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RBI measures fail to cheer markets
Moody’s retains stable outlook on India rating despite growth slowdown
Economists dismiss intervention as short-term step
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3G price war rages on; will data tariff cuts draw in subscribers?
Sesa Goa, Sterlite merger gets shareholders nod
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RBI measures fail to cheer markets
Mumbai, June 25
The rupee has fallen as India's economic growth declined to a nine-year low of 5.3 percent in the March quarter, piling pressure on the government and the central bank to revive the country's fortunes.
The BSE Sensex erased gains after the measures were announced, and were down 0.65 percent on the day. Analysts said India needed to improve its economic fundamentals, including addressing its current account deficit, to bolster the rupee. "The market was expecting a slew of measures. The measures announced now won't have any direct material bearing on the rupee. Unless the RBI comes in with more measures, the rupee will fall back to the 57-58 to a dollar levels," said M. Natarajan, head of treasury at Bank of Nova Scotia in Mumbai. The rupee's decline comes as emerging market currencies have weakened against the dollar as investors, worried about the global economic slowdown and the euro zone crisis, flee to the perceived safety of dollars. Morgan Stanley estimates India's current account deficit will widen to $72 billion by the end of June, from $49 bn a year earlier. That would put the current account deficit at between 4% and 4.5% of India's GDP. "A sustainable solution would need a reduction of the current account deficit to around 2-2.25% of GDP with tighter fiscal policy, acceptance of slower consumption growth, and implementation of reforms that improve the business climate to encourage FDI inflows," the bank said in a Sunday note. India needs to shore up its credibility among investors, both in sticking to its projected fiscal deficit of 5.1% for the fiscal ending March 2013 and to narrow its current account deficit, analysts said. — Reuters
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Moody’s retains stable outlook on India rating despite growth slowdown
Mumbai, June 25 These credit challenges have characterized Indian economy for decades, Moody’s Investors Service said in a statement. The certain recent negative trends — such as lower growth, slowing investment and poor business sentiment — are unlikely to become permanent or even medium-term features of the Indian economy. The agency said that global and domestic factors, including potential shocks in agriculture, could keep India's growth below trend for the next few quarters. But it felt recent negative trends were unlikely to become permanent or even medium-term features of the Indian economy. "Furthermore, the impact of lower growth and still-high inflation will deteriorate credit metrics in the near term, but not to the extent that they will become incompatible with India's current rating," Moody's said in a report. Referring to the impact of rupee depreciation on India’s global obligation, Moody’s said government's foreign currency debt comprises only 5.3 per cent of its total debt and is equivalent to 3.8 per cent of Gross Domestic Product. Hence, the rupee's decline does not raise the government's own debt service burden significantly. This is more so, since most of its foreign currency debt is owed to multilateral and bilateral creditors with low annual repayment requirements.— Agencies |
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Economists dismiss intervention as short-term step
Chandigarh, June 25 And rightfully so. After closing at Rs 57.12 against the dollar on Friday, the rupee opened at Rs 56.72 to a dollar, amidst hopes of major policy initiatives that would win back the confidence of foreign institutional investors. It reached a low of Rs 56.37, before it closed at Rs 57.05 against the dollar, amidst disappointment at the frugal intervention. N.R. Bhanumurthy, economist at the National Institute of Public Finance & Policy, said Monday’s government intervention was just another short term measure to control the devaluation of rupee, which does not support the forex market. “The need of the hour is to have long term policy decision that will win over the confidence of foreign investors. The government needs to have a clarity on its long term policy, which will not only win the confidence of foreign investors, but also that of the Indian conglomerates, who, of late, have been more keen on investments outside the country,” he said. Agreeing with him, Lakhwinder Singh, coordinator at the Centre for Development Economics & Innovation Studies, said short- term measures like enhancing the limit of foreign investment, will not rescue the rupee from its free fall. “We have been running a current account deficit for 20 years. Over the years, the government should have built capacity to create current account surplus and should have stopped financing current account deficit from capital expenditure for such a long period. The immediate steps the government needs to take is to change the economy’s structure — by promoting manufacturing and increasing export of manufactured goods; go in for rapid industrialization; do away with the expansionary monetary policy; and rework on the fiscal policy by doing away with concessions and subsidy to foreign investors and thus bring down the fiscal deficit,” he said. Naveen Mathur, associate director, commodities and currencies, Angel Broking, too, said the government will have to undertake hardcore policy decision that lead to fiscal consolidation and consolidation of current account deficit. “The government has to get out of the policy paralysis and bring in reforms wherever desired, including opening of the economy,” he said. |
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3G price war rages on; will data tariff cuts draw in subscribers?
New Delhi, June 25 The 3G war began about a month ago with Airtel slashing its 3G tariffs by 70 per cent. It slashed its volume based browsing on 3G network from 10 paise per 10kb to 3 paise per 10kb. The important part was that the offer was for consumers who had not yet subscribed to 3G services, which meant that the country’s largest telecom operator was looking to attract new subscribers for 3G services. And immediately the reverberating effect was on. Within a week Aditya Birla Group-owned Idea Cellular too slashed its 3G prices by 70 per cent and launched sachet packs, which allowed users to use 30 minutes of 3G data services for Rs 10. Then Bharti Aircel and Reliance Communications also jumped into the game with reduced tariffs and brought out more attractive plans. Aircel marketed its price reductions as “3G at 2G prices”. It launched unlimited plans starting at Rs 8 a day to attract subscribers. While Reliance Communications followed suit, Vodafone was the most aggressive and slashed its prices by 80 per cent offering 3G surfing at 2 paise per10 kb. Earlier, the usual 3G rate was 10 paise per 10kb for all operators. Market watchers point out that by reducing the 3G rates the telecom service providers are trying to increase penetration of 3G services among cellular users. They do not rule out another round of a price war, further reductions and more attractive packs from the companies to lure customers. Experts say this slashing of 3G rates was important for the telcos as after having invested heavily in securing the 3G airwaves they were unable to get the due returns on their investments as a result of high call rates. 3G cellular services allow high speed video downloads, besides high speed data downloads and video calling besides hosts of other things. According to telecom industry figures the total number of 3G consumers in the country is just 20 million, which is just two per cent of GSM subscriber base of over 900 million. Analysts said it did not make sense for the 3G subscriber base to be at two per cent of the telecom population and as such initiatives to increase 3G subscribers base would be the key to the telecom growth in the country, which has a unique telecom market and one of the fastest growing. They added the telcos are now looking to get the returns on their investments by way of increasing volumes, which is why the rate cut. In a similar 2G price cut war, the telcos had managed to garner a large number of cellular subscribers, in a way also empowering the poor. Similarly, the users, who though had 3G enabled handsets but were shying away from trying 3G services due to prohibitive costs, would now be able to experience services without the fear of a bill shock. What is more attractive for the subscribers is that these 3G rates brought out by the telcos are with no additional charges for roaming, which is the first of its kind in the Indian market. While experts don’t rule out that all the telcos would be able to increase their 3G subscribe base following this rate cut, but fear that this could prove to be dangerous in the long run as the telecom operators may end up losing money by offering 3G services at these rates. |
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Sesa Goa, Sterlite merger gets shareholders nod
Mumbai, June 25 In February, Vedanta said it was simplifying its business structure by merging its Indian subsidiaries into a single unit to cut costs. The shareholders approved merging Sesa Goa, Sterlite Industries, The Madras Aluminium Co, Sterlite Energy and Vedanta Aluminium with requisite majority on June 21, the companies said in separate statements. — Reuters |
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"Well, not the 'shock and awe' the market was looking for but we shall see what else gets announced. Not surprised to see USD/INR higher," said Jonathan Cavenagh, senior forex strategist at Westpac in Singapore. "Until they address longer-term structural issues around capital flows and competition in the domestic retail sector which can help bring down inflation pressures, I think markets will be left disappointed," he said.
At 2:39 pm in Mumbai , the rupee was at 56.96/97 to the dollar, weakening from 56.55 levels before the announcement and its intraday high of 56.37. On Friday the rupee closed at 57.12/13, down about 7.4% since the start of the year, making it the worst performing currency in Asia.
Having invested heavily in the 3G auction held in 2010, all the major telecom companies including Bharti Airtel, Vodafone, Idea, Aircel and Reliance Communications (RCom) have slashed 3G data prices heavily.