Month: September 2008

Suzlon Energy will hold a board meeting on Sep 27, 2008 to consider a rights issue of equity shares to the extent of Rs18bn.

The target ceiling amount of Rs18 bn from the proposed rights issue corresponds to the 270 mn pounds consideration payable to Martifer by Dec 15, 2008 for acquiring its ~22.5% stake in REpower. Suzlon’s management had then indicated that the company had secured an in-principle tie-up for euro-denominated funding for the transaction. Accordingly, we view the decision to raise funds via any form of equity offering as a negative surprise.

Further, Suzlon Green Power (100% owned by the Tanti family), has committed to set up 3,500MW requiring investments of US$5bn in green assets over five years, in India and China. One has to view these developments cautiously as it might not be very easy for Suzlon Green Power/Honiton Energy to raise funding for investments in wind farms under the backdrop of the global credit crisis.

For the week ending 13 Sep ’08, headline (wholesale price index, WPI) inflation was 12.14%. The alarming part is the change to provisional inflation data for 19 Jul ’08 which has been raised 56bps to 12.54%. This revision is unexpectedly high and almost across-the-board.

The fall in the manufactured price index for two successive weeks is encouraging as such prices are generally more downwardly rigid than primary prices. If this trend continues, inflation could soften much faster than our current projection.

Vegetables, pulses, oil seeds and oil cake prices declined on a w-o-w basis. At the broader level, manufactured prices fell, primary prices rose and fuel remained unchanged.

Check out our Detailed Post on What Commodities and Materials make up the Indian Inflation Index.

Two big shocks for the Indian Economy were – High Commodity prices and Inflation thereof combined with Global credit crisis. The former had the most negative consequences on the health of Indian economy while the latter will have a minor impact on it.

The interest rates have peaked, and in the current global environment, the central bank will remain in liquidity injection mode. Second, lower oil prices takes away a significant risk. Third, the monsoons, another critical concern for agriculture and overall growth, have been near normal and spread widely. the financial sector remains essentially sound, mortgages are a fraction of total credit, and exposure to inflated real estate is small.

However we are still into the downturn of the business cycle, with growth slowing and earnings downgrades yet to come, valuations are still not too cheap. Concerns remain on the fiscal deficit and political risks, corporate spreads have increased significantly, and the deterioration in the global environment with continued risk aversion suggests that the forecast is still far from sunny.