Category: Breaking Corporate India Earnings News

International Crude oil prices have corrected 26% from their July 3 highs on fears of slowing global growth leading to demand destruction.

Subsidies on petrol and diesel are down to Rs2.9/ltr and Rs8.1/ltr, respectively, down from a high of Rs14/ltr and Rs25/ltr. LPG and SKO losses are down 22-25% to Rs262/cylinder and Rs27/ltr. Overall subsidy losses are down 52% from peak level in May-08 to ~Rs91B

If crude stays at US$105-110/bbl for the rest of FY09, annual under-recoveries will come down to Rs1.55-1.60 trillion from over Rs2.0 trillion estimated in early-Jun08, when price hikes and duty cuts were announced. This exactly takes care of Rs400bn unaccounted gap between the Finmin’s bonds allocation vs. Petroleum Ministry’s wish

The rising curve of Inflation for now is moving sideways. For the week ending 23 Aug ’08, headline (wholesale price index, WPI) inflation was 12.34%, in line with market expectations.The decline in the inflation rate this week has been due to w-o-w softening of primary, in particular, vegetable prices. Egg, meat and cereal prices also declined. Within manufactured products, edible oil prices fell.

With inflation softening over the past two weeks and the change of guard at the RBI, expectations have been raised that a rate cut could come soon. However, we do not think so. In over view the RBI should maintain its policy stance until inflation corrects significantly and remains low for a while.

The appointment of Dr. Subbarao as the new RBI Governor has seen as a Political move by Foreign Financial Institutions effectively designed to put a halt to the progressive monetary tightening that Governor Reddy has implemented since he took the job in September 2003.

On 28 July, Dr. Subbarao spoke to Bloomberg and quoted that raising rates is the “obvious” answer to surging prices. So we can expect interest rate calls unchanged, envisaging 50bps of repo rate hikes and 50-75bps on the CRR by end CY2008. The rate reductions will only begin in 2H CY2009 when growth may have slipped below 7%.

A period of below trend growth, which the monetary tightening may well engineer, is likely to be deemed as an inevitable consequence of controlling inflation expectations and easing the many bottlenecks in the economy.

We have reliably learnt that HCL technologies is preparing a counter bid to Infosys’ bid for Axon. We had covered the implications of Axon takeover by Infosys on the 26th of August and had clarly stated at the end that a counter bid is not ruled out.

Our due dilligence indicates that HCL Technologies has $100 mn in cash and maybe upto $500 mn including short term investments. HCL has appointed Merill to help it counter bid and arrange for part financing the deal.

HCL Technologies is not present in the SAP domain and the acqusition will complement its existing vericals and strengthen is base in Europe. HCL already is one of the best local employers in the European union and may not face any hurdles while obtaing the clearance if it wins the bid.

Automobile dealer dispatches were mixed this month with strong dispatches in two wheelers (especially Hero Honda), and relatively weaker trends visible in the passenger car segment.

Impressive growth was driven by Hero Honda dealer dispatches (+27% Y/Y). Bajaj Auto’s domestic sales declined 7% Y/Y, whilst TVS’ domestic sales rose a modest 6% Y/Y. Hero Honda continues to build inventory levels ahead of the festive season. Sequentially, both motorcycle and 2 wheeler sales were up ~6% and 5% respectively.

The Indian Rupee has breached the 44 level and is weakening against the USD. The RBI is not really active in the market which is a blessing in disguise to the Exporters. Now, why is the RBI piling up USD ? Well, as an insurance cover 🙂

The March 08 international investment position tells that, US$297bn fx reserves not withstanding, India still owes US$100+bn. This is why, in Gov Reddy is so reluctant to use fx to appreciate against inflation – as some Delhi economists advise – or float a sovereign wealth fund – as another section proposes – to acquire strategic CIS gas fields. Recall he let the INR temporarily slip Rs46+/USD in mid-06 rather than run down fx reserves. This, of course, begs the question why we still expect the RBI to stem depreciation? Because this time’s different because of imported inflation.

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