SOFIA TIMES

"The stock market

is filled with indi-

viduals who know

the price of every-

thing, but the value

of nothing." -

Phillip Fisher

In This Issue

Market Update

Banking and Financial Ser-

vices

Economy and Policy

International Outlook

Global Giants

MARKET UPDATE Realty shares in focus on hopes of good Q2 sales

High debt?Rising inflation and interest rates? The movement of

the reality stocks on BSE is talking otherwise .Stocks of major

reality players like Sobha Developers, Peninsula Land, Presitge

Estates, Housing Development and Infrastructure Limited

(HDIL), Anant Raj Industries, Indiabulls Real Estate, Godrej

Properties, D B Realty, Unitech and DLF are up 2-9% on the

Bombay Stock Exchange (BSE). This is in anticipation of good

Q2 number.Earlier this week shobha developers had recorded

good set of sales numbers for the month of September. At the

end of first half of FY 2014, the company looks poised to achieve

the target, having registered new sales area of 1.92 msf valued

at Rs 1,235 crore.

Weekly News Letter 7th October 2013

Earnings downgrades likely

The markets have witnessed extreme volatility in the past two months and particularly over the past few

weeks, with the Nifty moving by 700-1,000 points over 20-25 days .The markets have become extreme-

ly narrow and interest appears limited to a few stocks only.

Reasons:

Confusion in the minds of investors regarding the state of the Indian economy and global develop-

ments.

The US Federal Reserve’s indecisiveness on the tapering issue

In India, the government appears to be taking some steps on the ground to enable stuck projects to

take off, but with the political uncertainty due to elections, the market perhaps needs more evidence

on the ground to be certain that the economy is going to improve going forward.

High inflation and a looming fiscal deficit problem can still act as a brake on higher growth rates, but

the current account deficit problem is gradually being brought under control.

With the corporate reporting season around the corner, investors' focus would shift to the performance

of various companies and sectors during October and early November. However, weak performance in

he first quarter is likely to continue during the July - September period, as high interest rates, rupee de-

preciation and generally weak demand would continue to put pressure on the revenue, margins and the

profit of the corporate sector. Besides technology, pharmacy and few select fast-moving consumer

goods companies and a few private banks, performance at large is likely to be even worse than the first

quarter. While the third and fourth quarters could be somewhat better due to a good monsoon and likely

spending due to Elections, overall earnings growth during FY2014 is unlikely to exceed 6-7%. This im-

plies a risk of earnings downgrades over the next few months. This, together with reasonably expensive

valuations would keep the markets under pressure. Thus, the markets are expected to remain volatile

over the next couple of months, with a downward bias, but on balance the Nifty is likely to continue to

trade largely in the 5,400 - 6,100 range.

Sebi asks Goyal to sell 6% more in Jet

To ensure better corporate governance and board based share-

holding, Securities and Exchange Board of India (SEBI) wants

Naresh Goyal to sell his another 6% stake in Jet Airways. The

company is planning to make its proposed 24% preferential al-

lotment to the Etihad Airways (Abu Dhabi). SEBI wants Goyal to

sell his stake before this deal.

If the promoters of the company sell 6% of their stake, their total

holding will fall down to 69% and after the preferential it will fur-

ther reduce to 51%. The promoters had earlier sold their stake

to meet the 25% mandate of public shareholding. Though the

Abu Dhabi-based airline will be treated a public shareholder,

Sebi does not want the combined shareholding of Jet and Etihad

to go beyond 75 per cent.

Capital ratio dips, profit falls, bad loans rise in FY13

As per the RBI the capital adequacy ratio of banks in India declined, at an aggregate level, at the end of

March 2013 compared to a year earlier. This, along with lower profitability in terms of return on assets,

higher non-performing assets and an increase in the cost of funds, reflected the stress on domestic

banks.

Industry analysts expressed concerns over the dip in capital adequacy ratio as Indian banks would re-

quire an estimated Rs 500,000 crore to meet the Basel-III capital norms (http://en.wikipedia.org/wiki/

Basel_III).

The capital adequacy ratio of all scheduled commercial banks in India narrowed to 13.88 per cent at the

end of 2012-13 from 14.24 per cent a year earlier. While the capital adequacy ratio of private banks im-

proved to 16.84 per cent, it fell sharply, for public sector banks. State Bank of India (SBI), the country’s

largest lender, saw its capital adequacy ratio shrink to 12.92 per cent at the end of March 2013 from

13.86 per cent a year earlier. Analysts feel there is further risk of capital erosion for government-owned

banks if non-performing assets continue to expand.

All banks — public, private and foreign — witnessed an increase in their non-performing assets. Top state-run lenders, including SBI, Bank of Baroda and Punjab National Bank, saw their net NPA ratios increase by 28-97 bps.

Bonds turn bearish

Government bonds turned bearish on sell-

ing pressure from banks and companies.

The 7.16% government security maturing

in 2023 eased to Rs 89.68 from Rs 90.01

previously, while its yield rose to 8.77%

from 8.71%.

The 8.28% government security maturing

in 2027 declined to Rs 93.25 from 93.6650,

while its yield climbed 9.14% per cent from

9.09%. The 8.20% government security

maturing in 2025 moved down to Rs 92.35

from Rs 92.45, while its yield inched up to

8.27% from 8.26%.

Note: Bear is an investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.

BANKING AND FINANCIAL SERVICES

SBI Report Card: Where is SBI lagging?

As per RBI report, the India’s largest public sector bank SBI ranks below the nation average when it comes

to business and profits per employee. As per the latest data on Indian banking sector, the business per em-

ployee of SBI in 2012-13 was Rs 9.43 crore, while the all banks’ aggregate was Rs 12.13 crore. Every em-

ployee on an average contributed Rs 6.5 lakh to the bank’s profit in the last fiscal, according to ‘A Profile of

Banks: 2012-13’, released by RBI.

On this parameter also, the bank was lagging behind the all banks’ aggregate which was Rs 8.3 lakh. SBI’s

employees strength was 2.28 lakh at the end of March 2013. Net NPA of the bank stood at 2.10 per cent of

the total advances as compared to all banks’ aggregate of 1.68 per cent in 2012-13. However, on the pa-

rameter of net interest margin (NIM), SBI’s interest spread was better at 3.06 per cent as against the all

banks’ aggregate of 2.79 per cent.

The net profit of SBI was 20 per cent up at Rs 14,105 crore in the last fiscal. With growth picking up in com-

ing Quarters , it needs to be seen whether SBI turns the tide or not.

RBI working overtime to meet Raghuram Rajan’s licence deadline

RBI is working overtime to shortlist the names of candidates from among 26 applicants. After the screen-

ing, the shortlisted candidates will be vetted by an external committee, to be headed by former RBI gover-

nor, Bimal Jalan. Apart from the officials of the department of banking operations and development, offic-

ers from areas like corporate finance, accountancy, law etc. have been selected to be involved in the

screening process. The entire process of screening the applications is being overseen by Anand Sinha,

RBI’s deputy governor in charge of banking operations and development portfolio. Raghuram Rajan, (RBI

Governor) had said that the names would be finalized before or soon after Sinha retires in January 2014.

It is for the first time that companies are being considered for entry into the banking sector, but it is not

clear if the corporate houses would be given the licenses. Ranjan was not in favor of the companies enter-

ing the banking sector, but was more in favor of non-banking finance companies and microfinance institu-

tions.

Planning Commission likely to cut average GDP growth in 12th Plan to 6%

The Planning Commission is likely to cut the annual average

growth rate target of 8% to around 6 to 6.5 % in its midterm

review of the 12th Plan (2012-17).

Due to the economic slowdown it will be difficult to achieve

the 8% average growth and hence the decision to cut down

the rate to 6%.

The Planning Commission comes out with a mid-term review

during the 3rd

financial year of every policy period. It its pre-

vious mid-term review, it had cut the annual average growth

rate target of 9% to 8.25 for the 11th Plan (2007-2012). But

only 8% growth was achieved.

Current account deficit widens, but provides glimpse of hope

The current account deficit (CAD) for the quarter ended June

widened to $21.8 billion, which was marginally better than

street expectations, but experts said the figure could narrow

substantially in the subsequent quarters on the back of gold

import curbs. The curbs would provide relief to the domestic

currency which has depreciated 15.4 per cent against the US

dollar in the current financial year.

According to data released by the Reserve Bank of India (RBI), the current account deficit rose to $21.8 billion or 4.9 per cent of GDP for April-June 2013 due to a rise in imports (especially of gold) and shrinking exports. The CAD for April-June 2012-13 was $16.9 billion, 4 per cent of GDP.

Prices cut for petrol, raised for diesel

Oil marketing companies have decided

to go for a cut in petrol pricesby Rs 3.05

a litre with effect from 1st Oct 2013. As

part of the monthly decontrol

dose, diesel prices would be raised by

50 paise a litre.

The decrease in petrol prices is a feasi-

ble move as there has been a reduction

of minimum support prices from $117 a

barrel to $113 a barrel and appreciation

of the rupee against the dollar from Rs

66 a dollar to Rs 63.

As part of its diesel decontrol measure,

the government had given the nod to

phase wise increase diesel prices with a

monthly dose of 50 paisa. But even after

the current increase, under recovery on

retail diesel shall stand at Rs 10.52 a

litre.

In addition to the under recoveries on diesel, those on the sale of kerosene now stand at Rs 38.32 a litre and do-mestic LPG at Rs 532.50 a cylinder. For the year 2013-14, IOC is expected to incur an under recovery of Rs 73,500 crore on the sale of these three sensitive products, while industry figures are ex-pected to be Rs 1,39,600 crore.

ECONOMY AND POLICY

Greenlight’s Ein-

horn Says a U.S.

Default Is Unimagi-

nable

David Einhorn, president of

hedge-fund firm Greenlight

Capital Inc., said it’s unim-

aginable for the U.S. to

miss a deadline to raise its

debt limit and default. The

U.S. government started a

partial shutdown yesterday

and must raise the debt

limit this month to ensure

that it has enough money

to pay all its bills. President

Barack Obama summoned

the top four leaders of

Congress to the White

House today for the first

high-level talks on reopen-

ing the U.S. government

and raising the debt ceil-

ing, according to a White

House official.

Shutdown Seen

Merging With Debt

-Limit Fight Amid

Impasse

The partisan battles over

the U.S. government

shutdown and a potential

debt default are begin-

ning to merge into a sin-

gle fiscal fight, raising the

stakes for Republicans

and Democrats to end

the impasse. Lawmakers

from both parties are link-

ing the two issues more

closely, a connection the

White House is reinforc-

ing, according to an ad-

ministration official who

asked for anonymity to

discuss strategy.

INTERNATIONAL OUTLOOK

The Eurozone’s Calm Before the Storm

A little over a year ago , the Euro zone was in mess. Fears about Greece exit and concerns re-

garding the survival of Portugal and Spain loomed large. While there has been a lot of recovery

since then with Eurozone recession over ,the fundamental problem persist. The potential growth in

the worst hit countries is still a concern also with the ageing population and low productivity

growth. The levels of public and private debt are still too high. What euro zone needs is a struc-

tured financial and banking reforms to help it be better prepared before the next storm comes. The

storm is coming. Eurozone better be prepared.

For more do read http://www.project-syndicate.org/commentary/the-eurozone-s-unaddressed-

problems-by-nouriel-roubini

New York To Sue Wells Fargo Over

Mortgage Settlement

Fielding complaints from borrowers struggling to save

their homes, New York’s top prosecutor is preparing a

lawsuit against Wells Fargo, accusing the bank, the

nation’s largest home lender, of flouting the terms of a

multibillion-dollar settlement aimed at stanching fore-

closure abuses. The lawsuit, which is expected to be

filed as early as Wednesday, accuses Wells Fargo of

violating the guidelines of a broad agreement reached

last year between five of the nation’s largest banks

and 49 state attorneys general.

For more information, please visit http://www.cnbc.com/id/101079291

GLOBAL GIANTS

Samsung eyes second straight year of

record profit

The slowdown in the smart phone business hasn’t

deterred Samsung of hopes of generating a record

profit this year . This is owing to the rebound in its

semiconductor business which is expected to shield

Samsung from the slowdown in the smartphone

business . The world’s biggest memory chipmaker

is likely to see its semiconductor earnings charge to

a three-year high - a much-needed shot in the arm

— just as sales of its flagship Galaxy S4

smartphone begin to flag

http://www.business-standard.com/article/

international/samsung-eyes-second-straight-year-of

Globe Trotter: End of An Era- The Volkswagen Campervan

Come next year Volkswagen will no longer produce its iconic campervan vehicle reports Brand Republic. It's

a model that has been on the road for 63 years. Changes in regulation to the way that the vehicles are built in

Brazil - the only place left that produces the hardy roadrunners - will mean that all vehicles made from 2014

will need to have air bags and anti-lock braking systems. The campervans will leave behind a long legacy of

design and advertising. Some fans have been archiving these ads for some time, as seen on Camper Blog.

For more information, please visit http://economictimes.indiatimes.com/features/brand-equity/globe-trotter-end-of-an-era-the-volkswagen-campervan/articleshow/23361046.cms

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