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VIKAS PARSHURAM SAMWATSARE

India, China key to growth in 2013 as global economy stares at fiscal cliff

India and China will be key for the global economy to grow by even a modest three per cent in 2013, after bouts of debt turmoils across continents pushed it to fiscal precipice and an anaemic growth rate in 2012 left policymakers and politicians at crossroads.

Coined by the influential US Federal Reserve chief Ben Bernanke, 'fiscal cliff' -- better described as a combination of spending cuts and tax hikes -- seems to be the lingo for problem-ridden world economy in the New Year.

If emerging markets such as India and China grappled with spiralling inflation and risks of asset bubbles, the US and Europe remained almost stagnant despite record low interest rates in 2012.

Adding to the economic gloom, the 17-nation euro zone, a grouping of nations that share the common currency euro, continued to be bogged down by debt crisis which also took roots in Italy and Spain while suffocating Greece.

Though slow revival is happening in some emerging economies and developed nations, as the International Monetary Fund (IMF) recently said, "the outlook for growth remains weak with appreciable downside risks".

Going by IMF projections, the world economy is likely to expand 3.3 per cent this year, way lower than 3.8 per cent growth seen in 2012. The other projections call for a growth rate of 2-3 per cent for the global economy in the new year.

To start from Europe, the epicentre of debt crisis, the economic situation is jittery and the euro zone has again slipped into recession -- generally referred to as two straight quarters of negative growth.

Hundreds of billions of dollars worth bailout money has been absorbed by ailing Greece but the debt turmoil has only spread to other European nations, even pulling down some governments.

While excessive risk taking ways triggered the 2008 financial collapse in the US, now it is austerity as well as lack of strong united actions among European nations that is roiling the world economy.

For instance, the euro area economy shrunk by 0.1 per cent in the 2012 September quarter, following a contraction of 0.2 per cent in the previous three months.

Moving away from the sick Europe, emerging markets such as India and China too are reeling under slowdown pangs. However, compared to many of the ailing developed economies, these nations are the remaining bright spots in the dark economic firmament.

However, expectations are high for China to return to eight per cent and India to over six per cent growth in 2013, which in turn would help global economy to achieve a modest growth.

As a corollary, jobless rate are as high as nearly 12 per cent in some European countries while it is in high single digit in the US.

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Deal Street eyes busier new year after Rs 2-tn M&As in 2012

  A slowing economic growth notwithstanding, the M&A deals announced by Indian companies have crossed Rs two trillion mark in 2012 and a stronger deal momentum is expected in New Year on the back of various reform measures including easing of foreign investment caps.

Compared to previous few years, 2012 could still be described as a relatively quiet year, but India Inc is on the prowl again on the international markets and the New Year is likely to witness a significant deal-making upsurge in 2013.

According to tax and advisory major Grant Thornton, India Inc announced 582 M&A deals amounting to $41.5 billion till December 15, 2012, down from 644 deals worth $44.6 billion in 2011.

The year 2012 began on a bullish note, but deal activities fell significantly in the second and part of the third quarter. However, various reform measures announced by the government in mid-September and easing in liquidity conditions helped boost the deal values as well as volumes.

The outlook for the M&A market looks bright and 2013 is likely to witness a stronger momentum of deals, experts say.

A rebound in India-bound M&As is more likely, as Indian businesses are in a stabilising mode and global buyers continue to chase leaders in each segment, they believe.

"As the overseas investor starts being comfortable about India, inbound M&A would come back and together with domestic economy being better, we could look for a better 2013.

"Moreover as soon as growth momentum comes back, (6 per cent plus)...it will attract foreign investors," PwC India Executive Director Sanjeev Krishan said.

"India Inc is on the prowl again on the international markets and we believe that 2013 will see stronger outbound deal activity and continued activity in all other segments," Grant Thornton Partner, India Leadership Team Harish H V said.

"In 2013, Indian Inc, lead by conglomerates like Tatas, Mahindras, Hindujas, Aditya Birla will continue to seek overseas acquisitions while domestic demand will be propelled by India's customer-driven economy, especially in sectors such as energy, consumer, TMT and FIG," a deal-tracking firm mergermarket's Asia Pacific Deputy Editor Anjali Piramal said.

The recent government reforms in FDI in retail, aviation and broadcasting as well as the positive policies around review of Tax amendments (deferral of GAAR etc) is clearly paving the way to restore investor confidence and bring back deal momentum.

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Punters building bearish bets on NTPC, CIL ahead of secondary sale

 Punters, who bet on a stock's direction by taking positions on the futures market, where rather than taking or giving delivery they settle only the difference in prices - one at which a trade is unwound minus that at which it is initiated - are busy building bearish bets in government companies expected to come out with an offer- for-sale (OFS).

After bets of a discount in the floor price of NMDCBSE 0.66 % and Reliance PowerBSE 0.49 % played out, punters have now set their sights on NTPCBSE 0.75 % and Coal India. They will gain if the floor prices of these issues are set at discounts to their market prices at the time of the OFS as share price will fall in line with their bets. However, they stand to lose if the floor price is set above the price at which they shorted the shares.

Though the Cabinet approved NTPC's offer-for-sale last month, it has made no announcement of a CIL OFS so far. But, tracking recent price moves, stock analysts felt that a likely secondary sale in CIL was a possibility, given the government's resolve to meet its divestment target of Rs 30,000 crore in the current fiscal through March.

From November 30, a day after the expiry of the November series of contracts, till December 21, the price of the NTPC December contract fell by almost 6%. Over the same period, traders' positions across all three months - December to February - or aggregate open interest (OI) climbed by 69.7%. In the F&O segment, three contract months run concurrently with each contract expiring on the last Thursday of every month. In the case of Coal India, the price of the December contract fell by 4.5%, while aggregate OI rose 94.42% over the same period.

Falling contract price with rising OI indicate bearish bets are being built as traders anticipate the floor price of the NTPC or CIL offer-for-sale would be at a discount to their market prices at the time of the issues. "We have seen quite a good build-up of short positions in both NTPC and Coal IndiaBSE 0.43 % over the past month," said Yogesh Radke, head, quantitative research, Edelweiss Securities.

"For instance, after the announcement of NTPC's OFS by the government last month, speculators have been building bearish bets in anticipation of the floor price being at a discount to market price at the time of the issue. From November 20, after the announcement, to December 21, the price of the active month contract has declined 9%, while OI has risen by 7.4 million shares, or 79.7%, on an aggregate basis over the same period."

Market experts like Radke, AK Prabhakar, senior VP, Anand Rathi Securities, and G Chokkalingam, CIO, Centrum Wealth Management, have not ruled out a secondary sale in CIL as the government has three months through March in which to meet its divestment target. So far this fiscal (April- March), it has raised Rs 6,700 crore from secondary sales in NMDC and Hindustan Copper.

Apart from NMDC and Hindustan Copper, the government has slated OFS in NTPC, OIL, SAIL, NALCO and BHEL in the current fiscal. While an increase in bearish bets has not been observed in divestment candidates like BHEL or SAIL, Krutik Shah, derivatives analyst, Destimoney Securities, feels the recent rally in SAIL, as in other steel stocks, while induced by a Chinese reduction of iron ore prices, has also happened because some punters hope the floor price of the OFS could be fixed closer to the book value around Rs 97.

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VIKAS PARSHURAM SAMWATSARE

DEC 2012