CAD may widen to 1.6% of GDP in 2017: Nomura

India’s current account deficit is expected to widen to 1.6 per cent of GDP in 2017 as domestic recovery is likely to further boost import growth, says a Nomura report. According to the global financial services major, despite the widening, the current account deficit remains within sustainable limits. “We expect India’s current account deficit to widen to 1.6 per cent of GDP in 2017 from a deficit of 0.5 per cent in 2016, as we expect the domestic recovery to further boost import growth, while rising protectionism could hurt invisibles inflows,” Nomura said in a research note.

The current account deficit (CAD) increased to USD 7.9 billion, or 1.4 per cent of GDP, in the October-December quarter of 2016 due to a fall in services exports. However, the current account deficit remains within sustainable levels, Nomura said, as net FDI inflows at around 2 per cent of GDP fully fund the deficit, leading to a stable basic balance of payments.

 

The CAD — the difference between the value of imports of goods, services and investment incomes, and that of exports — stood at USD 3.4 billion in the July-September quarter. On capital account, the report said with FCNR (B) redemptions now completed, the capital account surplus is likely to double in 2017, boosted by higher growth and ongoing economic reforms.

Some of the main risk to the external sector are sharp rise in oil prices and rising US protectionism, as the latter could further slow software exports and remittances, hurting the current account balance at the margin, it added.

India to attract significant capital from abroad: CBRE

India will attract significant capital from Singapore, China, the UK and the US, CBRE’s CEO, Asia Pacific, Steve Swerdlow said, adding that with greater transparency in the market, this is the beginning of their new journey in India. “Traditionally, Japan and Australia were important markets for CBRE, but India and China will overtake them in the next few years,” Swerdlow said.

For CBRE, Asia Pacific is the fastest-growing region and within this market, India is playing an important role, Swerdlow said.

CBRE Group is the world’s largest commercial real estate services and investment firm.

Anshuman Magazine, CBRE chairman, India & South East Asia, said traditionally investors from Japan and Singapore went to China, but now even China is looking closely at India, and this year a few investors from China are going to come to India in the real estate and infrastructure areas.

The flow of international capital coming to emerging markets has slowed down and India is competing with China, Indonesia and the Philippines. Flow of money to India will increase as they want to put in money where there is growth and India can provide that long-term growth for foreign funds, Magazine said. CBRE last year raised Rs 4,000 crore for developers and this was not just from FDI, but also from domestic institutions which had money with them but were not investing in the real estate segment in India. But now domestic money was coming into the Indian real estate market, he said.

Magazine said they are seeing an early sign of recovery across the country, especially with the push for affordable housing in the Budget. “There will be a big revival in the affordable side where demand is the highest. In the past there was some resistance among developers to look at the affordable segment, but in the remaining part of the year there will be a revival,” he said.

All the developers are looking to add the affordable housing segment in their portfolio and investor appetite for the affordable segment is growing, he added.

Swerdlow, who was in Pune recently to open a property fair, said Pune was among the rare cities in the Asia Pacific region where the property market was responding to demand rather than pushing supply into the market.

Government seeks closer engagement with Latin American nations

In a clear shift in its policy towards Latin American (LatAm) nations, the government now proposes more frequent political and economic engagement with smaller countries of the region to widen its influence and expand investment opportunities.

A large delegation comprising senior government officials and business leaders will be heading to El Salvador later this month to participate in an investor summit that will bring together businesses from across the globe. The summit is slated to be held in San Salvador from March 28-30.

The government plans to use this event not only to seek new investment opportunity for Indian companies, but also for building ground for a more lasting and stronger political relationship with the central American country. A similar engagement is also proposed later with Guatemala, Nicaragua, Honduras, Panama, Costa Rica, Belize and Bolivia.

 

Talking to FE, minister of state for external affairs VK Singh said, “We need to look at the LatAm region more deeply. Groupings such as the Community of Latin American and Caribbean States (CELAC) and Central American Integration System (SICA) are very important. And we must utilise our goodwill so that our influence increases in the region.”

“Each country has got certain strengths and it is up to us to tap them. Indian businesses should go to these countries and invest. Let’s look at the future,” the minister said in reply to a question about the coming investor summit in El Salvador.

“The initiative is organised by the Export and Investment Promotion Agency, PROESA, with the support of the Inter-American Development Bank and the ministry of foreign affairs, among other important collaborators,” Jose Felix Ulloa Alvarenga, chargé d’affaires, embassy of El Salvador to India, told FE.

“The summit will launch a country brand presentation and hold a conference with various high-level panel discussions to underscore the competitive advantages to choose El Salvador as a sound investment destination,” the envoy said.

India’s engagement has so far largely concentrated on the big countries of the region including Brazil, Colombia, Chile, Argentina and Peru. Investment flow has also been concentrated in larger economies. But it is now felt that bringing smaller countries to the fold would also be important, as it would help India gain their support on issues of interest in various international fora.

Also, some of these countries have rich natural resources that could become an area of cooperation for mutual gain.

The investor summit will target presidents, directors and CEOs of national and international companies for fostering trade and diversification with the aim to promote exchange of products and services with added value.

Among the target audience in the Asia Pacific region, India becomes of particular relevance and interest as it has emerged as the fastest-growing large economy in the world. The central American nation is seeking investments from India in manufacturing and services, specifically in the areas of textiles and apparel, offshore business services, energy, tourism, aeronautics, and light manufacturing.

Indian companies such as Aditya Birla Group, UPL, Glenmark Pharmaceuticals and Hero MotoCorp already have a presence in the region.

ONGC fields to be pushed into more production enhancement contracts

Following the sustained and steady fall in production from both onshore and offshore fields of oil major ONGC since 2006-07, the Directorate General of Hydrocarbons (DGH) plans to push the company into more production enhancement contracts (PEC).

“If for any field, it cannot increase yield, it should relinquish the acreage (without waiting for too long),” said a government official requesting not to be named. The official added that a large number of fields will be put under PEC and it is being decided which ones should taken up in the first round.

The DGH had been asked by the ministry of petroleum and natural gas to regularly monitor the national oil companies.

Data show ONGC’s production from major onshore fields have fallen from 4.84 million tonnes (MT) in 2006-07 to 2.79 MT by 2015-16, and that for major offshore from 15.43 MT to 11.77 MT during the same period. Interestingly, the production figures have shown a continuous fall.

However, according to the government official, the fields are not declining resource-wise but extraction has been poor.

 

Production from major fields of Oil India, which only operates onshore fields, has also been falling — from 1.139 MT in 2006-07 to 0.553 MT by 2015-16, although some years witnessed minor correction.

There are various dimensions to PEC. Some could be as simple as bettering some surface facilities such as separators, pipelines and tanks as often these get choked, corroded or starts leaking. Usually improving these surface facilities result in 3-5% improvement in production.

Indian Express on March 7 reported that the petroleum ministry has ordered a detailed review of the board of ONGC and functional heads as project delays are a norm and output has not increased. The DGH and the exploration arm of the ministry will be looking at some of the projects and submit a review.

The government is of the view that ONGC’s productivity is low and, according to the official, the number of wells it drills per annum is not adequate.

Falling production of the national oil companies does not augur well for the country which is striving to achieve energy security and plans to reduce its imports drastically by 2030. To this end, the NDA government has also announced that some of the oil companies will be merged to create integrated companies which will provide end-to-end services and have the financial muscles to compete with international firms such as Shell and BP.

“The DGH is figuring out how production enhancement can happen and there would be a few strategies. It (DGH) has the time series data to work with,” the official added.

Disinvestment: Narendra Modi government eyes Rs 18,000 cr from PSU buybacks

After raising a major chunk of disinvestment revenue from buybacks of shares by PSUs in 2016-17, the Centre may tap the route equally aggressively in the next fiscal as well, with a plan to raise at least R18,000 crore or 25% of overall disinvestment revenue estimate of R72,500 crore for the year. According to sources, the government has lined up a clutch of PSUs that will opt for buying back their own shares in 2017-18.

On May 27, 2016, the Centre had issued a capital restructuring order mandating every central PSU with a net worth above R2,000 crore and cash and bank balance of over R1,000 crore to exercise the option to buy back a portion of their shares with effect from 2016-17. The move, aimed at nudging the PSUs to utilise their idle cash to reward shareholders, has turned out to be a money spinner for the shareholders, particularly the government.

After the government mandated cash-rich PSUs to undertake buybacks like their private sector peers, the Centre is in the process garnering a record R19,500 crore or 43% of R45,500 crore disinvestment revenue estimate in 2016-17 from buybacks of seven PSUs including Coal India, Nalco, NMDC and NHPC.

 

Apart from the PSUs mentioned in the chart, separately, four Coal India subsidiaries have announced buyback of shares worth R5,060 crore, nearly 80% of which (R4,000 crore) will accrue to the Centre as dividend early next year, the sources added.

The government owns about 80% in the coal miner. On Monday, Coal India announced an interim dividend of R18.75 per share for 2016-17, down from R27.40 a year earlier, and the payout will cost the company R11,640 crore, according to Bloomberg.

While PSUs with significant capex plans can seek a waiver from buybacks, over a dozen PSUs qualify as per the criteria for buybacks. These also include ONGC, Power Grid, REC, SJVN and Indian Renewable Energy Development Agency, but these companies might not exercise the option in 2017-18.

The companies are usually asked to buy back shares to the extent they can by the amount equivalent to 25% of the aggregate of their fully paid-up share capital and free reserves. At end-March 2015, central PSUs had surplus cash of about R2.55 lakh crore.

The government is of the view that buybacks improve financial parameters of the firms and, thereby, investor interest in them, as the firms would cancel the shares bought from shareholders, enabling them to tap the market for funds when needed.

The government has set 2017-18 divestment target at R72,500 crore, a 60% jump from the estimate of R45,500 crore in 2016-17. Apart from buybacks of PSUs, sale of the government’s SUUTI stakes and further pruning of Centre’s stakes in certain big PSUs like NMDC and Nalco, IPOs of PSUs and a proposed new PSU ETF are expected to boost the disinvestment revenue next year.

Gold inches up as dollar eases, Fed rate hike prospects weigh

Image result for Gold inches up as dollar eases, Fed rate hike prospects weigh(Reuters) – Gold rose on Tuesday as the dollar eased from nine-month highs but an increasing probability of a U.S. interest rate hike kept a lid on prices.

The metal is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets while boosting the dollar.

Spot gold was up 0.4 percent at $1,269.05 an ounce at 0915 GMT. It has traded in a narrow $6.60 per ounce range for the past five sessions.

The dollar index, which measures the greenback against a basket of currencies, slipped 0.1 percent to 98.68, after hitting a nine-month high on Monday.

U.S. gold futures were up 0.4 percent at $1,267 an ounce.

“What has been interesting in gold recently has been the rise in the dollar but we seem to have found a new level for the dollar and so you see gold stabilising,” Danske Bank senior analyst Jens Pedersen said.

“We need to monitor economic data ahead of the Fed’s decision because it’s an ongoing battle between the hawks and the doves right now and also how to interpret the data.”

Chicago Fed President, Charles Evans, said on Monday the U.S. central bank will raise its policy rate three more times by the end of next year, if inflation expectations and the labour market continue to improve.

A Markit survey of U.S. manufacturing climbed to a one-year top of 53.2, while business activity in Europe expanded at the fastest pace this year so far in October.

In technicals, support for gold appears to be between $1,250 and $1,260, which restricts downside moves, MKS Pamp said in a note.

“With the market pricing in a 70 percent chance of a U.S. rate rise this December it is difficult to see the yellow metal pulling too far away from these levels over the short term,” the precious metals trader added.

Silver was up 0.9 percent at $17.71 an ounce. It touched a more than two-week high of $17.88 in the previous session.

Platinum was up about 1.5 percent at $950.75 an ounce, while palladium was up 1.2 percent at $638.50.

Nordea chairman says merger with ABN Amro would create “fine bank”

Members of the media surround Bjorn Wahlroos as he arrives at a meeting in Helsinki, Finland April 7, 2016. REUTERS/Vesa Moilanen/Lehtikuva/FilesHELSINKI (Reuters) – A merger between Sweden’s Nordea and Dutch state-owned lender ABN Amro would make “a pretty fine bank,” and early talks may continue after a March 2017 election in the Netherlands, Nordea chairman Bjorn Wahlroos said on Saturday.

In an interview with Finnish public broadcaster YLE, Wahlroos confirmed he had recently discussed a possible merger with representatives from the Dutch finance ministry and the Netherlands Financial Investments (NLFI), the state agency that holds a majority of ABN shares.

“It was a very preliminary contact … at the moment it looks like (talks) will not go forward until the Dutch parliamentary election,” Wahlroos said, referring to a March 2017 general election.

“I believe it is quite clear that due to the elections, there is not much enthusiasm right now for a larger project in the government level,” he added.

Following local media reports on Nordea’s approach earlier this month, ABN and the Dutch government said they were not looking for a buyer.

Wahlroos, who is also chairman at financial holding company Sampo and paper maker UPM-Kymmene, said Nordea was keen to expand its operations after investing more than one billion euros in information technology infrastructure.

He added that ABN would “fit together well” with Nordea, the Nordic region’s largest bank.

“The Netherlands is a very Scandinavian-type of country in many ways, open, liberal, market-oriented… (the combined bank) would be a pretty fine bank.”

Wahlroos said he had also suggested to the Dutch that the combined company’s headquarters could move from Sweden to the Netherlands.

U.S. crude hits 15-month highs after big drawdown

The U.S. Energy Information Administration (EIA) said crude stocks fell 5.2 million barrels in the week ended Oct. 14. Analysts polled by Reuters had expected the EIA to report a crude build of 2.7 million barrels. [EIA/S]

U.S. West Texas Intermediate (WTI) crude’s front-month contract rose $1.39, or 2.7 percent, to $51.68 a barrel by 11:26 a.m. EDT (1526 GMT). It hit $51.93 earlier, its highest since July 2015. WTI’s more active second-month hit 5-month highs.

Brent, the international benchmark for crude, was up $1.21, or 2.3 percent, to $52.89 per barrel. It earlier hit$53.14.

It is common for crude stocks to build at this time of year as refineries go into maintenance, turning out less gasoline and other fuel products. Refinery runs have fallen since the start of September, reaching 88 percent of capacity last week.

The EIA data also cited lower crude imports as a factor for the inventory drop. U.S. crude imports slid by 912,000 barrels per day last week to 6.47 million bpd, the lowest since November 2015.

“The report was bullish due to the large drop in crude oil inventories,” said John Kilduff, partner at New York energy hedge fund Again Capital.

Still, a surprisingly large build of 2.5 million barrels in gasoline stocks that contrasted with analysts’ expectations for a 1.3 million-barrel drop meant a less rosy outlook for oil for some.

“So, while the headline number was bullish, we wouldn’t call it extremely bullish given the large gasoline build,” said Tariq Zahir, a trader in timespreads of WTI at Tyche Capital Advisors in New York.

Also supporting oil was evidence of declining production in China and optimism that the Organization of the Petroleum Exporting Countries will secure an output cut at its meeting next month.

Oil prices have risen more than 15 percent over the past three weeks after OPEC announced plans to remove some 700,000 barrels per day of production from a global crude glut of 1.0 million-1.5 million bpd estimated by analysts.

Russian Energy Minister Alexander Novak said on Wednesday he was planning to meet his Saudi Arabia counterpart this weekend to discuss coordination of actions to support the market. OPEC itself meets Nov. 30 to finalize the output cuts.

(Additional reporting by Amanda Cooper in LONDON and Henning Gloystein in SINGAPORE; Editing by Meredith Mazzilli and David Gregorio)

India’s Essar agrees to sell oil arm to Rosneft-led group

By Douglas Busvine and Denis Pinchuk

GOA, India (Reuters) – India’s debt-laden Essar Group confirmed on Saturday that it has agreed to sell a 98 percent interest in its Essar Oil unit to a consortium led by Russia’s Rosneft, giving the energy giant a gateway into the world’s fastest growing fuel market.

The deal will see Rosneft, along with its partners Trafigura and United Capital Partners (UCP), pay $10.9 billion for Essar’s refining and retail assets. Separately, $2 billion will be paid toward the acquisition of the Vadinar port in the western state of Gujarat, along with certain import and export facilities.

Sources familiar with the matter had told Reuters on Friday that a deal was imminent.

It will give Rosneft a 49 percent stake in Essar Oil, with 49 percent being split equally between Trafigura and UCP. The deal was carefully structured to avoid falling foul of western sanctions against Russia over its role in the Ukraine crisis.

“Rosneft will not get a controlling stake, partly because of these reasons (sanctions)”, Andrey Kostin, head of Russian lender VTB which advised Essar on the deal, told Reuters.

The deal helps Russia to deepen economic ties with India that stretch back to the Soviet era. The purchase is the biggest foreign acquisition ever in India and Russia’s largest outbound deal, according to Thomson Reuters data.

It was finalised after Indian Prime Minister Narendra Modi and Russian President Vladimir Putin met at a summit in the western state of Goa on Saturday.

The all-cash deal will give Rosneft and its partners control of Essar’s 20 million tonne refinery in Gujarat, and its retail fuel outlets in India, where growth for refined petroleum goods in the next five years is expected to be in the 5 percent to 7 percent range.

“Rosneft is entering one of the most promising and fast-growing world markets,” said its Chief Executive Igor Sechin in a statement, adding that the deal gives it “unique opportunities for synergies” with its existing assets.

Separately, Rosneft said it would use Venezuelan crude to supply the Vadinar refinery.

The closing of the transaction is conditional on receiving requisite regulatory approvals that are expected before the end of the first quarter of 2017.

The deal also reduces some of the pressure on Essar, which is controlled by the billionaire Ruia brothers. The group has a presence in oil and gas, steel, ports and power, and has been under pressure from its lenders to reduce its debt burden.

In parallel with the deal, Russian lender VTB said on Saturday it would lend Essar about $3.9 billion toward debt reconstruction.

Chanda Kochhar, chief executive of ICICI Bank Ltd – one of Essar’s top lenders – welcomed the deal, noting that it has been working closely with Essar to deleverage its stressed balance sheet.

Sorry, Donald Trump, but the Fed isn’t talking politics

Janet Yellen

For all the charges about how politicized the Federal Reserve has supposedly become, the November election apparently was not a discussion topic during the central bank’s September meeting.

Fed watchers have been speculating that it doesn’t want to hike rates ahead of the presidential election. Republican nominee Donald Trumphas alleged that the Fed is holding off because it doesn’t want to disrupt the economy and ruin Hillary Clinton’s chances of getting elected.

Trump told CNBC in September that Fed Chair Janet Yellen should be “ashamed” by her actions as head of the U.S. central bank, without providing evidence of his allegations.

But a summary of the September FOMC gathering produced no references to the race. Of course, the meeting minutes document does not constitute a transcript, but an otherwise detailed document did not even make passing reference to the campaign.

Questioned at the post-meeting news conference about whether the Fed was holding off because of the election, Yellen asserted that no political discussions have taken place. Moreover, she said that when the transcript is released in five years, it will not reflect any talk of the election.

The Eccles Building, location of the Board of Governors of the Federal Reserve System and of the Federal Open Market Committee

Fed minutes: Hawks fear recession in rate hike delay  12 Hours Ago | 04:01

“I can emphatically say that partisan politics plays no role in our decisions,” Yellen told reporters.

Even a benign interpretation has been that the Fed won’t hike in November because it doesn’t want to disrupt the election in either direction. The Federal Open Market Committee meeting concludes Nov. 2, with the election just six days later. Traders give just an 11.4 percent chance of a move at the meeting.

The only reference to anything political at the September meeting was talk of the June Brexit, in which Britons voted to leave the European Union. Despite dire predictions, the vote “apparently exerted less drag on economic activity than previously anticipated by many analysts,” the minutes noted.