'Tough job to contain fiscal deficit at 4.6%'
Union Finance Minister Pranab Mukherjee on Wednesday said it would be a tough job to contain the fiscal deficit at 4.6 per cent of the GDP. “For the year 2011-12, we had projected a fiscal deficit of 4.6 per cent, which at this juncture is tough job to maintain it,” he said at the FT-Yes Bank International Banking Summit.
Stating that “fiscal deficit is a major concern”, he said he will only change the number after observing the situation for another month “as still four-five months are available to me”. The government’s finances have come under stress due to lower than expected revenue realisation, mainly from disinvestment. “If there is increase of one percentage point or less than that in fiscal deficit it is not that bad given the prevailing overall international and economic situation,” Mukherjee said.
India’s Debt at 70% of GDP Is ‘Constraint’ to Higher Rating, Moody’s Says
India’s public debt at 70 percent of its gross domestic product is preventing Asia’s third-biggest economy from securing an investment-grade rating, Moody’s Investors Service said.
The nation’s fiscal deficit and “the debt burden, which is high relative to similarly rated countries,” are among the constraints, Atsi Sheth, a sovereign analyst at Moody’s, said in a telephone interview from Mumbai yesterday. “For the ratings to be improved, we will have to be comfortable that India’s government debt is at a level that can be sustained over the medium term.”
India’s finance ministry pitched for a higher rating in a meeting with Moody’s officials on Nov. 14, R. Gopalan, secretary, Department of Economic Affairs, said a day later. The government raised its planned borrowing for the six months through March 31 by 32 percent as revenue collections fall short of target. Finance Minister Pranab Mukherjee said Oct. 4 that it may be hard to meet his goal of cutting the budget deficit to a four-year low of 4.6 percent of GDP.
Moody’s rates India’s rupee sovereign debt a Ba1, the highest junk grade, a level shared by Indonesia and Morocco. India’s foreign-currency debt is rated at Baa3, the lowest investment grade. Sheth, who declined to comment on the lobbying by the finance ministry, expects the budget gap to be as high as 5.5 percent in the year ending March 31. Mukherjee said yesterday the government isn’t revising its deficit target yet.
Rising Bond Yields
The yield on the benchmark 10-year government bond has risen 96 basis points this year, the most in Asia, to 8.88 percent, as inflation remained untamed above 9 percent for a 11th consecutive month in October, while increased supply damped demand. The Reserve Bank of India has increased borrowing costs 13 times starting March, 2010, to slow the pace of price gains, and expects inflation will cool to 7 percent by the end of March.
“It might be optimistic to expect a rating upgrade at this juncture when there are significant risks” on account of the deficit, said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. “The government’s finances are under severe pressure this year due to slowing growth and higher rates.”
Slowing economic growth may also exacerbate the deficit, Sheth said. The $1.7 trillion economy is likely to expand 7.6 percent in the fiscal year to March, 2012, slower than 8.5 percent in the previous year, according to the central bank.
“The deficit is going to be higher due to growth slowdown,” Sheth said. “Growth and profitability have been lower than the government had assumed and that will be reflected in revenue growth.”
Revenue Collection
India’s receipts grew 38.7 percent in the six months to September from a year earlier, slower than 58.4 percent gain in the same period a year ago, according to government estimates.Fourteen of the 30 companies that comprise the benchmark Sensitive Index reported profits that fell short of analyst estimates in the quarter ended Sept. 30.
The government will also spend more on oil and food subsidies, she said. The state caps retail prices of fuels including diesel, cooking gas and kerosene to rein in inflation and shield about 828 million people the World Bank says live on less than $2 a day.
Standard & Poor’s and Fitch Ratings have a BBB- rating on India’s local-currency debt, the lowest level in the investment category.
“A high debt burden, we believe, limits the fiscal flexibility that the government has to respond to future shocks, as well as invest in India’s social and physical infrastructure Needs,” Sheth said.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
Sensex valuation at year low
The Sensex has declined 16 per cent from last October's levels. On trailing 12-month earnings, the index's valuation is at a year's low of 17 times, down from 24 times a year befor... »
Amara Raja Batteries (Rs 223.7): Buy
We recommend a buy in the stock of Amara Raja Batteries from a short-term perspective. It is apparent from the charts of the stock that from its March 2009 low at around Rs 30, it has been... »November 16, 2011:
The Sensex has declined 16 per cent from last October's levels. On trailing 12-month earnings, the index's valuation is at a year's low of 17 times, down from 24 times a year before. But do you know that Sensex is still among the richly valued global markets?
Sensex enjoys higher valuation than the Dow Jones, the Euro Stoxx and the Hang Seng. On estimated earnings for current year, the Sensex is more expensive at 14.8 times while the US benchmark Dow Jones is trading at 12.4 times, Euro Stoxx at 8.2 times and Hang Seng at 10.2 times.
What is the reason for the mark-up in price of Sensex? Business Line took a look at earnings projections for 2012-13 of global markets.
Though Sensex valuation is higher, Indian companies are expected to report higher growth rates than their global peers. Bloomberg estimates show that Sensex companies are expected to expand profits by 14 per cent in 2012-13. In this period, companies in the Dow Jones are expected to post 3.6 per cent profit growth and those in Euro Stoxx a growth of 0.05 per cent.
In the Asian pack too, most markets have lower earnings growth projections compared to India. Companies in the Hang Seng are expected to record 8.6 per cent growth, those in South Korea's KOSPI 1.4 per cent and FTSE Straits of Singapore a meagre 0.3 per cent growth.
Other Asian markets, however, trade at a higher valuation relative to their growth projections.
Nikkei trades at 15.6 times despite a lower 6.5 per cent growth estimated for FY13. Taiwan is another market trading at steep valuation — Taiex is at a PEM of 15 times with expected earnings growth at 9.9 per cent. Shanghai Composite, the benchmark stock index of China, is trading at price-earnings multiple of 11.7 times with earnings expected to grow at a pace similar to India (14 per cent).
While India may appear to be an island of high growth next year from the above numbers, the September quarter scorecard of India Inc has raised questions over its ability to keep up with market expectations.
Slowdown in demand in consumer sectors, slowing orders of capital goods companies, rising margin pressure for oil, coal and metal importers have all strained profit growth.
But, going ahead, corporate performance would improve, says Mr Sandip Sabharwal, CEO-Portfolio Management Services, Prabhudas Lilladher. “A 14-15 per cent growth estimate in my view is fair and conservative. Input cost pressures will be much lesser next year and in all probability we will be in a liquidity easing cycle with interest rates that are lower than current levels. As such earning growth next year could be better than the current pessimistic estimates. As per my view the worst and best case for the markets over the next one year based on our estimates of 2012-13 earnings is 15000 (at a P/E of 12X) and 26000 (at a P/E of 20X).”
Amara Raja Batteries (Rs 223.7): Buy
November 16, 2011:
We recommend a buy in the stock of Amara Raja Batteries from a short-term perspective. It is apparent from the charts of the stock that from its March 2009 low at around Rs 30, it has been on a long-term uptrend. Both medium and short-term trends are also currently up for the stock. Following a corrective decline from its all-time high of Rs 262 registered in July 2011 to its late-September low of Rs 200, the stock found support in the range between Rs 200 and Rs 205. Subsequently, triggered by positive divergence shown in daily relative strength index and daily moving average convergence divergence indicator, the stock resumed its uptrend. On Wednesday, the stock climbed 5 per cent accompanied by above average volumes and penetrated its immediate key resistance at Rs 220. The stock is hovering well above its 50 and 200-day moving averages. The daily RSI has entered the bullish zone from the neutral region and weekly RSI is inching higher in the neutral region towards the bullish zone. Daily MACD is on the brink of entering into the positive territory from the negative territory. We are bullish on the stock from a short-term perspective. We anticipate that the stock will move upwards until it reaches our price target of Rs 231 or Rs 238 in the ensuing trading sessions. Traders with short-term perspective can buy the stock while maintaining stop-loss at Rs 216.5.
TECHNICAL ANALYSIS,:
We recommend a buy in the stock of Aban Offshore from a short-term horizon. It is apparent from the charts of the stock that from its April 2011 peak of Rs 718, the stock had been on a medium-term downtrend until it found support at around Rs 333 in mid-August. After taking support at around this level in early October, the stock bounced up sharply.
On October 12, the stock surged 4.6 per cent with good volumes, penetrating its medium-term downtrend-line. We notice formation of a double bottom pattern, a bottom reversal pattern since early August with neck line at around Rs 414. The stock jumped five per cent on Wednesday, accompanied by above average volumes, and is testing the neck line. Both daily and weekly moving average convergence divergence indicators are displaying positive divergence backing the stock's change in direction.
Daily relative strength index is about to enter into the bullish zone and weekly RSI has entered into the neutral region from the bearish zone. We anticipate the stock to breach the neckline and reach our price target of Rs 420 or Rs 437 in the ensuing sessions. Traders with short-term perspective can buy the stock with stop-loss at Rs 401.
Key economic Bills may not be taken up in winter session
In what seems to be a setback for economic reforms, the Government has put off introduction or consideration and passing of key Bills such as the Land Acquisition Bill, Direct Taxes Code Bill
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