BF Utilities jumps 18% as Deve Gowda withdraws opposition to infra project

BF Utilities jumps 18% as Deve Gowda withdraws opposition to infra project 

BF Utilities, a part of the Baba Kalyani Group, surged as much as 18 per cent to Rs 609 on Wednesday after former Prime Minister HD Deve Gowda decided to withdraw his protest against the Bengaluru-Mysuru Infrastructure Corridor (BMIC), a pet project of BF Utilities. The stock, once the fastest value creator between 2004 and 2006, has stayed on the sidelines due to political and legal battles

Shares of BF Utilities surged a mammoth 13,480 per cent in two years from Rs 25 in November 2004 to an all-time high of Rs 3,395 in November 2006. After six years of successive losses, the company reported a consolidated net profit of Rs 121 crore for the financial year ended September 2015 and a 118 per cent jump in income to Rs 519 crore. "I don't have any idea why Mr. Gowda made that statement suddenly. But on 29th August there is Supreme Court hearing. The court had asked us to settle the matter outside but that has not happened. So we will be going to the court anyway," said Ashok Kheny, managing director, Nandi Infra Corridor Enterprise, a subsidiary of BF Utilities.

The stock is trading at a price-toearnings multiple of 35 times its trailing 12-month earnings, a discount to peers like Sobha Developers and Puravankara. But analysts are not convinced about the growth prospects. "Though the company has a huge land bank, but the stock is highly speculative," said G Chokkalingam, CEO, Equinomics Research and Advisory. "I would not recommend to buy this stock as many other quality real estate players are available".

After a nearly 13-year struggle, Deve Gowda decided to distance himself from his relentless campaign against the BMIC project due to poor health and disillusionment, The Times of India reported on Wednesday.

BFUL is an integrated infrastructure developer engaged in the development of the Bengaluru-Mysuru Infrastructure Corridor, one of the largest integrated infrastructure projects in India entailing the development of a 111-km expressway, 9.1-km link road, 41-km peripheral road and 5 townships along the expressway.

Gowda launched a series of campaigns demanding a CBI probe into irregularities in the project and pressuring the government to withdraw the excess land. The company has sole and exclusive right to develop BMIC, which will comprise expressways, self-sustaining townships and other large mixed-use developments. In addition to the BMIC Project, the company owns and operates the Hubli-Dharwad Bypass Road and a 18.33-MW wind power project in Satara district in Maharashtra. 

Source : http://economictimes.indiatimes.com; By Rajesh Mascarenhas & Jwalit Vyas 

Why Narendra Modi should announce a mayor for Mumbai

Mumbai is the world’s sixth-largest city, with a population more than several countries, including Australia, or three times the size of London

Ireena Vittal

A file photo of Prime Minister Narendra Modi. Photo: PTI

Newspaper reports suggest that Prime Minister Narendra Modi is likely to campaign for the 2017 elections to the Brihanmumbai Municipal Corporation (BMC). Clearly, running India’s second-largest city matters to Modi’s Bharatiya Janata Party (BJP). A win could strengthen the BJP’s political position with a difficult regional ally, the Shiv Sena. It could also build credibility with 22 million Mumbaikars (and citizens in other cities), if the planned investment of Rs.1 trillion rejuvenates the city, creates jobs and expands incomes.

The incumbents will fight hard to retain control: the city defines their identity and BMC’s mammoth annual budget of Rs.37,000 crores gives them heft. So what could the PM offer that will help his party win in a city of sceptical, apathetic voters (38.4% voted in the last municipal election)?

For one, he could offer a new approach to run the city: an elected political mayor with a tenure of five years, empowered and accountable to fix the city. Why is this needed? For starters, Mumbai is slowly dying and fixing it needs more than investing in a few projects.

It is the world’s sixth-largest city, with a population more than several countries, including Australia, or three times the size of London. It contributes 30% of income tax and 60% of custom duty. Migrants still flock to it, women feel safer in Mumbai than in any other Indian city, and communities come together for everything from Ganesh Chaturthi to street cricket.

Infrastructure is creaking but trains and buses mostly run on time. It also has the most exciting redevelopment plan in India (16.5 acres by the Bohra community).

Yet, the city is in decline, and losing the battle for jobs and capital. Since 1991, while its population doubled to an estimated 22 million, its design has largely remained unchanged, stressing the legacy set-up. With the sub-optimal experiment to create another business district in Navi Mumbai, it remains a north-south city, putting disproportionate pressure on the suburban train infrastructure, increasing transit time for the average citizen and making homes unaffordable. Land use remains static and no new land has been released.

Quality of life has deteriorated with inadequate investment in affordable housing, transport, water, sewage and storm-water drains, especially in the suburbs. The city is routinely hit by flooding, rising pollution and drug-resistant diseases.

Mumbai also seems to have lost some of its appeal due to the high cost of living or doing business. A look at its roster of corporate residents confirms this. While it remains the headquarters of older companies and banks, most start-ups tend to prefer Gurgaon or Bengaluru.

Mumbaikars are also voting with their feet. The island city has seen its gross domestic product (GDP) shrink as talent prefers jobs in suburbs, where they can afford to live, which in turn forces companies to move out of South Mumbai.

So what can be done to save the metropolis?

For starters, there is a critical need for a ‘blueprint’ to improve citizens’ quality of life: projects to improve transportation, resilience and security. Also needed is a plan to renew land use: unlock tracts of government-owned land (such as the Mumbai Port Trust and reclaimed land), design multiple cities within the metropolitan area and tailor floor space index to drive desired density. Indeed, committed citizens and bureaucrats are currently debating Mumbai Development Plan 2034.

There is also a need for an ‘economic’ story to attract investors: articulate Mumbai’s role in the economic growth of India, the kind of jobs it wants to attract and the quality of infrastructure and policies it will offer to de-risk business.

Finally, the new mayor needs to engage citizens (especially the young) and align political parties using a compelling ‘political’ story. This is essential to balance the short-term election imperative (state and BMC elections every five years) with a renewal plan that will bear fruit over 15-20 years.

While the ‘what’ is clear, the ‘how and who’ remain the challenge.

Fixing Mumbai needs a deft, trusted political leader accountable for this renewal. Why? A look at the ‘jobs to be done’ makes this obvious.

To execute this plan, the leader will raise funds (use public land and debt, raise and collect fees for citizen services provided, fight for central and state grants), allocate capital sensibly (finalize projects and sequence them ensuring equity across wards, the rich and the poor) and ensure project execution (create audited books of account, hire private partners and agencies, coordinate across the corporation, re-organize where required).

He or she will need to ‘sell’ this story to investors and citizens. This is not the job for the best of bureaucrats. These officers have short tenures (transfers every 2-3 years), cannot take risks (the spectre of the Comptroller and Auditor General of India) and can get crushed between political parties. Clearly, this job is best done by a political representative of the people, with a clear mandate to make choices on their behalf.

Cities know they need leaders. Global cities elect mayors, some of who eventually run countries (e.g. Indonesia, Italy, and Philippines). Indian law too recognized this via the 73rd and 74th constitutional amendment almost two decades back. Indeed executing this is a state subject.

Some attempts have been made: Kolkata has an effective mayor-commissioner model while Chennai flirted with an elected mayor for a few years and Bengaluru got a city minister last year. But this law remains largely on paper due to missing political will.

Perhaps state leaders are uncomfortable with giving someone control over ‘valuable’ urban land or worry about creating city leaders, even when this might be the best approach for a cadre-led party to create local leadership (as the Chinese communist party realized 30 years back).

So when he campaigns in Mumbai, PM Narendra Modi could take the lead by encouraging state leaders to announce a candidate for the city’s mayor, who would be empowered and made accountable. An owner with a long-term view is the best bet to kick-start the long journey to renew Mumbai. And the PM could win the 2017 battle for BMC and the 2019 war for India.

Ireena Vittal is a former partner at McKinsey & Co. Her areas of specialization include emerging markets, agriculture and urban development.

Ireena Vittal

Source : http://www.livemint.com/Opinion; IreenaVittal

Fear Not – July 2016 is not Dec 2007

Fear Not – July 2016 is not Dec 2007

Source : http://www.icicipruamc.com, http://alphaideas.in

An idiotic idea that worked

An idiotic idea that worked

For all policymakers, D. Subbarao’s book is a must-read as it provides them lessons on how to navigate in tough times

Ajit Ranade

Former RBI governor D. Subbarao. Photo: Abhijit Bhatlekar/Mint

Rare is the governor of a central bank who pens his memoirs soon after leaving his corner office. Former Reserve Bank of India (RBI) governor D. Subbarao’s bookWho Moved My Interest Rate? is exceptional not just because it comes barely three years after he left Mint Street, but also because of its lucidity and plain speak. It chronicles the turbulent times between 2008 and 2013 when Subbarao headed the RBI.

It was baptism by fire for him, as Lehman imploded within 10 days of his taking charge, leading to the global financial crisis, and much turmoil in India as well. The RBI had to resort to several unconventional actions to protect India from contagion, to calm the markets and ensure some stability. Just as that crisis was ending, the challenge of combating high and persistent inflation in India surfaced. Coupled with that was record high trade and fiscal deficits, and consequent rupee depreciation. To cap it was the rupee panic of 2013 caused by the talk of the tapering of US Federal Reserve’s monetary stimulus. Thus all five years of Subbarao’s tenure were marked by difficult challenges to financial stability, inflation or the exchange rate. His book is a jargon-free primer on the challenges of central banking in a world of turmoil often caused by factors beyond the country’s borders. His emphasis on plain speak was evident even during his tenure, as in his book, as he maintained that his mission was also to demystify the RBI and its functioning.

One of the most interesting, and by the author’s own admission, most difficult to write chapter, is called the Rupee Tantrums. Exchange rate management requires “real-time” decision-making, unlike inflation control. It also entails expectation management, or else currency crisis can be caused merely as a self-fulfilling prophecy.

The currency crisis of 2013, in wake of the taper talk, was unprecedented because India was among only a handful of countries called the “fragile five”, facing acute currency pressure. To stem speculative attacks, India tried everything from hiking interest rates to partial clamping down on dollar outflows. Nothing seemed to be working, perhaps not even an outright ban on import of gold (which thankfully was not tried).

At a recent discussion on the book, incumbent RBI governor Raghuram Rajan, who was then an officer on special duty in the RBI, recounted that among all the ideas in 2013 was also an “idiotic one”. This was to entice dollar inflows into India, by offering subsidized protection against rupee depreciation. This would provide comfort to foreign investors. The forward cover (or full insurance cost) on the rupee-dollar was about 7% per annum, of which the RBI could cover 3.5%. Assuming an inflow of $10 billion, over a three-year period, this could easily cost the RBI and the exchequer between Rs.10,000 crore and Rs.20,000 crore. Seemed like a crazy and expensive idea. But slowly it gained traction, since if the rupee didn’t stabilize, the nation would lose much more by way of a higher import bill. For instance, a Rs.4 fall on an import bill of $400 billion leads to an extra outgo of Rs.1.6 trillion. So, reluctantly, Rajan signed on to the crazy idea. And lo and behold, this turned out to be the prize-winning trick. The nation received more than $30 billion. Not only did the rupee stabilize and strengthen, but three years later, the RBI ended up making a profit on its forward deals. It had shored up adequate reserves in forward purchases to provide for the repayment that will be due next month. So, an idiotic idea worked because it was an intelligent gamble, which paid off.

It was Subbarao’s magnanimity to let Rajan make the announcement of this dollar scheme in 2013. And Rajan, who got much credit for saving the rupee, was humble and gracious to admit that he initially thought the idea was idiotic. The noble actions don’t just speak about the personalities, but are also the hallmark of the institution and its maturity, which at 81, is older than the republic!

One lesson of this “idiotic idea” can be considered for setting the basic rate for the goods and services tax (GST). What if we consider a lower GST rate, say 15%? The fear of lower tax collection can be offset by the reimbursement, or insurance scheme (much like the RBI had offered insurance against rupee depreciation). So, states that might have a revenue shortfall will be fully reimbursed by the centre. Given the buoyancy in collection, and an extra 1.5% growth in gross domestic product, we might all be in for a pleasant surprise. This is just like how the RBI surprisingly garnered three times the dollars it had anticipated. This low GST rate too will provide a post-facto vindication of a gamble that works.

It is an intelligent gamble, whose odds improve much like a self-fulfilling prophecy. Undertaking the gamble itself improves its odds. In a broader sense, much of policymaking involves a gamble, but if done intelligently, can assure desired results. If the reimbursement to states is avoided because it might breach the fiscal deficit target, that too is a gamble worth taking.

Subbarao’s book is a must-read for all policymakers, as it provides them candid insights and useful lessons on how to navigate tough and unpredictable times. He was amused to learn that Who Moved My Interest Rate? is sometimes kept in the ‘self-help’ shelves of bookstores. Maybe that is just as well, as central bankers will testify!

Ajit Ranade is chief economist at Aditya Birla Group.

Comments are welcome at views@livemint.com.

Ajit Ranade
Source : http://www.livemint.com/Opinion

Living in smart city may cost more as Centre plans to capture value from infra spend

Living in smart city may cost more as Centre plans to capture value from infra spend

Living in a smart city or near a newly planned national highway or airport? You may have to pay more taxes. Based on directives from the Prime Minister's Office, the Centre is preparing a policy on value capture financing (VCF) aimed at helping the government recover some of the premium that public infrastructure investments generate for private landowners, top officials said. 

The PMO has formed a high-level committee to examine various aspects of the policy and conduct stakeholder consultations. 

The committee headed by Urban Development Additional Secretary Sameer Sharma includes joint secretaries from infrastructure ministries such as road transport, ports, civil aviation and economic affairs. According to sources, the consultations will be held in August and the policy finalised by October. 

The public financing tool, which is popular the world over, is based on the logic that the government makes large investments in developing public infrastructure leading to rapid economic development in those areas, including higher land prices. 

A policy on value capture financing would mean tapping into this increment through additional taxes, government as-realtor and other tools and then using finances to fund future infrastructure projects in the same area. 

The policy will propose VCF tools that can be used by the Centre and states. Initial discussions within the government reveal that in the case of major projects like a new port, airport or national highway, the public-private partnership agreement would include a VCF tool best suited to this. 

"Since the government does not recover this unearned increment from its own investments, it is constrained to initiate these big-ticket projects," said a senior official who didn't want to be identified. 

"So it is really in the larger public interest to have such a policy." 

Some of the models likely to be incorporated in the policy include tax increment financing. 

This means that if a port project or an airport is planned in an area, a tax increment on properties in the surrounding areas is imposed. 

This new levy will be for a specific period of about five years until property prices plateau. Some countries have identified special assessment districts that fall in the best-effected zone of an infrastructure project like a metro line. 

These have to pay an additional tax to recover the cost. Other options include the government initiating land pooling and developing only a part of this. When property prices rise, the government sells the rest of the land at a premium. 

Sources said the need for a policy has been felt since the government has initiated massive urban and rural development projects such as smart cities and urban renewal missions and this would be a way of recouping part of the investment. 

Source : By NIDHI SHARMA, ET Bureau ; http://economictimes.indiatimes.com

Rs 1 lakh invested in these stocks could have earned you up to Rs 72 lakh in 5 years

Rs 1 lakh invested in these stocks could have earned you up to Rs 72 lakh in 5 years 

It's not easy to strike gold in stocks. But it's quite common to miss out on opportunities. 

Multibagger stocks are a rare breed on Dalal Street, but they remind you of the power that equities wield. 

"There is a higher possibility that a steady investor would receive positive payoffs over time. If history is any indicator, the possibility of negative returns on stocks is almost zero with a 15-year investment horizon," Nilesh Shah, MD, Kotak Mahindra Asset Management, said in a column written exclusively for ETMarklets.com. 

At ETMarkets.com, we embarked on a similar search to find the biggest multibagger stories of the last five years and came out with these hidden gems. 

 And the list might leave you wondering how come you missed these stocks, worse still, if you happened to sell any of them just because they wobbled a bit along their journey. 

Five years ago, had you to invested Rs 1 lakh on Indo Count, it would have made you Rs 72 lakh today. Avanti Feeds could have generated about Rs 62 lakh on that investment and 8K Miles Software Rs 47 lakh. 

These are very real wealth creation stories, and not just talk without substance. 

Indo Count reported a 15 per cent volume growth in the March quarter of FY16, which helped its revenue grow 15 per cent. Brokerage firm Systematix expects it to post 29 per cent annualised profit growth in FY16-18 and has a buy rating with target price of Rs 1,373. 

Sandeep Raina, Deputy Vice President, Edelweiss, believes Indo Count can still be a multibagger despite the huge returns it has generated so far. "The growth is there, the Market is there. Financials are very strong. I think the company can be a multibagger over the next two-three years," he said. 

8K Miles Software, a multibagger with 4,700 per cent returns over five years, reported 109 per cent profit growth in March quarter as the company built on its recent strong performances. 

"8K Miles has got a solid product pipeline. So there is merit in looking at the stock on a fundamental basis. But the valuations have already reached a level from where incremental appreciation will be difficult," Sudip Bandyopadhyay, an independent market expert, told ET Now. 

These are among the least talked about names on the Street, a place where the TCSs, Infosys and RILs of the world hog the limelight while smaller stocks like these silently churn out big returns for their investors. 

Source : http://economictimes.indiatimes.com; Chiranjivi Chakraborty