From the category archives:

India

India Inflation: Cyclicality to the Fore, but Structural Issues Persist

14 March 2010

Headline WPI Inflation is inching towards double-digits. Rising prices have been driven by (1) cyclical factors, such as poor production due to a drought and El Nino conditions; (2) structural distortions, including rising incomes, dietary changes, low yields and global trends; and (3) policy shortfalls in terms of high costs of intermediation, managing stocks and imports.

India: Jan Factory Output Up 16.7%

12 March 2010

Industrial production rose 16.7% yoy, higher than our expectations, but broadly in line with consensus (Citi: 15%; Consensus 17%). Growth, which initially started picking up in Jun 09, gathered momentum post August and has averaged 12.7% since then v/s 1.9% in the same period last year. On a fiscal year basis (Apr-Jan), growth was 9.6% v/s 3.3% in the same period last year. The strong numbers are reflective of (1) the base effect (2) the impact of the stimulus measures and (3) the economy gathering steam as reflected in both micro and macro level data. We expect the RBI to begin hiking policy rates in its April 20 policy.

India Autos: Tractor & Trucking Tales from North India

9 March 2010

We met a clutch of Commercial Vehicle (CV) and tractor dealers in and around Uttarakhand and New Delhi. Key takeaways / trends below: (i) Demand for trucks and tractors remains healthy; (ii) Price hikes imminent, demand outlook firm; (iii) Financing trends remain benign; and (iv) Dealer checks in line with our expectations.

India Banks: Is it Liquidity’s Turn Now

9 March 2010

While interest rates have risen, we believe the risks to liquidity tightening are now high, because: a) Overnight liquidity (Repo + MSS): is now low at 2% of deposits; b) Bank Liquidity (Repo + MSS + Excess SLR): is at 3yr average, 9% of deposits; c) Loan pick-up (and moderating deposit growth): growth now +15%yoy vs 9% in Dec09; d) Seasonality: In last 4/5 yrs, liquidity has contracted sharply in March; e) Capital flows: Volatile and already high fiscal/divestment dependence on it; f) Monetary policy constraints: With high inflation (8.5%), there are few options, higher risks.

India Property Weekly (05 March 2010)

5 March 2010

Confusion on Service Tax (ST) levy on construction: Although the aim is to discourage speculation and encourage the sale of ready flats, developers see this as pushing up prices 3-4%. Other ST provisions rolled out in property: 1) “Activity of renting itself is a taxable service”, levies a 10% ST on it (circumvents Delhi HC ruling in Apr09); 2) ST levied on rent of vacant land leased for business/commercial; 3) premium services like higher floors, preferential views to be subject to ST. Implications for sector? 1) ST being passed on to tenants/customers will be dependent on demand-supply, 2) higher impact of ST seen on affordable housing (could impact volumes)

Indian Auto Feb Sales: Volumes Moderate Sequentially, Buoyed by Base Effect

3 March 2010

Overall Y/Y growth was strong for the majors, a combination of base effect + some pre buying before the budget and that offtake in Feb09 had been lackluster. Full extent of budget impact (2% hike in prices to offset excise increase) will be reflected in March offtake. Sequentially, volume trends were sedate – growth was either flat or negative for most players.

India Budget FY11 – Positive Moves Towards Fiscal Consolidation

2 March 2010

While Budget FY11 was always going to be a difficult act, we view it is well balanced: (a) The 5.5% deficit number is as per consensus and is realistic; (b) There is a clear direction towards fiscal consolidation and it is quantified (4.8% in FY12, 4.1% in FY13), and (c) There are steps towards structural reform as reflected in: (i) Revised revenue sharing norms between centre and states, (ii) Subsidies streamlined, and (iii) Hard time frame for implementation of Goods & Services Tax and Direct Tax Code.

India Property Weekly (01 Mar 2010)

1 March 2010

HDFC Chairman Mr Parekh sees a lopsided recovery within the sector – resi prices in Mumbai and Central Delhi are rising, unlike Pune and Hyderabad; commercial cap values/rentals are yet to recover. He believes builders cannot hold onto housing inventory for long and hence does not foresee a sharp surge in resi prices. Mr Parekh believes banks restructuring realty loans wasn’t a wrong move; but restructuring debt on completed projects is wrong.

India: Rail Budget for 2010; Announces Ambitious Vision Plan for the Decade

25 February 2010

Citing the need to support growth, the rail budget presented today: (1) maintained status quo on passenger fares/freight tariffs, (2) announced a token reduction of Rs100/wagon in freight charges for foodgrains and kerosene, and (3) lowered service charges on e-ticketing; The Ministry also laid out an ambitious vision plan for the coming decade.

India: Spotlight on Fertilizer Subsidies…A Step Towards Fiscal Reform

23 February 2010

Last week’s Cabinet decision on the fertilizer front where the government (1) finally approved the implementation of a Nutrient Based Pricing Policy, and (2) raised retail prices of urea by 10% is a step towards fiscal consolidation. Although the measures have been on the agenda for a while (nutrient based policy was proposed last year, urea prices had been unchanged since 2002), they come close on the heels of Kirit Parikh Committee recommendations on fuel subsidies, and could prompt moves for a similar decontrol in fuel prices.

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