Eye on India-- Govt. looking to „land‟ safely :: Macquarie Research,

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Eye on India
Govt. looking to „land‟ safely
Event
 “What greater grief than loss of one’s native land” said Euripides, one of
the three greatest tragedians of Classical Athens. While this quote is from
480BC it is still equally relevant as India grapples with the issue of amending
the “Land Acquisition Bill”. The current law dates back to 1894 and hence is
well outdated. A major change in the new proposal will likely be a single,
common bill for Land acquisition and national Resettlement and Rehabilitation
(R&R), a major departure from individual States driven diverse R&R. This
assumes greater significance as this is one of the biggest factors delaying
investment projects; we estimate that a staggering US$175bn worth of
projects are affected/stalled due to this issue. Welcome Mr Ramesh.
What caught our eye?
 Market slides on rate hike: This week the Indian market fell by 2.5%, driven
primarily by the surprise 50bp rate hike by the RBI on Tuesday. Among
sectors, Real Estate and Capital Goods were the worst performing (-5.0% and
-4.4% respectively), while Healthcare was the best performing sector (+0.9%).
Fund flows were moderate with FII net buying at US$149m. Our Top-10
stocks (-0.5%) fared better than MSCI India (-1%), driven by DRRD (+7.4%);
they continue to outperform the benchmark by 620bp since Aug-2010.
 RBI shows its aggressive side: The 50bp hike in repo rate continues to
underscore the RBI‟s undivided focus on controlling inflation, which continues
to be around 9.5%. Our economist, Tanvee Gupta, believes inflation will
average in the 9-9.5% range in FY12 and argues for a further 50bp tightening
in the remainder of CY11; however further tightening would be highly
dependent on the quality of data releases.
 Government on an overdrive to clear backlog: There has been a flurry of
decisions from the government over the past week - draft bill on FDI in retail,
draft on the Lokpal bill, and word from the rural development ministry on the
new draft bill on land acquisition. While the news on retail FDI and land
acquisition bill are very positive, the Lokpal bill has come under heavy
criticism for excluding the PM and the judiciary from its ambit and also
overlooking all the major scams in recent times.
 SEBI makes changes to the Takeover Code: Based on the
recommendations of the TRAC committee, SEBI raised the initial trigger for
open offer from 15% to 25% and increased the open offer size from 20% to
26%. The minimum stake that an acquirer will obtain in a target company after
the open offer would now be 51%. SEBI has also done away with the noncompete
fee provision, which we believe is equitable for all shareholders.
Outlook
 Markets to consolidate here: Post the correction, as we indicated last week,
we now think that market will take a pause and consolidate here. We hit a
lean patch as most results are now bunched in the 2nd week of August. Global
markets have already corrected on back of US debt issues, so any positive
news will support the markets. But worries are far from over, stay defensive!