News with Tags "cent"

The Securities and Exchange Board of India (Sebi) has cracked down on 105 companies, which failed to comply with the regulator's directive to attain a minimum public shareholding of 25 per cent by the deadline of June 3. An interim order has restrained the non-compliant promoters from raising funds from the market, frozen their voting rights, restricted their receipt of dividends and bonus shares, and barred them from share transactions except for the purpose of compliance with minimum public shareholding. The order reserves the right to take further action such as imposing fines, criminal prosecution and so on. This signals the market regulator's determination to enforce such norms announced three years ago. Promoters were given ample time to dilute their stakes to the upper limit of 75 per cent. The government has to reduce its stakes in listed public sector undertakings (PSUs) to 90 per cent by August. The regulator relaxed rules to allow dilution through a wide variety of methods, including issuing bonus or rights or through institutional placement programmes and direct offers for sale. PSUs have easier options since government-owned institutions like LIC can step in. But most companies have managed, one way or another, to reduce promoter holdings to 75 per cent by the deadline. Many opted for institutional placements or offers for sale, while others issued bonus and rights shares. Some have tried unusual methods. Wipro, for example, shifted excess promoters' holdings to a charitable foundation. Some have tried the strategy of reclassifying shareholders previously listed in the "promoter" category to the "public" category. Others, like Gillette India, have sought legal options.

In total, an estimated Rs 63,400 crore worth of stake dilution has occurred since the deadline announcement. Many promoters, such as Novartis and Jet Airways, sold stakes at discounts as the June 3 deadline loomed. It is estimated that 75 companies diluted Rs 11,000 crore worth of shares just before the deadline. A dozen or so listed PSUs still have to dilute by about Rs 14,400 crore before August. The list of 105 offenders contains many familiar names such as Adani Ports, BGR Energy Systems, Essar Ports, Videocon, Bombay Rayon, Omaxe, and Tata Teleservices (Maharashtra). However, others in the list are basket cases. As many as 33 firms have been suspended from stock exchanges for various reasons. Of the 72 actively traded companies, many are loss-making, 14 have negative net worth, and 12 more are trading at discounts to face value. There is no realistic way for these businesses to meet the new minimum public shareholding norms.

The theory behind these norms is impeccable. A larger public shareholding should, in theory, correlate to better corporate governance and better treatment of minority shareholders. More liquidity leads to better price discovery and reduces chances of price manipulation. More dispersed ownership should translate into wider retail participation in equity markets. But it remains to be seen how much of this works out in practice. Institutional shareholdings remain high, while retail holdings have barely increased. In PSUs, the government stakes effectively remain unchanged since excess holdings have been sold to government-controlled institutions. The minimum public shareholding norms may also cause some complications in future mergers and takeovers. Global practice suggests corporate governance improves only when large financial institutions demand their rights as shareholders, enforcing them via legal action if necessary. This sort of shareholder activism is rare in India. Institutions avoid asking promoters awkward questions, let alone confronting them or going to court. Until such time as financial institutions in India embrace a culture of shareholder activism, Sebi's good intentions might not translate into better governance on the ground.

Although Indian equity markets have had a volatile ride so far this year, in the near-term they look to be oversold, given the fact that most of the bad news is in the price. Also, at 13-14 times FY14 estimated earnings, Sensex valuations look attractive from medium-term perspective, as India's economic growth is likely to improve gradually.

Inflation is falling due to subdued business climate. Further, the index of industrial production is showing some signs of recovery for the past two to three months. Still, a sustained revival will take some more time due to slack in the capex cycle. One of the big positives for India is that the fiscal deficit has been brought down in FY13 which stood at 4.80 per cent vs. budgeted deficit of 5.20 per cent. The finance ministry is confident about meeting the FY14 fiscal deficit target of 4.80 per cent.

As far as the investment cycle is concerned, the government spending will likely pick up gradually, especially with the general elections less than a year away, while corporate investments might also witness an uptick, as the government takes more steps to boost investment sentiment. Monsoon is expected to be good this year after a below-par performance last year. Monsoon rains have been 35 per cent above average in the week to June 12.

Interest rates have clearly peaked out (the RBI has cut repo rate by 75 bps in CY13) and are headed south going forward (50-75 bps further cut estimated in FY14). Lending rates will start tapering once the liquidity situation improves.

On the external front, government steps and the Reserve Bank of India (RBI) measures to tame gold imports seem to be working. Therefore, the high current account deficit (CAD) is expected to soften to 4.5 per cent of gross domestic product in FY14. Acceptable level for India is about 3.-3.5 per cent. Foreign Institutional Investor (FIIs) inflows did slow down in March ($1.6 billion) and April ($1 billion) but picked up in May ($4 billion) again. June has not been good in terms of FII inflows, but the selling has not been vicious. Trend in the rupee could be crucial for driving FII flows going forward.

Globally, the recovery in the US economy is not yet convincing and there might be some hiccups due to uncertainty over the Federal Reserve's quantitative easing, but overall monetary stimulus is unlikely to be withdrawn in a hurry. The Euro zone remains in the grip of a recession while Japan is struggling to get out of the deflation trap and China's double digit growth is unlikely to be anytime soon.

Coming to the currency market, the rupee had been hovering in 53-55 range for the last few months before almost touching 59 on June 11, in line with weakness in emerging market currencies viz-a-viz the US dollar which was due to mounting fears that US Fed could start tapering its asset purchase sooner than anticipated. Fedral Open Market Committee's policy meeting on June 18-19 could address this issue. The rupee might remain under pressure in case FII selling in the debt market fails to abate.

As far as the health of India's companies is concerned, overall the numbers were weak but ahead of our expectations. What is more encouraging is that the beat was primarily due to a positive surprise of 1.10 per cent on revenue side and 30 bps on earnings before interest, tax,depreciation and amortisation (Ebitda) margins. In fact, Ebitda margins climbed 39 bps year-on-year owing to lower raw material costs.

In terms of earnings downgrades, though FY13 numbers were in line with estimates, FY14 consensus numbers were downgraded three per cent to Rs 1,372 (Edelweiss: Rs 1,343). The current earnings per share (EPS) forecast of 11-12 per cent EPS growth for FY14 looks achievable.

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As the southwest monsoon makes stupendous progress across large parts of the country, reaching most areas a week to 10 days ahead of schedule, the sowing of paddy, the most important foodgrain grown during the kharif season, has started on a brisk note.

According to the latest data by the department of agriculture, paddy had been sown in 0.79 million hectares till

June 13, just 1.25 per cent less than last year. According to experts, the pace of sowing will pick up as the monsoon advances over the remaining parts of the country. Till June 14, almost two-thirds of the country had been covered by the monsoon and the rest is expected to be covered by the end of June. July is the most important month for sowing of kharif crops and according to the latest prediction of the India Metereological Department, rains in July are expected to be normal.

“Though these are very early days and the major thrust in sowing will come around July, the initial signs are very encouraging,” a senior official from the department of agriculture said.

The Secretary of the Consortium of Indian Farmers Associations (Cifa), P Chengal Reddy said there was every possibility India might harvest 100 million tonnes of rice in 2013-14, if the monsoon remained on course. India produced 93 million tonnes of rice in the previous year.

“The use of hybrid seeds has increased manifold across Uttar Pradesh, Bihar, West Bengal and Jharkhand, which will lead to higher productivity. Plus, the rains have been really good so far,” Reddy said.

He said the big problem will arise in marketing and procurement of this bumper harvest and the government should immediately start taking measures so farmers are not distressed when the actual crop starts hitting the market. Among the major paddy producing states, sowing is more in Uttar Pradesh, West Bengal and Karnataka, compared to the same period last year.

 Paddy is sown in about 39 million hectares during the entire kharif season.

In its latest weekly update for the monsoon, the met department said overall rain was 28 percent above normal till June 13. Almost all regions, barring Haryana and Chandigarh, received above the normal rain during the same period.

Going forward, the met office said rain over the eastern and southern parts of the country, which produce 80 per cent of the country’s total annual paddy, are expected to be normal in 2013. Eastern India is expected to get rains equivalent to 98 per cent of Long Period Average, the well within the normal range.

Data from the department of agriculture show oilseeds were sown in 157,000 hectares till June 13, marginally more than last year’s corresponding period. Cotton has been planted in 1.58 million hectares, 0.6 per cent more than last year’s.

The only laggard has been sugarcane planted in 4.20 million hectares till Thursday, 10.06 per cent less than during the corresponding period last year.

“The drop in sugarcane estimate is mainly due to large-scale drought in parts of Maharashtra, Gujarat and Karnataka this year,” another official said.

Officials said sugar production in 2013-14 is estimated to fall 10 per cent to 22 million tonnes because of lower sowing.

In total, crops have been sown in eight million hectares till June 13 out of 75 million hectares of land on which kharif crops are sown.

The southwest monsoon, the lifeline of millions of farmers, today covered the entire country almost a month ahead of schedule, the India Meteorological Department (IMD) said.

It also reached the National Capital Region of Delhi almost a fortnight before its usual arrival date.

The rains entered the Indian mainland on June 1, through the Kerala coast and then made a strong surge inland. In most places, it reached at least a week to 10 days ahead of its scheduled arrival date, likely to give a strong boost to the sowing of kharif crops.

In the first two weeks, rainfall across the country was almost 30 per cent above normal, IMD said. “In just 15 days, the southwest monsoon has covered the entire country, which is remarkable,” a senior IMD official said.

The met office, in its updated forecast for the 2013 southwest monsoon season released last week, had said total cumulative rainfall across India this year is expected to be normal at 98 per cent of the Long Period Average (LPA).

Rains in July are expected to be normal at 101 per cent of the LPA, while in August, they are expected to be 96 per cent of LPA. Both predictions have a model error of +/- nine per cent. LPA is the average rainfall in the country in the last 50 years.

IMD classifies rainfall between 90 and 96 per cent of the LPA as below-normal; rainfall between 96 and 104 per cent of the LPA is classified as normal. Rains below 90 per cent of the LPA are considered deficient, while rains above 104 per cent are above-normal.

IMD said during the four-month southwest monsoon this year, rainfall in northwest India was expected at 94 per cent of the LPA. Punjab, Haryana, Delhi and Uttar Pradesh form part of this region.

In the south comprising Andhra Pradesh, Karnataka, Tamil Nadu, and Kerala, rainfall is expected at 103 per cent of the LPA. In the drought-hit central and western parts of the country, rainfall was expected at 98 per cent of LPA, IMD said.

According to IMD’s classification, this region accounts for Gujarat, Madhya Pradesh, Maharashtra, Chhattisgarh and Odisha. For the northeastern states of West Bengal, Bihar, Jharkhand, Assam, Tripura, etc, IMD said rainfall is expected at 98 per cent of the LPA.

All these predictions had a model error of +/- eight per cent, IMD said.

After touching a 52-week high of Rs 3,010 on Mar 7, 2013, Infosys slipped nearly 27 per cent to around Rs 2,200 levels by April-end. Investors dumped the stock after its fourth quarter numbers revealed a meagre 3.4 per cent year-on-year growth in net profit at Rs 2,394 crore and a revenue forecast of 6-10 per cent for FY14, lower than Nasscom's industry growth projection of 12-14 per cent.

However, a lot has changed since then. While the rupee's slide against the dollar brought some cheer to information technology (IT) firms at the bourses, Infosys in particular was back in the reckoning after its co-founder, N R Narayana Murthy, returned to the company as executive chairman at a time when the morale of the firm's management was at an all-time low.

While Infosys struggled to cope up with these challenges, most of its peers - both in the large- and the mid-cap universe - managed to ride out the storm. US-listed Cognizant, for instance, overtook Infosys, once considered an IT bell-weather in terms of revenues.

Since April 26 when the stock hit a low of around Rs 2,200, it has been an outperformer - moving up nearly 8.5 per cent till date, compared to 1.07 per cent fall in the CNX Nifty and 6.9 per cent rise in the S&P BSE IT index.

In a latest move, the company has announced an 8 per cent wage hike for its employees in India. “Employees located in other geographies who were not given wage hike in February this year, will also get covered in this cycle. They would be given an increase of about three per cent in average. The increments will be effective July 1. However, for its global sales force, the changes will come into effect from May 1,” Infosys said in a statement.

Impact
At the beginning of the financial year, however, Infosys had highlighted it will be looking to change the wage structures to get a balance between fixed compensation and variable compensation. The changes were expected to be cost-neutral for the firm, with headwinds to margins coming from those given in the middle of last year.

Analysts at Motilal Oswal Securities expect the wage hike decision to impact earnings before interest, taxes, depreciation and amortisation (Ebitda) margin by 150 basis points (bps).

“At our revised assumption of Rs 56 per dollar in FY14, the impact is almost fully offset by wage hikes. Our earlier EBIT (earnings before interest and taxes) margin for FY14 was 24.1 per cent, which remains unchanged following this announcement, on the back of revision in our currency assumption to Rs 56 per dollar for both FY14 and FY15, versus earlier assumption of Rs 54,” they point out in a report.

“We see most of the IT companies benefiting, as the rupee realisations improve significantly due to transaction gains. However, HCL Technologies and Infosys should benefit more than TCS and Wipro, as they would likely book the margin gains due to rupee depreciation,” says a recent Deutsche Bank strategy update report.

Sandip Agarwal, Omkar Hadkar and Deepansu Jain of Edelweiss suggest that the recent move to bring back Murthy along with other organisational changes and the wage hike announcement are steps in the right direction. “While we are not changing our estimates owing to this single event, we like to note that the wage hike being effective a quarter earlier (Q2FY14 versus Q3FY14), our current FY14E Ebitda margin (28.3 per cent) declines by around 40 bps. Maintain ‘BUY/Sector Outperformer’ recommendation/rating with a target price of Rs 2,928,” they mention in a report.

“We have an OW (overweight) rating on Infosys with a March 2014 price target of Rs 2,700. Our price target is based on a one-year forward P/E (price-earnings ratio) multiple of 15x, at a modest discount to TCS’ target multiple of 17x,” point out Viju K George and Amit Sharma of JP Morgan in their June 9, 2013 report.