taper – its stimulus programme still dominates, some are sceptical that financial markets will deliver a repeat of their summer swoon when the central bank does eventually reduce its bond-buying programme.

Economists at JPMorgan, for example, point out that emerging market assets – a beneficiary of the Fed’s bond-buying programme – have now priced in the likelihood that the central bank will tighten the stimulus tap.

As a proxy, they point to the spread (or difference in yield) between dollar-denominated junk bonds sold by emerging market companies and those issued by US companies. As the chart below shows, the spread has remained close to levels reach in May, when an added layer of risk was attached to emerging market assets.

They also argue that, much more forcefully than was managed over the summer, officials at the Fed will insist that tapering the bond-buying programme is quite different from any move to raise the central bank’s key interest rate.

Many economists now expect the Fed to underline this point by lowering the unemployment threshold – currently at 6.5 per cent – at which it has said it will consider raising its key interest rate.

Such arguments do offer some comfort that the Fed’s second attempt at tapering, currently forecast for the first quarter of 2014, will have a more muted effect on financial markets.

that Janet Yellen, the incoming Fed chairman, will have to tread when the Fed chooses to taper remains a testing one.

PSU BANKS WRITE OFF LOANS

Data collected by Reserve Bank of India over a period of one year blows the lid off what goes as loan classification in banks. In a presentation at the annual bankers’ conference, RBI deputy governor K C Chakrabarty showed how banks have sacrificed over Rs 1 lakh crore by writing off bad loans to corporates, which is much higher than Union finance minister P Chidambaram’s farm loan waiver in 2008—a move that received flak from the industry. 

Under the Debt Waiver and Debt Relief Scheme, 2008, the Centre had waived off around Rs 60,000 crore to farmers. 

“In the last 13 years, banks have written off 1 lakh crore and 95% of these are large loans. Everyone talks of the farm loan write-off, but it is the medium and large enterprises segment that has a 50% share in NPAs,” said Chakrabarty. 

The deputy governor flayed banks for using ‘technical write-offs’ to reduce their non-performing assets (bad loans) over the years. Technical write-off is a process adopted by banks whereby they take a hit on their profits and stop including the defaulting loan in the list of those from whom repayments are due. It is called a technical write-off because although banks do not show these loans as receivables in their books, they continue to pursue recovery in courts or other forum. 

A technical write-off enables banks to claim that they do not have any bad loans on their books by fully providing for the loans from their earnings. It also reduces their tax outgo. 

Chakrabarty also raised the issue of restructured loans—advances where potential defaulters are given more time to repay without being called defaulters. “Restructuring of loans with retrospective effect has killed credit quality in banks,” he said. He warned banks that the leeway might not be available in future. 

“We must move away from restructuring, there should not be any category called restructuring. The moment it is restructured, it should be declared as NPA, there should not be any technical write-off… be prepared for that, unless you do that you might not be able to get out of the mess,” he said. 

RBI numbers showed that the banks added Rs 4,94,836 crore to their bad loans between 2007 and 2013. During the same period, they reduced NPAs to the extent of Rs 3,50,332 crore. This was possible because loans worth Rs 1,41,295 crore were written off and another Rs 90,887 crore were upgraded to repaying loans and Rs 1,18,149 crore was recovered from defaulters. According to Chakrabarty, after a technical write-off, there is no incentive to pursue recovery. 

The deputy governor said that in the case of large loans, there is no one who is accountable for monitoring the loan, as these are sanctioned by the board or a committee. “Between 2007-13, credit to 10 large corporate groups has more than doubled. We have seen that wherever credit growth has been higher, NPAs are also higher.”