Mumbai, January 19
The Bombay Stock Exchange Sensex rose to its highest close in six weeks on rising foreign portfolio inflows as global risk-taking improves on moves by the International Monetary Fund to help countries deal with the eurozone debt crisis.

HDFC Bank climbed 1 per cent after the no. 3 lender reported a higher-than-expected 31.2% rise in quarterly profit as a drop in loan-loss provisions and higher fee income made up for weak loan demand. Bigger rival ICICI Bank, which releases its financial result on January 31, rose 3.6%, leading the gains in the main index.

The 30-share BSE index closed up 1.17% at 16,643.74, its highest close since Dec. 7. 23 of its components gained.

"The confidence is back," said K.K. Mital, head of portfolio management services at Globe Capital, with foreign funds returning to the market.

Foreign institutional investors moved more than $1 billion into Indian shares since the new year began, helping the benchmark index gain 7.7 per cent since the end of December.

In 2011, the index fell nearly a quarter as foreign funds pulled out more than $500 million after a series of rate increases by the central bank to fight inflation hurt growth.

Headline inflation slowed in December to a two-year low as food price pressure fell sharply. The food price index in the year to Jan. 7 fell 0.42%, data on Thursday showed.

Foreign funds also bought about $3 billion of local debt this month, data from the market regulator showed.

Investors turned sharply bullish on most emerging Asian currencies in the last two weeks, especially the Indian rupee and the Indonesian rupiah, a Reuters poll showed on Thursday.

The Reserve Bank of India will not cut interest rates at its review next Tuesday, economists polled by Reuters showed, but nearly unanimously expected the central bank to do so by the end of June. Gajendra Nagpal, chief executive at Unicon Financial Intermediaries, said the RBI could give a signal about the outlook for rates and set the direction for the market. — Reuters

New Delhi, January 19
HDFC Bank, India's third largest lender by assets, posted a 31.2% rise in December quarter profit, beating market forecasts, on lower loan loss provisions, stable asset quality and higher fee income.

The bank, which consistently beat market expectations over the past several quarters, said net profit was Rs 1,429 crore ($283.84 million) in the fiscal third quarter ended Dec 31 compared with Rs 1,090 crore a year earlier.

Noninterest revenue, including income from fees and commissions for trading foreign exchange and derivatives, rose nearly 26%.

Net interest income from its core banking operations rose about 12% to Rs 31.2 billion. That compared with about 25% growth in the year-earlier period before India's economy began to slow.

Analysts and investors have been closely watching the asset quality of India's banks on concerns that high interest rates could affect the ability of borrowers to repay their loans, as well as dampen demand for funds to invest.

The main policy rate, at 8.5%, is at its highest since July 2008 after the RBI raised interest rates 13 times since March 2010 to try to rein in inflation. The bank's net interest margin was stable at 4.1% in the quarter, while net NPAs were unchanged at 0.2%.

HDFC Bank has fewer NPAs than many of its competitors and its net interest margin — a key gauge of profitability — is also been among the best in the industry.

Lending by banks increased by 17% in the year to Dec 16 compared with a rise of nearly 24% in the same period a year earlier, according to RBI data. The central bank has forecast credit growth of 18% for the financial year ending March.

Eighteen of the 43 analyst tracking HDFC Bank have a 'buy' or a 'strong buy' rating on the stock. — Reuters

New Delhi, January 19
Food inflation remained in the negative zone for the third straight week, at (-)0.42 per cent for the week ended January 7, mainly due to fall in prices of onion and vegetables.

Food inflation, as measured by the wholesale price index (WPI), was at (-) 2.90% in the previous week. It was above 16% in the corresponding week of 2011.

According to the official data released Thursday, onion prices were lower steeply by 75.42% year-on-year during the week under review, while potato prices were down by 23.84%. Wheat prices also fell by 3.57%. Overall, vegetables were 45.81% cheaper during the week under review than in the same period last year.

Other food products, led by protein-based items, became more expensive on an annual basis. Prices of pulses were 14.27% higher during the week under review, while milk grew dearer by 11.48%.

Inflation in the overall primary articles category stood at 2.47% during the week ended January 7, against 0.51% in the previous week. Primary articles have over 20% weight in the wholesale price index.

Experts feel the decline in food inflation, along with moderation in headline inflation during December 2011, will be a major incentive for the RBI to look at the option of cuts in key interest rates in the near future. — PTI

Mumbai, January 19
Lenders to Air India on Thursday were unable to reach a decision on the ailing national carrier's $4 billion debt restructuring, three sources with direct knowledge of the matter said, further delaying the airline's long-pending proposal.

Last week, the lenders — a consortium of 13 banks led by State Bank of India —deferred Air India's debt restructuring proposal, seeking a revision as they were reluctant to accept equity in the airline.

One of the options discussed by the banks on Thursday was to convert the airline's debt into a government-backed bond, the sources said.

The bonds will have the status of a security approved for maintenance of the statutory liquidity ratio (SLR). SLR is the proportion of deposits that banks need to invest in government debt and other approved securities.

The lenders are expected to give their views on the various options discussed by Monday, two sources said.

After arriving at a decision, the banks would need approvals from the government and the RBI, which could take a few more months, the sources said. — Reuters

New Delhi, January 19
The Supreme Court ruling on sales tax deferral for Essar Oil will imply a cash outflow of Rs 4,000 crore (US $765 million), or Rs 27/share, for the company. In addition, assuming the benefit is gone with immediate effect, its revenues could fall by 66% for FY13 and by 44% for FY14, according to a Morgan Stanley research note.

Essar Oil received a negative ruling from the Supreme Court on a litigation related to the sales tax deferral benefit for its refinery in Gujarat. Earlier in 2008, the Gujarat High Court ruled in favour of Essar Oil, but that decision has now been reversed by the apex court.

The firm’s tax liability is Rs 4000 crore and Essar Oil will need to discuss the timing of the payment with the Gujarat government, says the report. It is not clear from the ruling if the amount must be paid immediately or in installments over a period of time.

Assuming capex needs are kept to a minimum, the report says the company should be able to repay the sales tax liability in about six years. Essar Oil expects to file a review petition in the Supreme Court within the next 30 days. However, a final judgment on a review petition could still be three to six months away.

On the issue of whether the company had defaulted on its existing loans, Essar Oil believes it is not currently in default of the terms of its master restructuring agreement (MRA) relating to the corporate debt restructure (CDR) scheme. The management has highlighted that it was already in discussions with its lenders to come out of the CDR through refinancing, and it expects an outcome shortly.

The report says in addition the MRA related to the CDR scheme requires Essar to obtain approval of the deferment of the sales tax by March 31, 2012 and repay this according to the incentive plan, so it is not currently in default.

However, the Essar Oil board remains confident it can come out of CDR and the default clause would not become applicable.

On the risk of equity dilution in Essar Oil, the note says that the terms of MRA state that if Essar Oil does not get a favourable ruling in its sales tax incentive litigation, the CDR lenders can consider this event of default.

Tokyo/Mumbai, January 19
Japan's Nippon Life Insurance said on Thursday it has agreed to buy a 26 percent stake in a fund management unit of Reliance Capital for about US $290 million as Japanese insurers accelerate a push to tap Asia's emerging economies.

Reliance Capital, controlled by billionaire Anil Ambani, agreed in March last year to sell a 26 percent stake in its life insurance business Reliance Life Insurance to Nippon Life for $680 million, valuing the business at $2.6 billion.

Nippon Life Insurance , Japan's largest life insurance firm by premium income, said it would pay Rs 14.5 billion to buy the stake in Reliance Capital Asset Management.

"The Indian mutual fund market has grown rapidly since it was opened to the private sector in 1993," Nippon Life said.

"It’s an attractive market that is expected to achieve robust growth in the long term due to the second-largest population in the world and solid economic growth led by the service sector and domestic consumption," the Japanese insurance major added.

Based in the world's second-largest market, Japanese life insurers have been almost entirely focused on their home turf, but are starting to look for opportunities elsewhere.

Meiji Yasuda Life Insurance Co, Japan's second-largest player, told Reuters earlier this week, it want to acquire one or two overseas companies in emerging economies this year, with Thailand, Vietnam and India particularly attractive in Asia. — Reuters