S&P sees significant chance of India rating downgrade

There is a significant chance of cutting India's credit rating in the future, Standard and Poor's credit rating agency was quoted as saying on Wednesday. S&P says that India's rating downgrade is likely if growth prospects dim, external position deteriorates, political climate worsens or fiscal reforms slow. The International Monetary Fund (IMF) this week slashed its 2012 GDP growth forecast for India, to 4.9% in 2012 from 6.1% earlier. In April this year, S&P cut India's sovereign outlook to "negative", putting at risk the country's current rating of "BBB-", one notch above junk grade and the lowest investment rating in the BRICS grouping of big emerging economies. S&P analyst Kim Eng Tan was quoted as saying that the reform measures had helped in "slightly" revising S&P's view on India's rating. "Right now we do see that government has taken some actions which we didn't expect initially. To some extent that has helped to revise slightly our views of credit downgrade," Tan told a business news channel. S&P says that insurance and pension reforms will be challenging to push through in the Parliament amid stiff political resistance to those measures. Also, implementation of the recently announced reform initiatives is going to be crucial for the Indian government in a bid to lift growth, S&P says.

Outlook on India could be revised to "stable" if the Government moves forward with steps to reduce structural fiscal deficits, improves the investment climate, and increases growth prospects, S&P adds. S&P also says that it sees India's FY13 fiscal deficit at 6% of GDP as against the Government's projection of 5.1% of GDP. "Weaker-than-expected tax receipts, owing to weaker economic growth, and higher-than-budgeted subsidies are the main reasons behind it," S&P says. S&P projects India's current account deficit (CAD) for FY12 to be 3.5% of GDP, below last year's 4.5%, mainly due to strong foreign investment inflows. "However, if the current account deficit shows little improvements going forward, the country's external position could cease to be a supporting factor for the sovereign ratings," S&P says.

S&P affirms ratings on 7 Indian Govt-owned banks; Outlook negative

IMF cuts India's growth forecast to under 5%
The International Monetary Fund (IMF) on Monday cut its 2012 GDP growth forecast for India sharply, to 4.9% from 6.1% estimated in July, and 6.8% in April.   In its update to the World Economic Outlook, the IMF has cited "continued investment slowdown" and further deterioration in the global economy as the main drivers behind the downgrade. The outlook for India could worsen, unless European and US policymakers deal proactively with their daunting economic challenges, the IMF warned. India’s growth could rebound to 6% in 2013 on the back of recent reform measures coupled with "improvement in the external conditions". In its July outlook, the IMF had estimated India’s 2013 GDP growth at 6.6%. In the World Economic Outlook report, the IMF has cut its projection for the world economic growth in 2012, to 3.3% from 3.5% predicted in July. The failure of US and eurozone policy makers to tackle their fiscal woes is threatening an already "slow and bumpy" global economic recovery, the IMF said.

World Bank cuts India's GDP growth forecast to 6%

Govt may take Rs 400bn hit if it accepts Shome panel recommendations
If the government accepts the recommendations of the Parthasarathi Shome panel to tax indirect transfer of Indian assets prospectively, it may take a hit of roughly Rs. 400bn, reports said. The Parthasarathi Shome panel recommends taxing indirect transfer of Indian assets prospectively, as against the provisions of the Finance Act, 2012, to tax all such deals retrospectively. The income tax department had estimated that the implication of the changes in the Income Tax Act to levy capital gains tax on indirect transfer of Indian assets could be Rs. 350-400bn. If the recommendations are accepted by the government, in a scenario where the law is applied prospectively, Vodafone would not be required to pay anything on its $11.2bn deal with Hong Kong-based Hutchison in 2007, provided the finance ministry does not reach a conclusion that the Vodafone case falls in the category of "exceptional or rarest of rare cases", as described by the Shome committee. In the second scenario where the law is applied retrospectively, Hutchison could be asked to pay Rs. 79bn to the Indian government.

The committee said treating a person as an assessee in default or as a representative assessee of a non-resident would amount to the imposition of a burden of impossibility of performance. It said penalty and interest should not be charged so that there is no undue hardship caused to the taxpayer. On Jan 20, the Supreme Court had ruled in favour of Vodafone in a Rs. 110bn tax case where it said that tax authorities have no jurisdiction over cross-border M&A transactions even if the assets involved in that deal are located in India. The deal in question here was Hutchison Whampoa’s acquisition of India mobile assets for $10.7bn. Possibly hurt by the SC’s verdict where the IT Department had to return Rs. 25bn to Vodafone with 4% interest, the government has proposed to retrospectively tax offshore share transfers of foreign companies, the value of which is substantially derived from assets located in India, with effect from 1962. Only recently, Vodafone made an offer to pay up Rs. 80bn to settle its tax dispute with the Indian Government provided it considers waiving off penalty and interest amount, reports said. The retrospective amendments have empowered the government to tax similar cross-border transactions by Cairns UK Holding Ltd, Unilever HPC Finance Services Inc USA, Accenture Services Pvt Ltd, Euro Pacific Security Ltd, Tata Industries Ltd/AT&T, McLeod Russel India Ltd, SAB Miller, Sanofi Pasteur Holding SA.

Indirect asset transfer...Shome panel opposes retro amendments

Infosys Q2 net profit up 3.5% QoQ
Infosys Ltd. has posted results for the second quarter ended 30th September 2012. Its net profit stood at Rs23.70mn, up 3.5% QoQ. The revenues stood at Rs98.58bn as compared to Rs96.16bn in the previous quarter, up 2.5% QoQ. Q2 other income stood at Rs7.06bn. Infosys is expecting FY13 revenues at $7.34bn. Infosys Q2 FY13 EBIT at Rs. 25.97bn as compared to Rs. 26.93bn QoQ. "Global economic uncertainties continue to face the industry," said S. D. Shibulal, CEO and Managing Director. "We have increased employee wages, used some of our cash in a transformational acquisition of a consulting business and enhanced our investment in R&D and solutions. These initiatives will position us well in the industry and provide a strong platform for future growth."

Business outlook
The company’s outlook (consolidated) for the fiscal year ending March 31, 2013, under IFRS is as follows:
Revenues are expected to be at least Rs39,582 crore; YoY growth of 17.3%
Earnings per share (EPS) is expected to be at least Rs160.61; YoY growth of 10.3%
Expansion of services and significant projects
Infosys is focused on delivering measurable business value to clients by enabling transformational process changes, accelerating innovation and optimizing their operations

Consulting and Systems Integration
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