Archive for October, 2010

October 26, 2010

Food prices a structural inflation driver – RBI

The Reserve Bank of India (RBI) warned on Tuesday that surging food prices are structural and will put upward pressure on inflation and interest rates.

The RBI is widely expected to raise interest rates by another 25 basis points on Nov. 2 as it continues to battle headline inflation that rose to 8.62 percent on an annual basis in September.

“Persistent price increases in commodities for which there are less effective substitutes, with other things remaining equal, will raise the potential rate of inflation over a period of time,” RBI Deputy Governor Subir Gokarn said in a speech on Tuesday.

The yield on India’s most traded 7.99 percent, 2017 bond rose two basis points to 7.98 percent, up 2 basis points after Gokarn’s comments as traders said they added to the likelihood of a 25 basis point rate increase next week.

“This means that actual inflation or interest rates will be higher than they would be in the absence of such increases,” said Gokarn, whose brief at the central bank includes monetary policy.

Annual food price inflation eased to 15.53 percent in early October but remains stubbornly high, in part because of rising demand as incomes increase. The economy of the world’s second most populous country is on track to grow at 8.5 percent this fiscal year.

“When we take into consideration the impact of structural food price shocks such as the ones India is experiencing, the policy implications become complex,” Gokarn said.

Production of pulses was not keeping pace with demand, he said.

The price of some pulses, which are a main source of protein for Indians, has roughly doubled over the past three years.

“Rise in income has increased the share of proteins in peoples’ diet. Rising affluence has also led to an increase in demand for proteins and nutrition,” said Gokarn, adding one option would be to import pulses through contract farming.

The RBI has raised interest rates five times this year amid headline inflation that was in double-digits for six months through July.

The central bank’s perceived comfort zone for wholesale price index (WPI) inflation is 5 to 6 percent, and it has said it expects inflation to ease to 6 percent by the end of the fiscal year in March

October 23, 2010

Ten-Year Bond Yields Rise Toward Two-Year High as Cash Availability Drops

India’s 10-year bonds fell, pushing yields to a two-year high, on concern an auction of notes by the finance ministry today and sales by state governments next week will further reduce the availability of cash to buy debt.

Banks borrowed an average 485 billion rupees ($10.9 billion) from the central bank’s repurchase auction window each day this month, compared with 251 billion rupees a day in September. India sold 110 billion rupees of bonds due in 2017, 2022 and 2040 today. Investors will make the payment on Oct. 25. Funds in the banking system have dropped after Coal India Ltd.’s initial public offering that ended yesterday, the country’s biggest share sale to date.

The yield on the 7.8 percent note due May 2020 rose seven basis points, or 0.07 percentage point, this week to 8.14 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. The price dropped 47 paise per 100 rupee face amount to 97.77.

October 21, 2010

CCAS Newsletter-oct10

October 21, 2010

PE Players See an Exit Season

It is exit season for private equity investors in the realty space. With a smart recovery in the Indian realty sector and an impressive lineup of public offers, investors are getting to see the face of money. Significantly, investors at the project or SPV level are up for a busy exit season given the increasing demand for residential and commercial space.

Consider this: Red Fort is exiting more than five deals. In the residential space, Red Fort has sold over 5,000 apartments in Tier 1 cities such as Chennai, Bangalore, Delhi, NCR. Kotak Realty Funds Group  is planning complete exits from two of its IT Park investments – Peepal Tree Properties, a green field IT park building in Mumbai and Green Boulevard, a project in Noida IT Park, Delhi. Indiareit Fund Advisors is eyeing five partial exits this year from its large portfolio of residential projects. It plans to exit from Neptune Developers, and other projects such as Skyline (Bangalore), Samira (Mumbai) and SSPDL Northwood (Hyderabad) this year. It made a partial exit of Rs 49 crore from Aristo (Mumbai) in April, where it invested Rs 150 crore.  

Data shows, 2010 witnessed exits deals such as CVCI-Emaar MGF Land Ltd ($60 million), WDC Ventures-Vijay Associates Constructions Pvt. Ltd. ($40 million), Symphony Capital Partners-DLF Assets Ltd ($694 million), Siva Ventures Ltd-Aamby Valley Ltd ($323 million).

DE Shaw Composite Investments (Mauritius) Ltd. exited from DLF Assets Pvt. Ltd. for $470 million (Rs 2200 crore) by selling its entire stake to Rajiv Singh, Vice Chairman, DLF last year.

October 21, 2010

Action In “Infra Enablers”

Action in “Infrastructure Enablers”

With infrastructure slated for high growth and PE funds, which cannot make investments in core infrastructure owing to their “growth equity” nature, a lot of action is seen in the ancillary or “infrastructure enabler” space.

Recently, Clearwater Capital hiked its stake in Diamond Cables by purchasing 2.2% stake for around Rs 10 crore through the secondary market which took its total holding to 13.77%. Originally an electrical products maker, the company diversified into a manufacturer of power transmission equipment and turnkey services provider (EPC).

NYLIM Jacob Ballas India Fund III, LLC, a Mauritius-based private equity vehicle dedicated to India, infused Rs 152 crore into SEW Infrastructure Ltd, an engineering, procurement and construction (EPC) company in Hyderabad.

Axis Private Equity already has investments of Rs 126 crore in Delhi-based railway line manufacturer Harish Chandra India Ltd (HCIL) and Rs 60 crore in Vishwa Infrastructures and Services, which executes projects in the water supply and sanitation sector.

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