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Weekly Indian Economic Newsletter

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  1. 1. Top Headlines Baring PE India Leads Race To Buy Majority Stake In Future Capital Cyrus Mistry re-designated as Tata Sons MD India overtakes Japan to become third-largest economy in purchasing power parity. Sistema To Take $1B Writedown On India. SBI officials drive Rs 1 cr NRI acct scam. KEC International bags new orders worth Rs 1,416 crore India clears 22 FDI proposals worth $112.5 million Weekly Economic Review The bad news just doesn’t seem to end for India’s biggest company Reliance Industries. It’s crucial hydrocarbons businesses are in doldrumsand it has now reported a fall in profits for a second quarter in a row. RIL’s net profit dropped 21.2% to Rs4, 236crore in the three months to March. That came along with a 16.7% rise in net sales to 87,833crore. RIL has taken a beating largely because of its key hydrocarbons operations. The company says revenues from its oil and gas exploration business were down 36.5%. And downstream, its gross refining margin was at just $7.6 per barrel compared to $9.2 in the year- ago period. Meanwhile in another development, RIL has asked Supreme Court to appoint an arbitrator for its dispute with the government over the KG D6 gas field. RIL has been at loggerheads with the petroleum ministry over the costof developing KG D6. Gas output from the block has been falling, which has, in turn, prompted the government to consider a cap on RIL’s compensation claims. Authorities have also rejected RIL’s pleas for arbitration. Moving on, the Reserve Bank has made a dramatic shift in its monetary stance. On Tuesday it announced a surprisingly big cut in interest rates. RBI slashed the repo, which is its key lending rate to banks, by a full 50 basis points to 8%. That means the reverse repo is also down by 50 basis points to 7%. RBI’s cuts in rates exceeded most expectations. But the Reserve Bank has also made it clear that more reductions may not 1
  2. 2. Come anytime soon. Meanwhile, governor D.Subbarao added that thegovernment needed to work on its commitment to bring the fiscaldeficit down to 5.1% by the end of the financial year.The reduction in the repo rate has had its intended effect on somelenders. On Thursday, both ICICI Bank and Punjab National Bank cuttheir loan rates by 25 basis points. ICICI Bank’s base rate will now be at9.75%. And PNB’s will stand at 10.5%.Staying with the industry, private lender HDFC Bank kicked off earningsseason for India’s big banks on Wednesday. And it beat most streetestimates with better-than-expected numbers. Net profit went up 30.3%to Rs1,453crore. That came along with an 18% rise in deposits.Meanwhile, HDFC Bank’s net interest income rose 19.3% toRs3,388crore. While its net interest margin, the key indicator ofprofitability, was at 4.2%.Moving to the economy, inflation has eased slightly, but remainselevated. Figures released on Monday showed India’s wholesale priceindex for March stood at 6.89%. That’s only marginally lower than theprevious month’s 6.95. The latest numbers give reason for both cheerand concern. On the one hand, manufacturing inflation has slipped bynearly a percentage point to 4.87%. But food prices in India remainshigh and could put more pressure on overall inflation.Telecom giant Vodafone is taking on the Indian government’s plan toretrospectively change tax laws. The company says it has served a so-called “notice of dispute” on tax proposals in the Union budget.Vodafone says the proposals violate an international treaty. Vodafone isworried because the planned changes to tax rules could reverse aSupreme Court verdict that absolved it of a tax liability of $2.2 billion.And finally, India has taken a crucial step towards developing a strongernuclear deterrent. On Thursday it test-fired the nuclear-capable AgniFive missile off the coast of Orissa. The government’s Defence Researchand Development Organisation said the test was a success. Agni Five hasa range of 5,000 km and can reach the Chinese heartland. But it’ll beanother two years before the missile can be inducted. 2
  3. 3. Inside The StoryBaring PE India Leads Race To Buy Majority Stake InFuture CapitalPrivate Equity firm Baring Private Equity Partners India Ltd hasemerged as the front runner to acquire a majority stake in KishoreBiyani promoted financial services provider Future Capital HoldingsLtd. Others in the race include L&T Finance Holdings Ltd and DewanHousing Finance Ltd.Earlier, private equity investor CX Partners was intalks to buy a stake in the public listed firm.“The talks with CX Partnersare off and the company is now talking to other industry players andprivate equity investor,” one of the persons said on condition ofanonymity as the deal is yet to be signed.Cyrus Mistry re-designated as Tata Sons MDIn a quiet move, the board of Tata Sons has re-designated Cyrus PallonjiMistry as the managing director of Tata Sons. The new designationbecame effective from April 1, 2012.On November 23, 2011, Tata Sonsnamed Mistry the successor to Ratan Tata, the current non-executivechairman of Tata Sons. Tata will retire by the end of calendar year 2012,when he attains 75 years on December 28.Mistry is currently learningthe ropes directly under Ratan Tata, shadowing the chairman as heprepares Mistry to take on the mantle for bigger responsibilities withinthe Tata group.India overtakes Japan to become third-largest economy inpurchasing power parityIts economy may be in the grips of a slowdown, its polity paralysed andmarkets morose, but all this hasnt prevented India fromovertaking Japanto become the worlds third-largest economy inpurchasing power terms. Data just released by the InternationalMonetary Fund(IMF) shows that Indias gross domestic product inpurchasing power parity (PPP) terms stood at $4.46 trillion in 2011,marginally higher than Japans $4.44 trillion, making it the third-biggesteconomy after the United States and China. India’s share in world GDPin terms of PPP, a measure of relative consumer prices across countries, 3
  4. 4. Stood at 5.65% in 2011 against Japans 5.63%, with the gap expected towiden significantly by 2017. In five years, the IMF estimates the share ofIndias GDP in PPP terms would grow to 8.09% compared with 4.8% forJapan.Sistema To Take $1B Writedown On IndiaRussian services conglomerate Sistema will take a writedown of nearly$1 billion related to the suspension of its Indian licences.The writedownis a non-cash item that will be recognised in Sistemas fourth-quarterresults, eroding earnings, one of the sources told Reuters. Sistemadeclined to comment. Around half of the write-down is related to alicence revaluation and the rest to goodwill, the Vedomosti newspaperquoted a source as saying.SBI officials drive Rs 1 cr NRI acct scamThe CBI has arrested three State Bank of India (SBI) officers for theiralleged involvement in siphoning off money to the tune of Rs 1.35 crorefrom the Non-Resident Indian (NRI) accounts, sources said today. Theaccused including alleged mastermind and in-charge of NRI section ofthe main branch Anup Rajurkar, deputy manager Prakash Bhalkar andsenior executive Mamata Motwani were apprehended yesterday fortheir alleged role in fraudulently withdrawing the money from the NRIaccounts of the bank, they said.KEC International bags new orders worth Rs 1,416 croreInfrastructure major KEC International on Friday said it has baggedorders worth Rs 1,416 crore across all its divisions.The company wonorders worth Rs 320 crore from Power Grid Corporation of India Ltd.(PGCIL) for design, supply and construction of 765 kV double circuittransmission line on turnkey basis between Wardha and Aurangabad inMaharashtra, it said in a regulatory filing.The total line length is 178 kmand the completion period is 32 months.From Bangladesh, the firmbagged an order worth Rs 243 crore from Power Grid Company ofBangladesh Ltd. for design, supply and construction of 230 kV doublecircuit transmission line on turnkey basis between Barisal-Bhola-Borhanuddin.The project is to be completed in 24 months. 4
  5. 5. India clears 22 FDI proposals worth $112.5 millionThe Indian government Friday approved 22 foreign direct investment(FDI) proposals amounting to Rs.586.137 crore ($112.5 million). Theproposals were cleared following recommendations of the ForeignInvestment Promotion Board (FIPB) at its meeting March 30, 2012, thefinance ministry said. FDI is considered stable in comparison to foreigninstitutional investor (FII) funds, which are called "hot money". Thegovernment cleared Shantha Biotechnics proposal of Rs.514 crore toincrease its foreign equity in brownfield pharmaceutical sector to carryout the activities of research, development, manufacturing andmarketing of bio-tech products and other bio-generics.It also clearedMahindra and Mahindras Rs.25.99 crore proposal for setting up a jointventure (JV) company to develop, manufacture and provide servicesupport for radar systems and various kinds of defence electronicsystems. 5