sofia times
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Weekly NewsletterTRANSCRIPT
SOFIA TIMES
"The stock market
is filled with indi-
viduals who know
the price of every-
thing, but the value
of nothing." -
Phillip Fisher
In This Issue
Market Update
Banking and Financial Ser-
vices
Economy and Policy
International Outlook
Global Giants
MARKET UPDATE Realty shares in focus on hopes of good Q2 sales
High debt?Rising inflation and interest rates? The movement of
the reality stocks on BSE is talking otherwise .Stocks of major
reality players like Sobha Developers, Peninsula Land, Presitge
Estates, Housing Development and Infrastructure Limited
(HDIL), Anant Raj Industries, Indiabulls Real Estate, Godrej
Properties, D B Realty, Unitech and DLF are up 2-9% on the
Bombay Stock Exchange (BSE). This is in anticipation of good
Q2 number.Earlier this week shobha developers had recorded
good set of sales numbers for the month of September. At the
end of first half of FY 2014, the company looks poised to achieve
the target, having registered new sales area of 1.92 msf valued
at Rs 1,235 crore.
Weekly News Letter 7th October 2013
Earnings downgrades likely
The markets have witnessed extreme volatility in the past two months and particularly over the past few
weeks, with the Nifty moving by 700-1,000 points over 20-25 days .The markets have become extreme-
ly narrow and interest appears limited to a few stocks only.
Reasons:
Confusion in the minds of investors regarding the state of the Indian economy and global develop-
ments.
The US Federal Reserve’s indecisiveness on the tapering issue
In India, the government appears to be taking some steps on the ground to enable stuck projects to
take off, but with the political uncertainty due to elections, the market perhaps needs more evidence
on the ground to be certain that the economy is going to improve going forward.
High inflation and a looming fiscal deficit problem can still act as a brake on higher growth rates, but
the current account deficit problem is gradually being brought under control.
With the corporate reporting season around the corner, investors' focus would shift to the performance
of various companies and sectors during October and early November. However, weak performance in
he first quarter is likely to continue during the July - September period, as high interest rates, rupee de-
preciation and generally weak demand would continue to put pressure on the revenue, margins and the
profit of the corporate sector. Besides technology, pharmacy and few select fast-moving consumer
goods companies and a few private banks, performance at large is likely to be even worse than the first
quarter. While the third and fourth quarters could be somewhat better due to a good monsoon and likely
spending due to Elections, overall earnings growth during FY2014 is unlikely to exceed 6-7%. This im-
plies a risk of earnings downgrades over the next few months. This, together with reasonably expensive
valuations would keep the markets under pressure. Thus, the markets are expected to remain volatile
over the next couple of months, with a downward bias, but on balance the Nifty is likely to continue to
trade largely in the 5,400 - 6,100 range.
Sebi asks Goyal to sell 6% more in Jet
To ensure better corporate governance and board based share-
holding, Securities and Exchange Board of India (SEBI) wants
Naresh Goyal to sell his another 6% stake in Jet Airways. The
company is planning to make its proposed 24% preferential al-
lotment to the Etihad Airways (Abu Dhabi). SEBI wants Goyal to
sell his stake before this deal.
If the promoters of the company sell 6% of their stake, their total
holding will fall down to 69% and after the preferential it will fur-
ther reduce to 51%. The promoters had earlier sold their stake
to meet the 25% mandate of public shareholding. Though the
Abu Dhabi-based airline will be treated a public shareholder,
Sebi does not want the combined shareholding of Jet and Etihad
to go beyond 75 per cent.
Capital ratio dips, profit falls, bad loans rise in FY13
As per the RBI the capital adequacy ratio of banks in India declined, at an aggregate level, at the end of
March 2013 compared to a year earlier. This, along with lower profitability in terms of return on assets,
higher non-performing assets and an increase in the cost of funds, reflected the stress on domestic
banks.
Industry analysts expressed concerns over the dip in capital adequacy ratio as Indian banks would re-
quire an estimated Rs 500,000 crore to meet the Basel-III capital norms (http://en.wikipedia.org/wiki/
Basel_III).
The capital adequacy ratio of all scheduled commercial banks in India narrowed to 13.88 per cent at the
end of 2012-13 from 14.24 per cent a year earlier. While the capital adequacy ratio of private banks im-
proved to 16.84 per cent, it fell sharply, for public sector banks. State Bank of India (SBI), the country’s
largest lender, saw its capital adequacy ratio shrink to 12.92 per cent at the end of March 2013 from
13.86 per cent a year earlier. Analysts feel there is further risk of capital erosion for government-owned
banks if non-performing assets continue to expand.
All banks — public, private and foreign — witnessed an increase in their non-performing assets. Top state-run lenders, including SBI, Bank of Baroda and Punjab National Bank, saw their net NPA ratios increase by 28-97 bps.
Bonds turn bearish
Government bonds turned bearish on sell-
ing pressure from banks and companies.
The 7.16% government security maturing
in 2023 eased to Rs 89.68 from Rs 90.01
previously, while its yield rose to 8.77%
from 8.71%.
The 8.28% government security maturing
in 2027 declined to Rs 93.25 from 93.6650,
while its yield climbed 9.14% per cent from
9.09%. The 8.20% government security
maturing in 2025 moved down to Rs 92.35
from Rs 92.45, while its yield inched up to
8.27% from 8.26%.
Note: Bear is an investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.
BANKING AND FINANCIAL SERVICES
SBI Report Card: Where is SBI lagging?
As per RBI report, the India’s largest public sector bank SBI ranks below the nation average when it comes
to business and profits per employee. As per the latest data on Indian banking sector, the business per em-
ployee of SBI in 2012-13 was Rs 9.43 crore, while the all banks’ aggregate was Rs 12.13 crore. Every em-
ployee on an average contributed Rs 6.5 lakh to the bank’s profit in the last fiscal, according to ‘A Profile of
Banks: 2012-13’, released by RBI.
On this parameter also, the bank was lagging behind the all banks’ aggregate which was Rs 8.3 lakh. SBI’s
employees strength was 2.28 lakh at the end of March 2013. Net NPA of the bank stood at 2.10 per cent of
the total advances as compared to all banks’ aggregate of 1.68 per cent in 2012-13. However, on the pa-
rameter of net interest margin (NIM), SBI’s interest spread was better at 3.06 per cent as against the all
banks’ aggregate of 2.79 per cent.
The net profit of SBI was 20 per cent up at Rs 14,105 crore in the last fiscal. With growth picking up in com-
ing Quarters , it needs to be seen whether SBI turns the tide or not.
RBI working overtime to meet Raghuram Rajan’s licence deadline
RBI is working overtime to shortlist the names of candidates from among 26 applicants. After the screen-
ing, the shortlisted candidates will be vetted by an external committee, to be headed by former RBI gover-
nor, Bimal Jalan. Apart from the officials of the department of banking operations and development, offic-
ers from areas like corporate finance, accountancy, law etc. have been selected to be involved in the
screening process. The entire process of screening the applications is being overseen by Anand Sinha,
RBI’s deputy governor in charge of banking operations and development portfolio. Raghuram Rajan, (RBI
Governor) had said that the names would be finalized before or soon after Sinha retires in January 2014.
It is for the first time that companies are being considered for entry into the banking sector, but it is not
clear if the corporate houses would be given the licenses. Ranjan was not in favor of the companies enter-
ing the banking sector, but was more in favor of non-banking finance companies and microfinance institu-
tions.
Planning Commission likely to cut average GDP growth in 12th Plan to 6%
The Planning Commission is likely to cut the annual average
growth rate target of 8% to around 6 to 6.5 % in its midterm
review of the 12th Plan (2012-17).
Due to the economic slowdown it will be difficult to achieve
the 8% average growth and hence the decision to cut down
the rate to 6%.
The Planning Commission comes out with a mid-term review
during the 3rd
financial year of every policy period. It its pre-
vious mid-term review, it had cut the annual average growth
rate target of 9% to 8.25 for the 11th Plan (2007-2012). But
only 8% growth was achieved.
Current account deficit widens, but provides glimpse of hope
The current account deficit (CAD) for the quarter ended June
widened to $21.8 billion, which was marginally better than
street expectations, but experts said the figure could narrow
substantially in the subsequent quarters on the back of gold
import curbs. The curbs would provide relief to the domestic
currency which has depreciated 15.4 per cent against the US
dollar in the current financial year.
According to data released by the Reserve Bank of India (RBI), the current account deficit rose to $21.8 billion or 4.9 per cent of GDP for April-June 2013 due to a rise in imports (especially of gold) and shrinking exports. The CAD for April-June 2012-13 was $16.9 billion, 4 per cent of GDP.
Prices cut for petrol, raised for diesel
Oil marketing companies have decided
to go for a cut in petrol pricesby Rs 3.05
a litre with effect from 1st Oct 2013. As
part of the monthly decontrol
dose, diesel prices would be raised by
50 paise a litre.
The decrease in petrol prices is a feasi-
ble move as there has been a reduction
of minimum support prices from $117 a
barrel to $113 a barrel and appreciation
of the rupee against the dollar from Rs
66 a dollar to Rs 63.
As part of its diesel decontrol measure,
the government had given the nod to
phase wise increase diesel prices with a
monthly dose of 50 paisa. But even after
the current increase, under recovery on
retail diesel shall stand at Rs 10.52 a
litre.
In addition to the under recoveries on diesel, those on the sale of kerosene now stand at Rs 38.32 a litre and do-mestic LPG at Rs 532.50 a cylinder. For the year 2013-14, IOC is expected to incur an under recovery of Rs 73,500 crore on the sale of these three sensitive products, while industry figures are ex-pected to be Rs 1,39,600 crore.
ECONOMY AND POLICY
Greenlight’s Ein-
horn Says a U.S.
Default Is Unimagi-
nable
David Einhorn, president of
hedge-fund firm Greenlight
Capital Inc., said it’s unim-
aginable for the U.S. to
miss a deadline to raise its
debt limit and default. The
U.S. government started a
partial shutdown yesterday
and must raise the debt
limit this month to ensure
that it has enough money
to pay all its bills. President
Barack Obama summoned
the top four leaders of
Congress to the White
House today for the first
high-level talks on reopen-
ing the U.S. government
and raising the debt ceil-
ing, according to a White
House official.
Shutdown Seen
Merging With Debt
-Limit Fight Amid
Impasse
The partisan battles over
the U.S. government
shutdown and a potential
debt default are begin-
ning to merge into a sin-
gle fiscal fight, raising the
stakes for Republicans
and Democrats to end
the impasse. Lawmakers
from both parties are link-
ing the two issues more
closely, a connection the
White House is reinforc-
ing, according to an ad-
ministration official who
asked for anonymity to
discuss strategy.
INTERNATIONAL OUTLOOK
The Eurozone’s Calm Before the Storm
A little over a year ago , the Euro zone was in mess. Fears about Greece exit and concerns re-
garding the survival of Portugal and Spain loomed large. While there has been a lot of recovery
since then with Eurozone recession over ,the fundamental problem persist. The potential growth in
the worst hit countries is still a concern also with the ageing population and low productivity
growth. The levels of public and private debt are still too high. What euro zone needs is a struc-
tured financial and banking reforms to help it be better prepared before the next storm comes. The
storm is coming. Eurozone better be prepared.
For more do read http://www.project-syndicate.org/commentary/the-eurozone-s-unaddressed-
problems-by-nouriel-roubini
New York To Sue Wells Fargo Over
Mortgage Settlement
Fielding complaints from borrowers struggling to save
their homes, New York’s top prosecutor is preparing a
lawsuit against Wells Fargo, accusing the bank, the
nation’s largest home lender, of flouting the terms of a
multibillion-dollar settlement aimed at stanching fore-
closure abuses. The lawsuit, which is expected to be
filed as early as Wednesday, accuses Wells Fargo of
violating the guidelines of a broad agreement reached
last year between five of the nation’s largest banks
and 49 state attorneys general.
For more information, please visit http://www.cnbc.com/id/101079291
GLOBAL GIANTS
Samsung eyes second straight year of
record profit
The slowdown in the smart phone business hasn’t
deterred Samsung of hopes of generating a record
profit this year . This is owing to the rebound in its
semiconductor business which is expected to shield
Samsung from the slowdown in the smartphone
business . The world’s biggest memory chipmaker
is likely to see its semiconductor earnings charge to
a three-year high - a much-needed shot in the arm
— just as sales of its flagship Galaxy S4
smartphone begin to flag
http://www.business-standard.com/article/
international/samsung-eyes-second-straight-year-of
Globe Trotter: End of An Era- The Volkswagen Campervan
Come next year Volkswagen will no longer produce its iconic campervan vehicle reports Brand Republic. It's
a model that has been on the road for 63 years. Changes in regulation to the way that the vehicles are built in
Brazil - the only place left that produces the hardy roadrunners - will mean that all vehicles made from 2014
will need to have air bags and anti-lock braking systems. The campervans will leave behind a long legacy of
design and advertising. Some fans have been archiving these ads for some time, as seen on Camper Blog.
For more information, please visit http://economictimes.indiatimes.com/features/brand-equity/globe-trotter-end-of-an-era-the-volkswagen-campervan/articleshow/23361046.cms
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