The Steel Authority of India Ltd (SAIL) is setting up three steel processing units (SPU) in Madhya Pradesh for manufacturing various types of steel items used by the construction industry.
The foundation stone for the first two units in Ujjain and Hosangabad have been laid during the week by the Minister for Steel, Ram Vilas Paswan. The company plans to invest Rs 100 crore in the Ujjain unit and Rs 154 for the Hosangabad unit, a company release said.
The Ujjain unit will produce TMT bars from billets supplied from the Bhilai Steel Plant (BSP) and will have an annual capacity of one lakh tonne.
The Hosangabad unit will manufacture angles, channels, beams, joists and also TMT bars. SAIL is in the process of setting up 10 SPUs in six States where it does not have any production facility to meet the market demand for tailor-made steel products and to help increase per capita steel consumption in rural areas, the release said.
Monday, June 16, 2008
Friday, June 13, 2008
OIL PRICE HIKE IS SPECULATION OR DEMAND PULL????????
By now it is becoming too obvious that the United States is playing the oil game all over again. And this is the desperate gamble of a country whose economy is neck deep in trouble. Given this scenario, managing prices of oil is central to the US economic architecture. Expectedly, this gamble has been played in a great alliance between the US government, US financial sector and the media. Naturally, since the past few years, the US financial sector has begun to turn its attention from currency and stock markets to commodity markets. According to The Economist, about $260 billion has been invested into the commodity market -- up nearly 20 times from what it was in 2003. Coinciding with a weak dollar and this speculative interest of the US financial sector, prices of commodities have soared globally. And most of these investments are bets placed by hedge and pension funds, always on the lookout for risky but high-yielding investments. What is indeed interesting to note here is that unlike margin requirements for stocks which are as high as 50 per cent in many markets, the margin requirements for commodities is a mere 5-7 per cent. This implies that with an outlay of a mere $260 billion these speculators would be able to take positions of approximately $5 trillion -- yes, $5 trillion! -- in the futures markets. It is estimated that half of these are bets placed on oil.
It may be noted that oil is internationally traded in New York and London and denominated in US dollar only. Naturally, it has been opined by experts that since the advent of oil futures, oil prices are no longer controlled by OPEC (Organization of Petroleum Exporting Countries). Rather, it is now done by Wall Street. This tectonic shift in the determination of international oil prices from the hands of producers to the hands of speculators is crucial to understanding the oil price rise. Today's oil prices are believed to be determined by the four Anglo-American financial companies-turned-oil traders, viz., Goldman Sachs, Citigroup, J P Morgan Chase, and Morgan Stanley. It is only they who have any idea about who is entering into oil futures or derivative contracts. It is also they who are placing bets on oil prices and in the process ensuring that the prices of oil futures go up by the day. But how does the increase in the price of this oil in the futures market determine the prices of oil in the spot markets? Crucially, does speculation in oil influence and determine the prices of oil in the spot markets? Answering these questions as to whether speculation has supercharged the demand for oil The Economist, in its recent issue, states: 'But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of 'paper barrels,' but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.' On both counts -- that speculation in oil is not pushing up oil prices, as well as on the issue of the build-up of inventories -- the venerable Economist is wrong. The finding of US Senate Committee in 2006 In June 2006, when the oil price in the futures markets was about $60 a barrel, a Senate Committee in the US probed the role of market speculation in oil and gas prices. The report points out that large purchase of crude oil futures contracts by speculators has, in effect, created additional demand for oil and in the process driven up the future prices of oil. The report further stated that it was 'difficult to quantify the effect of speculation on prices,' but concluded that 'there is substantial evidence that the large amount of speculation in the current market has significantly increased prices.' The report further estimated that speculative purchases of oil futures had added as much as $20-25 per barrel to the then prevailing price of $60 per barrel. In today's prices of approximately $130 per barrel, this means that approximately $100 per barrel could be attributed to speculation! But the report found a serious loophole in the US regulation of oil derivatives trading, which according to experts could allow even a 'herd of elephants to walk to through it.' The report pointed out that US energy futures were traded on regulated exchanges within the US and subjected to extensive oversight by the Commodities Future Trading Commission (CFTC) -- the US regulator for commodity futures market. In recent years, the report however pointed out to the tremendous growth in the trading of contracts which were traded on unregulated OTC (over-the-counter) electronic markets. Interestingly, the report pointed out that the trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron into the Commodity Futures Modernization Act in 2000. The report concludes that consequential impact on account of lack of market oversight has been 'substantial.' NYMEX (New York Mercantile Exchange) traders are required to keep records of all trades and report large trades to the CFTC enabling it to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. In contrast, however, traders on unregulated OTC electronic exchanges are not required to keep records or file any information with the CFTC as these trades are exempt from its oversight. Consequently, as there is no monitoring of such trading by the oversight body, the committee believes that it allows speculators to indulge in price manipulation. Finally, the report concludes that to a certain extent, whether or not any level of speculation is 'excessive' lies entirely in the eye of the beholder. In the absence of data, however, it is impossible to begin the analysis or engage in an informed debate over whether our energy markets are functioning properly or are in the midst of a speculative bubble. That was two years back. And much water has flown in the Mississippi since then. The link to the spot markets Now to answer the second leg of the question: how speculators are able to translate the future prices into spot prices. The answer to this question is fairly simple. After all, oil price is highly inelastic -- i.e. even a substantial increase in price does not alter the consumption pattern. No wonder, a mere 3-4 per cent annual global growth has translated into more than a 40 per cent annual increase in prices for the past three or four years. But there is more to it. One may note that the world supply and demand is evenly matched at about 85 million barrels every day. Only if supplies exceed demand by a substantial margin can any downward pressure on oil prices be created. In contrast, if someone with deep pockets picks up even a small quantity of oil, it dramatically alters the delicate global demand-supply gap, creating enormous upward pressure on prices. What is interesting to note is that the US strategic oil reserves were at approximately 350 million barrels for a decade till 2006. However, for the past year and a half these reserves have doubled to more than 700 million barrels. Naturally, this build-up of strategic oil reserves by the US (of 350 million barrels) is adding enormous pressure on the oil demand and consequently its prices. Do the oil speculators know of this reserves build-up by the US and are indulging in rampant speculation? Are they acting in tandem with the US government? Worse still, are they bordering on recklessness knowing fully well that if the oil prices fall the US government will be forced to a 'Bears Stearns' on them and bail them out? One is not sure. But who foots bill at such high prices? At an average price of even $100 per barrel, the entire cost for the purchase of this additional 350 million barrels by the US works out to a mere $35 billion. Needless to emphasise, this can be funded by the US by allowing it currency printing presses to work overtime. After all, it has a currency that is acceptable globally and people worldwide are willing to exchange it for precious oil. No wonder Goldman Sachs predicts that oil will touch $200 to a barrel shortly, knowing fully well that the US government will back its prediction. And, in the past three years alone the world has paid an estimated additional $3 trillion for its oil purchases. Oil speculators (and not oil producers) are the biggest beneficiaries of this price increase. In the process, the US has been able to keep the value of the US dollar afloat -- perhaps at an extra cost of a mere $35 billion to its exchequer! The global crude oil price rise is complex, sinister and beyond innocent economic theories of demand and supply. It is speculation, geopolitics and much more. Obviously, there is a symbiotic link between the US, the US dollar and the oil prices. And unless this truth is understood and the link broken, oil prices cannot be controlled.
It may be noted that oil is internationally traded in New York and London and denominated in US dollar only. Naturally, it has been opined by experts that since the advent of oil futures, oil prices are no longer controlled by OPEC (Organization of Petroleum Exporting Countries). Rather, it is now done by Wall Street. This tectonic shift in the determination of international oil prices from the hands of producers to the hands of speculators is crucial to understanding the oil price rise. Today's oil prices are believed to be determined by the four Anglo-American financial companies-turned-oil traders, viz., Goldman Sachs, Citigroup, J P Morgan Chase, and Morgan Stanley. It is only they who have any idea about who is entering into oil futures or derivative contracts. It is also they who are placing bets on oil prices and in the process ensuring that the prices of oil futures go up by the day. But how does the increase in the price of this oil in the futures market determine the prices of oil in the spot markets? Crucially, does speculation in oil influence and determine the prices of oil in the spot markets? Answering these questions as to whether speculation has supercharged the demand for oil The Economist, in its recent issue, states: 'But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of 'paper barrels,' but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.' On both counts -- that speculation in oil is not pushing up oil prices, as well as on the issue of the build-up of inventories -- the venerable Economist is wrong. The finding of US Senate Committee in 2006 In June 2006, when the oil price in the futures markets was about $60 a barrel, a Senate Committee in the US probed the role of market speculation in oil and gas prices. The report points out that large purchase of crude oil futures contracts by speculators has, in effect, created additional demand for oil and in the process driven up the future prices of oil. The report further stated that it was 'difficult to quantify the effect of speculation on prices,' but concluded that 'there is substantial evidence that the large amount of speculation in the current market has significantly increased prices.' The report further estimated that speculative purchases of oil futures had added as much as $20-25 per barrel to the then prevailing price of $60 per barrel. In today's prices of approximately $130 per barrel, this means that approximately $100 per barrel could be attributed to speculation! But the report found a serious loophole in the US regulation of oil derivatives trading, which according to experts could allow even a 'herd of elephants to walk to through it.' The report pointed out that US energy futures were traded on regulated exchanges within the US and subjected to extensive oversight by the Commodities Future Trading Commission (CFTC) -- the US regulator for commodity futures market. In recent years, the report however pointed out to the tremendous growth in the trading of contracts which were traded on unregulated OTC (over-the-counter) electronic markets. Interestingly, the report pointed out that the trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron into the Commodity Futures Modernization Act in 2000. The report concludes that consequential impact on account of lack of market oversight has been 'substantial.' NYMEX (New York Mercantile Exchange) traders are required to keep records of all trades and report large trades to the CFTC enabling it to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. In contrast, however, traders on unregulated OTC electronic exchanges are not required to keep records or file any information with the CFTC as these trades are exempt from its oversight. Consequently, as there is no monitoring of such trading by the oversight body, the committee believes that it allows speculators to indulge in price manipulation. Finally, the report concludes that to a certain extent, whether or not any level of speculation is 'excessive' lies entirely in the eye of the beholder. In the absence of data, however, it is impossible to begin the analysis or engage in an informed debate over whether our energy markets are functioning properly or are in the midst of a speculative bubble. That was two years back. And much water has flown in the Mississippi since then. The link to the spot markets Now to answer the second leg of the question: how speculators are able to translate the future prices into spot prices. The answer to this question is fairly simple. After all, oil price is highly inelastic -- i.e. even a substantial increase in price does not alter the consumption pattern. No wonder, a mere 3-4 per cent annual global growth has translated into more than a 40 per cent annual increase in prices for the past three or four years. But there is more to it. One may note that the world supply and demand is evenly matched at about 85 million barrels every day. Only if supplies exceed demand by a substantial margin can any downward pressure on oil prices be created. In contrast, if someone with deep pockets picks up even a small quantity of oil, it dramatically alters the delicate global demand-supply gap, creating enormous upward pressure on prices. What is interesting to note is that the US strategic oil reserves were at approximately 350 million barrels for a decade till 2006. However, for the past year and a half these reserves have doubled to more than 700 million barrels. Naturally, this build-up of strategic oil reserves by the US (of 350 million barrels) is adding enormous pressure on the oil demand and consequently its prices. Do the oil speculators know of this reserves build-up by the US and are indulging in rampant speculation? Are they acting in tandem with the US government? Worse still, are they bordering on recklessness knowing fully well that if the oil prices fall the US government will be forced to a 'Bears Stearns' on them and bail them out? One is not sure. But who foots bill at such high prices? At an average price of even $100 per barrel, the entire cost for the purchase of this additional 350 million barrels by the US works out to a mere $35 billion. Needless to emphasise, this can be funded by the US by allowing it currency printing presses to work overtime. After all, it has a currency that is acceptable globally and people worldwide are willing to exchange it for precious oil. No wonder Goldman Sachs predicts that oil will touch $200 to a barrel shortly, knowing fully well that the US government will back its prediction. And, in the past three years alone the world has paid an estimated additional $3 trillion for its oil purchases. Oil speculators (and not oil producers) are the biggest beneficiaries of this price increase. In the process, the US has been able to keep the value of the US dollar afloat -- perhaps at an extra cost of a mere $35 billion to its exchequer! The global crude oil price rise is complex, sinister and beyond innocent economic theories of demand and supply. It is speculation, geopolitics and much more. Obviously, there is a symbiotic link between the US, the US dollar and the oil prices. And unless this truth is understood and the link broken, oil prices cannot be controlled.
Thursday, June 12, 2008
Industrial growth rebounds to 7 per cent
Slowdown in the manufacturing sector pulled down the overall industrial growth rate to 7 per cent in April, the first month of the current financial year.
The industrial production during April 2008 declined from 11.3 per cent recorded in the corresponding month of the previous financial year, says the Index of Industrial Production (IIP) figures released on Thursday.
The decline has been mainly on account of poor showing by manufacturing and electricity sectors. While the manufacturing sector growth rate slipped from 12.4 per cent to 7.5 per cent during the month, power generation recorded a sharper decline from 8.7 per cent to 1.4 per cent.
The mining sector, however, registered a robust growth in April, moving up to 8.6 per cent from 2.6 per cent in the corresponding period last year.
According to the official figures, the industrial growth rate for 2007-08 worked out to be 8.3 per cent, down from 11.6 per cent in the previous year.
The industrial production during April 2008 declined from 11.3 per cent recorded in the corresponding month of the previous financial year, says the Index of Industrial Production (IIP) figures released on Thursday.
The decline has been mainly on account of poor showing by manufacturing and electricity sectors. While the manufacturing sector growth rate slipped from 12.4 per cent to 7.5 per cent during the month, power generation recorded a sharper decline from 8.7 per cent to 1.4 per cent.
The mining sector, however, registered a robust growth in April, moving up to 8.6 per cent from 2.6 per cent in the corresponding period last year.
According to the official figures, the industrial growth rate for 2007-08 worked out to be 8.3 per cent, down from 11.6 per cent in the previous year.
Wednesday, June 11, 2008
Railways revenue earnings up 19.85 per cent
Robust passenger traffic and booming freight traffic has led the Indian Railways sustaining its growth momentum in the current fiscal year (2008–09). Total earnings of the railways have increased by a whopping 19.85 per cent during the first two months of 2008-09.
Total earnings of the Indian railways on an originating basis during April–May 2008 have increased to Rs. 133.34 billion, as against Rs. 111.25 billion in the corresponding period last year.
Goods earnings accounted for the largest share of the total earnings, with a growth rate of 23.54 per cent, contributing Rs. 91.21 billion earnings, compared to Rs. 73.83 billion recorded in the same period last year.
Simultaneously, increase in passenger traffic has led to total passenger earnings of the Indian Railways rising by 12.28 per cent to Rs. 37.27 billion. Similarly, earnings from other coaching and total sundry earnings have increased to Rs. 3.57 billion and Rs. 1.27 billion respectively.
Total earnings of the Indian railways on an originating basis during April–May 2008 have increased to Rs. 133.34 billion, as against Rs. 111.25 billion in the corresponding period last year.
Goods earnings accounted for the largest share of the total earnings, with a growth rate of 23.54 per cent, contributing Rs. 91.21 billion earnings, compared to Rs. 73.83 billion recorded in the same period last year.
Simultaneously, increase in passenger traffic has led to total passenger earnings of the Indian Railways rising by 12.28 per cent to Rs. 37.27 billion. Similarly, earnings from other coaching and total sundry earnings have increased to Rs. 3.57 billion and Rs. 1.27 billion respectively.
Rosebys set for India foray
Rosebys, the UK's largest home textile retail chain, which was acquired by Gujarat Heavy Chemicals in 2006, is set to foray into the domestic market this year with a slew of stores. Aimed to fill the gap between luxury and value segments, Rosebys will be positioned as a premium brand in the domestic organised home linen market.
The company plans to roll out the stores across the country. "We plan to open 700 stores over the next three years in metros and tier-2 and tier-3 cities," Nikhil Sen, director, Rosebys interiors India, told Business Standard.
Unlike its multi brand outlets in the UK, which are known as ‘Rosebys Interiors', the stores in India will be single brand stores under the name ‘Rosebys London' sporting a tagline - Inspiring your imagination. Apart from company owned stores, a major part of expansion will come through the franchisee route.
According to Sen, in India out of the Rs 15,000-crore home linen vertical, the organised sector accounts for only Rs 3,000 crore and is growing at an annual rate of 8-10 per cent, providing ample opportunity to a format like Rosebys.
Going by the new on-the-go culture in the country, the company is targeting working segment in the age group of 25-35 year in the country.
"We aim at providing affordable luxury for everyday lifestyle to people along with helping them save time and money and giving them a feel good environment. Our stores will be very approachable and will cultivate experiential buying in the country," Sen added.
Another growth opportunity the company has identified is gifting. "If something is good for you it is also good enough to be gifted and that change in psyche gives us a great opportunity," Sen said.
Like its stores in the UK, Rosebys India will provide complete home furnishings and lifestyle products from bedding, curtains to kitchen and children's room accessories.Rosebys, has over 320 stores across the UK and is one of the biggest home textile retail chain company in the UK.
While the major part of Rosebys products will be manufactured at GHCL's Vapi plant, the company also plans to source them from contract manufacturers in India and abroad.
The company plans to roll out the stores across the country. "We plan to open 700 stores over the next three years in metros and tier-2 and tier-3 cities," Nikhil Sen, director, Rosebys interiors India, told Business Standard.
Unlike its multi brand outlets in the UK, which are known as ‘Rosebys Interiors', the stores in India will be single brand stores under the name ‘Rosebys London' sporting a tagline - Inspiring your imagination. Apart from company owned stores, a major part of expansion will come through the franchisee route.
According to Sen, in India out of the Rs 15,000-crore home linen vertical, the organised sector accounts for only Rs 3,000 crore and is growing at an annual rate of 8-10 per cent, providing ample opportunity to a format like Rosebys.
Going by the new on-the-go culture in the country, the company is targeting working segment in the age group of 25-35 year in the country.
"We aim at providing affordable luxury for everyday lifestyle to people along with helping them save time and money and giving them a feel good environment. Our stores will be very approachable and will cultivate experiential buying in the country," Sen added.
Another growth opportunity the company has identified is gifting. "If something is good for you it is also good enough to be gifted and that change in psyche gives us a great opportunity," Sen said.
Like its stores in the UK, Rosebys India will provide complete home furnishings and lifestyle products from bedding, curtains to kitchen and children's room accessories.Rosebys, has over 320 stores across the UK and is one of the biggest home textile retail chain company in the UK.
While the major part of Rosebys products will be manufactured at GHCL's Vapi plant, the company also plans to source them from contract manufacturers in India and abroad.
India’s GDP growth may dip to 7%: World Bank
The World Bank has projected India’s GDP (gross domestic product) growth to slow further to seven per cent in 2008 on account of the tight monetary policy in place as a measure to rein in inflation leading to a consequent slowdown in demand for industrial goods.
In its report on ‘Global Development Finance’ released on Tuesday, the World Bank said: “GDP growth in India eased to a still strong 8.7 per cent in 2007, from 9.7 per cent in 2006, and is projected to slow further to 7 per cent in 2008.” The Bank attributed the moderation in the country’s economic growth to the “monetary tightening in 2007 [that] led to softening in domestic demand.”
The report pointed out that although the restrictive monetary policy measures prevented a further surge in the inflationary spiral, the resultant strengthening of the rupee proved detrimental to the exporting community. With the country’s industrial production decelerating to three per cent in April this year, the report noted that there were growing signs of the economy cooling down. However, thanks mainly to the large remittance flows and robust growth in wage rates, the industrial slowdown has not led to a fall in the rate of consumption, it said.
Alongside, the report noted that owing to an overall slowdown affecting most economies, the global GDP growth is projected to slide from 3.7 per cent in 2007 to 2.7 per cent in 2008. Surge in food prices
Aggravating the situation was the worldwide surge in food prices in 2008 and there was a “sharp reduction in purchasing power of the poor,” owing to the increasing gap between wages and food prices. However, the report pointed to the export restrictions imposed by countries such as India, China and Vietnam as the major reason for the soaring global prices of food commodities.
“Among other factors, rice producers such as China, India and Vietnam have introduced export restrictions to keep stocks for domestic use and to prevent sharp domestic price increases; these policies have contributed to the increase in international grain prices,” the Bank said, while noting that “India is self-sufficient, but grain stocks are low and crop production has been on the decline”.
The report pointed out that soaring food prices had become a serious concern in South Asia by early 2008, mainly because food insecurity in the region was relatively high and the rural population have to spend over 50 per cent of their total income on food. It noted that the rapidly rising gap between food prices and wages indicated a sharp reduction in the purchasing power of the poor and the situation had become increasingly acute across the region, especially in Bangladesh and Afghanistan.
Referring to the global turmoil in financial markets, the Bank noted that the turbulence had adversely affected the Indian stock market as well.
“The turmoil in international financial markets...has affected the region primarily through fallouts and weakness in equity market. The latter has been most pronounced in India, particularly during the first quarter,” the report said.
In its report on ‘Global Development Finance’ released on Tuesday, the World Bank said: “GDP growth in India eased to a still strong 8.7 per cent in 2007, from 9.7 per cent in 2006, and is projected to slow further to 7 per cent in 2008.” The Bank attributed the moderation in the country’s economic growth to the “monetary tightening in 2007 [that] led to softening in domestic demand.”
The report pointed out that although the restrictive monetary policy measures prevented a further surge in the inflationary spiral, the resultant strengthening of the rupee proved detrimental to the exporting community. With the country’s industrial production decelerating to three per cent in April this year, the report noted that there were growing signs of the economy cooling down. However, thanks mainly to the large remittance flows and robust growth in wage rates, the industrial slowdown has not led to a fall in the rate of consumption, it said.
Alongside, the report noted that owing to an overall slowdown affecting most economies, the global GDP growth is projected to slide from 3.7 per cent in 2007 to 2.7 per cent in 2008. Surge in food prices
Aggravating the situation was the worldwide surge in food prices in 2008 and there was a “sharp reduction in purchasing power of the poor,” owing to the increasing gap between wages and food prices. However, the report pointed to the export restrictions imposed by countries such as India, China and Vietnam as the major reason for the soaring global prices of food commodities.
“Among other factors, rice producers such as China, India and Vietnam have introduced export restrictions to keep stocks for domestic use and to prevent sharp domestic price increases; these policies have contributed to the increase in international grain prices,” the Bank said, while noting that “India is self-sufficient, but grain stocks are low and crop production has been on the decline”.
The report pointed out that soaring food prices had become a serious concern in South Asia by early 2008, mainly because food insecurity in the region was relatively high and the rural population have to spend over 50 per cent of their total income on food. It noted that the rapidly rising gap between food prices and wages indicated a sharp reduction in the purchasing power of the poor and the situation had become increasingly acute across the region, especially in Bangladesh and Afghanistan.
Referring to the global turmoil in financial markets, the Bank noted that the turbulence had adversely affected the Indian stock market as well.
“The turmoil in international financial markets...has affected the region primarily through fallouts and weakness in equity market. The latter has been most pronounced in India, particularly during the first quarter,” the report said.
MARKET PREDICTION
GLOBAL MARKET ARE IN MIXED...
CRUDE CORRECTED SIGNIFICANTLY TO $131(APRX)
$ VS INR 42.94 GOOD FOR IT AND PHARMA STOCKS..
NIFTY IS WITNESSING HEAVY SELLING BECAUSE OF FIIs SELLING PRESSURE SINCE LAST FEW SESSION. EVERY HIGH IS WITNESSING SELLING PRESSURE AND IT PUSHING THE MARKET DOWN.
TODAY'S LEVEL OF NIFTY 4400-4500-4535 GO LONG IF MARKET HOLDS 4400 WITH SL OF 4370
SECTORS:
PHARMA AND IT @ 4500 LEVEL
ABOVE 4500 LEVEL GO LONG IN CONSTRUCTION AND BANKING .
TOTAL MARKET OI IS 74K CR AND PUT CALL RATIO IS 1.48%.
HAVE A NICE TRADING DAY.
-MR SAM
CRUDE CORRECTED SIGNIFICANTLY TO $131(APRX)
$ VS INR 42.94 GOOD FOR IT AND PHARMA STOCKS..
NIFTY IS WITNESSING HEAVY SELLING BECAUSE OF FIIs SELLING PRESSURE SINCE LAST FEW SESSION. EVERY HIGH IS WITNESSING SELLING PRESSURE AND IT PUSHING THE MARKET DOWN.
TODAY'S LEVEL OF NIFTY 4400-4500-4535 GO LONG IF MARKET HOLDS 4400 WITH SL OF 4370
SECTORS:
PHARMA AND IT @ 4500 LEVEL
ABOVE 4500 LEVEL GO LONG IN CONSTRUCTION AND BANKING .
TOTAL MARKET OI IS 74K CR AND PUT CALL RATIO IS 1.48%.
HAVE A NICE TRADING DAY.
-MR SAM
Apple Aims for the Masses With a Cheaper iPhone
Steven P. Jobs, chief executive of Apple, introduced a new cheaper iPhone model on Monday that navigates the Internet more quickly, expanded its distribution overseas and displayed a range of new applications and services in order to establish Apple as a major player in the cellphone industry.
Apple, the maker of consumer electronics and computer equipment, had set a goal of selling 10 million iPhones in 2008, which would establish it as one of the major smartphone makers in the less than two years since it began shipping the original iPhone. Apple has sold six million phones globally since its introduction.
Analysts said that Mr. Jobs, one of the world’s best product marketers, had largely accomplished what he set out to do and they welcomed the moves he outlined in a presentation before software developers on Monday.
“This is the phone that has changed phones forever,” Mr. Jobs said.
Mr. Jobs said the new iPhone 3G, to be available in the United States through AT&T beginning on July 11, will sell for $199 for the 8-gigabyte model and $299 for a 16-gigabyte model. He said the biggest barrier to people buying the phone had been price.
Analysts and industry executives said they believed the lower prices would bring in new consumers who had been put off by its $399 price. “The price is clearly correct,” said Mike McGuire, a research vice president at Gartner, a market research firm based in San Jose, Calif.
As widely anticipated, the phone will run on so-called 3G wireless networks that allow much faster Internet connections than the original iPhone. During a 110-minute presentation, Mr. Jobs went to some lengths to compare the speed of the new iPhone 3G to the current phone and to rival phones like the Nokia N95 and the Palm Treo 750. He called downloads “amazingly zippy.”
The phone, sleeker than the original, will also have built-in Global Positioning System capability to allow location-based services. It will also have a longer battery life in some cases, five hours for talking on the 3G network and 24 hours for playing music on the phone.
The announcements came on the opening day of Apple’s Worldwide Developers Conference, where several developers showed off software that turned the iPhone into a game console and a musical instrument. Others demonstrated programs that used the phone’s ability to locate its users on a map.
At one point during his demonstration, Mr. Jobs showed a tracking feature making it possible to watch on a Google map as an iPhone user drove down Lombard Street, the twisty tourist attraction in San Francisco.
Mr. Jobs also indirectly challenged Microsoft with a mobile Web service call MobileMe, intended to permit a user to synchronize a phone, calendar and contact information on the iPhone and multiple devices including PCs and other iPhones. The service, which will costs $99 a year and comes with 20 gigabytes of data storage, is similar to a service offered by Microsoft.
Apple’s obstacle in offering the new service is that its competitors, like Google, offer similar services for less. Google offers 10 gigabytes of e-mail storage for $20 a year.
Apple announced that it would begin selling the iPhone in 70 countries this summer; the current phone is being sold in six countries.
“Given the feature set, ecosystem partners, launch countries and the pricing of the iPhone, they are likely to hit the 10 million mark by September-October,” said Chetan Sharma, an independent consultant on the wireless data communications industry.
The company, based in Cupertino, Calif., announced on Monday in a regulatory filing that it would sell the 3G phones under different business arrangements in the United States. In the past, Apple shared service plan revenue with AT&T and other cellular firms. The second-generation iPhone will be sold without the recurring revenue streams and without the exclusivity arrangements it was previously able to command.
While trying to convince cellular carriers around the world that they should carry the iPhone, Apple realized that it needed to change the financial deal that it had with the carriers in the first six countries.
“We’ve changed our business model, from getting a cut of the future revenues to just a more traditional model,” Mr. Jobs said in an interview on Monday. “That’s enabled us to roll out around the world much faster.”
AT&T said it would subsidize the phones to attract consumers. Under the plan, unlimited iPhone 3G data plans for consumers will be available for $30 a month, in addition to voice plans starting at $40. Business users will be charged $45 a month for data.
By giving back the revenue to the carriers, which they may use for subsidies, Apple is hoping to dramatically increase its volume, as well as sell more Macintosh computers to iPhone users.
“It’s not about the iPhone,” said Charles Wolf, a financial analyst at Needham & Company. “There’s a tradeoff that Apple is making. The iPhone halo effect will be far more powerful than the iPod halo effect was. It’s going to stimulate Mac sales among iPhone users.”
Apple, the maker of consumer electronics and computer equipment, had set a goal of selling 10 million iPhones in 2008, which would establish it as one of the major smartphone makers in the less than two years since it began shipping the original iPhone. Apple has sold six million phones globally since its introduction.
Analysts said that Mr. Jobs, one of the world’s best product marketers, had largely accomplished what he set out to do and they welcomed the moves he outlined in a presentation before software developers on Monday.
“This is the phone that has changed phones forever,” Mr. Jobs said.
Mr. Jobs said the new iPhone 3G, to be available in the United States through AT&T beginning on July 11, will sell for $199 for the 8-gigabyte model and $299 for a 16-gigabyte model. He said the biggest barrier to people buying the phone had been price.
Analysts and industry executives said they believed the lower prices would bring in new consumers who had been put off by its $399 price. “The price is clearly correct,” said Mike McGuire, a research vice president at Gartner, a market research firm based in San Jose, Calif.
As widely anticipated, the phone will run on so-called 3G wireless networks that allow much faster Internet connections than the original iPhone. During a 110-minute presentation, Mr. Jobs went to some lengths to compare the speed of the new iPhone 3G to the current phone and to rival phones like the Nokia N95 and the Palm Treo 750. He called downloads “amazingly zippy.”
The phone, sleeker than the original, will also have built-in Global Positioning System capability to allow location-based services. It will also have a longer battery life in some cases, five hours for talking on the 3G network and 24 hours for playing music on the phone.
The announcements came on the opening day of Apple’s Worldwide Developers Conference, where several developers showed off software that turned the iPhone into a game console and a musical instrument. Others demonstrated programs that used the phone’s ability to locate its users on a map.
At one point during his demonstration, Mr. Jobs showed a tracking feature making it possible to watch on a Google map as an iPhone user drove down Lombard Street, the twisty tourist attraction in San Francisco.
Mr. Jobs also indirectly challenged Microsoft with a mobile Web service call MobileMe, intended to permit a user to synchronize a phone, calendar and contact information on the iPhone and multiple devices including PCs and other iPhones. The service, which will costs $99 a year and comes with 20 gigabytes of data storage, is similar to a service offered by Microsoft.
Apple’s obstacle in offering the new service is that its competitors, like Google, offer similar services for less. Google offers 10 gigabytes of e-mail storage for $20 a year.
Apple announced that it would begin selling the iPhone in 70 countries this summer; the current phone is being sold in six countries.
“Given the feature set, ecosystem partners, launch countries and the pricing of the iPhone, they are likely to hit the 10 million mark by September-October,” said Chetan Sharma, an independent consultant on the wireless data communications industry.
The company, based in Cupertino, Calif., announced on Monday in a regulatory filing that it would sell the 3G phones under different business arrangements in the United States. In the past, Apple shared service plan revenue with AT&T and other cellular firms. The second-generation iPhone will be sold without the recurring revenue streams and without the exclusivity arrangements it was previously able to command.
While trying to convince cellular carriers around the world that they should carry the iPhone, Apple realized that it needed to change the financial deal that it had with the carriers in the first six countries.
“We’ve changed our business model, from getting a cut of the future revenues to just a more traditional model,” Mr. Jobs said in an interview on Monday. “That’s enabled us to roll out around the world much faster.”
AT&T said it would subsidize the phones to attract consumers. Under the plan, unlimited iPhone 3G data plans for consumers will be available for $30 a month, in addition to voice plans starting at $40. Business users will be charged $45 a month for data.
By giving back the revenue to the carriers, which they may use for subsidies, Apple is hoping to dramatically increase its volume, as well as sell more Macintosh computers to iPhone users.
“It’s not about the iPhone,” said Charles Wolf, a financial analyst at Needham & Company. “There’s a tradeoff that Apple is making. The iPhone halo effect will be far more powerful than the iPod halo effect was. It’s going to stimulate Mac sales among iPhone users.”
Airlines Seek Out New Ways to Save on Fuel as Costs Soar
The nation’s airlines are scrutinizing every step of their operations, from the tarmac to the sky, and from the nose to the tail of their planes, searching for new ways to cut their soaring fuel bills.
They are power-washing jet engines more often to get rid of grime, carrying less water for the bathroom faucets and toilets, and replacing passenger seats with lighter models.
The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel; now, it is 40 percent, according to the Air Transport Association, the industry’s trade group.
If prices stay where they are, the nation’s airlines will collectively spend $61.2 billion this year on jet fuel — more than five times what they spent in 2002, when travel fell sharply after the September 2001 terrorist attacks.
Every increase in the price of fuel, already up 84 percent compared with last year, increases the pressure on the carriers, which pump about 7,000 gallons into a Boeing 737 and as much as 60,000 gallons into bigger 747s.
Airlines are raising fares and adding surcharges and fees as fast as they can, but at a certain point, passengers stay home. That’s why the carriers are looking for any new savings they can find.
“Our fleet is over 500 airplanes,” said Beth Harbin, a Southwest spokeswoman. “If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant.”
Although airlines have tried fuel-saving measures for years, they attacked the problem with renewed urgency when oil passed $100 a barrel this year. Now, all airlines are urging employees to suggest ways, large and small, to cut fuel use.
Carriers save the most by parking aging aircraft, of course, and many are already doing so. Northwest is retiring DC-9 jets it has used for decades; American is grounding some of its MD-80s, while United is parking six 747s.
Each generation of aircraft is more efficient. At Northwest, the Airbus A330 long-range jets use 38 percent less fuel than the DC-10s they replaced, while the Airbus A319 medium-range planes are 27 percent more efficient than DC-9s, said Tim McGraw, Northwest’s director of corporate environmental and safety programs.
But even specks of dirt are considered culprits. American and Southwest are washing a handful of jet engines each night, a process that used to happen only during thorough maintenance overhauls. Southwest figures it has already saved $1.6 million in fuel costs since April by reducing the drag caused by dirt and debris.
American, for one, expects to save roughly $330.7 million this year, or about 3.5 percent on a total fuel bill that will approach $9.26 billion.
A number of airlines are flying their planes somewhat slower in order to save fuel — 480 miles an hour, for example, instead of the usual cruising speed of 500 m.p.h.
Five years ago, Delta estimated the flying time from Los Angeles to Atlanta at 4 hours, 12 minutes; now it is 4 hours and 18 minutes at a lower speed. (The airline has not changed its timetable, which sets aside about four and a half hours for the trip, including taxiing time.)
Up in the cockpit, Delta is studying whether it is feasible to divide the heavy pilot manuals required on each flight between the captain and first officer, so pilots are not toting duplicate sets of five or six books that each weigh about a pound and a half.
Eventually, the airline wants to eliminate printed manuals and display the information on computer screens, a step the government would have to approve.
“That’s very much where we want to go,” said Gary Edwards, Delta’s director of flight control. “That’s the wave of the future.”
Passengers may notice other changes. Airlines including Delta are swapping heavier seats for models weighing about 5 pounds less. American is replacing its bulky drink carts with ones that are 17 pounds lighter. The airline said that move will help save 1.9 million gallons of fuel a year, on top of the 96 million gallons it is saving through other means.
Water is another target. Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights, Mr. McGraw said. Most planes had been returning from long flights with their tanks half full, an unneeded expense given that water weighs 8.3 pounds a gallon and a gallon of jet fuel is 6.8 pounds.
“Every 25 pounds we remove, we save $440,000 a year,” Mr. McGraw said.
Airlines also are trying to cut fuel consumption at the airport. Most now run their planes’ electrical systems at the gate by plugging them into outlets, rather than running the engines.
“We’re really fine-tuning to get to that sweet spot of efficiency,” said Mr. Edwards of Delta.
Northwest has studied everything from providing customers with packing tips to serving soda from two-liter plastic bottles rather than individual cans. But it decided that customers would balk at that idea.
“They like the can,” Mr. McGraw said. “They want the can.”
They are power-washing jet engines more often to get rid of grime, carrying less water for the bathroom faucets and toilets, and replacing passenger seats with lighter models.
The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel; now, it is 40 percent, according to the Air Transport Association, the industry’s trade group.
If prices stay where they are, the nation’s airlines will collectively spend $61.2 billion this year on jet fuel — more than five times what they spent in 2002, when travel fell sharply after the September 2001 terrorist attacks.
Every increase in the price of fuel, already up 84 percent compared with last year, increases the pressure on the carriers, which pump about 7,000 gallons into a Boeing 737 and as much as 60,000 gallons into bigger 747s.
Airlines are raising fares and adding surcharges and fees as fast as they can, but at a certain point, passengers stay home. That’s why the carriers are looking for any new savings they can find.
“Our fleet is over 500 airplanes,” said Beth Harbin, a Southwest spokeswoman. “If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant.”
Although airlines have tried fuel-saving measures for years, they attacked the problem with renewed urgency when oil passed $100 a barrel this year. Now, all airlines are urging employees to suggest ways, large and small, to cut fuel use.
Carriers save the most by parking aging aircraft, of course, and many are already doing so. Northwest is retiring DC-9 jets it has used for decades; American is grounding some of its MD-80s, while United is parking six 747s.
Each generation of aircraft is more efficient. At Northwest, the Airbus A330 long-range jets use 38 percent less fuel than the DC-10s they replaced, while the Airbus A319 medium-range planes are 27 percent more efficient than DC-9s, said Tim McGraw, Northwest’s director of corporate environmental and safety programs.
But even specks of dirt are considered culprits. American and Southwest are washing a handful of jet engines each night, a process that used to happen only during thorough maintenance overhauls. Southwest figures it has already saved $1.6 million in fuel costs since April by reducing the drag caused by dirt and debris.
American, for one, expects to save roughly $330.7 million this year, or about 3.5 percent on a total fuel bill that will approach $9.26 billion.
A number of airlines are flying their planes somewhat slower in order to save fuel — 480 miles an hour, for example, instead of the usual cruising speed of 500 m.p.h.
Five years ago, Delta estimated the flying time from Los Angeles to Atlanta at 4 hours, 12 minutes; now it is 4 hours and 18 minutes at a lower speed. (The airline has not changed its timetable, which sets aside about four and a half hours for the trip, including taxiing time.)
Up in the cockpit, Delta is studying whether it is feasible to divide the heavy pilot manuals required on each flight between the captain and first officer, so pilots are not toting duplicate sets of five or six books that each weigh about a pound and a half.
Eventually, the airline wants to eliminate printed manuals and display the information on computer screens, a step the government would have to approve.
“That’s very much where we want to go,” said Gary Edwards, Delta’s director of flight control. “That’s the wave of the future.”
Passengers may notice other changes. Airlines including Delta are swapping heavier seats for models weighing about 5 pounds less. American is replacing its bulky drink carts with ones that are 17 pounds lighter. The airline said that move will help save 1.9 million gallons of fuel a year, on top of the 96 million gallons it is saving through other means.
Water is another target. Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights, Mr. McGraw said. Most planes had been returning from long flights with their tanks half full, an unneeded expense given that water weighs 8.3 pounds a gallon and a gallon of jet fuel is 6.8 pounds.
“Every 25 pounds we remove, we save $440,000 a year,” Mr. McGraw said.
Airlines also are trying to cut fuel consumption at the airport. Most now run their planes’ electrical systems at the gate by plugging them into outlets, rather than running the engines.
“We’re really fine-tuning to get to that sweet spot of efficiency,” said Mr. Edwards of Delta.
Northwest has studied everything from providing customers with packing tips to serving soda from two-liter plastic bottles rather than individual cans. But it decided that customers would balk at that idea.
“They like the can,” Mr. McGraw said. “They want the can.”
Tuesday, June 10, 2008
MARKET NEWS
- Suzlon's largest client in the US, Edison Mission Energy, has cancelled an order for 150 turbines. After this cancellation, Suzlon's order backlog has been reduced by 315 MW capacity of wind turbines.Suzlon shares today ended 6.5% lower at Rs 261.80 per share.
- Mahindra & Mahindra (M&M's) deal with Kinetic Motors could be sealed in the next eight weeks. M&M may pick up 76% and then may offload 25% later to a technology partner, quoting sources.
- Financial services major Credit Suisse on Monday said the government is likely to support rupee as the rapidly falling local unit is causing visible pressure on the country's oil and fertilisers deficit bill.
- THE Securities and Exchange Board of India(Sebi) has proposed shortening the period for disclosure of information relating to any large purchase or sale of shares by a shareholder or company official from the existing nine days to two days by amending certain provisions of the insider trading rules.
- India's May gold imports slump over 59 percent as high prices .
- surprise increase in pending home sales data to 6.3% fromthe expected levels of -1.0% for the month of April helped the U.S dollar to gain against the majors.
- BSNL reduced rates for all STD calls from landlines to Rs 1.20 per minute from Rs 2.40 per minute. For rural customers, the company has slashed the STD rates to 0.80 paise per minute.
- The mines ministry today awarded the world’s largest steel maker, ArcelorMittal, a mining lease for an iron-ore bearing land spread over 500 hectares at Meghataburu in Jharkhand.
Monday, June 09, 2008
Reason For Global Turmoil
The bulls are faced with tough times, thanks to concerns pertaining to high inflation, rising input costs and earnings deceleration among other factors.
It all started with the US subprime problem and the global credit crunch, which led the BSE Sensex nosediving from its peak of 21,206 on January 10, 2008 to 14,677 on March 18. A part of the fall can also be attributed to the concerns pertaining to the increase in crude oil prices and its impact on India's economic growth.
Some of the early signs were also visible from rising inflation and the slowdown in domestic industrial production numbers. This further led to concerns over high interest rates, slowdown in GDP and thus, corporate earnings as well.
Sensing these developments, foreign institutional investors (FIIs) were the first ones to move out of the market, and they partly became the reason for the markets to fall.
End of the bloodbath?If the global and domestic problems persist, experts predict the Sensex to fall to 12,000-14,500 levels. Though bold and unbelievable, there are few players who are predicting that the Sensex may touch the 9,000 levels.
While we are not predicting the Sensex levels, we jot down and bring certain factors that may determine the future course of the markets and what investors should do during these uncertain times.
Crude realitiesNo investor will be willing to invest in an asset headed for reporting lower profits and no asset can be profitable if costs are higher than realisations.
Crude oil is one such commodity, whether it is the economy (macro) or corporate profitability (micro), which is considered to be the source of most of the problems.
While crude oil prices had corrected to $125 levels, after crossing $135 a barrel mark, it again scaled a new peak of $139.12 a barrel last week. There are reports predicting that it will go to $150 to $200 a barrel.
There are several reasons attributed to the recent spike in the crude oil prices including increased financial investments and a marginal rise in costs of oil production.
Whether the crude oil price rises to such high levels or not, experts suggest that the good old days of cheap oil may be gone for a long time to come.
Bloating deficitAccording to studies, a $10 increase in the crude oil prices may reduce India's GDP growth by about 0.3 percentage points and an increase in the consumer price index by 1.2 percentage points.
India imports about 70 per cent of its oil requirements, suggesting that at current levels, it will have to pay a significantly higher amount to meet demand. It has already led to a large trade deficit (over 7 per cent of the GDP).
Fiscal deficit, which is currently at about 3 per cent of the GDP, could reach to 10 per cent levels if the fertiliser, food, farm and oil subsidies are added.
Hence, further rise in crude oil prices will only make things worse. Not only this, rising oil will have serious consequences on others things as well.
"If crude oil touches $150 levels and sustains there, it will be a crude awakening for the global as well as for India. India's annual import bill will touch to $140 billion against the $78 billion estimated for the FY08," says Devendra Nevgi, CEO and CIO, Quantum Mutual Fund.High inflationHigh crude oil prices would have a sweeping impact on the Indian economy.
To put forth some of them: Higher inflation rate, rupee depreciation, increasing trade account and fiscal deficit, and firm interest rates. The other side of an oil shock would probably the ensuing political instability and social unrest.
The inflation rate, which is already high at over 8 per cent, could emerge as a key concern. Economists share different views with regards to inflation reaching the double digit figure in the short term, and if not, it could range at about 7-8 per cent, especially after the recent hike in the petrol and diesel prices.
"We are yet to see the cascading effect of recent spike in oil prices, and the recent hike in fuel prices will further translate into higher inflation in the weeks to come. We think the inflation rate is heading towards 9 per cent levels, however it will ease out in the later part of the year," says, Anand Krishnamurthy, Co-Head Global Markets, HSBC.
Experts observe that the high oil prices will further increase the cost of goods and not to mention, the logistic costs itself, which is expected to go up by another 10-15 per cent as most of the truck operators have increased rentals.
And to join the league, we have already seen airlines companies increasing the fuel surcharge by 15-20 per cent on the ticket price.
So, either the companies will have to increase the prices of goods sold or services rendered or they will have to take a hit on margins. This will certainly lead to overall cost push on other sectors and may discourage the consumer spending further. In both the cases, either the sales volumes will come down or margins thus, lower earnings for companies. (Click here for tables)
Interest rate worriesOne of the objectives of the monetary policy in India has been achieving price stability, which the RBI may try to achieve even at the cost of giving up growth. If inflation spirals, the RBI may also raise either the CRR (cash reserve ratio) or the repo rate, depending on the prevailing situation.
The RBI's comfort level for inflation rate is 5.50 per cent, whereas the current level is 8.24 per cent. As there are worries over the rising interest rates, the economist also predict higher interest rates, which along with other factors would shave off around 50-75 basis point from the GDP growth rate.
"It seems that the economy will slow down, closer to its long term average of around 6-7% for the next decade. Higher inflation and rising crude oil prices remain a risk to the Indian growth story," says Devendra Nevgi.
Earnings slowdownThe high interest rates along with the factors like inflation and higher commodity prices will hit India Inc negatively. The domestic cost of capital has already increased, with the prime lending rates having gone up by 175 basis points since the second half of 2006 to 12.5 per cent currently.
Also, the housing loans have become more expensive, while in many of the cases the banks are charging about 18-22 per cent for the two wheeler and personal loans. As a result of this, the bank credit growth has come down to about 24 per cent as against the recent high of over 30 per cent in January 2007.
This will not only hit the banks' income growth, but also hit the companies immediately, due to higher interest outgo and slow down in the consumer demand. The early sign of this is seen in the slow down in industrial production to 5.8 per cent during the quarter ended March 2008 compared to over 10 per cent a few months ago.
The lag effect is also felt by the companies. According to estimates, sales growth of a cluster of 1,524 companies, excluding oil and gas and finance companies, was 14 per cent year-on-year (YoY) during the quarter ended March 2008 as against the recent peak of 28.9 per cent YoY growth during the quarter ended September 2006.
Analysts expect this trend to continue going forward if the various issues, as mentioned above, remain.
"We think the Sensex earnings growth will slow down in FY09 mainly on account of margin pressure across the sectors led by input costs of power, coal and other raw materials. Also, higher interest rates and slower credit growth should pressure the banking sector," says Harendra Kumar, head research, Centrum Broking.
"Yes, moderation in earnings is quite visible. With increase in input costs (of materials, human resources and capital) margins are also under pressure. We have seen decline in margins of companies from the IT, automobiles, engineering, capital goods and logistics sectors" Says Bhavesh Shah, VP Research, Asit C Mehta Investment Intermediates.
Though not all sectors will witness a slowdown, certain sectors will be more vulnerable, such as financials and banking services, real estate, industrials, capital goods and auto, among a few others.
Analysts are also predicting a slowdown in the BSE Sensex earnings in the FY09 in the range of about 5-10 per cent.
"We expect Sensex EPS to be Rs 1,001 for FY09. We have revised this slightly lower (by one per cent) over the past couple of months from Rs 1,012, but do believe that the risk for further downward revisions does exist," says Ajay Loganadan, Head Investment Advisory Group, HSBC Private Banking.
Foreign capitalConsidering these issues coupled with the slowdown in the earnings, market participants say that the Indian equity markets are relatively expensive as compared to other emerging markets. Also, this is cited as one of the reasons for the FIIs selling witnessed lately.
The depreciation of the rupee has lowered net returns (in dollar terms) for FIIs.
While sharing his view on the FII investments, Ajay Loganadan say, "FIIs have been net sellers of Indian equities to the tune of about $4.2 billion with about $1.2 billion of this selling coming in May.
Given the high levels of risk aversion and P/E contraction, we could expect flows to remain muted over the near term. Fund flow for the rest of the year will depend on global news flow and the perception of risk amongst foreign investors. Also, rising trade and fiscal deficits are not viewed very favourably by FIIs."
Global marketsBesides the FII flows the direction of the market will be determined by the global developments, which are not considered to be very favourable. "In our view, global markets are going to remain weak over the next 12 months.
US Housing data continues to get worse, record number of small businesses in the US are filing for bankruptcy (5,000 in April 2008 alone), debt of 174 large US companies is trading at distressed levels.
In these circumstances, it is tough to make a case for stability in the US financial space," says Madhusudan Rajagopalan, Director, Aranca India Operations. Besides the instability and slow down in the US, analysts also see more risk due to the sub prime crisis. So far, major banks and other financial institutions across the world have reported losses of approximately $380 billion. In a recent development, Lehman Brothers Holding, a top investment bank in the US is expected to raise approximately $4 billion to shore up its balance sheet after incurring losses due to the subprime crisis (S&Powngraded its ratings).
The rating agency also downgraded credit ratings of Merrill Lynch and Morgan Stanley, saying they may have to book more write-downs on devalued assets.
OutlookFor many, it is a bearish market due to the negative micro and macro factors that are affecting the markets, while for others it is the right time to invest and use the lower levels as an opportunity to invest for the long term. Considering that these issues remain, it also indicates that there are concerns for the market to rise from here in the near term.
A good monsoon, lower inflation rate along with the better global cues could be the positive triggers, which though seem some time away.
It all started with the US subprime problem and the global credit crunch, which led the BSE Sensex nosediving from its peak of 21,206 on January 10, 2008 to 14,677 on March 18. A part of the fall can also be attributed to the concerns pertaining to the increase in crude oil prices and its impact on India's economic growth.
Some of the early signs were also visible from rising inflation and the slowdown in domestic industrial production numbers. This further led to concerns over high interest rates, slowdown in GDP and thus, corporate earnings as well.
Sensing these developments, foreign institutional investors (FIIs) were the first ones to move out of the market, and they partly became the reason for the markets to fall.
End of the bloodbath?If the global and domestic problems persist, experts predict the Sensex to fall to 12,000-14,500 levels. Though bold and unbelievable, there are few players who are predicting that the Sensex may touch the 9,000 levels.
While we are not predicting the Sensex levels, we jot down and bring certain factors that may determine the future course of the markets and what investors should do during these uncertain times.
Crude realitiesNo investor will be willing to invest in an asset headed for reporting lower profits and no asset can be profitable if costs are higher than realisations.
Crude oil is one such commodity, whether it is the economy (macro) or corporate profitability (micro), which is considered to be the source of most of the problems.
While crude oil prices had corrected to $125 levels, after crossing $135 a barrel mark, it again scaled a new peak of $139.12 a barrel last week. There are reports predicting that it will go to $150 to $200 a barrel.
There are several reasons attributed to the recent spike in the crude oil prices including increased financial investments and a marginal rise in costs of oil production.
Whether the crude oil price rises to such high levels or not, experts suggest that the good old days of cheap oil may be gone for a long time to come.
Bloating deficitAccording to studies, a $10 increase in the crude oil prices may reduce India's GDP growth by about 0.3 percentage points and an increase in the consumer price index by 1.2 percentage points.
India imports about 70 per cent of its oil requirements, suggesting that at current levels, it will have to pay a significantly higher amount to meet demand. It has already led to a large trade deficit (over 7 per cent of the GDP).
Fiscal deficit, which is currently at about 3 per cent of the GDP, could reach to 10 per cent levels if the fertiliser, food, farm and oil subsidies are added.
Hence, further rise in crude oil prices will only make things worse. Not only this, rising oil will have serious consequences on others things as well.
"If crude oil touches $150 levels and sustains there, it will be a crude awakening for the global as well as for India. India's annual import bill will touch to $140 billion against the $78 billion estimated for the FY08," says Devendra Nevgi, CEO and CIO, Quantum Mutual Fund.High inflationHigh crude oil prices would have a sweeping impact on the Indian economy.
To put forth some of them: Higher inflation rate, rupee depreciation, increasing trade account and fiscal deficit, and firm interest rates. The other side of an oil shock would probably the ensuing political instability and social unrest.
The inflation rate, which is already high at over 8 per cent, could emerge as a key concern. Economists share different views with regards to inflation reaching the double digit figure in the short term, and if not, it could range at about 7-8 per cent, especially after the recent hike in the petrol and diesel prices.
"We are yet to see the cascading effect of recent spike in oil prices, and the recent hike in fuel prices will further translate into higher inflation in the weeks to come. We think the inflation rate is heading towards 9 per cent levels, however it will ease out in the later part of the year," says, Anand Krishnamurthy, Co-Head Global Markets, HSBC.
Experts observe that the high oil prices will further increase the cost of goods and not to mention, the logistic costs itself, which is expected to go up by another 10-15 per cent as most of the truck operators have increased rentals.
And to join the league, we have already seen airlines companies increasing the fuel surcharge by 15-20 per cent on the ticket price.
So, either the companies will have to increase the prices of goods sold or services rendered or they will have to take a hit on margins. This will certainly lead to overall cost push on other sectors and may discourage the consumer spending further. In both the cases, either the sales volumes will come down or margins thus, lower earnings for companies. (Click here for tables)
Interest rate worriesOne of the objectives of the monetary policy in India has been achieving price stability, which the RBI may try to achieve even at the cost of giving up growth. If inflation spirals, the RBI may also raise either the CRR (cash reserve ratio) or the repo rate, depending on the prevailing situation.
The RBI's comfort level for inflation rate is 5.50 per cent, whereas the current level is 8.24 per cent. As there are worries over the rising interest rates, the economist also predict higher interest rates, which along with other factors would shave off around 50-75 basis point from the GDP growth rate.
"It seems that the economy will slow down, closer to its long term average of around 6-7% for the next decade. Higher inflation and rising crude oil prices remain a risk to the Indian growth story," says Devendra Nevgi.
Earnings slowdownThe high interest rates along with the factors like inflation and higher commodity prices will hit India Inc negatively. The domestic cost of capital has already increased, with the prime lending rates having gone up by 175 basis points since the second half of 2006 to 12.5 per cent currently.
Also, the housing loans have become more expensive, while in many of the cases the banks are charging about 18-22 per cent for the two wheeler and personal loans. As a result of this, the bank credit growth has come down to about 24 per cent as against the recent high of over 30 per cent in January 2007.
This will not only hit the banks' income growth, but also hit the companies immediately, due to higher interest outgo and slow down in the consumer demand. The early sign of this is seen in the slow down in industrial production to 5.8 per cent during the quarter ended March 2008 compared to over 10 per cent a few months ago.
The lag effect is also felt by the companies. According to estimates, sales growth of a cluster of 1,524 companies, excluding oil and gas and finance companies, was 14 per cent year-on-year (YoY) during the quarter ended March 2008 as against the recent peak of 28.9 per cent YoY growth during the quarter ended September 2006.
Analysts expect this trend to continue going forward if the various issues, as mentioned above, remain.
"We think the Sensex earnings growth will slow down in FY09 mainly on account of margin pressure across the sectors led by input costs of power, coal and other raw materials. Also, higher interest rates and slower credit growth should pressure the banking sector," says Harendra Kumar, head research, Centrum Broking.
"Yes, moderation in earnings is quite visible. With increase in input costs (of materials, human resources and capital) margins are also under pressure. We have seen decline in margins of companies from the IT, automobiles, engineering, capital goods and logistics sectors" Says Bhavesh Shah, VP Research, Asit C Mehta Investment Intermediates.
Though not all sectors will witness a slowdown, certain sectors will be more vulnerable, such as financials and banking services, real estate, industrials, capital goods and auto, among a few others.
Analysts are also predicting a slowdown in the BSE Sensex earnings in the FY09 in the range of about 5-10 per cent.
"We expect Sensex EPS to be Rs 1,001 for FY09. We have revised this slightly lower (by one per cent) over the past couple of months from Rs 1,012, but do believe that the risk for further downward revisions does exist," says Ajay Loganadan, Head Investment Advisory Group, HSBC Private Banking.
Foreign capitalConsidering these issues coupled with the slowdown in the earnings, market participants say that the Indian equity markets are relatively expensive as compared to other emerging markets. Also, this is cited as one of the reasons for the FIIs selling witnessed lately.
The depreciation of the rupee has lowered net returns (in dollar terms) for FIIs.
While sharing his view on the FII investments, Ajay Loganadan say, "FIIs have been net sellers of Indian equities to the tune of about $4.2 billion with about $1.2 billion of this selling coming in May.
Given the high levels of risk aversion and P/E contraction, we could expect flows to remain muted over the near term. Fund flow for the rest of the year will depend on global news flow and the perception of risk amongst foreign investors. Also, rising trade and fiscal deficits are not viewed very favourably by FIIs."
Global marketsBesides the FII flows the direction of the market will be determined by the global developments, which are not considered to be very favourable. "In our view, global markets are going to remain weak over the next 12 months.
US Housing data continues to get worse, record number of small businesses in the US are filing for bankruptcy (5,000 in April 2008 alone), debt of 174 large US companies is trading at distressed levels.
In these circumstances, it is tough to make a case for stability in the US financial space," says Madhusudan Rajagopalan, Director, Aranca India Operations. Besides the instability and slow down in the US, analysts also see more risk due to the sub prime crisis. So far, major banks and other financial institutions across the world have reported losses of approximately $380 billion. In a recent development, Lehman Brothers Holding, a top investment bank in the US is expected to raise approximately $4 billion to shore up its balance sheet after incurring losses due to the subprime crisis (S&Powngraded its ratings).
The rating agency also downgraded credit ratings of Merrill Lynch and Morgan Stanley, saying they may have to book more write-downs on devalued assets.
OutlookFor many, it is a bearish market due to the negative micro and macro factors that are affecting the markets, while for others it is the right time to invest and use the lower levels as an opportunity to invest for the long term. Considering that these issues remain, it also indicates that there are concerns for the market to rise from here in the near term.
A good monsoon, lower inflation rate along with the better global cues could be the positive triggers, which though seem some time away.
Oil Prices Raise Cost of Making Range of Goods
Surging oil prices are beginning to cut into the profits of a wide range of American businesses, pushing many to raise prices and maneuver aggressively to offset the rising cost of merchandise made from petroleum.
Airlines, package shippers and car owners are no longer the only ones being squeezed by the ever-mounting price of oil, which shot up almost $11 a barrel on Friday alone, to $138.54, a record.
Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?
The Goodyear Tire and Rubber Company is trying to adapt. Its raw material of choice now is natural rubber rather than synthetic rubber, made from oil. To sustain profits, it is making more high-end tires for consumers willing to pay upwards of $100 to replace each tire on their cars.
These steps have not been enough, however, particularly now that the cost of natural rubber is also rising sharply, along with that of many other commodities. So Goodyear has raised the prices of its tires by 15 percent in just four months.
“Our strategy is to raise prices and improve the mix to offset the cost of raw materials,” said Keith Price, a Goodyear spokesman. “No one has predicted how long we can continue to do that.”
The sense that many companies may be hitting a wall is palpable. Corporate profits peaked last spring and have shrunk since then, Moody’s Economy.com reports, drawing on Commerce Department data.
The housing crisis and the weakening economy are big reasons, but oil prices are adding greatly to the pressure on profits as retailers fail to pass along higher prices to consumers. That helps to explain why expensive oil has not yet pushed up the inflation rate.
So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.
“Companies came into this period with extraordinarily high profit margins,” said Edward McKelvey, chief domestic economist at Goldman Sachs, “and some of the surge in raw material costs will be absorbed by lowering those profits.”
Still, the prevailing attitude that the economy could just keep absorbing higher oil prices is being tested — for the first time in nearly 30 years. Adjusted for inflation, a barrel of crude is now more expensive than it was in 1980, the previous peak.
“The conventional wisdom a couple of years ago was that oil did not have that much leverage over the economy,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “But now it plainly does. People are suddenly paying much more attention to their energy costs and trying to figure out how to manage them.”
Goodyear has kept its head above water in part by passing along some of the higher prices to dealers. The dealers, however, have not been able to pass along all of those increases to consumers and are absorbing the difference in lower profits.
Since last spring, the average profits of the nation’s corporations — from behemoths like Goodyear to small neighborhood retailers — have declined at an annual rate of nearly 6 percent, government data show.
Even companies that have been performing well in the economic downturn are sounding notes of caution. Take Costco, the discount retail chain, which offers a wide array of consumer goods, food, wine, furniture, appliances, beauty aids and much more.
Costco’s profit was up in the first quarter, but James D. Sinegal, the chief executive, says he is “starting to be confronted with unprecedented price increases” for the merchandise that Costco buys to stock its stores. His first response has been to buy in extra large quantities so that he has stock on hand to carry him through subsequent price increases.
“We just made a big purchase of Tumi luggage,” Mr. Sinegal said
Procter & Gamble finds itself in a similar predicament. For its fiscal year beginning next month, it expects to spend an additional $2 billion on oil-based raw materials and commodities. That is double last year’s increase, and it is carved from total revenue of just under $80 billion.
Price increases have helped to offset this cost. They have averaged nearly 5 percent for paper towels, bath tissues and diapers, all made with chemicals derived from oil, said Paul Fox, a company spokesman.
Natural oils have been substituted for ingredients made from petroleum; for example, palm oil now goes into a variety of laundry soaps. But like rubber, the cost of palm oil and other natural commodities is rising.
Trying to hold down raw material costs, Procter & Gamble has resorted to “compacting” a few laundry products, Mr. Fox said, so that the same amount of detergent fits into smaller and less costly containers made of plastic, which is derived from oil.
Still, the company’s operating profit edged down to 20.1 percent of revenue in the first quarter, from 21.9 percent in each of the two previous quarters. “That 20.1 percent was down, but it was an improvement on the advance guidance we had given for that quarter,” Mr. Fox said.
No business in America produces more of the oil-based ingredients that go into the nation’s products than the Dow Chemical Company, based in Midland, Mich. From Dow’s petrochemical operations come the basic ingredients of a wide variety of plastic bottles and packaging, including numerous containers once made of glass or tin.
Indeed, paint, computer and television screens, mobile phones, light bulbs, cushions, paper, mattresses, car seats, carpets, steering wheels and polyesters are all made with ingredients that Dow and other chemical companies refine from oil and natural gas.
Dow normally raises prices piecemeal. Last month, though, the surge in the cost of oil and natural gas, the company’s principal raw materials, produced a rare across-the-board price increase of as much as 20 percent.
“We have taken out head count, automated, been very diligent on cost control,” said Andrew Liveris, Dow’s chairman and chief executive, “but these surges in energy prices are just one surge too many.”
Dow’s sweeping price increases will probably have a domino effect, resulting in higher prices or, more likely, shrinking profits, analysts say. Constrained by the weak economy and fewer wage earners among their customers, the nation’s retailers have so far not been able to pass on to consumers much of the rising cost of products that depend on oil. The Consumer Price Index, minus food and energy, is barely rising.
“One of the surprises,” said Patrick Jackman, a senior economist in the consumer price division of the Bureau of Labor Statistics, “is that the oil price surges of the 1970s passed through fairly quickly into consumer prices, and this time that is not happening.”
Airlines, package shippers and car owners are no longer the only ones being squeezed by the ever-mounting price of oil, which shot up almost $11 a barrel on Friday alone, to $138.54, a record.
Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?
The Goodyear Tire and Rubber Company is trying to adapt. Its raw material of choice now is natural rubber rather than synthetic rubber, made from oil. To sustain profits, it is making more high-end tires for consumers willing to pay upwards of $100 to replace each tire on their cars.
These steps have not been enough, however, particularly now that the cost of natural rubber is also rising sharply, along with that of many other commodities. So Goodyear has raised the prices of its tires by 15 percent in just four months.
“Our strategy is to raise prices and improve the mix to offset the cost of raw materials,” said Keith Price, a Goodyear spokesman. “No one has predicted how long we can continue to do that.”
The sense that many companies may be hitting a wall is palpable. Corporate profits peaked last spring and have shrunk since then, Moody’s Economy.com reports, drawing on Commerce Department data.
The housing crisis and the weakening economy are big reasons, but oil prices are adding greatly to the pressure on profits as retailers fail to pass along higher prices to consumers. That helps to explain why expensive oil has not yet pushed up the inflation rate.
So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.
“Companies came into this period with extraordinarily high profit margins,” said Edward McKelvey, chief domestic economist at Goldman Sachs, “and some of the surge in raw material costs will be absorbed by lowering those profits.”
Still, the prevailing attitude that the economy could just keep absorbing higher oil prices is being tested — for the first time in nearly 30 years. Adjusted for inflation, a barrel of crude is now more expensive than it was in 1980, the previous peak.
“The conventional wisdom a couple of years ago was that oil did not have that much leverage over the economy,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “But now it plainly does. People are suddenly paying much more attention to their energy costs and trying to figure out how to manage them.”
Goodyear has kept its head above water in part by passing along some of the higher prices to dealers. The dealers, however, have not been able to pass along all of those increases to consumers and are absorbing the difference in lower profits.
Since last spring, the average profits of the nation’s corporations — from behemoths like Goodyear to small neighborhood retailers — have declined at an annual rate of nearly 6 percent, government data show.
Even companies that have been performing well in the economic downturn are sounding notes of caution. Take Costco, the discount retail chain, which offers a wide array of consumer goods, food, wine, furniture, appliances, beauty aids and much more.
Costco’s profit was up in the first quarter, but James D. Sinegal, the chief executive, says he is “starting to be confronted with unprecedented price increases” for the merchandise that Costco buys to stock its stores. His first response has been to buy in extra large quantities so that he has stock on hand to carry him through subsequent price increases.
“We just made a big purchase of Tumi luggage,” Mr. Sinegal said
Procter & Gamble finds itself in a similar predicament. For its fiscal year beginning next month, it expects to spend an additional $2 billion on oil-based raw materials and commodities. That is double last year’s increase, and it is carved from total revenue of just under $80 billion.
Price increases have helped to offset this cost. They have averaged nearly 5 percent for paper towels, bath tissues and diapers, all made with chemicals derived from oil, said Paul Fox, a company spokesman.
Natural oils have been substituted for ingredients made from petroleum; for example, palm oil now goes into a variety of laundry soaps. But like rubber, the cost of palm oil and other natural commodities is rising.
Trying to hold down raw material costs, Procter & Gamble has resorted to “compacting” a few laundry products, Mr. Fox said, so that the same amount of detergent fits into smaller and less costly containers made of plastic, which is derived from oil.
Still, the company’s operating profit edged down to 20.1 percent of revenue in the first quarter, from 21.9 percent in each of the two previous quarters. “That 20.1 percent was down, but it was an improvement on the advance guidance we had given for that quarter,” Mr. Fox said.
No business in America produces more of the oil-based ingredients that go into the nation’s products than the Dow Chemical Company, based in Midland, Mich. From Dow’s petrochemical operations come the basic ingredients of a wide variety of plastic bottles and packaging, including numerous containers once made of glass or tin.
Indeed, paint, computer and television screens, mobile phones, light bulbs, cushions, paper, mattresses, car seats, carpets, steering wheels and polyesters are all made with ingredients that Dow and other chemical companies refine from oil and natural gas.
Dow normally raises prices piecemeal. Last month, though, the surge in the cost of oil and natural gas, the company’s principal raw materials, produced a rare across-the-board price increase of as much as 20 percent.
“We have taken out head count, automated, been very diligent on cost control,” said Andrew Liveris, Dow’s chairman and chief executive, “but these surges in energy prices are just one surge too many.”
Dow’s sweeping price increases will probably have a domino effect, resulting in higher prices or, more likely, shrinking profits, analysts say. Constrained by the weak economy and fewer wage earners among their customers, the nation’s retailers have so far not been able to pass on to consumers much of the rising cost of products that depend on oil. The Consumer Price Index, minus food and energy, is barely rising.
“One of the surprises,” said Patrick Jackman, a senior economist in the consumer price division of the Bureau of Labor Statistics, “is that the oil price surges of the 1970s passed through fairly quickly into consumer prices, and this time that is not happening.”
Industrial Nations Vow to Cut Oil Use
The world’s leading economies and oil consumers are pledging greater investment in energy efficiency and green technologies to curtail petroleum use.
In a joint statement on Sunday, energy ministers from the Group of 8 countries, the United States, Japan, Russia, Germany, France, Britain, Italy and Canada, joined by China, India and South Korea, also urged oil producers to increase output, which has stalled at about 85 million barrels a day since 2005. They also called for cooperation between buyers and producers.
But with little prospect for a surge in production anytime soon, the focus of Sunday’s meeting was on what wealthy nations should do to rein in consumption, while reducing carbon emissions blamed for global warming.
While the nations did not pledge specific amounts of money, they said they would set goals in line with International Energy Agency recommendations for a vast expansion of investment in renewable energies and energy efficiency.
The G-8 countries said they would begin 20 demonstration projects by 2010.
In a joint statement on Sunday, energy ministers from the Group of 8 countries, the United States, Japan, Russia, Germany, France, Britain, Italy and Canada, joined by China, India and South Korea, also urged oil producers to increase output, which has stalled at about 85 million barrels a day since 2005. They also called for cooperation between buyers and producers.
But with little prospect for a surge in production anytime soon, the focus of Sunday’s meeting was on what wealthy nations should do to rein in consumption, while reducing carbon emissions blamed for global warming.
While the nations did not pledge specific amounts of money, they said they would set goals in line with International Energy Agency recommendations for a vast expansion of investment in renewable energies and energy efficiency.
The G-8 countries said they would begin 20 demonstration projects by 2010.
India Unable to Use Rupee Gains to Curb Inflation, Fitch Says
India's widening current-account deficit and slowing capital inflows from overseas have denied policy makers the option of letting the rupee gain to curb inflation, according to Fitch Ratings.
The local currency this year has pared more than half of its advance in 2007, when it rallied 12.3 percent, the most in more than three decades. Sales of local stocks by overseas funds and rising oil prices sparked the slump. India's annual inflation rate more than doubled to 8.24 percent in the week ended May 24 from a five-year low of 3.07 percent mid-October.
``Our sense is that when the inflation numbers had started to go up, the central bank had the option to allow the currency rise at their discretion,'' James McCormack, Fitch's head of Asia-Pacific sovereign ratings, said in Mumbai on June 6. ``That has now been taken away because the current-account position isn't strong and capital inflows aren't rising either.''
India's trade deficit widened to a record $9.9 billion in April while the shortfall in the current account, a broad measure of trade and investment flows, widened to $5.4 billion in the quarter through December from $4.7 billion in the previous quarter, according to the central bank.
Overseas money managers sold $4.8 billion more local shares than they bought this year, more than a fourth of their record net purchases in 2007, according to data provided by the Securities and Exchange Board of India.
The rupee closed last week at 42.66 per U.S. dollar.
Inflation may jump to a 13-year high of 9.5 percent after the government raised the retail prices of diesel, gasoline and cooking gas last week, according to analysts at Lehman Brothers Holdings Inc., Standard Chartered Plc and ICICI Securities Ltd. Crude oil prices have more than doubled in the past 12 months to a record $139.12 a barrel on the New York Mercantile Exchange.
``Exchange rate appreciation pressures persisted last year because of the flows,'' McCormack said. ``They don't have the option now. Over time there will now be pressure on the exchange rate to weaken. The rupee is going to remain on the same course for the rest of the year.''
The local currency this year has pared more than half of its advance in 2007, when it rallied 12.3 percent, the most in more than three decades. Sales of local stocks by overseas funds and rising oil prices sparked the slump. India's annual inflation rate more than doubled to 8.24 percent in the week ended May 24 from a five-year low of 3.07 percent mid-October.
``Our sense is that when the inflation numbers had started to go up, the central bank had the option to allow the currency rise at their discretion,'' James McCormack, Fitch's head of Asia-Pacific sovereign ratings, said in Mumbai on June 6. ``That has now been taken away because the current-account position isn't strong and capital inflows aren't rising either.''
India's trade deficit widened to a record $9.9 billion in April while the shortfall in the current account, a broad measure of trade and investment flows, widened to $5.4 billion in the quarter through December from $4.7 billion in the previous quarter, according to the central bank.
Overseas money managers sold $4.8 billion more local shares than they bought this year, more than a fourth of their record net purchases in 2007, according to data provided by the Securities and Exchange Board of India.
The rupee closed last week at 42.66 per U.S. dollar.
Inflation may jump to a 13-year high of 9.5 percent after the government raised the retail prices of diesel, gasoline and cooking gas last week, according to analysts at Lehman Brothers Holdings Inc., Standard Chartered Plc and ICICI Securities Ltd. Crude oil prices have more than doubled in the past 12 months to a record $139.12 a barrel on the New York Mercantile Exchange.
``Exchange rate appreciation pressures persisted last year because of the flows,'' McCormack said. ``They don't have the option now. Over time there will now be pressure on the exchange rate to weaken. The rupee is going to remain on the same course for the rest of the year.''
MARKET UPDATES
Asian stocks dropped, led by automakers and technology companies, on concern surging oil prices and slowing U.S. growth will derail earnings.
Toyota Motor Corp., Japan's largest automaker, and Samsung Electronics Co., Asia's biggest maker of chips, mobile phones and flat panels, fell after U.S. unemployment rose the most in 22 years. Korean Air Lines Co. plunged the most in three months after Goldman, Sachs & Co. cut its share-price forecast and crude jumped more than $10 a barrel on June 6. India's Sensitive Index tumbled 4.3 percent, the most since March.
``We're being attacked from all fronts,'' said Jason Lee, who helps oversee the equivalent of $2.1 billion as general manager of equities at Amanah Raya-JMF Asset Management in Kuala Lumpur. ``We're heading for tough times; expect to see more earnings revisions.''
The MSCI Asia Pacific Index lost 1.5 percent to 148.05 as of 2:40 p.m. in Tokyo, with about nine stocks retreating for each that climbed. All 10 industry groups and every Asian market dropped, apart from Hong Kong, China, Australia and the Philippines, which are closed today for holidays.
Japan's Nikkei 225 Stock Average declined 2 percent to 14,204.97, after ending last week at the highest since Jan. 9.
U.S. stocks tumbled on June 6, sparking the Dow Jones Industrial Average's worst sell-off in 15 months, after the Labor Department said the jobless rate grew to 5.5 percent in May from 5 percent in April, the biggest increase since 1986. Standard & Poor's 500 Index futures expiring in June climbed 0.2 percent.
Toyota, Sony
Toyota, which gets about half of its profit from North America, dropped 2.7 percent to 5,440 yen. Sony Corp., the world's second-largest maker of consumer electronics, fell 3.3 percent to 5,300 yen. Samsung lost 3 percent to 688,000 won.
A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.
MSCI's Asian index has dropped 6.1 percent this year amid signs of slowing expansion in the U.S. and $389 billion of writedowns and credit losses.
``If the U.S. goes, Asia and the rest of the world will also go,'' said Leslie Phang, who helps oversee about $260 billion as Singapore-based head of investment at Schroders Plc's private- clients unit. ``We've now shifted from the scenario of slowdown driven by the credit crunch to that of stagflation because of high oil prices.''
Hon Hai Precision Industry Co., which makes iPods for Apple Inc. and computers for Dell Inc., slumped 3.3 percent to NT$175. Nintendo Co., maker of the Wii game console, slipped 1.7 percent to 57,300 yen.
Oil's Rally
The unemployment report sent the dollar lower, triggering demand among investors for commodities. Crude oil for July delivery rose 8.4 percent on June 6 to $138.54 a barrel in New York, the biggest-ever gain in dollar terms and the largest percentage increase since mid-June 1996. Futures reached a record high of $139.12 during the session.
Record oil prices sent South Korea's consumer confidence lower to 92.2 in May from 100.4 in April, according to the National Statistical Office. That's the weakest in more than three years. Oil prices topping $130 a barrel may slow global economic growth, Japan's Trade Minister Akira Amari said yesterday.
Korean Air, South Korea's largest airline, dropped 5 percent to 51,300 won, set for its biggest drop since April 14. Goldman Sachs cut its share-price estimate by 22 percent to 45,800 won in a report on June 6, saying airline stocks will lag behind other equities because of soaring fuel costs and a decline in traffic.
Flights Cancelled
China Airlines, Taiwan's largest carrier, dropped 5.4 percent to NT$14.90 after spokesman Bruce Chen said the company will cancel 100 passenger flights and 50 cargo services a month, or about 10 percent of its capacity, as jet-fuel prices surge.
EVA Airways Corp. will cancel about 5 percent of its passenger services from Sept. 1 to Dec. 1, spokeswoman Katherine Ko said. The stock fell 4.7 percent to NT$16.30 in Taipei.
Bharat Petroleum Corp., India's second-biggest state refiner, slumped 10 percent to 269.85 rupees on concern that increased fuel prices won't be able to offset losses. The government raised fuel prices on June 4 and reduced taxes to narrow more than $50 billion of revenue losses at refiners.
Indian Oil Corp., the largest, lost 7.7 percent to 349 rupees.
Via Technologies Inc., Taiwan's largest designer of computer processors, gained 6.8 percent to NT$21.95, the biggest advance on MSCI's Asian index. Via said it will cooperate with Nvidia Corp., the world's second-largest maker of graphics-processors, to develop chips for small-sized desktop computers and mini- notebooks.
Toyota Motor Corp., Japan's largest automaker, and Samsung Electronics Co., Asia's biggest maker of chips, mobile phones and flat panels, fell after U.S. unemployment rose the most in 22 years. Korean Air Lines Co. plunged the most in three months after Goldman, Sachs & Co. cut its share-price forecast and crude jumped more than $10 a barrel on June 6. India's Sensitive Index tumbled 4.3 percent, the most since March.
``We're being attacked from all fronts,'' said Jason Lee, who helps oversee the equivalent of $2.1 billion as general manager of equities at Amanah Raya-JMF Asset Management in Kuala Lumpur. ``We're heading for tough times; expect to see more earnings revisions.''
The MSCI Asia Pacific Index lost 1.5 percent to 148.05 as of 2:40 p.m. in Tokyo, with about nine stocks retreating for each that climbed. All 10 industry groups and every Asian market dropped, apart from Hong Kong, China, Australia and the Philippines, which are closed today for holidays.
Japan's Nikkei 225 Stock Average declined 2 percent to 14,204.97, after ending last week at the highest since Jan. 9.
U.S. stocks tumbled on June 6, sparking the Dow Jones Industrial Average's worst sell-off in 15 months, after the Labor Department said the jobless rate grew to 5.5 percent in May from 5 percent in April, the biggest increase since 1986. Standard & Poor's 500 Index futures expiring in June climbed 0.2 percent.
Toyota, Sony
Toyota, which gets about half of its profit from North America, dropped 2.7 percent to 5,440 yen. Sony Corp., the world's second-largest maker of consumer electronics, fell 3.3 percent to 5,300 yen. Samsung lost 3 percent to 688,000 won.
A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.
MSCI's Asian index has dropped 6.1 percent this year amid signs of slowing expansion in the U.S. and $389 billion of writedowns and credit losses.
``If the U.S. goes, Asia and the rest of the world will also go,'' said Leslie Phang, who helps oversee about $260 billion as Singapore-based head of investment at Schroders Plc's private- clients unit. ``We've now shifted from the scenario of slowdown driven by the credit crunch to that of stagflation because of high oil prices.''
Hon Hai Precision Industry Co., which makes iPods for Apple Inc. and computers for Dell Inc., slumped 3.3 percent to NT$175. Nintendo Co., maker of the Wii game console, slipped 1.7 percent to 57,300 yen.
Oil's Rally
The unemployment report sent the dollar lower, triggering demand among investors for commodities. Crude oil for July delivery rose 8.4 percent on June 6 to $138.54 a barrel in New York, the biggest-ever gain in dollar terms and the largest percentage increase since mid-June 1996. Futures reached a record high of $139.12 during the session.
Record oil prices sent South Korea's consumer confidence lower to 92.2 in May from 100.4 in April, according to the National Statistical Office. That's the weakest in more than three years. Oil prices topping $130 a barrel may slow global economic growth, Japan's Trade Minister Akira Amari said yesterday.
Korean Air, South Korea's largest airline, dropped 5 percent to 51,300 won, set for its biggest drop since April 14. Goldman Sachs cut its share-price estimate by 22 percent to 45,800 won in a report on June 6, saying airline stocks will lag behind other equities because of soaring fuel costs and a decline in traffic.
Flights Cancelled
China Airlines, Taiwan's largest carrier, dropped 5.4 percent to NT$14.90 after spokesman Bruce Chen said the company will cancel 100 passenger flights and 50 cargo services a month, or about 10 percent of its capacity, as jet-fuel prices surge.
EVA Airways Corp. will cancel about 5 percent of its passenger services from Sept. 1 to Dec. 1, spokeswoman Katherine Ko said. The stock fell 4.7 percent to NT$16.30 in Taipei.
Bharat Petroleum Corp., India's second-biggest state refiner, slumped 10 percent to 269.85 rupees on concern that increased fuel prices won't be able to offset losses. The government raised fuel prices on June 4 and reduced taxes to narrow more than $50 billion of revenue losses at refiners.
Indian Oil Corp., the largest, lost 7.7 percent to 349 rupees.
Via Technologies Inc., Taiwan's largest designer of computer processors, gained 6.8 percent to NT$21.95, the biggest advance on MSCI's Asian index. Via said it will cooperate with Nvidia Corp., the world's second-largest maker of graphics-processors, to develop chips for small-sized desktop computers and mini- notebooks.
Saturday, June 07, 2008
Oil Prices Take a Nerve-Rattling Jump Past $138
The rise in oil prices turned into a stampede on Friday with futures jumping a staggering $11 a barrel to set a record above $138 a barrel. The unprecedented surge came as the dollar fell sharply against the euro and a senior Israeli politician once again raised the possibility of an attack against Iran.
Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.
Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.
“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”
The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.
Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.
The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.
Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.
Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.
“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”
Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.
The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.
A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.
One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.
“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”
But many analysts say that fundamentals, not speculation, are driving prices.
“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”
Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.
“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”
Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.
Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.
“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”
The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.
Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.
The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.
Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.
Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.
“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”
Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.
The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.
A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.
One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.
“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”
But many analysts say that fundamentals, not speculation, are driving prices.
“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”
Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.
“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”
Friday, June 06, 2008
MARKET PREDICTION
GLOBAL MARKET IS IN POSITIVE NOTE TODAY.
NIFTY WILL BE HOVERING BETWEEN 4500-4800.
TOTAL MARKET OI IS 68 K CR AND PUT CALL RATIO AGAIN INCHED UP TO 1.65% FROM 1.59%.
TODAYS LEVEL
IF NIFTY HOLD 4700 CLOSE YOUR SHORT POSITION OTHERWISE GO SHORT WITH SL OF 4730.
FOR FRESH SHORT IT WILL PRUDENT TO WATCH @4800 LEVEL.
IF NIFTY CROSSES 4800 THEN WE CAN ASSUME FESH LONG OTHER WISE WE CAN ASSUME SHORT WITH SL OF 4800.
HAVE A NICE TRADING DAY ..
-MR SAM
NIFTY WILL BE HOVERING BETWEEN 4500-4800.
TOTAL MARKET OI IS 68 K CR AND PUT CALL RATIO AGAIN INCHED UP TO 1.65% FROM 1.59%.
TODAYS LEVEL
IF NIFTY HOLD 4700 CLOSE YOUR SHORT POSITION OTHERWISE GO SHORT WITH SL OF 4730.
FOR FRESH SHORT IT WILL PRUDENT TO WATCH @4800 LEVEL.
IF NIFTY CROSSES 4800 THEN WE CAN ASSUME FESH LONG OTHER WISE WE CAN ASSUME SHORT WITH SL OF 4800.
HAVE A NICE TRADING DAY ..
-MR SAM
PM asks colleagues to cut down on wasteful expenditure
In a bid to dispel any misgivings in the common man’s mind about the government maintaining high expenditure levels while the ‘aam aadmi’ faces increasing pressure on their cash flows due to the fuel price hike, Prime Minister Manmohan Singh has asked his council of ministers and officers to voluntarily cut down on any ‘wasteful expenditure’ and refrain from foreign travel unless absolutely necessary, as economic measures in the face of rising oil prices.
While the PM has asked the Cabinet Secretary KM Chandrashekhar to rigorously scrutinise all foreign as well as local travel proposals to trim down on government expenses on quarterly basis, the finance ministry has come out with elaborate guidelines to ‘ensure fiscal discipline’ amongst ministries and departments. Departments have been asked to refrain from holding conferences in five star hotels, while babus have to switch to low-cost airlines for official travel.
This is the first time when such guidelines have been issued within two months of the Budget being passed. Such measures are usually taken in the third quarter of the year when expenditures of government ministries are reviewed and revised estimates drawn up.
Even though it is an election year when government is at its generous best, no new schemes would be announced apart from what has been promised in the Budget. The guidelines also said there will be no additional expenditure over and above the prescribed budgets for existing schemes and no changes in any schemes will be permitted.
Urging his colleagues to observe austerity and expecting full support from them, the PM in his letter said that spiraling oil prices have imposed a huge burden on the financial resources of the country and as some of this load is borne by the public, it is the “moral duty” of the government to cut down on all unwanted expenditure in its establishments.
“We need to explain to the people the constraints and reasons that have compelled the government to introduce these measures. Simultaneously, however, it is equally necessary for us to introduce the utmost Economy in our own administrations and establishments. It cannot be denied that there is substantial scope to reduce expenditure on travel and administration,” Singh wrote.
“I am, therefore, writing to ask you to severely curtail expenditure on air travel, particularly foreign travel, except in cases where it is deemed to be absolutely necessary. This Economy may be made applicable immediately for your own self and also for all senior functionaries in your Ministry,” Singh wrote. This is not the first time the PM has written such a letter. He had written a similar letter couple of years back.
Reiterating the PM’s concerns, Expenditure Secretary Sushma Nath said, “There is tremendous pressure on government’s resources due to food and fertiliser subsidies, NREGA, rising oil prices, leading to the need for Economy and rationalisation of expenditure.”
While the PM has asked the Cabinet Secretary KM Chandrashekhar to rigorously scrutinise all foreign as well as local travel proposals to trim down on government expenses on quarterly basis, the finance ministry has come out with elaborate guidelines to ‘ensure fiscal discipline’ amongst ministries and departments. Departments have been asked to refrain from holding conferences in five star hotels, while babus have to switch to low-cost airlines for official travel.
This is the first time when such guidelines have been issued within two months of the Budget being passed. Such measures are usually taken in the third quarter of the year when expenditures of government ministries are reviewed and revised estimates drawn up.
Even though it is an election year when government is at its generous best, no new schemes would be announced apart from what has been promised in the Budget. The guidelines also said there will be no additional expenditure over and above the prescribed budgets for existing schemes and no changes in any schemes will be permitted.
Urging his colleagues to observe austerity and expecting full support from them, the PM in his letter said that spiraling oil prices have imposed a huge burden on the financial resources of the country and as some of this load is borne by the public, it is the “moral duty” of the government to cut down on all unwanted expenditure in its establishments.
“We need to explain to the people the constraints and reasons that have compelled the government to introduce these measures. Simultaneously, however, it is equally necessary for us to introduce the utmost Economy in our own administrations and establishments. It cannot be denied that there is substantial scope to reduce expenditure on travel and administration,” Singh wrote.
“I am, therefore, writing to ask you to severely curtail expenditure on air travel, particularly foreign travel, except in cases where it is deemed to be absolutely necessary. This Economy may be made applicable immediately for your own self and also for all senior functionaries in your Ministry,” Singh wrote. This is not the first time the PM has written such a letter. He had written a similar letter couple of years back.
Reiterating the PM’s concerns, Expenditure Secretary Sushma Nath said, “There is tremendous pressure on government’s resources due to food and fertiliser subsidies, NREGA, rising oil prices, leading to the need for Economy and rationalisation of expenditure.”
Food Is Gold, So Billions Invested in Farming
Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.
But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.
One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.
Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.
And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”
These new bets by big investors could bolster food production at a time when the world needs more of it.
The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.
“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.
Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.
When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
“It’s a huge disadvantage to not be able to trade the physical commodity,” said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.
Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.
“We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors,” he said.
The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.
“The world is asking for more food, more energy. You see a huge demand,” said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.
“What this new investment will buy is more technology,” Mr. Hinsch said. “We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply.”
Financial investors also can provide grain elevator operators the money they need to weather today’s more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.
Maintaining these essential services “helps bring costs down to the farmers,” Mr. Duryea said. “That has to help mitigate the price increases for crops.”
Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially.
“It is not in our best interests for anyone to be negatively affected by what we do,” he said.
Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London.
Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.
One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production, Ms. Payne said.
“We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.
The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”
The Emergent fund is one of a growing roster of farmland investment funds based in Britain.
Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.
Braemar Group, near Manchester, is investing exclusively in Britain. “Britain is a nice, stable northwestern European economy with the same climate and quality of soil as northwestern Europe,” said Marc Duschenes, Braemar’s chief executive. “But our land is at a 50 percent discount to Ireland and Denmark. We just haven’t caught up yet.“
Europe, like the United States, is facing mandated increases in biofuel production, he said, and cropland near new ethanol facilities in the northeast of England will be the first source of supply.
“No one is going to put a ton of grain on a boat in Latin America and ship it to the northeast of England to turn it into bioethanol,” he said.
For Gary R. Blumenthal, chief executive of World Perspectives, an agriculture consulting firm in Washington, the new investments by big financial players, if sustained, could be just what global agriculture needs — “where you can bring small, fragmented pieces together to boost the production side of agriculture.”
He added: “Investment funds are seeing that this consolidation brings value to them. But I’m saying this brings value to everyone.”
But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.
One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.
Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.
And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”
These new bets by big investors could bolster food production at a time when the world needs more of it.
The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.
“Farmland can be a bubble just like Florida real estate,” said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. “The cycle of getting in and out would be very volatile and disruptive.”
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.
Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities.
When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
“It’s a huge disadvantage to not be able to trade the physical commodity,” said Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm in Minneapolis.
Mr. Redleaf bought several large grain elevator complexes from ConAgra and Cargill last year for a long-term stake in what he sees as a high-growth business. The elevators can store 36 million bushels of grain.
“We discovered that our lease customers, major food company types, are really happy to see us, because they are apt to see Cargill and ConAgra as competitors,” he said.
The executives making such bets say that fears about their new role are unfounded, and that their investments will be a plus for farming and, ultimately, for consumers.
“The world is asking for more food, more energy. You see a huge demand,” said Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis Dreyfus Commodities, which is buying tens of thousands of acres of cropland in Brazil with the backing of big institutional investors, including AIG Investments.
“What this new investment will buy is more technology,” Mr. Hinsch said. “We will be helping to accelerate the development of infrastructure, and the consumer will benefit because there will be more supply.”
Financial investors also can provide grain elevator operators the money they need to weather today’s more volatile commodity markets. When wild swings in prices become common, as they are now, elevator operators have to put up more cash to lock in future prices. John Duryea, co-portfolio manager of the Ospraie Special Opportunity Fund, is buying 66 grain elevators with a total capacity of 110 million bushels from ConAgra for $2.1 billion. The deal, expected to close by the end of June, also will give Ospraie a stake in 57 fertilizer distribution centers and the barges and ships necessary to keep them supplied with low-cost imports.
Maintaining these essential services “helps bring costs down to the farmers,” Mr. Duryea said. “That has to help mitigate the price increases for crops.”
Mr. Duryea of the Ospraie fund dismissed the idea that financial investors, with obligations to suppliers and customers of their elevators and fertilizer services, would put their thumb on the supply-demand scale by holding back inventory to move prices artificially.
“It is not in our best interests for anyone to be negatively affected by what we do,” he said.
Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London.
Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.
One crop and a source of fuel for farming operations will be jatropha, an oil-seed plant useful for biofuels that is grown in sandy soil unsuitable for food production, Ms. Payne said.
“We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.
The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”
The Emergent fund is one of a growing roster of farmland investment funds based in Britain.
Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.
Braemar Group, near Manchester, is investing exclusively in Britain. “Britain is a nice, stable northwestern European economy with the same climate and quality of soil as northwestern Europe,” said Marc Duschenes, Braemar’s chief executive. “But our land is at a 50 percent discount to Ireland and Denmark. We just haven’t caught up yet.“
Europe, like the United States, is facing mandated increases in biofuel production, he said, and cropland near new ethanol facilities in the northeast of England will be the first source of supply.
“No one is going to put a ton of grain on a boat in Latin America and ship it to the northeast of England to turn it into bioethanol,” he said.
For Gary R. Blumenthal, chief executive of World Perspectives, an agriculture consulting firm in Washington, the new investments by big financial players, if sustained, could be just what global agriculture needs — “where you can bring small, fragmented pieces together to boost the production side of agriculture.”
He added: “Investment funds are seeing that this consolidation brings value to them. But I’m saying this brings value to everyone.”
Oil Rises Above $128 After Record Surge on Weak Dollar
Oil rose above $128 on Friday, extending gains after its biggest ever one-day rise in the previous session, as the U.S. dollar weakened on signals the European Central Bank may raise interest rates this year.
U.S. light crude for July delivery rose 31 cents a barrel to $128.10 a barrel by 10:11 p.m. EDT, having settled up $5.49 at $127.79, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.
The contract was up $6.08 to $128.38 in after-hours trading, its largest outright gain on record and up by nearly 5 percent from Wednesday's settlement.
London Brent crude rose 5 cents to $127.59 on Friday.
"A $6 jump is quite a major move. Financial flows came back. If oil continues to rise, it could test $135 or $140. The market is in a state of uncertainty after such a move," Marc Lansonneur, Societe Generale's head of commodities derivatives in Asia, said.
"Today will be a key day because we'll see whether the rebound was purely technical or not. It could set the trend for next week," he added. The dollar was steady against the euro on Friday, having fallen by more than 1 percent on Thursday after European Central Bank President Jean-Claude Trichet said a number of policymakers wanted higher interest rates and a hike was possible as soon as next month.
DEMAND
The sharp reversal in the dollar put longer-term worries about weakening oil demand on the backburner, after they were rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills.
The International Energy Agency, adviser to 27 industrialized countries, issues its latest forecasts next week and has said it may lower its 2008 demand growth projection further, after having already more than halved it to 1.03 million barrels per day (bpd), from an early estimate of 2.2 million bpd in July 2007.
But some analysts say subsidy cuts in Asia will not be enough to slow oil use.
"World oil demand growth is still accounted mostly by China, the Middle East and Latin America - and through the summer, there is no reason to expect a material slowdown in demand growth in these areas," said Harry Tchilinguirian, oil analyst at BNP Paribas in London in the bank's June global outlook.
U.S. light crude for July delivery rose 31 cents a barrel to $128.10 a barrel by 10:11 p.m. EDT, having settled up $5.49 at $127.79, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.
The contract was up $6.08 to $128.38 in after-hours trading, its largest outright gain on record and up by nearly 5 percent from Wednesday's settlement.
London Brent crude rose 5 cents to $127.59 on Friday.
"A $6 jump is quite a major move. Financial flows came back. If oil continues to rise, it could test $135 or $140. The market is in a state of uncertainty after such a move," Marc Lansonneur, Societe Generale's head of commodities derivatives in Asia, said.
"Today will be a key day because we'll see whether the rebound was purely technical or not. It could set the trend for next week," he added. The dollar was steady against the euro on Friday, having fallen by more than 1 percent on Thursday after European Central Bank President Jean-Claude Trichet said a number of policymakers wanted higher interest rates and a hike was possible as soon as next month.
DEMAND
The sharp reversal in the dollar put longer-term worries about weakening oil demand on the backburner, after they were rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills.
The International Energy Agency, adviser to 27 industrialized countries, issues its latest forecasts next week and has said it may lower its 2008 demand growth projection further, after having already more than halved it to 1.03 million barrels per day (bpd), from an early estimate of 2.2 million bpd in July 2007.
But some analysts say subsidy cuts in Asia will not be enough to slow oil use.
"World oil demand growth is still accounted mostly by China, the Middle East and Latin America - and through the summer, there is no reason to expect a material slowdown in demand growth in these areas," said Harry Tchilinguirian, oil analyst at BNP Paribas in London in the bank's June global outlook.
Thursday, June 05, 2008
India aims to be Green manufacturing hub
This is the brand that will give India Inc a pole position in the global manufacturing sweepstakes. The government plans to market Indian manufacturing as Green to make it stand apart from Chinese or even say US products, which are typically energy-intensive. There is sound economics behind the tag.
Top government officials say Indian manufacturers in most sectors are far more energy efficient than their counterparts abroad. This means in addition to labour intensive character, products manufactured here are more environmentally compatible. For instance, in cement industry, against the global lowest energy intensity of 65 kilowatt per tonne, the domestic manufacturers are at a comfortably close 69. The same picture is evolving in other manufacturing sectors like steel.
According to Ajay Shankar, secretary, department of industrial policy and promotion, India is ideally suited to develop Green as the USP of its manufacturing profile. “Our best is already there, the strategy is to make the followers catch up with them”, he said.
Measurements of overall energy intensity of GDP in India also point to the same trend. According to the government’s own estimates, energy intensity here is the same as in OECD countries, when GDP is calculated in terms of the purchasing power parity (PPP). Industry chambers, like Ficci and CII also aver that the move has started vigorously.
“Our manufacturing is at par with the best in the world and far better than the developing world,” said Arun Kumar, associate director, KPMG.
Top government officials say Indian manufacturers in most sectors are far more energy efficient than their counterparts abroad. This means in addition to labour intensive character, products manufactured here are more environmentally compatible. For instance, in cement industry, against the global lowest energy intensity of 65 kilowatt per tonne, the domestic manufacturers are at a comfortably close 69. The same picture is evolving in other manufacturing sectors like steel.
According to Ajay Shankar, secretary, department of industrial policy and promotion, India is ideally suited to develop Green as the USP of its manufacturing profile. “Our best is already there, the strategy is to make the followers catch up with them”, he said.
Measurements of overall energy intensity of GDP in India also point to the same trend. According to the government’s own estimates, energy intensity here is the same as in OECD countries, when GDP is calculated in terms of the purchasing power parity (PPP). Industry chambers, like Ficci and CII also aver that the move has started vigorously.
“Our manufacturing is at par with the best in the world and far better than the developing world,” said Arun Kumar, associate director, KPMG.
Govt approves 23 SEZ proposals
The government on Wednesday approved 23 more proposals for setting up Special Economic Zones, including an airport-based one by Bangalore International Airport Ltd and an IT zone by Larsen and Toubro.
The Board of Approval (BoA) for SEZ, chaired by Commerce Secretary Gopal Pillai, took up 27 proposals of which 21 were granted formal approvals while the in-principle nod to two projects were converted into formal approvals, an official statement said here. BIAL's airport-based 113 hectare SEZ at Devanahali in Bangalore was given formal approval as was the 15 hectare IT zone in Gujarat by Larsen and Toubro. Among those which were granted formal approvals include 13 proposals by Deccan Infrastructure and Land Holdings Ltd for IT, ITeS, sector specific and gems & jewellery zones in Andhra Pradesh. Diamond IT Infracon's IT zone in Uttar Pradesh was also given the go-ahead. The in-principle nod to the metal SEZ by Germach Infrastructure Equipments and Projects Ltd and engineering SEZ by Maharashtra Industrial Development Corporation in Maharashtra was converted to formal approvals. The government has so far given formal approval to 467 SEZs of which 225 have been notified and are directly employing 97,993 people. Physical exports from the SEZs have increased to Rs 66,638 crore in the last fiscal registering a growth of 92 per cent from Rs 34,615 crore in 2006-07.
The Board of Approval (BoA) for SEZ, chaired by Commerce Secretary Gopal Pillai, took up 27 proposals of which 21 were granted formal approvals while the in-principle nod to two projects were converted into formal approvals, an official statement said here. BIAL's airport-based 113 hectare SEZ at Devanahali in Bangalore was given formal approval as was the 15 hectare IT zone in Gujarat by Larsen and Toubro. Among those which were granted formal approvals include 13 proposals by Deccan Infrastructure and Land Holdings Ltd for IT, ITeS, sector specific and gems & jewellery zones in Andhra Pradesh. Diamond IT Infracon's IT zone in Uttar Pradesh was also given the go-ahead. The in-principle nod to the metal SEZ by Germach Infrastructure Equipments and Projects Ltd and engineering SEZ by Maharashtra Industrial Development Corporation in Maharashtra was converted to formal approvals. The government has so far given formal approval to 467 SEZs of which 225 have been notified and are directly employing 97,993 people. Physical exports from the SEZs have increased to Rs 66,638 crore in the last fiscal registering a growth of 92 per cent from Rs 34,615 crore in 2006-07.
MARKET PREDICTION
GLOBAL CUES ARE NEGATIVE ..BUT GOLD AND CRUDE ARE MOVING DOWN WHICH IS HEALTY FOR ECONOMY.
RS VS DOLLAR IS 42.7.
THERE IS ONE THREAT IN MARKET i.e. INFLATION.
TOTAL MARKET WIDE O I IS 66 K CR PUT CALL RATIO IS 1.57% EASING FROM HIGH OF 2.08%.
NIFTY LEVEL TO BE WATCHED OUT 4500-4580-4630-4690.
IT WILL BE PRUDENT TO SELL AT EVERY HIGH CLOSE ALL LONG.
HAVE A NICE TRADING DAY
-MR SAM
RS VS DOLLAR IS 42.7.
THERE IS ONE THREAT IN MARKET i.e. INFLATION.
TOTAL MARKET WIDE O I IS 66 K CR PUT CALL RATIO IS 1.57% EASING FROM HIGH OF 2.08%.
NIFTY LEVEL TO BE WATCHED OUT 4500-4580-4630-4690.
IT WILL BE PRUDENT TO SELL AT EVERY HIGH CLOSE ALL LONG.
HAVE A NICE TRADING DAY
-MR SAM
PM admits fuel price increases will be unpopular
Fuel price increases unveiled by the government on Wednesday were modest but will be unpopular, Prime Minister Manmohan Singh said on Wednesday, adding India must get used to paying the "economic cost" for petroleum products.
In a rare televised address to the nation hours after the domestic petrol and diesel prices were hiked by about 10 percent, Singh said the government remained committed to minimising the impact of surging crude oil prices.
But he said "issuing oil bonds and loading deficit on oil companies" did not represent a permanent solution to the problems caused by oil's record-breaking rally.
Doing so while restricting the revenues of state oil firms would choke a vital growth sector of the economy.
"We need to learn to adjust to this new international scenario. And we need to pay the economic cost of petroleum products," Singh said.
He also urged state governments, many of which tax petroleum products substantially, to contribute to the union government's efforts by reducing taxes and levies.
In a rare televised address to the nation hours after the domestic petrol and diesel prices were hiked by about 10 percent, Singh said the government remained committed to minimising the impact of surging crude oil prices.
But he said "issuing oil bonds and loading deficit on oil companies" did not represent a permanent solution to the problems caused by oil's record-breaking rally.
Doing so while restricting the revenues of state oil firms would choke a vital growth sector of the economy.
"We need to learn to adjust to this new international scenario. And we need to pay the economic cost of petroleum products," Singh said.
He also urged state governments, many of which tax petroleum products substantially, to contribute to the union government's efforts by reducing taxes and levies.
Wednesday, June 04, 2008
MARKET PREDICTION
GLOBAL MARKET IS WITNESSING WEAKNESS.
CRUDE IS HOVERING AROUND AT 124 (APROX)AND GOLD IS AROUND $882.
DOLLAR SHOWING STRENGTH AGAINST RUPEE AND WAS CLOSED AROUND 42.58.
NIFTY IS SHOWING HEAVY SELLING SINCE LAST TWO THREE SESSION...
YESTERDAY NIFTY SHOWED SHORT COVERING FROM AROUND 4600 LEVEL AND PULLED UP TO 4715.
TODAYS LEVEL IS 4650- 4700-4750-4800 .
IT WOUULD BE PRUDENT TO CLOSE ALL LONG IF MARKET PULLED UP.AND GO SHORT FROM 4800 LEVEL WITH SL OF 4830.
FII TURNED NET SELLER THIS MONTH.
FEW POLITICAL UNSTABULITY ALSO THERE.BE CAUTIOUS IN LONG POSITION,ACCUMULATION IN LOWER STRIKE OF NIFTY PUT WITNESSING MORE DOWN SIDE IN MARKET.HAVE A NICE TRADING DAY.
CRUDE IS HOVERING AROUND AT 124 (APROX)AND GOLD IS AROUND $882.
DOLLAR SHOWING STRENGTH AGAINST RUPEE AND WAS CLOSED AROUND 42.58.
NIFTY IS SHOWING HEAVY SELLING SINCE LAST TWO THREE SESSION...
YESTERDAY NIFTY SHOWED SHORT COVERING FROM AROUND 4600 LEVEL AND PULLED UP TO 4715.
TODAYS LEVEL IS 4650- 4700-4750-4800 .
IT WOUULD BE PRUDENT TO CLOSE ALL LONG IF MARKET PULLED UP.AND GO SHORT FROM 4800 LEVEL WITH SL OF 4830.
FII TURNED NET SELLER THIS MONTH.
FEW POLITICAL UNSTABULITY ALSO THERE.BE CAUTIOUS IN LONG POSITION,ACCUMULATION IN LOWER STRIKE OF NIFTY PUT WITNESSING MORE DOWN SIDE IN MARKET.HAVE A NICE TRADING DAY.
Tuesday, June 03, 2008
Post Market Analysis
The market staged a smart intra-day rebound in second half of the day’s trading session led by recovery in Reliance Industries (RIL). Panic selling in early trade by wary investors kept market depressed in the first half. Fears in the market were that Left parties might withdraw support to the government, which may lead to early election. The market witnessed choppy swings throughout the day. Cement sector was the start sector of the day.
European markets, which opened before Indian market, were mixed. Asian markets which opened before Indian market recovered from early lows.
The Revolutionary Socialist Party (RSP), a part of the Left front, is reportedly pulling out of the United Progressive Alliance (UPA)-Left coordination committee. RSP has been seeking withdrawal of support to the UPA government since the last three years. The party is now planning to to step up pressure on the other Left parties to withdraw their support to the Manmohan Singh government, reports suggest
The 30-share BSE Sensex was down 97.95 points or 0.61% at 15,965.23, as per provisional closing. Sensex lost 77.78 points at day’s high of 15,985.40 hit in mid-afternoon trade. The barometer index opened 211.46 points lower at 15,851.72 and it had slipped further to touch a low of 15,709.51 in mid-morning trade. At the day’s low, the Sensex lost 353.67 points.
The broader based S&P CNX Nifty was down 23.70 points or 0.5% at 4715.90 as per provisional closing
The market breadth was weak on BSE with 1810 shares declining as compared to 860 that advanced. 55 remained unchanged.
The BSE Mid-Cap index declined 0.41% to 6,557.55 and the BSE Small-Cap index shed 0.77% to 7,897.95, as per provisional closing.
The total turnover on BSE amounted to Rs 5229 crore as compared to Rs 3934 crore by 14:30 IST
Among the 30-member Sensex pack, 18 declined while the rest gained.
India’s largest cellular services provider Bharti Airtel slumped 4.23% to Rs 840.55 on 4.15 lakh shares. The stock had hit an intra-day high of Rs 868.65 in opening trade. It was the top loser from Sensex pack.
Select Sensex stocks staged a smart recovery from early lows. Reliance Infrastructure (down 3.72% to Rs 1126.90, off day’s low of Rs 1085), HDFC (down 2.87% to Rs 2458, off day’s low of Rs 2432), Bharat Heavy Electricals (down 2.86% to Rs 1550, off day’s low of Rs 1501.15) and Jaiprakash Associates (down 2.31% to Rs 207, off day’s low of Rs 200.20) recovered.
India’s largest private sector company in terms of market capitalisation and oil refiner Reliance Industries (RIL) advanced 2.31% to Rs 2410 on 11.65 lakh shares. As per reports, the Punjab Infrastructure Development Board (PIDB) has received proposals from Reliance Industries and Omaxe to set up an expressway from Pathankot to Ajmer and a ring road around Amritsar respectively.
India’s fourth largest software services exporter Satyam Computer Services shed 3.31% to Rs 501.50 after Upaid Systems said it has filed fresh claims as part of court proceedings against Satyam in a US court, which could raise possible damages beyond the earlier stated $1 billion.
In 2005, a patent infringement court case was initiated in Texas against third parties which revealed the use of forged signatures by Satyam employees on critical documents provided to Upaid by Satyam.
India’s largest private sector engineering company in terms of order book Larsen & Toubro declined 2.44% to Rs 2845. The company said on Monday, 2 June 2008, it is seeking shareholders' approval to transfer its medical equipment and systems business to a subsidiary or to sell it.
Private sector banking shares declined tracking fall in their American Depository Receipt (ADRs) on the New York Stock Exchange yesterday, 2 June 2008. ICICI Bank lost 0.90% to Rs 757.95 after its ADR slumped 6% and HDFC Bank shed 0.40% to Rs 1306 after its ADR fell 5.5%.
India’s largest bank in terms of market capitalisation State Bank of India (SBI) slipped 0.94% to Rs 1381
India’s largest pharma company in terms of sales Ranbaxy laboratories surged 3.67% to Rs 532.90 on 4.34 lakh shares. It was the top gainer from Sensex pack
Cement shares advanced on reports the government has restored benefits under the duty entitlement pass book (DEPB) scheme on export of cement, with immediate effect. India's largest cement company in terms of sales ACC advanced 3.50% to Rs 648. The company has reportedly short listed some companies for acquisition. ACC has cash reserves of Rs 1000 crore which it would use for expansion and acquisition, reports suggest.
India’s second largest cement company in terms of sales Ambuja Cements rose 0.16% to Rs 92.40 even on company said its cement shipments fell 1% to 1.51 million tonnes in May 2008 over May 2007. Ambuja Cements' production fell 1% to 1.49 million tonnes in May 2008 over May 2007.
UltraTech Cement Company (up 1.28% to Rs 650), Prism Cement (up 2.44% to Rs 37.80), India Cements (up 4.38% to Rs 165.85), and Mysore Cements (up 6.42% to Rs 35.65) advanced.
India's largest truck maker by sales Tata Motors rose 1.43% to Rs 571 after the company said on Monday it had completed the $2.3 billion acquisition of British luxury brands Jaguar and Land Rover.
Wipro (up 2.57% to Rs 508), ONGC (up 1.49% to Rs 845.55), DLF (up 2.53% to Rs 582), and Cipla (up 1.49% to Rs 210.85), edged higher from Sensex pack.
Reliance Industries was the top traded counter on BSE with turnover of Rs 278.70 crore followed by Reliance Capital (Rs 211.62 crore), Essar Oil (Rs 165.49 crore), Reliance Petroleum (Rs 155.16 crore), and IFCI (Rs 128.35 crore), in that order.
Prime Minister Manmohan Singh yesterday, 2 June 2008, indicated that the government is left with no option but to hike the fuel prices in the wake of soaring global crude oil prices. However government's move to hike fuel price will face challenge from Left, and may propel inflation above 10%.
On the other hand, if government does not hike prices, oil marketing companies will go bankrupt, spoiling its report card.
European markets, which opened before Indian market, were mixed in opening session. Key benchmark indices in United Kingdom (up 0.03% to 6,009.40), and France (up 0.06% to 4,938.15), rose. However Germany’s DAX index slipped 0.46% to 6,976.87
Asian markets, which opened before Indian market, rebounded from early lows, but were still in the red. Shanghai Composite (down 0.65% at 3,436.80), Japan's Nikkei (down 1.60% at 14,209.17), Hong Kong's Hang Seng (down 1.83% at 24,375.76), Taiwan's Taiwan Weighted (down 1.64% at 8,581.35), Straits Times (down 1.13% at 3,151.98) and South Korea's Seoul Composite (down 1.44% at 1,821), edged lower.
US markets declined yesterday, 2 June 2008, on renewed fears that the credit crunch is yet to run its course after S&P downgraded debt ratings of three big securities companies. In the economic news, the May Institute of Supply Management (ISM) index, rose 2.1%, suggesting a slight contraction in United States manufacturing activity.
The Dow Jones industrial average plunged 134.50, or 1.06%, to 12,503.82. The S&P 500 index slipped 14.71 points, or 1.05%, to 1,385.67. The Nasdaq Composite index was down 31.13 points, or 1.23%, to 2,491.53.
Back home, mounting political concern rattled bourses since second half of day's trading session, wiping-off early gains, yesterday, 2 June 2008. The 30-share BSE Sensex lost 352.39 points or 2.15% to 16,063.18 and the broader based S&P CNX Nifty declined 130.5 points or 2.68% to shut shop at 4,739.60, on that day.
As per provisional data, foreign funds sold shares worth a net Rs 349.84 crore yesterday, 2 June 2008. They have been on a selling drive recently, offloading shares worth Rs 5,015 crore in past nine trading sessions. Domestic funds bought shares worth a net Rs 9.81 crore on that day.
Foreign institutional investors (FIIs) were net buyers of Rs 242.85 crore in the futures & options segment yesterday, 2 June 2008. They were net sellers of index futures to the tune of Rs 923.24 crore and bought index options worth Rs 759.95 crore. They were net buyers of stock futures to the tune of Rs 390.03 crore and bought stock options worth Rs 16.11 crore.
US light crude for July delivery fell 50 cents a barrel to $127.26 today, 3 June 2008, as the start of the hurricane season stirred concerns that oil and natural gas output could be disrupted in the Gulf of Mexico. London Brent crude fell 80 cents to $127.22 a barrel today.
European markets, which opened before Indian market, were mixed. Asian markets which opened before Indian market recovered from early lows.
The Revolutionary Socialist Party (RSP), a part of the Left front, is reportedly pulling out of the United Progressive Alliance (UPA)-Left coordination committee. RSP has been seeking withdrawal of support to the UPA government since the last three years. The party is now planning to to step up pressure on the other Left parties to withdraw their support to the Manmohan Singh government, reports suggest
The 30-share BSE Sensex was down 97.95 points or 0.61% at 15,965.23, as per provisional closing. Sensex lost 77.78 points at day’s high of 15,985.40 hit in mid-afternoon trade. The barometer index opened 211.46 points lower at 15,851.72 and it had slipped further to touch a low of 15,709.51 in mid-morning trade. At the day’s low, the Sensex lost 353.67 points.
The broader based S&P CNX Nifty was down 23.70 points or 0.5% at 4715.90 as per provisional closing
The market breadth was weak on BSE with 1810 shares declining as compared to 860 that advanced. 55 remained unchanged.
The BSE Mid-Cap index declined 0.41% to 6,557.55 and the BSE Small-Cap index shed 0.77% to 7,897.95, as per provisional closing.
The total turnover on BSE amounted to Rs 5229 crore as compared to Rs 3934 crore by 14:30 IST
Among the 30-member Sensex pack, 18 declined while the rest gained.
India’s largest cellular services provider Bharti Airtel slumped 4.23% to Rs 840.55 on 4.15 lakh shares. The stock had hit an intra-day high of Rs 868.65 in opening trade. It was the top loser from Sensex pack.
Select Sensex stocks staged a smart recovery from early lows. Reliance Infrastructure (down 3.72% to Rs 1126.90, off day’s low of Rs 1085), HDFC (down 2.87% to Rs 2458, off day’s low of Rs 2432), Bharat Heavy Electricals (down 2.86% to Rs 1550, off day’s low of Rs 1501.15) and Jaiprakash Associates (down 2.31% to Rs 207, off day’s low of Rs 200.20) recovered.
India’s largest private sector company in terms of market capitalisation and oil refiner Reliance Industries (RIL) advanced 2.31% to Rs 2410 on 11.65 lakh shares. As per reports, the Punjab Infrastructure Development Board (PIDB) has received proposals from Reliance Industries and Omaxe to set up an expressway from Pathankot to Ajmer and a ring road around Amritsar respectively.
India’s fourth largest software services exporter Satyam Computer Services shed 3.31% to Rs 501.50 after Upaid Systems said it has filed fresh claims as part of court proceedings against Satyam in a US court, which could raise possible damages beyond the earlier stated $1 billion.
In 2005, a patent infringement court case was initiated in Texas against third parties which revealed the use of forged signatures by Satyam employees on critical documents provided to Upaid by Satyam.
India’s largest private sector engineering company in terms of order book Larsen & Toubro declined 2.44% to Rs 2845. The company said on Monday, 2 June 2008, it is seeking shareholders' approval to transfer its medical equipment and systems business to a subsidiary or to sell it.
Private sector banking shares declined tracking fall in their American Depository Receipt (ADRs) on the New York Stock Exchange yesterday, 2 June 2008. ICICI Bank lost 0.90% to Rs 757.95 after its ADR slumped 6% and HDFC Bank shed 0.40% to Rs 1306 after its ADR fell 5.5%.
India’s largest bank in terms of market capitalisation State Bank of India (SBI) slipped 0.94% to Rs 1381
India’s largest pharma company in terms of sales Ranbaxy laboratories surged 3.67% to Rs 532.90 on 4.34 lakh shares. It was the top gainer from Sensex pack
Cement shares advanced on reports the government has restored benefits under the duty entitlement pass book (DEPB) scheme on export of cement, with immediate effect. India's largest cement company in terms of sales ACC advanced 3.50% to Rs 648. The company has reportedly short listed some companies for acquisition. ACC has cash reserves of Rs 1000 crore which it would use for expansion and acquisition, reports suggest.
India’s second largest cement company in terms of sales Ambuja Cements rose 0.16% to Rs 92.40 even on company said its cement shipments fell 1% to 1.51 million tonnes in May 2008 over May 2007. Ambuja Cements' production fell 1% to 1.49 million tonnes in May 2008 over May 2007.
UltraTech Cement Company (up 1.28% to Rs 650), Prism Cement (up 2.44% to Rs 37.80), India Cements (up 4.38% to Rs 165.85), and Mysore Cements (up 6.42% to Rs 35.65) advanced.
India's largest truck maker by sales Tata Motors rose 1.43% to Rs 571 after the company said on Monday it had completed the $2.3 billion acquisition of British luxury brands Jaguar and Land Rover.
Wipro (up 2.57% to Rs 508), ONGC (up 1.49% to Rs 845.55), DLF (up 2.53% to Rs 582), and Cipla (up 1.49% to Rs 210.85), edged higher from Sensex pack.
Reliance Industries was the top traded counter on BSE with turnover of Rs 278.70 crore followed by Reliance Capital (Rs 211.62 crore), Essar Oil (Rs 165.49 crore), Reliance Petroleum (Rs 155.16 crore), and IFCI (Rs 128.35 crore), in that order.
Prime Minister Manmohan Singh yesterday, 2 June 2008, indicated that the government is left with no option but to hike the fuel prices in the wake of soaring global crude oil prices. However government's move to hike fuel price will face challenge from Left, and may propel inflation above 10%.
On the other hand, if government does not hike prices, oil marketing companies will go bankrupt, spoiling its report card.
European markets, which opened before Indian market, were mixed in opening session. Key benchmark indices in United Kingdom (up 0.03% to 6,009.40), and France (up 0.06% to 4,938.15), rose. However Germany’s DAX index slipped 0.46% to 6,976.87
Asian markets, which opened before Indian market, rebounded from early lows, but were still in the red. Shanghai Composite (down 0.65% at 3,436.80), Japan's Nikkei (down 1.60% at 14,209.17), Hong Kong's Hang Seng (down 1.83% at 24,375.76), Taiwan's Taiwan Weighted (down 1.64% at 8,581.35), Straits Times (down 1.13% at 3,151.98) and South Korea's Seoul Composite (down 1.44% at 1,821), edged lower.
US markets declined yesterday, 2 June 2008, on renewed fears that the credit crunch is yet to run its course after S&P downgraded debt ratings of three big securities companies. In the economic news, the May Institute of Supply Management (ISM) index, rose 2.1%, suggesting a slight contraction in United States manufacturing activity.
The Dow Jones industrial average plunged 134.50, or 1.06%, to 12,503.82. The S&P 500 index slipped 14.71 points, or 1.05%, to 1,385.67. The Nasdaq Composite index was down 31.13 points, or 1.23%, to 2,491.53.
Back home, mounting political concern rattled bourses since second half of day's trading session, wiping-off early gains, yesterday, 2 June 2008. The 30-share BSE Sensex lost 352.39 points or 2.15% to 16,063.18 and the broader based S&P CNX Nifty declined 130.5 points or 2.68% to shut shop at 4,739.60, on that day.
As per provisional data, foreign funds sold shares worth a net Rs 349.84 crore yesterday, 2 June 2008. They have been on a selling drive recently, offloading shares worth Rs 5,015 crore in past nine trading sessions. Domestic funds bought shares worth a net Rs 9.81 crore on that day.
Foreign institutional investors (FIIs) were net buyers of Rs 242.85 crore in the futures & options segment yesterday, 2 June 2008. They were net sellers of index futures to the tune of Rs 923.24 crore and bought index options worth Rs 759.95 crore. They were net buyers of stock futures to the tune of Rs 390.03 crore and bought stock options worth Rs 16.11 crore.
US light crude for July delivery fell 50 cents a barrel to $127.26 today, 3 June 2008, as the start of the hurricane season stirred concerns that oil and natural gas output could be disrupted in the Gulf of Mexico. London Brent crude fell 80 cents to $127.22 a barrel today.
Inflation likely to hit double digits soon: MS
Chetan Ahya, MD of Morgan Stanley said the GDP numbers are backward looking and the services sector lags industrial data. He thinks the GDP growth rate is likely to come off from the next quarter and sees Q1FY09 GDP at 7.5-8%, while FY09 at 7.1%.
On inflation, he said it will hit double-digits soon. The oil price hike will trigger inflation spike, he said. He believes RBI will hike rates if oil goes to USD 150 and stays there.
He sees FY09 headline fiscal deficit at 5.1% and it may cross 10% if oil stays at USD 120 per barrel.
Excerpts from CNBC-TV18’s exclusive interview with Chetan Ahya:
Q: What let to that GDP surprise you think and is it backward looking or do you think you can carry some of that momentum forward into the 2009 outlook?
A: I think it is backward looking. I think the sector which has really done well and the data if one looks at is services sector and that tends to lag the industrial production data and in fact there is a bit of divergence this time but we think next time it should come off.
Q: Do you expect this quarter to start showing slower numbers on the GDP?
A: Yes and I think the way to look at will be corporate revenue growth and if one looks at the corporate revenue growth that hasn’t moved back again to significantly higher levels. The last quarter number was for 1,500 companies that we looked at, at about 13% nominal growth from the peak of 29% in September ’06 quarter and from the data which has come out so far, it doesn’t look like its going to be significantly better than that. So no matter what the GDP data shows, I think the underlying trend for growth is that of deceleration.
Q: To get down to the numbers: are you expecting Q1 sub 8% number?
A: We are expecting 7.5 - 8% for Q1 and for the full year we are expecting 7.1%
Q: You had no reason to scale up your GDP numbers for 2009 after looking at the Q4 numbers for 2008?
A: Not really.
Q: What about inflation already at 8.1% and we haven’t even had the fuel price hike. Do you need to now revise upwards the inflation projections because by this time a lot of analysts were hoping to see the first signs of moderation?
A: We are out with a note in the morning generally in the context of interest rate outlook - we are making a point that inflation will go to double digit soon; we are already at 8.1%. Typically the government has been revising previous week’s data by about 80-150 bps assuming that there is 100 bps revision; we are probably already at 9.1% and then we are going to see oil price hike of about 10-15%. So the moment we do the oil price hike, we will basically cross double digits.
Q: By when do you expect inflation to touch, Wholesale Price Index (WPI) to touch 10%?
A: I think the trigger will be the oil price hike and hopefully it is done in the next one week or so; then in other four weeks time we should see inflation at double digits.
Q: What do you think will be the RBI response to that? So far it’s managed or dealt with it through the Cash Reserve Ratio (CRR) route. Do you think more dire measures will be in place if we see that psychologically important 10% mark?
A: It is going to be complex task; the growth is slowing and we think growth will probably slow further. So ideally RBI should not tighten. But we are seeing two other added challenges - (1) fiscal policy is running extremely loose; we are continuing to run higher and higher deficit as oil keeps going up which makes RBI’s task more difficult. (2) If oil goes to USD 150 and stays there for four-five months, that will cause a lot of pressure on the currency which will basically then make RBI to consider the decision to hike the policy rates. So our view is base case right now - no policy rate hikes. But if oil goes to USD 150 and stays there considering that fiscal policy will still continue to be loose, the RBI will have to take the burden of tightening the monetary policy to reduce the pressure on currency.
Q: How do you see the RBI approaching the rupee now, which went to almost 43 to a dollar and is now cooled down a bit closer to 42 to a dollar; in the light of what is going around how do you see the Central Bank approaching that?A: I think at this point of time, there seems to be active intervention from the Central Bank to hold the rupee below 43 to a dollar, but it is all predicated on what happens to global market place - particularly what happens to oil and what happens to the dollar.
The expectations in the US for the Fed rate cut is moving closer to the date; we were earlier expecting it to happen in the Q1 but the market is now beginning to discount it - probably happening even as soon as October still not fully priced in but if the Fed Futures expectation gradually turns, moves forward and the Fed does hike earlier then we will see the dollar strengthening and that will cause the added pressure.
So it will depend on where the Fed futures go and where the oil prices go. The combined effect of that will determine the direction of currency. At this point of time, we are expecting the dollar to appreciate generally against Euro and other currencies. I think the oil prices are not going to come down. So I think the rupee has got to move down going forward. The direction and magnitude will be determined by how the Fed Futures and oil prices move.
Q: What do you think is the most likely outcome of this impasse on oil price hike? What would be the contours of the package you think and how much would it stoke inflation?A: It is not going to be a very significant move by the Government, it will be possibly be a weighted average hike of about 10-15% and that is also, if at all.
If they don’t touch kerosene, then diesel and petrol are the only ones which move then the weighted average hike will not be more than 10-15% which will not be enough to reduce the subsidy burden.
I think ideally the response right now from the government should have been to run a tighter fiscal policy; one good measure out of that would be to hike the oil prices. Although it will hurt the population at large right now but from a macro stability perspective, that is the ideal response from the policy makers needed right now. That will reduce the import bill for oil because the oil demand will come off too and that will help the overall macro stability. But I think we will probably not get that response soon.
Q: Do you think we will get substantial duty cuts, excise and customs. If yes, how much does it worsen the already precarious fiscal situation?
A: It’s just an accounting effect; so for our purposes we count that as a subsidy burden. Only if the consumer is bearing the increase in prices, then the overall subsidy reduces whether they account it by way of tax reduction in fiscal deficit or it stays with the oil companies. At the end of the day, it's still oil subsidy. So it’s just an accounting issue.
Q: What number are you penciling in, in terms of fiscal deficit? All these items put together above and below the line by the end of this year?
A: The headline fiscal deficit is 5.1%. But if you add the farm loan write-off, the fertilizer subsidy, food subsidy and oil subsidy with oil being at USD 100 per barrel for 12 months ended March ’09, we are at 9.4% fiscal deficit and if oil stays at USD 120 per barrel average for F2009, then fiscal deficit will basically cross 10% of Gross Domestic Product (GDP).
Q: Are you talking about just the center or Center plus States?
A: Center plus State plus all the off-Budget liabilities. I need to qualify; we have also taken the oil subsidy borne by the oil companies which the Finance Minister does not include in his estimates.
Q: What do the dealing room guys tell you about how nervous all this is making India in the eyes of global investors; this kind of macro, current account and fiscal situation?
A: I think everybody is hoping for oil to come down and the last two-three days' moves have raised that hope. So it’s all predicated on where oil goes and I think everybody is hoping for oil prices to come down. But there is quite a difficult macro environment and almost all of Asia is facing this. So India is not alone. But I think India’s fiscal balance condition is probably one of the worst compared to the rest of the region.
So everybody is watching on what happens - as you may have probably known there are some concerns on some of the other countries in the region -like Pakistan is facing some challenges, Vietnam is facing some challenges. So the environment is getting concerning, particularly from what’s happening on oil prices to a lot of the countries in the region.
On inflation, he said it will hit double-digits soon. The oil price hike will trigger inflation spike, he said. He believes RBI will hike rates if oil goes to USD 150 and stays there.
He sees FY09 headline fiscal deficit at 5.1% and it may cross 10% if oil stays at USD 120 per barrel.
Excerpts from CNBC-TV18’s exclusive interview with Chetan Ahya:
Q: What let to that GDP surprise you think and is it backward looking or do you think you can carry some of that momentum forward into the 2009 outlook?
A: I think it is backward looking. I think the sector which has really done well and the data if one looks at is services sector and that tends to lag the industrial production data and in fact there is a bit of divergence this time but we think next time it should come off.
Q: Do you expect this quarter to start showing slower numbers on the GDP?
A: Yes and I think the way to look at will be corporate revenue growth and if one looks at the corporate revenue growth that hasn’t moved back again to significantly higher levels. The last quarter number was for 1,500 companies that we looked at, at about 13% nominal growth from the peak of 29% in September ’06 quarter and from the data which has come out so far, it doesn’t look like its going to be significantly better than that. So no matter what the GDP data shows, I think the underlying trend for growth is that of deceleration.
Q: To get down to the numbers: are you expecting Q1 sub 8% number?
A: We are expecting 7.5 - 8% for Q1 and for the full year we are expecting 7.1%
Q: You had no reason to scale up your GDP numbers for 2009 after looking at the Q4 numbers for 2008?
A: Not really.
Q: What about inflation already at 8.1% and we haven’t even had the fuel price hike. Do you need to now revise upwards the inflation projections because by this time a lot of analysts were hoping to see the first signs of moderation?
A: We are out with a note in the morning generally in the context of interest rate outlook - we are making a point that inflation will go to double digit soon; we are already at 8.1%. Typically the government has been revising previous week’s data by about 80-150 bps assuming that there is 100 bps revision; we are probably already at 9.1% and then we are going to see oil price hike of about 10-15%. So the moment we do the oil price hike, we will basically cross double digits.
Q: By when do you expect inflation to touch, Wholesale Price Index (WPI) to touch 10%?
A: I think the trigger will be the oil price hike and hopefully it is done in the next one week or so; then in other four weeks time we should see inflation at double digits.
Q: What do you think will be the RBI response to that? So far it’s managed or dealt with it through the Cash Reserve Ratio (CRR) route. Do you think more dire measures will be in place if we see that psychologically important 10% mark?
A: It is going to be complex task; the growth is slowing and we think growth will probably slow further. So ideally RBI should not tighten. But we are seeing two other added challenges - (1) fiscal policy is running extremely loose; we are continuing to run higher and higher deficit as oil keeps going up which makes RBI’s task more difficult. (2) If oil goes to USD 150 and stays there for four-five months, that will cause a lot of pressure on the currency which will basically then make RBI to consider the decision to hike the policy rates. So our view is base case right now - no policy rate hikes. But if oil goes to USD 150 and stays there considering that fiscal policy will still continue to be loose, the RBI will have to take the burden of tightening the monetary policy to reduce the pressure on currency.
Q: How do you see the RBI approaching the rupee now, which went to almost 43 to a dollar and is now cooled down a bit closer to 42 to a dollar; in the light of what is going around how do you see the Central Bank approaching that?A: I think at this point of time, there seems to be active intervention from the Central Bank to hold the rupee below 43 to a dollar, but it is all predicated on what happens to global market place - particularly what happens to oil and what happens to the dollar.
The expectations in the US for the Fed rate cut is moving closer to the date; we were earlier expecting it to happen in the Q1 but the market is now beginning to discount it - probably happening even as soon as October still not fully priced in but if the Fed Futures expectation gradually turns, moves forward and the Fed does hike earlier then we will see the dollar strengthening and that will cause the added pressure.
So it will depend on where the Fed futures go and where the oil prices go. The combined effect of that will determine the direction of currency. At this point of time, we are expecting the dollar to appreciate generally against Euro and other currencies. I think the oil prices are not going to come down. So I think the rupee has got to move down going forward. The direction and magnitude will be determined by how the Fed Futures and oil prices move.
Q: What do you think is the most likely outcome of this impasse on oil price hike? What would be the contours of the package you think and how much would it stoke inflation?A: It is not going to be a very significant move by the Government, it will be possibly be a weighted average hike of about 10-15% and that is also, if at all.
If they don’t touch kerosene, then diesel and petrol are the only ones which move then the weighted average hike will not be more than 10-15% which will not be enough to reduce the subsidy burden.
I think ideally the response right now from the government should have been to run a tighter fiscal policy; one good measure out of that would be to hike the oil prices. Although it will hurt the population at large right now but from a macro stability perspective, that is the ideal response from the policy makers needed right now. That will reduce the import bill for oil because the oil demand will come off too and that will help the overall macro stability. But I think we will probably not get that response soon.
Q: Do you think we will get substantial duty cuts, excise and customs. If yes, how much does it worsen the already precarious fiscal situation?
A: It’s just an accounting effect; so for our purposes we count that as a subsidy burden. Only if the consumer is bearing the increase in prices, then the overall subsidy reduces whether they account it by way of tax reduction in fiscal deficit or it stays with the oil companies. At the end of the day, it's still oil subsidy. So it’s just an accounting issue.
Q: What number are you penciling in, in terms of fiscal deficit? All these items put together above and below the line by the end of this year?
A: The headline fiscal deficit is 5.1%. But if you add the farm loan write-off, the fertilizer subsidy, food subsidy and oil subsidy with oil being at USD 100 per barrel for 12 months ended March ’09, we are at 9.4% fiscal deficit and if oil stays at USD 120 per barrel average for F2009, then fiscal deficit will basically cross 10% of Gross Domestic Product (GDP).
Q: Are you talking about just the center or Center plus States?
A: Center plus State plus all the off-Budget liabilities. I need to qualify; we have also taken the oil subsidy borne by the oil companies which the Finance Minister does not include in his estimates.
Q: What do the dealing room guys tell you about how nervous all this is making India in the eyes of global investors; this kind of macro, current account and fiscal situation?
A: I think everybody is hoping for oil to come down and the last two-three days' moves have raised that hope. So it’s all predicated on where oil goes and I think everybody is hoping for oil prices to come down. But there is quite a difficult macro environment and almost all of Asia is facing this. So India is not alone. But I think India’s fiscal balance condition is probably one of the worst compared to the rest of the region.
So everybody is watching on what happens - as you may have probably known there are some concerns on some of the other countries in the region -like Pakistan is facing some challenges, Vietnam is facing some challenges. So the environment is getting concerning, particularly from what’s happening on oil prices to a lot of the countries in the region.
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