Sector & Commodity Update - December 8, 2012 - Eastern Financiers

- The government has convincingly won the approval of Parliament to its controversial decision of allowing FDI in multi-brand retail with a motion against it being defeated convincingly in both the Lok Sabha & Rajya Sabha.

- All the foreign investment proposals in the existing pharma companies will go to the Foreign Investment Promotion Board (FIPB) for approval till the time the Competition Commission of India Act is amended. This view emerged at the meeting called by Prime Minister Manmohan Singh to formalize the norms for pharma FDI policy. This means that the status quo has been maintained for the brownfield pharma projects. The meeting was called to take decisions on the two important issues in the pharma FDI policy -- the limit to which foreign companies will be allowed to acquire share in a domestic company and the role of Competition Commission of India (CCI) in the mergers and acquisitions pertaining to the sector. While the Finance Ministry wants that only those cases involving FDI beyond 49% in existing units should be considered by the FIPB, Commerce Ministry favors all foreign investments in existing pharma units to be approved by the FIPB.

- Higher crude oil price and a weaker rupee have led to an increase of over 10% in diesel losses for the three government-oil companies. Loss on domestic LPG also rose nearly 9%, while the loss on kerosene came down marginally. Diesel loss has again touched double-digits at Rs 10.03 per litre in the current fortnight against Rs 9.06 in the previous one. This loss is in spite of the Rs 5 hike in diesel in mid September. The loss on subsidized domestic cooking gas (up to six per consumer) has also increased from Rs 478.50 to Rs 520.50 a cylinder. However, loss on kerosene has come down from Rs 31.30 to Rs 30.93 a litre. The increase is a big negative for the oil companies, who have already incurred a total revenue loss (under recovery) of Rs 85,586 crore on the three products in the first half of the fiscal. Their daily loss on the three products has rose to Rs 420 crore from Rs 412 crore in last fortnight.

- To ensure that mobile operators meet quality of service benchmark for wireless data, telecom regulator the Telecom Regulatory Authority of India (TRAI) has asked them to put in place a test set-up comprising of servers and test probes covering their entire service area for different data services. The regulator said mobile operators are required to meet quality of service benchmarks in respect of parameters such as activation of data services, successful data transmission download or upload attempts from a test server, minimum download speed from a test server covering all tariff plans and data drop rate.

- Moody's has said that it continues to maintain its negative outlook on the Indian banking system as asset quality is likely to weaken further in the current uncertain macro-economic environment creating further stress on banks' profitability. The rating agency had last revised its outlook on the Indian banking system to negative from stable in November 2011. It considers the loan classification (particularly the restructured loans) and provisioning practices in India to be weak as they mask the extent of banks' asset quality and capital challenges. However, Moody's agreed that the strong business franchises of Indian banks that support their low-cost funding profiles helps the lenders maintain sizeable lending margins to sustain pre-provision earnings.

- As cotton prices have remained barely above the support price in open market at a time when new crop arrivals have started, Government has decided to liberalize export procedures. According to notification issued by the Director General of Foreign Trade (DGFT), maximum limit for obtaining Registration Certificate (RC) has been increased to 30,000 bales. At present an exporter can get certificate only for quantity upto 10,000 bales (1 bale=170kg). DGFT has also been allowed to issue Multiple RCs within this eligibility. To help more exporters to participate and make procedure to apply for RCs simple, DGFT has added three more centers for applying. Exporters can now apply for RCs with Registration Authorities at Ludhiana, Rajkot and Vishakhapatnam. Another change in the policy is to allow new comer exporter.

- Do "thorough home work" before approaching government for funds, a Parliamentary Panel has told the Shipping Ministry, miffed over under-utilization of grants. Noting that one-third of the Rs 30,303 crore outlay for the 11th Five Year Plan (2007-12) was allocated to the Ministry of Shipping for Port sector, it said, "It is equally surprising that the utilization stands at 59.62 per cent (Rs 7,684.61 crore out of Rs 10,388.87 crore) only.

- The government has decided to divest stake in 10 PSUs, including Oil India, SAIL and Hindustan Aeronautics. As per the plan, the government will sell 10% stake each Rashtriya Ispat Nigam Ltd (RINL), Hindustan Aeronautics Ltd (HAL), Oil India and NMDC. Besides, it plans to offload 12.15% in NALCO, 10.82% in SAIL, 9.50% in NTPC and 9.33% in MMTC. Also, a 5% stake sale in BHEL and another 4.01% in Hindustan Copper is in the pipeline.

Source : Equity Bulls

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