Midcap stocks look good from long term view: Nirmal Bang

Despite the recent carnage, mid-cap stocks still look good from a long-term perspective, says Nirmal Bang research report.

Nirmal Bang (Beyond Market) report:

The sudden fall in share prices of mid-cap companies over the past few months has become a cause of worry for most investors, including retail as well as high-net worth individuals (HNIs).

Share prices of mid-cap companies have crashed over 30% to 70% over the last three months and many of them have completely eroded both the market capitalization and the faith of the investors.

More importantly the carnage in mid-caps took many by surprise as no one was able to explain the sudden correction in share prices. The gravity of the event in fact led to a probe by market regulator Securities and Exchange Board of India (SEBI) to check if correction in prices is due to some irregularity or involvement of operators in manipulating the prices.

Less to do with fundamentals

Most market participants believe that the carnage in the mid-cap space has less to do with the fundamentals of the companies.

Apart from this, there is certainly a growing worry that lower economic growth is likely to dent the financial performance of mid-cap companies.

That is because large corporates across different sectors are facing growth issues which will also cast its shadow on the growth of mid-cap companies, especially ancillary companies, which cater to various larger players.

Both investment and consumption has come down and there is less hope of a revival given the impending elections next year and other issues in terms of export demand as well as interest rates.

Besides, poor economic scenario means bad news for companies which are highly leveraged, hitting them in terms of profitability. However, even if one jots down all these points and looks at the cumulative impact, there is still not enough argument to explain such a fall in mid-cap companies, especially in cases where fundamentals of these companies still remains strong.

The Epicentre

The crash in mid-cap stocks punished mostly those investors who kept on averaging the cost of purchase at lower prices in the hope of recovery and valuations turning attractive. But most of these investors have lost heavily and those who went on a buying spree with the leveraged money are now swearing to invest in mid caps as many of them are now trading at historical lows and there is no buyer even at lower prices.

In the absence of retail and institutional buyers in the market, liquidity in mid caps has dried drastically. As many are still sitting on losses, the recovery in share prices is only looked at as an opportunity to exit, thus leading to more supply.

Mid caps came into limelight largely around December last year and January this year as a result of sudden optimism about the Indian equity markets led by policy push and heavy buying by foreign investors in the Indian equity markets.

Weakness in the system

This weakness in the mid-cap space was visible and quite apparent. And especially when volumes and participation in the market was low, mid caps were prone or susceptible to any adverse situation.

Initially in January and February the correction in mid caps started selectively where one or two companies were in the news for heavy selling, which later on spread to other counters when FIIs started withdrawing money from the Indian equity markets.

In the absence of real buyers, mid caps started to crack and operators took advantage of the situation. When the markets knew the prices were crashing, operators and market participants jumped into the wagon and shorted many stocks, especially in the futures and options segment, leading to acceleration in correction.

Is there more pain?

Now the real question is whether there is more pain in this space. There is a feeling among market participants that a lot of distress selling has already taken place. And since the prices are now stabilizing, share prices should not crash further. But that does not assure of any weakness, which is expected to continue.

There will be recovery and those whose stocks that were sold in a hurry due to lack of money will come back to cover them. But that also will initially happen in cases where there is value and fundamentals of companies are strong.

What can investors do?

At this point in time buying mid caps could be both an opportunity and a trap. Keeping these things in mind, investors should stick with quality and not jump to buy them just because the stock is trading at a lower price.

Instead, an intensive check on fundamentals of companies and valuations could provide some clue. Companies with high debt and excessive pledging of shares by promoters should be avoided.

Companies which have solid business in terms of assets, brand and cash flows should attract attention. Investors who want to avoid any decision making and go through the entire research process could probably take a different route. They can choose and invest in a good mid-cap mutual fund scheme, which has a good track record in terms of performance, especially during the recent carnage in the mid-cap space.

There is a belief that may be over the next one year mid caps may not perform well given the several issues about liquidity, participation and fundamentals of the company and economy, but valuations at which some of these companies are trading are at a historical low. This is why, from the long-term perspective, these could be attractive options compared to their large-cap peers.

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Personalising ads further, challenge to advertisers: Google

Emphasising on the vital role a marketeer plays in any given business, Nikesh Arora, senior vice president and chief business officer, Google says given the change in consumers' perspectives, a marketeer's fundamental task is to relate to the consumer and know where the consumers are.   

With evolving technology, compact devices getting smaller and better and an excessive importance on consuming media, marketeers are constantly looking for ways to evolve marketing tricks. Arora believes the challenge to marketers today is to figure out ways to make advertising more individualised, more personalised.

Also read: Indian PC, mobile mkt not much different from China: Lenovo

Anant Rangaswami, senior editor, Firstpost and Durga Raghunath, vice president products and executive news producer, Firstpost.com interviewed Arora on Story Board on CNBC-TV18.

Below is the edited transcript of the interview. 

Rangaswami: To begin with I am trying to look at things from the marketer's point of view and just when they think they know they think they know everything that the internet has to teach them and ready for the next step you come out, you as in the internet or Google with something new and you got to start all over again and you suddenly feel like an idiot.

Arora: One thing which is constant even though stories change. Before we think at marketing you have to look at consumers and what consumers are doing. In that regard we could learn a lot of from what is happening in different parts of the world. I was in Korea last week and the US. There are things happening with consumers which are very interesting. If you look at consumers today they pretty much live their life on the mobile devices as opposed to sitting and watching TV. I grow up here and you look forward to that two hours in the evening where you could watch TV and it was compact programming, not 500 channels and you know there were two channels that you had to watch and today I cannot keep track of the number of applications my 16 year old uses. She said something interesting to me the other day, she said, dad e-mail is for formal communication. The perspectives of consumers have changed and fundamental task of any marketeer is to relate to consumer so they have to be where the consumers are.

Raghunath: Interesting point about mobile. When you were talking to ATD perhaps this year you made a statement where you said we limit ourselves by calling mobile, mobile. I would love to hear more about what you mean when you say that?

Arora: One of the fascinating thing that has happened as technologies evolved is we have been dealing with devices in isolation and that made sense a few years ago when your television was your television and it never talked to your computer. Your computer was your computer and your phone was your phone and none of these things talked to each other. But today if we think about it you are slowly beginning to see devices talk to each other. I can go like my music on my PC off the internet and I can use my phone to play it. Suddenly your phone is starting to talk to your PC.

There are many applications which I am sure you use on your PC and on your phone and if you see there are instances where people have put their televisions online as well as I can take a YouTube video and play it on my television. So, one is beginning to see devices talk. When devices talk, what happens in the future is that one has a multitude of screens around you. Your watch could be your screen. Your TV could be your screen. Your tablet, your computer, your phone all these are screens and over time services are going to become thing that you want to use across all these screens. So, the mobile becomes a context. It becomes your geospatial context. If I am sitting waiting for somebody in the meeting, I am more likely to read Firstpost, newspaper or something else. If I am sitting at home waiting for something or sitting at home I might watch a video and if I am at work I might search. So, certainly what happens is wherever you are becomes your context and that becomes your screen of choice. So, it is no longer mobile. When I am mobile I will always use my mobile screen. What if I use my tablet? What if my computer with me is WiFi? Suddenly, when I am mobile I can actually have access to multiple screens. As long as my screen knows where I am it can be more useful to me.

Raghunath: The consumer is constantly faced with making choices. Perhaps desktop is becoming almost passé. You have a tablet. You are moving to your mobile phone and a lot of us have completely deserted even a laptop for various reasons. This is hard for the advertiser. We have readers who are moving from a website classic format to the tablet format to the mobile format and each in a way is in terms of the old rules of impact probably diminishing in terms of strength. So, for advertising to remain hugely powerful on digital across these devices, how would you approach dealing with multiple devices, multiple attention consumption patterns?

Arora: There are just lots of interesting places we could take this to. Content and making money is important. Historically, as you have seen changes in media, there has typically been two or three ways money has been made by advertisers as content has been funded. If there were newspapers, it is a combination of advertising and subscription. Some people pay some money and some advertising comes in, that is how newspaper makes money, that is how television makes money.

There was a combination of some function of cable fees versus advertising on television and there are some channels which do not take advertising, for which you have to pay more. So, somewhere in that spectrum or continuum you pay for content or content gets monetized by advertisers and that is still true in any media that you can come up with.

Content will get paid for because consumers interact with content and it is going to get paid for either directly by the consumer or if the consumers are not willing pay, but they are willing to take advertising instead.

The question is what form does that advertising take on when you start interacting with a smaller screen or different sizes and different context. There what becomes very important is the big transitional shift. In the past we had very little idea on who the user is or was. Take a newspaper. You have no idea who is reading the newspaper. You can make up demographics of who the newspaper reader is. Take television. We kind of know there are households involved. There is some agency or some third party measurement services who could figure based on household samples to know who is watching it, but one really did not know.

However, if one looks at today's technology, one has a reasonably good idea of who that person is. You have a lot more data about them because of the applications they interact with or what they do. You have a lot more data about their physical context, you have a lot more data about their social context and that makes advertising three to five times more powerful. So, the big challenge for advertisers or marketeers is how do you leverage the information that you have about individuals and how do you go from a mass market broadcast type advertising concept to a more personalised, more individualised concept of advertising because if it is very useful for me I am willing to accept it if it is interesting and probably you end up making more money. 

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Buy TTK Healthcare; target of Rs 686: Angel Broking

Angel Broking is bullish on TTK Healthcare and recommended a buy rating on the stock with a target of Rs 686 in its April 30, 2013 research report.

Angel Broking report on TTK Healthcare

"The Board of TTK Healthcare approved for a scheme of amalgamation of TTK Protective Devices (TTKPD; formerly known as TTK-LlG), an unlisted public company, and TSL Techno Services (TSL), a wholly owned subsidiary of TTKPD, with itself.

Scheme of Merger
On amalgamation of the companies, the shareholders of TTKPD will be entitled to nine equity shares of Rs 10 each fully paid-up of TTK Healthcare, for every two shares of Rs 10 each fully paid-up held by them in TTKPD, thus leading to a equity dilution of 82 percent.

No allotment shall be made to the shareholders of TSL (which owns five acres of land), with it being the wholly owned subsidiary of TTKPD, and the value of TSL having already been considered as part of the valuation of TTKPD.

Background
TTKH was in the business of distribution of condoms purchased from TTKLIG (a JV between TTK group and Reckitt Benckiser). In Nov 2012, TTK Group bought a 49.9 percent stake in TTK-LIG (now TTK Protective Devices (TTKPD)) from Reckitt Benckiser at a valuation of ~Rs 300cr. However, the company's profit of ~Rs 25cr in FY2011 scaled down to a loss of ~Rs 23cr in FY2012 due to disputes and differences between New Bridge Holding, BV (a subsidiary of Reckitt Benkiser) and TTK group (TTK) which impacted the exports revenue.

The dispute was resolved in Oct 2012.

Reckitt Benkiser retained its Durex and Kohinoor brands of condom after TTK acquired stake in TTK-LIG. TTKPD has stopped its supplies to Reckitt Benkiser or its subsidiary. TTKPD launched Skore brand of condom in Nov 2012 which captured a 4 percent market share; the company's Management expects the market share to increase to 10 percent in the next 12 months.

Conclusion:

Overall, we believe the deal is a big positive since TTK Healthcare's networth is expected to more than double post the merger, considering an ~Rs 160cr of networth of TTKPD.

Post the scheme of merger, the promoter shareholding will increase from ~65 percent to 81 percent. As per SEBI guidelines, all listed companies should have a minimum public shareholding of 25 percent, failing which the company might have to go for delisting. We believe the company may go for a stake sale to get its promoter shareholding to 75 percent.

We believe if the merger goes through, TTK Healthcare will utilize funds from TTKPD for its current expansion plans rather than raising debt, thus
maintaining its debt free status. We maintain our Buy recommendation on the stock with a target price of Rs 686," says Angel Broking research report.

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Sell Shree Cements; target Rs 3800: FinQuest Securities

FinQuest Securities is bearish on Shree Cements and has recommended sell rating on the stock with a target price of Rs 3800 in its May 03, 2013 research report.

"Despite disappointing cement dispatch growth, Shree Cement posted excellent bottom-line growth driven primarily by decent growth in cement realization, excellent growth in the power business and lower depreciation and tax outgo during Q3FY13 (Quarter ended March 2013).

The cement volumes fell 4 percent to 3.22 mn tonnes during the quarter, while the power volumes rose 68 percent to 722 mn units. But 3.5 percent Y-o-Y improvement in cement realization helped the total revenue to come in 7 percent higher Y-o-Y to Rs 14.72 bn. The cement realization during the quarter improved to Rs 3677 per tonne as compared to Rs 3552 per tonnes during the corresponding quarter of the previous year. Coupled with improvement in realization, fall in operating costs helped margin expansion by 144 bps to 28.6 percent during the quarter under review.

The good news is that the power division is doing exceedingly well, while the cement realization has improved despite poor demand. But the fact that the cement demand has remained poor despite the quarter being the peak season for cement consumption in the northern markets where the company operates is a major concern. The continuation of such scenario may result in steep price correction going ahead, although the company expects the cement demand and price to increase by 10 percent and 5 percent respectively in the next fiscal. Lower PET Coke prices and sharp fall in coal prices helped the company to lower its fuel expenses and that in turn helped the EBIDTA margins during Q3FY13 expand 144 bps Y-o- Y to 28.6 percent. As a percentage of net adjusted sales the power & fuel expenses contracted 215 bps to 24.1 percent, while the freight expenses fell 160 bps to 16.3 percent although the personnel expenses and other operating expenses increased marginally.

The company has been following accelerated depreciation on certain assets for some time now and that caused the depreciation allowance this time to be very low. It came in at Rs 1.27 bn (46 percent lower Y-o-Y), while the tax expenses also came in 69 percent lower Y-o-Y at Rs 176 mn thus helping the bottom-line to post 136 percent gain during the quarter to Rs 2.74 bn.

Shree Cement has been aggressively expanding its cement and power capacity during the past several years and the stabilization of the same in the days ahead bodes well for the company. We expect the power business of the company to improve sharply, but the lacklustre growth of the cement segment is a major concern. We reckon that if the cement demand remains poor the company would witness price fall in the quarters ahead. We also see cost pressure going ahead driven by higher power & fuel cost and freight expenses. Thus if cement price falls from these levels we see margin pressure going ahead for the company's cement business. Although on the power business of the company we are quiet bullish.

Nevertheless we expect Shree Cement to maintain its market leadership position in the northern region and would rather continue to outgrow the cement industry going ahead. Integrated operations have enabled the company to post significantly higher operating efficiency than its larger peers in India. Despite the relative macro strength of Shree Cement, we reckon that the share price has run ahead of its valuation, hence maintain 'Sell' rating on the stock with a revised target price of Rs 3800 (considering USD 140 per tonne replacement cost to value the cement business)

We expect the company to maintain its cost leadership position in the cement industry, as it witnesses significant ramp-up in its power business. We believe there would be pickup in pre election spending in several states in the next 12 months while the demand supply mismatch would narrow in favor of demand as the capacity expansion slows down. At the current price of Rs 4640, the stock is trading at PE and EV/ EBIDTA of 13.8x and 8x FY14E earnings. While we continue to be positive on Shree Cement operational matrix, we are a bit worried about the cement industry macro at this point as the demand growth continues to remain weak. We believe Shree Cement has run ahead of its valuation even after considering increased cement replacement cost of USD 140 per tonne to value its cement business. We maintain our 'Sell' rating on the stock with a revised one year price target of Rs 3800. We value the cement business at USD 140 per tonnes (in line with current replacement cost of USD 140- 150 per tonne). We value the power business using discounted cash flow (DCF) approach to arrive at per share value of Rs 544. We estimate the revenue and EPS for FY13 to come in at Rs 56.96 bn and Rs 277.8 respectively," says FinQuest Securities research report.

Non-Institutions holding more than 90% in Indian cos

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AnandRathi retains 'Buy' on IDFC, target Rs 198

AnandRathi is bullish on IDFC and has recommendation buy rating on the stock with a target price of Rs 198 in its May 02, 2013 research report.

"IDFC's 4QFY13 loan growth was modest (15.7 percent yoy, 4.5 qoq), with approvals and disbursements falling 24 percent and 22 percent respectively. Exposure to the energy and transportation sectors slipped to 65.1 percent (66.1 percent in 4QFY12). Spreads were stable qoq at 2.5 percent, resulting in NII rising 9.9 percent yoy (-2 percent qoq). We expect NII to grow 22.1 percent in FY14 and 26 percent in FY15, led by the sturdy loan pipeline and IDFC's ability to manage spreads efficiently.

Non-interest income vaulted 178 percent yoy (106 percent qoq) on account of higher loan-related fees (65.5 percent yoy, 23.1 percent qoq) and a sharp rise in Treasury income (714 percent yoy, 90 percent qoq). Asset-management fees were sturdy (52.5 percent yoy, 3.4 percent qoq), with sharp growths in investment banking (26x qoq) and institutional broking (40 percent yoy, 100 percent qoq). IDFC has been able to keep operating costs in check, with costto- income falling 553bps yoy (55bps qoq) to 16 percent.

Asset quality is healthy, with gross NPA falling 40.3 percent qoq to Rs 851m (0.15 percent) of loans. We expect IDFC's conservative underwriting standards and prudent provisioning policy to keep credit costs stable, at ~40bps over FY14-15. With capital adequacy of 22.1 percent (tier-1: 19.8 percent), it is adequately capitalized for growth opportunities in infrastructure finance.

With its strong domain expertise and unique position, we believe IDFC is poised to capitalize on opportunities in infra funding, and sustain a 2.7 percent RoA over FY14-15. Hence, we retain our Buy. Our sum-of-parts valuation gives us a fair value of Rs 198; we value the lending business at Rs 173 a share (1.8x FY14e BV) and other businesses and investments at Rs 25. Risks: Substantial slowdown in infrastructure spending and inability to mobilise resources for the AMC business," says AnandRathi research report.

Non-Institutions holding more than 90% in Indian cos

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Angel Broking remains 'Neutral' on Sanofi India

Angel Broking has maintained a neutral rating on Sanofi India in its April 30, 2013 research report. The research firm expects the net sales to post a 13.3 percent CAGR to Rs 1,917cr and EPS to register a 13.4 percent CAGR to Rs 99.1 over CY201214.

"For 1QCY2013, Sanofi India reported results lower than expectations, both the on top-and bottom-line fronts. Sales grew by 12.5 percent yoy; however the net profit grew by just 10.5 percent yoy, due to lower-than-expected OPM. Sanofi's net sales grew by 12.5 percent yoy to Rs 363cr for 1QCY2013, lower than our estimate of Rs 401cr. The company reported a gross margin of 51.8 percent (50.9 percent in 1QCY2012), higher than our estimate of 49.5 percent. However, the OPM came in at 13.1 percent, lower than our estimate of 14.6 percent, due to a higher rise in other expenses, which rose by 28 percent yoy. The net profit came in at Rs 44cr, up by 10.5 percent yoy, lower than our estimate of Rs 50.1cr.

Outlook and valuation: We expect net sales to post a 13.3 percent CAGR to Rs 1,917cr and EPS to register a 13.4 percent CAGR to Rs 99.1 over CY201214. At current levels, the stock is trading at 27.6x and 25.8x CY2013E and CY2014E earnings, respectively. We recommend a Neutral rating on the stock," says Angel Broking research report.

Bodies Corporate holding more than 50% in Indian cos

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Buy Gujarat Pipavav Port, target Rs 70: GEPL Capital

GEPL Capital is bullish on Gujarat Pipavav Port and has recommended buy rating on the stock with a target price of Rs 70 in its May 03, 2013 research report.

"Gujarat Pipavav Port, in Q1CY13, GPPL reported 24 percent y-o-y growth in total revenues to Rs 1,245 mn as compared to Rs 1,004 mn in Q1CY12. Container volumes for the Q1CY13 witnessed a marginal drop of 2 percent y-o-y to 161,000 TEUs as compared to 165,000 TEUs in Q1CY12, however, on sequential basis the volume increased by 3 percent. There were in-all 7 vessels which skipped Pipavav Port in Q1CY13, which was due to the impact of Chinese New Year. Pipavav Rail Corporation (PRCL) witnessed 250 rakes operated in Q1CY13 (highest so far), which carried 103,911 TEUs to the hinterland.

On the other hand, Dry-bulk Volumes in Q1CY13 witnessed 10 percent slide y-o-y and stood at 0.56 mn tonnes as compared to 0.63 mn tonnes in Q1CY12. This decline was mainly due to deteriorating coal volumes which was the result of rail freight differentials. However, the impact of volume decline on revenue was not significant as the effect of lower volumes (of coal) was neutralized due to change in the handling of commodity mix. In Q1CY13, there was significant mix of Wheat and Fertilisers in the dry cargo, which enabled higher realizations and hence subsided the effect of volume decline.

Interest outgo of Rs 95 mn was down by 54 percent y-o-y. On cost front the company witnessed 22 percent y-o-y growth in total operating expenses to Rs 675 mn in Q1CY13. Operating cost which comprised of 55 percent of total cost, witnessed 37 percent increase on y-o-y basis on account of increase in equipment hire charges and high power and fuel cost. However, EBITDA margins witnessed 90bps jump to 45.8 percent vs 44.9 percent in Q1CY12.

Outlook: Timely expansion of port capacities and logical diversification in liquid logistics business is expected to augur well for GPPL over a period of time. Situation at the macro level seems changing with declining commodity prices and in tandem movement of inflation has already given the much awaited rate cuts, which is already auguring well for the economy. We strongly believe that with interest rate cycle on the reverse mode and some reformist steps taken by the government will turn the tables for the business climate. We maintain our buy rating and price target of Rs 70," says GEPL Capital research report.

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Hold Godrej Consumer Products, says Ventura

Ventura has recommended hold rating on Godrej Consumer Products  (GCPL), in its May 03, 2013 research report. The research firm expects, the company to post robust set of numbers in its domestic business going ahead on the back of new launches and increased A&P spends, continued distribution synergies and its focus in crème format.

During the quarter, GCPL launched a disruptive innovation in HI category (HIT Anti Roach Gel). Moreover, Godrej Consumer Products Ltd (GCPL) has displayed its consistency by clocking double digit revenue growth. We expect GCPL to post robust set of numbers in its domestic business going ahead on the back of new launches and increased A&P spends, continued distribution synergies and its focus in crème format (under hair colours category). In the international business, integration of operations in Africa and Argentina is expected to bring synergies over the next few quarters. Also, we remain positive on the Indonesian operations on the back of regular innovations and distribution expansions.

Given the fact that GCPL has a large number of brands under its umbrella (across emerging market geographies), we expect cross-pollination to play out over the next 2-3 years and add further scale to GCPL's operations. At a CMP of Rs 844, GCPL trades at a PE multiple of 33.0x and 28.1x its estimated earnings for FY14 and FY15. Given the rich valuations enjoyed by the company and limited upside from current levels, we recommend a HOLD on the stock. However, owing to the robust long term outlook for the company we recommend to add the stock on declines with a potential target of Rs 900.

GCPL continued its strong growth momentum during Q4FY13 by recording 29.7 percent YoY growth in revenues to Rs 1,715.5 crore led by robust 18.1 percent YoY growth in its domestic business (HI 26 percent YoY; Soaps 17 percent YoY with volume growth of ~4 percent and Hair Colors 27 percent YoY), which contributes ~55 percent to its consolidated revenues. Increased other expenses (+50.8 percent YoY) and higher A&P expenses (+9.5 percent of sales v/s 8.3 percent in Q4FY12) led to a contraction of GCPL's EBITDA margins to 16.2 percent (-260 bps YoY; -60 bps QoQ). While EBITDA grew by 12.2 percent YoY, PAT grew by 70 percent YoY on account of exceptional income of Rs 133.7 crore (sale of non-core food business in Indonesia) and lower provision for tax (-11.7 percent YoY).

As stated earlier, domestic business grew by 18.1 percent YoY led by robust growth in all its key segments - Home Insecticides (+26 percent YoY; ~2.1x category growth), Personal Wash Soaps (+17 percent; ~1.3x category growth) and Hair Colors (+27 percent; 2x category growth). Household Insecticides segment witnessed growth on the back of continued distribution synergy benefits and we expect this category to maintain healthy growth on the back of penetration and new innovative launches (latest launch being 'HIT Anti Roach Gel'). On the other hand, GCPL's soaps segment witnessed growth of 17 percent YoY primarily led by volume. The highlight for the quarter was Hair colors category as it witnessed strong turnaround (27 percent v/s 13 percent category growth; albeit on a low base) on the back of positive response from crème format (recent entry)," says Ventura research report.

Institutional holding more than 40% in Indian cos

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India's rating upgrade unlikely anytime soon: SP

Amid high public-debt levels and concerns about deficit and subsidies, the India growth story still remains positive, global rating agency Standard and Poor's (S&P) said today. However, the rating agency ruled out rating upgrade of India anytime soon.

India's growth track record is good in current circumstances as the RBI attempts to counteract loose fiscal policy . The market has factored in one ore two rate cuts this year, the agency added.

However, S&P warn that reform announcements recently made by the government did not suffice to ensure growth. The agency also pointed out that a large number of infrastructure projects were stuck and those in the pipeline were "historically bad".

Investments must be unlocked for growth and the government must find short to mid-term solutions of problems in the infrastructure, power and coal sectors.

Offering a global perspective, S&P said that Asia-Pacific growth would not be impacted by problems in the US and eurozone and in fact, forecasts Asia Pacific economies to perform better from hereon. "Nobody expects the eurozone to recover by next year and will muddle through while the US economy will pick up going ahead," the agency said.

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Taking away capital mgmt from RBI not advisable: Subbarao

Moneycontrol Bureau

Reserve Bank of India Governor Duvvuri Subbarao, who is known to have mind of his own, and has many times been at odds with the Finance Minister today voiced his discontent about the Financial Sector Legislative Reform Commission(FSLRC's) recommendations regarding capital inflows.

In an interview with CNBC-TV18's Latha Venkatesh, he stressed that taking away capital management from Reserve Bank of India is not advisable and that the central bank had made this suggestion to FSRLC when it was consulted.

"So we submitted but they have decided, the way they have decided. Now I believe the government will call for consultation and we will certainly not only put across our point but argue our point," he said.

FSLRC which was set up to rewrite and update all the archaic Indian financial sector laws has recommended that the government and not the RBI should make rules with respect to capital inflows. This recommendation is irrespective of whether the inflows are FDI, FII, forex loans or NRI deposits.

This recommendation has been strongly criticized by many economic and baking sector scholars including KJ Udeshi and YH Malegam. Subbarao said that FSLRC's argument on this is that external sector management with capital inflows has bearing on monetary policy, on financial stability and on bank regulation and hence RBI should not be handling capital inflows. 

Also read: Barring FDI, RBI must control all capital flows: YH Malegam

On Friday, RBI cut the repo rate by 25 basis points and pointed that further room for monetary easing was very little. Upside risk to inflation and high current account deficit (CAD) were sighted as two key reasons by RBI for its hawkish stance.

Today, Subbarao said that CAD could come close to 5 percent in 2012-13 and stressed that any improvement below 5 percent would be a good improvement on CAD. He said although India was able to finance 6.7 percent CAD up till January due to higher liquidity in global system, we can not depend on mere foreign capital flows. "We must have low and steady CAD financed by stable flows," he added.

Diesel price hike was seen as one of the key step in controlling the twin deficit-CAD and fiscal deficit, however oil retailers have declared on three prices hike since the fuel was deregulated. Subbarao also learned that diesel price hike was deferred on the back of fall in global crude oil prices, which gave oil retailers leeway to postpone the price hike. He however said that it would have been better if scheduled rise in April was taken by oil retailers.

On the recent cobrapost expose which involved leading private sector banks like ICICI Bank, Axis Bank, and HDFC Babk, Subbarao said that RBI was determined to take strict action against erring banks and will soon introduce systematic improvement in know your customer norms.

On the new banking licenses Subbarao said that RBI would constitute committee that will vet all applications only after June. He said that RBI would issue enough licenses to instill competition but would also make sure that they don't outnumber the existing players.

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