Profit squeeze hammering emerging equities..........

Reuters | Updated On: March 08, 2013 17:54 (IST)
London: Record high stocks? Currency surges? In the United States maybe, but across emerging markets, slowing economies and collapsing exports are hammering company profits far harder than in the seemingly hobbled West. 
While world stocks have risen more than 5 percent already this year, led by Wall Street's surge to record highs, bourses from Chinato Brazil are flat to negative in dollar terms, unnerving those who fear a third year of stop-start performance. To add insult to injury, most emerging market currencies are in the red against the US dollar. Given that major central banks are in full money-printing mode, the weakness is worrying, not least to the swathes of investors who have flocked in, lured by the promise of double-digit returns, robust growth and consumer demand.
Worrying maybe, but not surprising, says Martial Godet, head of emerging equity strategy at BNP Paribas. Godet's calculations show a steep decline in return-on-equity (ROE) in emerging markets to around 12 percent, a fall of 3 percentage points in the last 18 months and well below pre-crisis levels of 16-17 percent. That lags developed markets' 13.5 percent. But US firms - "the ultimate quality and growth markets" in Godet's words - have usurped EMs' ROE supremacy with a 15 percent average. ROE shows how well a company is using shareholders' equity investment to generate profits."The deterioration has been both fast and large," he said. "If you look at any of the criteria associated with profitability, you see that between 2011-2012 emerging markets were unable to transform economic growth into earnings growth." Cash is still coming in - data from EPFR Global shows $33 billion in inflows to emerging equity funds in 2013, part of investors' so-called rotation out of bonds and into equities. Most of this was soaked up by this year's new equity issues, totalling $30 billion according to Thomson Reuters data. But the ROE slump is a bad omen and inflows have started to stutter. ING Investment Management for instance recently downgraded emerging markets holdings in its equity portfolio. Robert Davis a senior fund manager at ING IM, notes flat corporate earnings in emerging markets last year despite revenue growth of around 12 percent. 
Developed companies meanwhile have stayed profitable through years of economic doldrums, posting single-digit revenue growth in 2012 but managing a 2-3 percent rise in profits, he adds."Longer-term expectations of higher growth and demographics (in emerging markets) are valid, but what we have seen in the past couple of years is disappointment, because compared to developed markets, companies have been ... less able to protect their margins," Davis said.

BOTH ENDS

Of course, within emerging markets there are countries and sectors that will continue to do well. And despite negative earnings, MSCI's emerging stock index rose 15 percent in 2012. But profit margins are being eroded from both ends.First, emerging markets are bearing the brunt of economic slowdown, argue UBS analysts, noting that the EM growth "spread" over rich peers has fallen to a 10-year low of 3 percentage points. As exports shrink, that hits corporate topline revenues, countries' current account balances and currencies.And because global growth and emerging corporate profits have tended to move in lock-step, a 3 percent expansion rate for the world economy may be insufficient to generate a recovery in emerging earnings growth, UBS tell clients.

Separately, JPMorgan Asset Management, which has also gone neutral on emerging stocks, points out that past episodes of worsening external balances - 1997-1999, 2005 and 2008-2009 - have also coincided with emerging equity underperformance. "We will be watching two sets of data - trade and earnings delivery - to gauge whether to put on renewed active positions," JPMorgan AM's multi-asset strategy team told clients. Secondly, the crisis has hammered home emerging firms' inefficiencies, compared to their developed counterparts.
Input costs, including investment and wages, may even have been exacerbated as governments tightened control over economies in order to revive growth. That's especially so in the Big Four, BRIC countries, China, India, Russia and Brazil, where stocks are lagging S&P500 returns for the fourth year in a row. "After the crisis, US and other developed market companies really tried to improve efficiency by investing less, deleveraging balance sheets, accumulating cash and conducting optimisation of their operations," Godet said. "EM companies continued to invest as if the crisis of 2008 hadn't happened, as if growth was just as strong as before."

HIGH EXPECTATIONS

Prices are yet to reflect all the fears, moreover. Expectations for 2013 earnings growth stand currently at 13.5 percent, compared to 8 percent for the United States and Europe. JPMorgan AM says that its own composite valuation index based on forward price-to-earnings, price-to-book, price-to-cash flow and dividend yields, indicates a 17 percent valuation premium over developed companies. Emerging markets will need to show superior earnings performance to justify this premium, it adds. 
Deutsche Bank analysts are pessimistic about this prospect.
Those buying emerging stocks after 2008 joined the party too late, they say, predicting in a note that the sector is only 27 months into what may be a multi-year period of underperformance.

Copyright @ Thomson Reuters 2013
http://profit.ndtv.com/news/international-business/article-profit-squeeze-hammering-emerging-equities-319217?pfrom=home-otherstories

Irda slaps Rs 50-lakh penalty on SKS Microfinance

Microfinance institution levied a charge on members, that exceeds the premium and violates regulations

Insurance Regulatory and Development Authority (Irda) has slapped a penalty of Rs 50 lakh on SKS Microfinance for violating insurance norms. Irda said the microfinance institution (MFI) levied a charge on its members, which was more than the premium amount, in violation of insurance regulations.
Irda has asked SKS to remit the penalty within 15 days from the date of receipt of the order.
According to the group insurance guidelines, an MFI cannot collect from its members amounts that are higher than the policy premium charged by the insurance company. MFI has not collected any ‘premium’ amount from its members but it collected one per cent of the loan amount as DRF fee.
According to the Irda order, the MFI was acting as a group policyholder and administrator for group life insurance policies, taken to cover the loan amount granted to its members.
Irda noticed that the group policy holder was recovering one per cent of the loan amount towards DRF (death relief fund) fee.
A portion (around 55 per cent) of the DRF fee is utilised to fund the group term insurance premium for the members. In case a member opts to insure her spouse/child, an extra one per cent is charged for each additional member.
Irda said the group policy holder does not insure all its members in a single policy, but obtains a different policy for each month. As the group policy holder pays only a part of the DRF fee as insurance premium, the remaining amount is booked as revenue income. This, according to Irda, is in violation of the group insurance guidelines
“The documents establish that the premium is only about 0.55 per cent of the loan amount and not 1 per cent as charged for the death protection fee,” the Irda order said. Thus, the MFI has levied a charge more than the premium in violation of guidelines, Irda noted.

http://www.business-standard.com/article/finance/irda-slaps-rs-50-lakh-penalty-on-sks-microfinance-113022000850_1.html

Reliance Jio getting voice....

With Reliance Jio getting voice, telcos pitch for more 3G spectrum

THOMAS K. THOMAS

GSM players body suggests taking 15 MHz of air wave from Defence Ministry

NEW DELHI, FEB. 19:  

With Reliance Industries-owned Reliance Jio Infocomm all set to offer voice and data service across India, rival GSM players have run to the Government seeking more spectrum for third generation (3G) technology based mobile services. GSM operators, including Airtel, Idea Cellular and Vodafone, won 3G spectrum in the 2010 auction, but none has a pan-India footprint. Also, they got only 5 MHz each in the 2,100 MHz band, which is insufficient to provide high speed data services such as video streaming or live television.

So, while the GSM players have national coverage when it comes to voice, they do not have the bandwidth for pan-India data play. On the other hand, Reliance Jio has 20 MHz of broadband spectrum in the 2,300 MHz band which will allow it to offer high quality data service. And, now, with the Government allowing Internet firms to offer voice, Reliance Jio is square on the GSM players’ turf.In a letter to the Department of Telecom and the telecom regulator, the Cellular Operators Association of India said that “Insufficient 3G spectrum in the 2,100 MHz band will not only hurt the growth of mobile broadband services, but will result in fragmented spectrum allocations. This will prevent operators from establishing a pan-India 3G footprint, leading to suboptimal use of scarce and valuable spectrum.” The GSM operators’ lobby group said that the DoT can take 15 MHz of 3G spectrum from the Ministry of Defence as part of the agreement already signed. Under this deal, the Defence Ministry had agreed to vacate some spectrum bands in return for an exclusive optic fibre network for the armed forces. 

The COAI said that if this spectrum is not auctioned soon, then it will be the end of the road for 3G players as no other spectrum band has a better ecosystem in terms of cheaper phones and user devices.

Thomas.thomas@thehindu.co.in

http://www.thehindubusinessline.com/industry-and-economy/info-tech/with-reliance-jio-getting-voice-telcos-pitch-for-more-3g-spectrum/article4432505.ece

ArcelorMittal posts $3.73-b loss

ArcelorMittal posts $3.73-b loss in 2012

PTI

LUXEMBOURG/NEW DELHI, FEB 6: 

ArcelorMittal, world’s largest steelmaker, has gone into the red with a net loss of $3.73 billion in 2012 largely due to a $4.3 billion write down related to company’s European businesses.

It had posted net profit of $2.26 billion in 2011. Operating profit or EBITDA (earnings before interest, taxes, depreciation and amortisation) also fell by 30 per cent to $7.08 billion in 2012 vis-a-vis $10.11 billion in 2011, ArcelorMittal said in a statement. The company’s sales too were down 10.39 per cent to $84.21 billion in 2012. However, ArcelorMittal gave a positive outlook for 2013, saying it expects higher EBITDA and 2-3 per cent increase in steel shipments in 2013. It is also expecting “marginal” improvement in per-tonne steel margins in 2013 as it hopes to reap full benefits of asset optimisation plan that has already been completed during the second half of 2013. “2012 was a very difficult year for the steel industry, particularly in Europe where demand for steel fell a further 8.8 per cent... Although we expect the challenges to continue in 2013, largely due to the fragility of the European economy, we have recently seen some more positive indicators,” the company’s Chairman Lakshmi Mittal said.

He added that various measures taken last year to strengthen company’s businesses, including reducing capacities and net debt are “expected to support an improvement in the profitability of our steel business this year“. During the year, ArcelorMittal took a non-cash write down of $4.3 billion with respect to its European businesses. Besides, it also incurred $1.3 billion charges related to optimisation of its assets. “The $4.3 billion goodwill impairment is due to the weaker macroeconomic and market environment in Europe where apparent steel demand fell approximately 9 per cent in 2012, bringing the cumulative demand decline to approximately 29 per cent since 2007,” the company said.

It added that “weaker demand environment and expectations that it will persist over the near and medium term, led to a downward revision of cash flow expectations underlying the valuation of the European businesses to which goodwill had been allocated“. Quarter-on-quarter basis, ArcelorMittal’s net loss widened to $3.98 billion in October-December, 2012 vis-a-vis $1 billion of the same quarter of 2011. The sales were down 14 per cent to $19.31 billion, while EBITDA fell nearly 23 per cent to $1.32 billion in the fourth quarter. The company also forecast that European steel consumption would be 1 per cent lower this year than in 2012. However, it expects a growth of 3 per cent in the Chinese market and 5 per cent in Brazilian market in 2013.

Besides, ArcelorMittal is planning to increase iron ore shipments by 20 per cent. The expansion of its mines in Canada to 24 million tonnes per annum is on track and expected to be completed during the first half of 2013, it said. The company is also hopeful of reducing its net debt to $17 billion by June 30 due to a slew of measures. It is expecting to garner $5 billion from fund raising exercise completed in January, and 15 per cent stake sale in Canadian iron ore mine to Posco and China Steel Corporation. As on December 31, 2012, the company had a net debt of $21.8 billion. For 2013, the company has set a capex of $3.5 billion on various operations and expansion plans. However, it has proposed to reduce the dividend for 2013 by about 74 per cent to $0.20 per share against $0.75 per share of 2012.

http://www.thehindubusinessline.com/news/international/arcelormittal-posts-373b-loss-in-2012/article4385880.ece?homepage=true&ref=wl_home

sugar decontrol..on the cards...NOW....

6 FEB, 2013, 04.00AM IST, RITURAJ TIWARI,ET BUREAU 

Food ministry seeks cabinet approval for sugar decontrol

NEW DELHI: The food ministry has decided to seek Cabinet approval to lift controls on sugar, the first time such a proposal will be taken to the highest decision-making body of the government since the sector was brought under strict regulation 50 years ago.The politically sensitive move to deregulate sugar, one of the last bastions of state controls after two decades of economic liberalisation, follows bold moves last year, such as allowing more foreign direct investment in the retail sector and substantially increasing diesel prices along with the declaration that prices of the fuel will be raised gradually to international levels. Sugar decontrol was strongly recommended last year by a committee led by C Rangarajan, the influential head of the economic advisory council of the prime minister. The government has already accepted another report by Rangarajan, which proposes far-reaching changes in the oil sector. 

Four other committees since 1998 have suggested diluting the Sugar (Control) Order of 1963, but the proposal was never sent to the Cabinet because of fears of a political backlash. "We will soon send a proposal to the Cabinet, asking for removal of state curbs as recommended by the Rangarajan committee," a senior food ministry official told ET. The official said the government is keen to abolish the system of telling sugar mills how much of the sweetener they can release in the market. It also wants to stop the system of levy sugar, which forces millers to sell a part of their output at below-market prices. 
Sugar industry officials, who have been pitching for decontrol, welcomed the move. "Presently, mills are allocated sugar quota for four months depending on their production capacity. If the Cabinet approves the proposal, sugar mills will be free to sell sugar as per their commercial interests and demand in the market," said Abinash Varma, director-general of the Indian Sugar Mills Association, and a former bureaucrat in the food ministry. 
Currently, mills have to sell 10% of total production to the government at Rs 19.01 per kg, a fraction of the wholesale market price of Rs 34 per kg, for public distribution through ration shops. 

"The government will have to buy sugar at market price from mills. This will give liquidity of around Rs 2,500 crore to more than 500 sugar mills, including Shree Renuka SugarsBSE 0.35 %, Balrampur ChiniBSE -0.86 %and Bajaj Hindusthan," the food ministry official said. The withdrawal of levy obligation, however, would shift the subsidy burden, presently borne by industry, on the government for supplying cheaper sugar to poor families. The government supplies around 2.7 mt to poor families and defence forces at rates much below the market price bearing a subsidy burden of Rs 2,300-2,500 crore a year. Poor families get 500 gm to 1.3 kg of sugar per person per month from ration shops at Rs 13.50 a kg - a rate that has not been revised since 2001-02. "In this case, the government would buy sugar for public distribution through tenders. The company quoting lowest price will get the contract and the Centre will bear the price difference," the official said.
http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/food-ministry-seeks-cabinet-approval-for-sugar-decontrol/articleshow/18358170.cms

Apex court tells Centre - Spell out steps to protect small traders

PRESS TRUST OF INDIA
NEW DELHI, JAN 22: 

Is FDI in retail a “political gimmick”? This was what the Supreme Court today asked the Government, seeking its response on how it intends to safeguard the interests of small traders after opening up the retail sector to foreign direct investment (FDI). The apex court said the interests of small traders should not be affected by FDI in retail. It said small traders fear their businesses would be affected with the coming of multinational companies, and this needs to be allayed by the government through a regulatory mechanism.

Response in 3 weeks

A Bench headed by Justices R.M. Lodha and S.J. Mukhopadhaya asked the Centre to file its response on these aspects within three weeks and also asked whether some foreign investment had come into the country after the retail sector was opened up or if it was just a “political gimmick”. “What checks are there to ensure that free trade is not affected, particularly the interests of small traders,” the Bench asked, while hearing a public interest litigation (PIL) filed by an advocate questioning the Centre’s policy. “Apprehension is there in the minds of people that small traders’ interests would be affected. How do you intend to allay the fear? Some regulatory mechanism has to be there,” the Bench said. Favouring a regulatory framework to protect small traders, the Bench said the big companies can bring down the prices of commodities through unfair trade practices, forcing small traders to shut shop after which the companies could hike prices and monopolise the market. “Has the policy brought some investment into the country or is it just a political gimmick. Has the policy brought some fruits?” the Bench asked the government.

‘Approved by House’

Expressing reservation on scrutiny of the policy by the Court, Attorney-General G.E. Vahanvati said it is a policy matter that has been approved by Parliament and all these aspects were discussed by MPs. The Bench, however, said Government policies are not sacrosanct and the Court has a right to see that the policy is reasonable and within the Constitutional framework.

No policy is sacrosanct

“Any policy is not sacrosanct and it must be within constitutional parameters. We are not policy-makers and we cannot substitute government policy but we will see that it is reasonable and within the constitutional framework,” the Bench said. The court adjourned the matter for five weeks. The Confederation of All-India Traders welcomed the court’s observations on protecting the interests of small traders. “The issue raised by the court for the protection of small traders is a welcome step. We have always advocated that the Centre must put in place a mechanism or regulatory framework to protect the interests of small traders, who are very apprehensive about the FDI policy in retail,” the association’s General-Secretary Praveen Khandelwal said.

http://www.thehindubusinessline.com/news/apex-court-tells-centre-spell-out-steps-to-protect-small-traders/article4331859.ece?homepage=true

INDIAN Investor wealth soars in 2012

24 DEC, 2012, 03.38PM IST, PTI 

Investor wealth soars 27% to over Rs 67 lakh crore in 2012

MUMBAI: Investor wealth soared by 27 per cent to around Rs 67.7 lakh crore in 2012 with the stock indices gaining nearly 25 per cent on hefty capital inflows and of late a slew of reform measures even as concerns remain over economic growth and rising fiscal deficit. Indian bourses made a dramatic turnaround after a meltdown in 2011, leaving behind strong optimism about a bullish 2013 in hopes of RBI rate cut, hefty capital inflows, a recovery in global economy and excellent earnings growth in the third quarter of 2012-13.
The smart recovery helped investor wealth to soar by over Rs 14.5 lakh crore to Rs 67,78,609 crore on December 21, 2012 against Rs 53,12,875 crore at the end of last year. The Q3 earnings, which are most likely to beat the market pundits, indications of more reforms by the UPA government and hopes of increase in retail participation in quality IPO/FPO and OFS in the near future expected to augment the bullish fervor in 2013, an analyst said.
The BSE sensitive index Sensex posted impressive gains of 3,787 points, or 24.5 per cent, at 19,242 on December 21, 2012, against preceding year-end's close of 15,454.92 points. The Sensex had lost 5,054 points, or over 24 per cent, during 2011. The National Stock Exchange's Nifty also spurted by 1,223 points or 26.5 per cent to 5,847.70 on December 21, 2012 from previous year end's close of 4,624.30. Investors ignored dwindling industrial output, declining exports, ballooning fiscal deficit, overall gloomy economic atmosphere in domestic and international markets amid fear of European debt crisis to spiral over world wide.
Foreign institutional investors (FIIs) made the second largest investment in the Indian capital market in the year under review. As the Sebi data, FIIs pumped in Rs 1,21,652 crore or $23.15 billion this year till December 21. Previously, they had made biggest investments of Rs 1,33,266 crore or $29.36 billion in equities during 2010. Kishor P Ostwal, CMD of CNI Research Ltd said a few big investors made a large profit in the market as selectstocks scored new highs in view of paucity of floating stocks. However, retail investors were not benefitted either in the secondary market IPO market and were seen selling their holdings, as a result the public ownership in the India Inc came down to 6-7 per cent as against a high of 15 per cent 2007, he said. Though the Sensex could not surpass its all-time peak registered in 2008, the sectoral indices like BSE-FMCG, BSE-HC, BSE-CD and BSE-Auto logged their historical highs during the year on hectic buying by foreign funds. Analysts said at the beginning of 2012 investors feared of further slide in view of corruption scams. However, the market surprised everyone by rising almost 1,739 points or 11.25 per cent, largest monthly rise in absolute term in the month of January in any calender year, following hectic buying by Foreign funds. It was also the biggest monthly performance since September 2010 when it had gained by 2,098 points or 11.67 per cent. The rally in the month was driven by strong global cues on hopes of some stabilidation in the Europe and gradual improvement in the US economic data.On domestic front, the government's decision to allow Qualified Foreign Investors (QFI) to invest directly in local equities from January 15, 2012 and signs of more foreign funds inflow also underpinned sentiment. 

The Union Budget, which was delayed this year due to the Assembly polls in five states, presented by thenFinance Minister Pranab Mukherjee on March 16 failed to enthuse the investors and plans to revive theeconomy. The market then turned negative and remained dull for the next few months due to slowdown in GDP growth, worries over macroeconomic conditions due to higher global crude oil prices, as India imports two-third of its oil consumption, rising trade deficit, weakening currency and global uncertainty. Fears that reform process may take back seat after the ruling Congress party suffered a setback in some states in March and cut in China's growth target also weighed on the market sentiment. Revival of monsoon at the fag-end and Moody's retaining stable outlook on India supported the weak stock markets. Moreover, announcement of reform measures such as allowing FDI in multi-brand retail and downsizing the LPG subsidy by the government later pushed the Sensex higher since September.
The Sensex moved in a range of 19,612.18 and 15,358.02 before ending at 19,242.00 on December 21, 2012, displaying a rise or 3,787.08 points or 24.50 per cent. The wide-based S&P CNX Nifty of the NSE also flared up by 1,223.40 points or 26.46 per cent to settle at 5,847.70 on December 21, 2012. On the global front, barring China which ended in the red, rest of the other Asian markets ended firm. European as well as US stocks too exhibited strong trend this year.

http://economictimes.indiatimes.com/markets/stocks/market-news/investor-wealth-soars-27-to-over-rs-67-lakh-crore-in-2012/articleshow/17743024.cms?curpg=2