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.
Monday, June 09, 2008
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.
Monday, June 02, 2008
Steel pipe cos may shift production out of India
Indian steel pipe makers, hurt by a 10% export duty, could shift their production out of the country.
India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of the global demand.
Lion’s share : India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of global demand
But with the tax, on top of a near 40% rise in steel prices in the past six months, steel pipe makers say they would need to make the pipes overseas to remain competitive.
“We were already planning to expand capacity of our Sharjah (UAE) plant to 300,000 tonnes per annum from 75,000 tonnes, but the export duty notification has made us expedite the plan,” Ashok Punj, managing director of PSL Ltd, said by phone. “We expect to complete the expansion in next 12 to 16 months.”
When the notification on the duty was issued, less than 2.5% of the company’s total orders were from exports. “But we plan to supply a majority of the export orders from our plants in those countries to retain competitive advantage,” Punj said. PSL has plants in Sharjah and the US.
“If this (export duty) continues over the long term, then one way to get around it would be to get to the market they are servicing... or being closer to those markets,” said Prasanto Sengupta, director of corporate finance at consulting firm KPMG. “I don’t see manufacturers immediately shifting base if they have huge capex in India, but if it (the duty) continues over a long term, they might just have to.”
On 10 May, the government, in an attempt to contain soaring inflation, issued a notification that brought 15 categories of steel products liable to pay a 10-15% export tax. The finance minister had announced the levies on 29 April. The companies are lobbying hard to get the finance ministry to roll back the duty on steel pipes, arguing that they import most of the steel used in making pipes and, thus, export could not have added to inflation.
“We did not believe that the government will impose such a high export duty on steel pipes,” said a senior executive with Welspun Gujarat Stahl Rohren Ltd. This person, who did not want to be identified as he is not authorised to speak with the media, said the duty gives steel pipe makers in Europe and Japan a competitive advantage over Indian firms.
“The contracts we have entered into with foreign companies are fixed, and do not give us an option to renegotiate for the price increase from the export duty,” he said. “If we are not able to deliver, we will have to pay a penalty.”
Steel pipe makers such as Jindal Saw Ltd and Maharashtra Seamless Ltd export 25-40% of their output, while Man Industries Ltd and Welspun export about 80% every year.
“We are already planning a plant in the US with a capacity of 300,000 tonnes per annum,” said K.G. Mantri, senior vice-president of corporate affairs at Man Industries. The US plant will be completed by June 2009, Mantri said.
The company plans to increase its focus on Indian markets if the export duty is not rolled back, Mantri said. He added that the company would have to renegotiate its contracts if the government persists with the export tax.
Demand for steel pipes is expected from West Asia and other Asian countries, which account for 45% of the global demand, followed by North America at 33% and Europe at 16%, according to industry experts. This demand is expected to grow significantly, and Indian companies are already considering capacity expansions. Jindal Saw plans to increase its annual capacity to 1.95 million tonne, or mt, by the end of 2008, from 1.25mt. Man Industries plans to increase capacity in India to 1mt by June from 800,000 tonne.
India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of the global demand.
Lion’s share : India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of global demand
But with the tax, on top of a near 40% rise in steel prices in the past six months, steel pipe makers say they would need to make the pipes overseas to remain competitive.
“We were already planning to expand capacity of our Sharjah (UAE) plant to 300,000 tonnes per annum from 75,000 tonnes, but the export duty notification has made us expedite the plan,” Ashok Punj, managing director of PSL Ltd, said by phone. “We expect to complete the expansion in next 12 to 16 months.”
When the notification on the duty was issued, less than 2.5% of the company’s total orders were from exports. “But we plan to supply a majority of the export orders from our plants in those countries to retain competitive advantage,” Punj said. PSL has plants in Sharjah and the US.
“If this (export duty) continues over the long term, then one way to get around it would be to get to the market they are servicing... or being closer to those markets,” said Prasanto Sengupta, director of corporate finance at consulting firm KPMG. “I don’t see manufacturers immediately shifting base if they have huge capex in India, but if it (the duty) continues over a long term, they might just have to.”
On 10 May, the government, in an attempt to contain soaring inflation, issued a notification that brought 15 categories of steel products liable to pay a 10-15% export tax. The finance minister had announced the levies on 29 April. The companies are lobbying hard to get the finance ministry to roll back the duty on steel pipes, arguing that they import most of the steel used in making pipes and, thus, export could not have added to inflation.
“We did not believe that the government will impose such a high export duty on steel pipes,” said a senior executive with Welspun Gujarat Stahl Rohren Ltd. This person, who did not want to be identified as he is not authorised to speak with the media, said the duty gives steel pipe makers in Europe and Japan a competitive advantage over Indian firms.
“The contracts we have entered into with foreign companies are fixed, and do not give us an option to renegotiate for the price increase from the export duty,” he said. “If we are not able to deliver, we will have to pay a penalty.”
Steel pipe makers such as Jindal Saw Ltd and Maharashtra Seamless Ltd export 25-40% of their output, while Man Industries Ltd and Welspun export about 80% every year.
“We are already planning a plant in the US with a capacity of 300,000 tonnes per annum,” said K.G. Mantri, senior vice-president of corporate affairs at Man Industries. The US plant will be completed by June 2009, Mantri said.
The company plans to increase its focus on Indian markets if the export duty is not rolled back, Mantri said. He added that the company would have to renegotiate its contracts if the government persists with the export tax.
Demand for steel pipes is expected from West Asia and other Asian countries, which account for 45% of the global demand, followed by North America at 33% and Europe at 16%, according to industry experts. This demand is expected to grow significantly, and Indian companies are already considering capacity expansions. Jindal Saw plans to increase its annual capacity to 1.95 million tonne, or mt, by the end of 2008, from 1.25mt. Man Industries plans to increase capacity in India to 1mt by June from 800,000 tonne.
Indian banks ready to take on foreign players
Indian bankers say they are ready to take on competition from foreign banks, even if the multinational players are allowed to operate freely after April. A Reserve Bank of India (RBI) road map on operations of foreign banks in India would allow more of them to operate in the country with fewer restrictions, starting next year, in line with India’s commitment to the World Trade Organization to open up its financial sector to foreign players.
At the Mint South Banking Conclave II held in Bangalore on Friday, given the change expected in the banking climate, the discussion centred around “Why do we need so many banks? Balancing inclusion and competitiveness.”
The chiefs of four public sector banks—Corporation Bank, Canara Bank, Vijaya Bank and Indian Bank—and three private banks—Karur Vysya Bank Ltd, Karnataka Bank and City Union Bank—participated in a lively discussion where they said the arrival of new players will only encourage them to improve their offerings and services. As per the road map, foreign banks may be allowed to raise their stake to 74% in their Indian operations.
While welcoming competition, Indian bankers wanted the opening up to be reciprocal.
“If a foreign bank wants to open its branches and ATMs across India, we should also be allowed to do the same in their nation,” said B. Sambamurthy, chairman and managing director, Corporation Bank. He said in Singapore, for instance, where Indian Bank has been operating a branch for 60 years, it was not allowed to open ATMs.
RBI deputy governor V. Leeladhar was the guest of honour at the event, where some of the domestic issues in banking took centre stage. There were mixed views on the Union government’s ambitious plan to waive off about Rs72,000 crore in loans to small and marginal farmers, which is widely seen as a populist move ahead of next year’s general elections. The process of loan waiver kicks in this month and while bankers at state-owned banks said it was a welcome move, some of the chiefs of private sector banks demurred.
P.T. Kuppuswamy, chairman and CEO, the Karur Vysya Bank, said: “In the last six-nine months, many accounts in our rural branches were shifting to nationalized banks. This is because people were hoping that as this is an election year, there would be write-offs!” He added that such write-offs penalize those who repay their credit diligently.
Others were more sanguine about the waiver, the largest ever in India.
“This kind of waiver will not happen every two-three years. It’s a social obligation,” said Prakash P. Mallya, CMD, Vijaya Bank, defending the move. Mallya said the initiative will not diminish the culture of repaying loans.
India has 177 banks with more than 73,000 branches. Still, only about 60% of adult population has bank accounts. Bankers say that with the number of branches per 10,000 people being 0.5 in India, compared with two globally, they are neither over-branched nor over-banked. Also, a large number of people in the country are not aware of banking facilities and still go to traditional money lenders for loans.
The bankers felt that in addition to opening branches, they also needed more innovative ways of reaching out to people as opening a branch entails substantial investment in infrastructure.
Canara Bank CMD M.B.N Rao said there are nearly 150,000 post offices in the country and these could be better leveraged. Indian Bank’s chairman and managing director M.S. Sundara Rajan said technology was a key enabler, which helps in reaching out to people without actually opening branches. This could be done through kiosks.
With microfinance institutions reporting 99% recovery rates, banks say they know that the poor are bankable. Vijaya Bank’s Mallya said financial inclusion is not about lending a small amount of money to the poor, but also serving them with a full package of services, including home loans, education loans, vehicle loans and pension products.
On the question of Indian banks being ready for consolidation, they had mixed feelings. City Union Bank chief S. Balasubramanian said different sizes of banks should exist to take care of the needs of different segments of customers.
RBI deputy governor Leeladhar said India does not need large number of small commercial banks. “We need small numbers of large banks. There could be healthy competition between large banks,” he said. He added that for overall financial inclusion, regional rural banks (RRBs) and other cooperative bodies should be strengthened and that the onus for doing that lies with the commercial banks.
At the Mint South Banking Conclave II held in Bangalore on Friday, given the change expected in the banking climate, the discussion centred around “Why do we need so many banks? Balancing inclusion and competitiveness.”
The chiefs of four public sector banks—Corporation Bank, Canara Bank, Vijaya Bank and Indian Bank—and three private banks—Karur Vysya Bank Ltd, Karnataka Bank and City Union Bank—participated in a lively discussion where they said the arrival of new players will only encourage them to improve their offerings and services. As per the road map, foreign banks may be allowed to raise their stake to 74% in their Indian operations.
While welcoming competition, Indian bankers wanted the opening up to be reciprocal.
“If a foreign bank wants to open its branches and ATMs across India, we should also be allowed to do the same in their nation,” said B. Sambamurthy, chairman and managing director, Corporation Bank. He said in Singapore, for instance, where Indian Bank has been operating a branch for 60 years, it was not allowed to open ATMs.
RBI deputy governor V. Leeladhar was the guest of honour at the event, where some of the domestic issues in banking took centre stage. There were mixed views on the Union government’s ambitious plan to waive off about Rs72,000 crore in loans to small and marginal farmers, which is widely seen as a populist move ahead of next year’s general elections. The process of loan waiver kicks in this month and while bankers at state-owned banks said it was a welcome move, some of the chiefs of private sector banks demurred.
P.T. Kuppuswamy, chairman and CEO, the Karur Vysya Bank, said: “In the last six-nine months, many accounts in our rural branches were shifting to nationalized banks. This is because people were hoping that as this is an election year, there would be write-offs!” He added that such write-offs penalize those who repay their credit diligently.
Others were more sanguine about the waiver, the largest ever in India.
“This kind of waiver will not happen every two-three years. It’s a social obligation,” said Prakash P. Mallya, CMD, Vijaya Bank, defending the move. Mallya said the initiative will not diminish the culture of repaying loans.
India has 177 banks with more than 73,000 branches. Still, only about 60% of adult population has bank accounts. Bankers say that with the number of branches per 10,000 people being 0.5 in India, compared with two globally, they are neither over-branched nor over-banked. Also, a large number of people in the country are not aware of banking facilities and still go to traditional money lenders for loans.
The bankers felt that in addition to opening branches, they also needed more innovative ways of reaching out to people as opening a branch entails substantial investment in infrastructure.
Canara Bank CMD M.B.N Rao said there are nearly 150,000 post offices in the country and these could be better leveraged. Indian Bank’s chairman and managing director M.S. Sundara Rajan said technology was a key enabler, which helps in reaching out to people without actually opening branches. This could be done through kiosks.
With microfinance institutions reporting 99% recovery rates, banks say they know that the poor are bankable. Vijaya Bank’s Mallya said financial inclusion is not about lending a small amount of money to the poor, but also serving them with a full package of services, including home loans, education loans, vehicle loans and pension products.
On the question of Indian banks being ready for consolidation, they had mixed feelings. City Union Bank chief S. Balasubramanian said different sizes of banks should exist to take care of the needs of different segments of customers.
RBI deputy governor Leeladhar said India does not need large number of small commercial banks. “We need small numbers of large banks. There could be healthy competition between large banks,” he said. He added that for overall financial inclusion, regional rural banks (RRBs) and other cooperative bodies should be strengthened and that the onus for doing that lies with the commercial banks.
India's GDP Growth Holds at Slowest Pace Since 2005
India's economic growth held at the weakest pace since 2005 as the highest interest rates in six years discouraged consumer spending and investment.
Asia's third-largest economy expanded 8.8 percent in the three months to March 31 from a year earlier, matching the revised gain of the previous quarter, the statistics office said in a statement in New Delhi today.
Finance Minister Palaniappan Chidambaram today urged policy makers to ensure they don't damp economic growth as they try to slow inflation, which has doubled in the past four months to 8.1 percent. India's central bank has twice forced lenders to set aside more reserves in 2008, after raising its key interest rate seven times in the past 2 1/2 years to 7.75 percent.
``The dilemma between rising inflation and slowing growth will continue and we expect the central bank to tighten monetary policy,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers LLC. ``The growth momentum is slowing.''
Lehman cut India's growth forecast to 7.3 percent for this year from 7.6 percent.
The Sensitive index, which has declined 20 percent this year, rose 0.8 percent to 16452.90. The benchmark 10-year government bond fell, pushing the yield close to a one-month of 8.11 percent. The rupee climbed to the highest in more than two weeks, gaining 0.7 percent to 42.49 a dollar.
India's economy expanded 9 percent in the year ended March 31, the least since 2005, today's report said. Growth may slow further to about 8.5 percent in the current financial year, Chidambaram told reporters in New Delhi today.
Manufacturing Slows
Manufacturing growth almost halved to 5.8 percent in the three months to March 31, while farm production slowed to 2.9 percent. Growth is holding up as construction gained 12.6 percent, the fastest pace in almost two years, as the government stepped up efforts to build new airports, roads and power plants.
Still, India is unwilling to risk higher inflation ahead of national elections due by May 2009, analysts said. Prime Minister Manmohan Singh's Congress party has already lost ground in nine of 11 provincial polls held since January 2007 as rising prices of rice, lentils and other staples hurt the 52 percent of India's 1.1 billion people who live on less than $2 a day.
Growth is important to reduce poverty in India, said Sanjay Peters, an economics professor at ESADE Business School in Barcelona. Reining in inflation at the cost of growth is an ``unviable justification,'' he added.
Overseas Borrowings
``We must ensure that the instrument of interest rates moderate inflation and at the same time does not dampen growth,'' Chidambaram said today. ``We have to ensure industrial growth does not slacken.''
To boost growth, the finance ministry yesterday raised the limit on overseas borrowing by companies for domestic spending. Infrastructure companies can borrow as much as $100 million overseas, up from a previous limit of $20 million, while other companies can borrow as much as $50 million, compared with an earlier cap of $20 million.
India's expansion, to be sure, is still the second-fastest after China among the world's major economies, spurred by rising incomes. The South Asian country is growing at more than three times the pace of the U.S. and the nations sharing the euro.
The Reserve Bank of India, whose priority is to keep prices in check, has increased the cash reserve ratio, or the proportion of deposits lenders must set aside, seven times since December 2006 to slow money supply and cool inflation.
`All Options'
That's yet to put a dent in India's inflation rate, which is now the highest in more than 3 1/2 years. The Federation of Indian Chambers of Commerce and Industry say relying on monetary tools isn't the correct way to tackle inflation, which is ``largely driven by supply-side factors.''
Inflation may accelerate further as Oil Minister Murli Deora yesterday said the government will consider ``all options,'' including an increase in fuel prices, to cut losses at state-run refiners that have risen to more than $1 billion a week as crude oil costs soar.
``It is supply shortage that is aggravating inflation in the case of food products, and the inflationary pressure in the case of manufactured products is the result of continuous cost buildups of raw materials and oil products,'' the trade body said in a report on May 24. ``Rising interest rates, besides curtailing demand, are also adding to the cost of companies.''
Cars, Motorcycles
Tata Motors Ltd.'s profit in the year ended March 31 gained at the slowest pace in at least five years as steel and other input costs increased and consumer demand diminished. Bajaj Auto Ltd., India's second-biggest motorcycle maker, expects sales to remain sluggish this year. Industry accounts for a quarter of India's $912 billion economy.
``The year ahead is a challenging year,'' said C. Ramakrishnan, chief financial officer at Tata Motors, the Indian automaker that's buying Ford Motor Co.'s Jaguar and Land Rover units. ``High interest rates, raw material costs and credit availability continue to be challenges.''
As industry slows, demand for services such as travel and banking, which make up 55 percent of the economy, may also wane. Airbus SAS, the world's largest planemaker, said this week that India is among the weakest airliner markets right now and the country's carriers may cancel or delay plane orders in the next 12 months.
Asia's third-largest economy expanded 8.8 percent in the three months to March 31 from a year earlier, matching the revised gain of the previous quarter, the statistics office said in a statement in New Delhi today.
Finance Minister Palaniappan Chidambaram today urged policy makers to ensure they don't damp economic growth as they try to slow inflation, which has doubled in the past four months to 8.1 percent. India's central bank has twice forced lenders to set aside more reserves in 2008, after raising its key interest rate seven times in the past 2 1/2 years to 7.75 percent.
``The dilemma between rising inflation and slowing growth will continue and we expect the central bank to tighten monetary policy,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers LLC. ``The growth momentum is slowing.''
Lehman cut India's growth forecast to 7.3 percent for this year from 7.6 percent.
The Sensitive index, which has declined 20 percent this year, rose 0.8 percent to 16452.90. The benchmark 10-year government bond fell, pushing the yield close to a one-month of 8.11 percent. The rupee climbed to the highest in more than two weeks, gaining 0.7 percent to 42.49 a dollar.
India's economy expanded 9 percent in the year ended March 31, the least since 2005, today's report said. Growth may slow further to about 8.5 percent in the current financial year, Chidambaram told reporters in New Delhi today.
Manufacturing Slows
Manufacturing growth almost halved to 5.8 percent in the three months to March 31, while farm production slowed to 2.9 percent. Growth is holding up as construction gained 12.6 percent, the fastest pace in almost two years, as the government stepped up efforts to build new airports, roads and power plants.
Still, India is unwilling to risk higher inflation ahead of national elections due by May 2009, analysts said. Prime Minister Manmohan Singh's Congress party has already lost ground in nine of 11 provincial polls held since January 2007 as rising prices of rice, lentils and other staples hurt the 52 percent of India's 1.1 billion people who live on less than $2 a day.
Growth is important to reduce poverty in India, said Sanjay Peters, an economics professor at ESADE Business School in Barcelona. Reining in inflation at the cost of growth is an ``unviable justification,'' he added.
Overseas Borrowings
``We must ensure that the instrument of interest rates moderate inflation and at the same time does not dampen growth,'' Chidambaram said today. ``We have to ensure industrial growth does not slacken.''
To boost growth, the finance ministry yesterday raised the limit on overseas borrowing by companies for domestic spending. Infrastructure companies can borrow as much as $100 million overseas, up from a previous limit of $20 million, while other companies can borrow as much as $50 million, compared with an earlier cap of $20 million.
India's expansion, to be sure, is still the second-fastest after China among the world's major economies, spurred by rising incomes. The South Asian country is growing at more than three times the pace of the U.S. and the nations sharing the euro.
The Reserve Bank of India, whose priority is to keep prices in check, has increased the cash reserve ratio, or the proportion of deposits lenders must set aside, seven times since December 2006 to slow money supply and cool inflation.
`All Options'
That's yet to put a dent in India's inflation rate, which is now the highest in more than 3 1/2 years. The Federation of Indian Chambers of Commerce and Industry say relying on monetary tools isn't the correct way to tackle inflation, which is ``largely driven by supply-side factors.''
Inflation may accelerate further as Oil Minister Murli Deora yesterday said the government will consider ``all options,'' including an increase in fuel prices, to cut losses at state-run refiners that have risen to more than $1 billion a week as crude oil costs soar.
``It is supply shortage that is aggravating inflation in the case of food products, and the inflationary pressure in the case of manufactured products is the result of continuous cost buildups of raw materials and oil products,'' the trade body said in a report on May 24. ``Rising interest rates, besides curtailing demand, are also adding to the cost of companies.''
Cars, Motorcycles
Tata Motors Ltd.'s profit in the year ended March 31 gained at the slowest pace in at least five years as steel and other input costs increased and consumer demand diminished. Bajaj Auto Ltd., India's second-biggest motorcycle maker, expects sales to remain sluggish this year. Industry accounts for a quarter of India's $912 billion economy.
``The year ahead is a challenging year,'' said C. Ramakrishnan, chief financial officer at Tata Motors, the Indian automaker that's buying Ford Motor Co.'s Jaguar and Land Rover units. ``High interest rates, raw material costs and credit availability continue to be challenges.''
As industry slows, demand for services such as travel and banking, which make up 55 percent of the economy, may also wane. Airbus SAS, the world's largest planemaker, said this week that India is among the weakest airliner markets right now and the country's carriers may cancel or delay plane orders in the next 12 months.
Friday, May 30, 2008
Govt hikes ECB limits for Indian cos to $50 m
The government today hiked the external commercial borrowing limits for Indian companies to $50 million for rupee expenditure for permissible end-uses under the approval route. The earlier limit was $20 million, which had been imposed last August.
In addition, infrastructure sector companies will now be able to avail ECB's of up to $ 100 million for rupee expenditure for permissible end-uses under the approval route. The move is aimed at providing a boost to the infrastructure sector, which requires $500 billion worth of investment during the 11th Five-Year Plan (2007-12), of which $ 30 billion is expected to come through this route.
The government has also increased the all-in-cost ceilings over six months LIBOR in respect of ECB for average maturity period between three years and five years to 200 bps, from 150 bps at present. For borrowings more than five years, the cost has been increased to 350 bps from 250 bps at present.
However, the existing $500 million annual borrowing limit for individual companies through the automatic route has been left unchanged. Other aspects of the ECB policy such as the end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements have also been left unchanged.
The decisions were taken at a high level committee on ECB's chaired by finance secretary D Subbarao here today. Officials from the Reserve Bank of India attended the meeting.
The high-level committee on ECB had agreed ‘in principle' last September to relax overseas borrowing norms for the infrastructure sector. However, huge capital inflows since then, which led to a sharp appreciation of the rupee, prevented the RBI from granting this leeway.
In addition, infrastructure sector companies will now be able to avail ECB's of up to $ 100 million for rupee expenditure for permissible end-uses under the approval route. The move is aimed at providing a boost to the infrastructure sector, which requires $500 billion worth of investment during the 11th Five-Year Plan (2007-12), of which $ 30 billion is expected to come through this route.
The government has also increased the all-in-cost ceilings over six months LIBOR in respect of ECB for average maturity period between three years and five years to 200 bps, from 150 bps at present. For borrowings more than five years, the cost has been increased to 350 bps from 250 bps at present.
However, the existing $500 million annual borrowing limit for individual companies through the automatic route has been left unchanged. Other aspects of the ECB policy such as the end-use of foreign currency expenditure for import of capital goods and overseas investments, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements have also been left unchanged.
The decisions were taken at a high level committee on ECB's chaired by finance secretary D Subbarao here today. Officials from the Reserve Bank of India attended the meeting.
The high-level committee on ECB had agreed ‘in principle' last September to relax overseas borrowing norms for the infrastructure sector. However, huge capital inflows since then, which led to a sharp appreciation of the rupee, prevented the RBI from granting this leeway.
FII, sub-accounts registration made easy
Market regulator SEBI (Securities and Exchange Board of India) has revised the registration guidelines for FIIs. Institutions set up by non-resident Indians can now register as FIIs and invest in the Indian stock markets.
Sebi has amended regulations for easier registration of FIIs and sub-accounts. It has also made AMCs, Investment Managers or advisors owned by NRI eligible for FII registration.
Sebi has allowed FIIs to invest in collective investment schemes. It has said that NRIs can register as FIIs if they do not invest their proprietary funds.
Sebi has allowed sovereign wealth funds, pension funds and endowment funds to register as FII. FIIs cannot issue Offshore Derivative Instrument to any entity not regulated by the Foreign Regulatory Authority. They can issue offshore instruments only after compliance with know your customer, or KYC, norms. Non-regulated FIIs have to cancel, redeem or close positions by March 2009.
Investors were anyways investing through PE notes in India but it’s a classic example of Indian fund managers who are based overseas or heading institutions but were having problems because of the PE note gap which was there. So, now they will be able to register through being an FII.
Sebi has amended regulations for easier registration of FIIs and sub-accounts. It has also made AMCs, Investment Managers or advisors owned by NRI eligible for FII registration.
Sebi has allowed FIIs to invest in collective investment schemes. It has said that NRIs can register as FIIs if they do not invest their proprietary funds.
Sebi has allowed sovereign wealth funds, pension funds and endowment funds to register as FII. FIIs cannot issue Offshore Derivative Instrument to any entity not regulated by the Foreign Regulatory Authority. They can issue offshore instruments only after compliance with know your customer, or KYC, norms. Non-regulated FIIs have to cancel, redeem or close positions by March 2009.
Investors were anyways investing through PE notes in India but it’s a classic example of Indian fund managers who are based overseas or heading institutions but were having problems because of the PE note gap which was there. So, now they will be able to register through being an FII.
Petrol may go up by Rs 4; Cabinet decision today
Prime Minister Manmohan Singh, Oil Minister Murli Deora, Finance Minister P Chidamabaram and UPA Chairperson Sonia Gandhi met yesterday in the evening. Though there was no final decision, CNBC-TV18 has learnt that it has been agreed to marginally increase the price of petroleum products for the moment.
The consensus is that petrol price could go up by Rs 3 and branded petrol even more. No consensus has been reached yet on a hike for diesel prices.
Deora said that he is not very sure what the bail out package for OMCs (oil marketing companies) will. It may be a mix of price hikes, duty cuts and bonds and the Finance Minister would take a call on it, he said.
Deora also said that the cabinet meet on the fuel price hike is likely to be tomorrow. The crude prices soaring and something definitely needs to be done, he said.
CNBC-TV18's Abhijit Neogy said there are two scenarios floating around for the quantum of a price hike: Rs 4 per litre for petrol and Rs 2 for diesel or Rs 3 per litre for petrol and Rs 2 for diesel.
Excerpts from CNBC-TV18's exclusive interview with Murli Deora:
Q: There are so many options being floated around - what are the options that our government has really zeroed in after the meeting with the Prime Minister?
A: Due to the very unprecedented rise in the oil price, we are trying to find solutions to this. The only solution is to realise more money so that oil companies would buy the products we are selling. We are trying to see that all the PSUs, Hindustan Petroleum and Indian Oil Corporation are galvanized to face this situation.
Up until now, there has hardly been a problem and there is no question of any rationing. I would appeal to the people to kindly corporate with the authorities in case there is a shortage .
Q: What people are wanting to know is the price hike, is there going to be a price hike? What are the options? Is it a price hike, bonds and duty cuts?
A: The oil price which was USD 60-70 per barrel has gone up now to USD 130-132 per barrel. The public sector oil companies are losing a lot of money. The government may either give them some more subsidy or allow them to rise price. Something needs to be done and this is what we are contemplating. I’m sure tomorrow we will be able to find a solution to this.
Q: You are basically saying that price rise is also one of the options being considered?
A: There are various options considered, I can’t say which will be accepted by the cabinet and the government.
Q: The Finance Minister has steadfastly refused to go in for duty cuts, either excise cuts or customs cuts. In the meeting with the Prime Minister has he agreed to any kind of duty cuts excise or customs?
A: The Finance Minister has been co-operative and I would say that he has totally refused duty cuts.
Q: So he has basically signaled his intention to at least go in for a marginal reduction in excise duty, can we say that?
A: I can’t say that is not in my hands.
Q: Have you got any indication that there is a margin reduction of excise duty at least happening on petro- products?
A: Unless and until it is approved by the cabinet it’s not possible for me to say.
Q: But the package that you are contemplating will have duty cuts, price rise and bonds?
A: The package we are contemplating cannot be revealed just now because it is not finalized and when it is finalized we will be the first to reveal them.
Q: When is the cabinet meeting - is it going to happening this evening or is the cabinet meeting going to be convened tomorrow?
A: I don’t know whether it will come today or tomorrow.
Q: If the Left has forwarded its own proposals, tax private refiners who have got windfall profits. They have infact proposed a new tax windfall profit tax how do you react to that?
A: I am not for that and that is for the Finance Minister to reply to them; I have nothing to do with this.
The consensus is that petrol price could go up by Rs 3 and branded petrol even more. No consensus has been reached yet on a hike for diesel prices.
Deora said that he is not very sure what the bail out package for OMCs (oil marketing companies) will. It may be a mix of price hikes, duty cuts and bonds and the Finance Minister would take a call on it, he said.
Deora also said that the cabinet meet on the fuel price hike is likely to be tomorrow. The crude prices soaring and something definitely needs to be done, he said.
CNBC-TV18's Abhijit Neogy said there are two scenarios floating around for the quantum of a price hike: Rs 4 per litre for petrol and Rs 2 for diesel or Rs 3 per litre for petrol and Rs 2 for diesel.
Excerpts from CNBC-TV18's exclusive interview with Murli Deora:
Q: There are so many options being floated around - what are the options that our government has really zeroed in after the meeting with the Prime Minister?
A: Due to the very unprecedented rise in the oil price, we are trying to find solutions to this. The only solution is to realise more money so that oil companies would buy the products we are selling. We are trying to see that all the PSUs, Hindustan Petroleum and Indian Oil Corporation are galvanized to face this situation.
Up until now, there has hardly been a problem and there is no question of any rationing. I would appeal to the people to kindly corporate with the authorities in case there is a shortage .
Q: What people are wanting to know is the price hike, is there going to be a price hike? What are the options? Is it a price hike, bonds and duty cuts?
A: The oil price which was USD 60-70 per barrel has gone up now to USD 130-132 per barrel. The public sector oil companies are losing a lot of money. The government may either give them some more subsidy or allow them to rise price. Something needs to be done and this is what we are contemplating. I’m sure tomorrow we will be able to find a solution to this.
Q: You are basically saying that price rise is also one of the options being considered?
A: There are various options considered, I can’t say which will be accepted by the cabinet and the government.
Q: The Finance Minister has steadfastly refused to go in for duty cuts, either excise cuts or customs cuts. In the meeting with the Prime Minister has he agreed to any kind of duty cuts excise or customs?
A: The Finance Minister has been co-operative and I would say that he has totally refused duty cuts.
Q: So he has basically signaled his intention to at least go in for a marginal reduction in excise duty, can we say that?
A: I can’t say that is not in my hands.
Q: Have you got any indication that there is a margin reduction of excise duty at least happening on petro- products?
A: Unless and until it is approved by the cabinet it’s not possible for me to say.
Q: But the package that you are contemplating will have duty cuts, price rise and bonds?
A: The package we are contemplating cannot be revealed just now because it is not finalized and when it is finalized we will be the first to reveal them.
Q: When is the cabinet meeting - is it going to happening this evening or is the cabinet meeting going to be convened tomorrow?
A: I don’t know whether it will come today or tomorrow.
Q: If the Left has forwarded its own proposals, tax private refiners who have got windfall profits. They have infact proposed a new tax windfall profit tax how do you react to that?
A: I am not for that and that is for the Finance Minister to reply to them; I have nothing to do with this.
Thursday, May 29, 2008
Fertiliser units to get highest gas allocation
The empowered group of ministers (EGoM) is understood to have finalised gas allocations for 2008-09, giving top priority to the fertiliser sector. Existing gas-based power plants have been given the second priority followed by city gas distribution (CGD) projects. The ad-hoc prioritisation for one year has been set up to decide the fate of Reliance Industries’ KG basin gas. The company is expected to pump 40 million standard cubic meter per day (mmscmd) of gas from the third quarter this year. It is learnt from government sources that a final gas utilisation policy is still being debated. “An interim arrangement for the year 2008-09 has been made so that RIL would be able to sell its KG basin gas, which is expected in this year. A long-term policy on gas utilisation would be determined later,” a source present in the eGoM said. An eGoM is the final authority on the subject assigned and its decision does not require the Cabinet’s ratification. It is learnt that for 2008-09 those fertiliser units that are stranded would get priority with a total allocation close to 50 mmscmd. This is higher than last year’s allocation when fertiliser units got just about 30 mmscmd of gas. Similarly, only existing gas-based power plant (read no new power plant) would get priority in gas allocation with expected 30 mmscmd allocation. The decision has, however, left the power ministry sulking as it was expecting much higher allocation to run gas-based power projects to full capacity. The power sector is also last in the priority order for gas allocation for greenfield projects. Power ministry had earlier sought allocation of 77 mmscmd of gas for existing and upcoming projects . The power sector requires 60 mmscmd of gas to run 13,334 mw of existing gas-based projects at 90% plant load factor (PLF). It requires additional gas for running 1,285 mw of gas-based capacity that is ready but is not being commissioned due to shortage of fuel, and another 1,002 mw is running on high-cost liquid fuel that needs to shift to gas to become economical. “The proposed allocation of 30 mmscmd for 2008-09 is even lower than last year’s allocation of about 36 mmscmd allocation. The PLF of gas-based power plants is already low at about 50%, this could further get affected this year,” an official source said. The allocation formula has, however, finalised 5 mmscmd gas allocation for CGD projects that would help to keep cities pollution free as per the direction of the Supreme Court. Surprisingly, industry and other sectors, including LPG, petrochemicals, refineries, sponge iron units etc, would also get a lion’s share of gas allocation this year with release of close to 50 mmscmd of gas. Against a demand of about 180 mmscmd of gas during 2007-08, the actual supplies were to the tune of just 102 mmscmd (88 mmscmd domestic production and 26 mmscmd imports). The total allocation of gas is expected to the tune of 140 mmscmd this year, leaving a huge demand-supply mismatch.
India GSPC plans 5 mln T/yr LNG terminal
India's Gujarat State Petroleum Corp Ltd (GSPC) plans to build a five million tonne a year liquefied natural gas (LNG) terminal at the Mundra port in western India by 2013, a top company official said on Wednesday.
"To begin with it will have a capacity of five million tonnes, and will go up to 20 million tonnes," Managing Director D.J. Pandian told Reuters in a telephone interview from Gujarat.
India, Asia's third-largest oil consumer, is encouraging use of natural gas to control its oil import bill and rein in inflation but there is not enough supply to satisfy rising demand.
State-owned GSPC has hired an international consultant to prepare detailed feasibility report of the project, Pandian said.
"The report will be ready in four to six months from now, then only we can work out the costing and finalise the capacity," he said.
GSPC would hold a 50 percent stake in the project while India's Adani group has agreed to buy 25 percent, he said.
"We are talking to Essar for remaining stake. HPCL has also approached us for buying 25 percent. Let's see, if Essar, HPCL don't join us then we will go for IPO," Pandian said.
HPCL (HPCL.BO: Quote, Profile, Research) is a state-run refining and retailing firm.
Gas demand in India, currently around 179 million standard cubic metres a day (mmscmd), is far short of the supply of about 95 mmscmd. Supply is expected to double by 2009 after new gas fields, including those of Reliance Industries (RELI.BO: Quote, Profile, Research), start production.
India's Petronet LNG (PLNG.BO: Quote, Profile, Research) plans to double its capacity to 10 million tonnes of LNG, while Britain's BG Group Plc (BG.L: Quote, Profile, Research) plans to import LNG in India this year, adding to domestic supplies, but Pandian said the demand was rising.
Analysts say there is enormous potential for using compressed natural gas in vehicles once availability increases, while power and fertiliser units would also switch to natural gas.
Goldman Sachs estimates the share of natural gas in India's coal-dominated energy basket will double to 18 percent by 2015 and stabilise at 20 percent by 2025.
He said the LNG was not easily available currently, but by the time the firm's terminal is set up, enough gas would be there in the market.
A GSPC group firm Gujarat State Petronet Ltd (GSPT.BO: Quote, Profile, Research) is laying a pipeline network of 2,500 kilometres in the state, which can be used by GSPC to transport the re-gassified LNG to the demand centres. (Editing by Ranjit Gangadharan)
"To begin with it will have a capacity of five million tonnes, and will go up to 20 million tonnes," Managing Director D.J. Pandian told Reuters in a telephone interview from Gujarat.
India, Asia's third-largest oil consumer, is encouraging use of natural gas to control its oil import bill and rein in inflation but there is not enough supply to satisfy rising demand.
State-owned GSPC has hired an international consultant to prepare detailed feasibility report of the project, Pandian said.
"The report will be ready in four to six months from now, then only we can work out the costing and finalise the capacity," he said.
GSPC would hold a 50 percent stake in the project while India's Adani group has agreed to buy 25 percent, he said.
"We are talking to Essar for remaining stake. HPCL has also approached us for buying 25 percent. Let's see, if Essar, HPCL don't join us then we will go for IPO," Pandian said.
HPCL (HPCL.BO: Quote, Profile, Research) is a state-run refining and retailing firm.
Gas demand in India, currently around 179 million standard cubic metres a day (mmscmd), is far short of the supply of about 95 mmscmd. Supply is expected to double by 2009 after new gas fields, including those of Reliance Industries (RELI.BO: Quote, Profile, Research), start production.
India's Petronet LNG (PLNG.BO: Quote, Profile, Research) plans to double its capacity to 10 million tonnes of LNG, while Britain's BG Group Plc (BG.L: Quote, Profile, Research) plans to import LNG in India this year, adding to domestic supplies, but Pandian said the demand was rising.
Analysts say there is enormous potential for using compressed natural gas in vehicles once availability increases, while power and fertiliser units would also switch to natural gas.
Goldman Sachs estimates the share of natural gas in India's coal-dominated energy basket will double to 18 percent by 2015 and stabilise at 20 percent by 2025.
He said the LNG was not easily available currently, but by the time the firm's terminal is set up, enough gas would be there in the market.
A GSPC group firm Gujarat State Petronet Ltd (GSPT.BO: Quote, Profile, Research) is laying a pipeline network of 2,500 kilometres in the state, which can be used by GSPC to transport the re-gassified LNG to the demand centres. (Editing by Ranjit Gangadharan)
MARKET PREDICTION
GLOBAL MARKET IS OPEN POSITIVE AFTER EASING OF CRUDE TO $130.
BUT STILL PAIN LEFT IN US BECAUSE OF HOUSING DATA AND CONSUMER SPENDING IS SUPPORTING ECONOMY,RS VS $ 42.73 ALMOST AT THE SAME LEVEL OF YEASTERDAY,TODAY IS CLEARING DAY NIFTY TUNES INTO PREMIUM FROM DINCOUNT FOR SHORT CLOSER, TOTAL MARKET O I IS 89 K CR OUT O I PREVEIL 46 K CR IN JUNE AND 43 K CR IN MAY SERISE LAST.
PUT CALL RATIO INCHED UP A BIT TO 1.29%.LEVEL OF NIFTY 4930-4980-5020 GO LONG FROM 4930 WITH S L OF 4900 AND GO SHORT FROM 5020 LEVEL WITH S L OF 5030.
BFSI AND IT AND FMCG LOOKS POSITIVE.
HAVE A NICE TRADING DAY
BUT STILL PAIN LEFT IN US BECAUSE OF HOUSING DATA AND CONSUMER SPENDING IS SUPPORTING ECONOMY,RS VS $ 42.73 ALMOST AT THE SAME LEVEL OF YEASTERDAY,TODAY IS CLEARING DAY NIFTY TUNES INTO PREMIUM FROM DINCOUNT FOR SHORT CLOSER, TOTAL MARKET O I IS 89 K CR OUT O I PREVEIL 46 K CR IN JUNE AND 43 K CR IN MAY SERISE LAST.
PUT CALL RATIO INCHED UP A BIT TO 1.29%.LEVEL OF NIFTY 4930-4980-5020 GO LONG FROM 4930 WITH S L OF 4900 AND GO SHORT FROM 5020 LEVEL WITH S L OF 5030.
BFSI AND IT AND FMCG LOOKS POSITIVE.
HAVE A NICE TRADING DAY
Wednesday, May 28, 2008
Fertile gains for fertiliser shares on higher subsidy
Seven fertiliser shares rose between 3.24% and 14.53% on reports that the government has provided fertiliser subsidy of Rs 95000 crore for 2008/09, much higher from earlier budget estimates of Rs 31000 crore.
Tata Chemicals (up 4.29% to Rs 395.10), Nagarjuna Fertilisers and Chemicals (up 2.74% to Rs 46.80), Rashtriya Chemicals and Fertilisers (up 3.90% to Rs 70.55), Chambal Fertilisers and Chemicals (up 3.60% to Rs 79.15), Gujarat State Fertiliser Corporation (up 6.11% to Rs 176.25), Zuari Industries (up 3.24% to Rs 235.55), and National Fertiliser (up 14.53% to Rs 54.40), advanced.
Chambal Fertilisers and Chemicals clocked volumes of 59.20 lakh shares, Nagarjuna Fertilisers saw volumes of 28.30 lakh shares while 3.44 lakh shares changed hands on the Rashtriya Chemicals and Fertilisers counter on BSE.
Fertiliser shares had risen in a weak market yesterday, 27 May 2008, when the news of higher subsidy hit the market during trading hours. On that day, Nagarjuna Fertilisers and Chemicals rose 2.36% to Rs 45.55, Rashtriya Chemicals and Fertilisers gained 1.04% to Rs 67.90, and Chambal Fertilisers and Chemicals jumped 6.85% to Rs 76.40
The substantially higher subsidy bill is a part of the strategy of the government to safeguard farmers from sharp price spiral for both raw materials and finished fertilisers in the global market.
Meanwhile, the government's new fertiliser investment policy is likely to be finalised in the next two to three weeks. The new policy will aim at linking production cost of new fertiliser units to the international prices, in order to encourage fresh investments in the sector.
Tata Chemicals (up 4.29% to Rs 395.10), Nagarjuna Fertilisers and Chemicals (up 2.74% to Rs 46.80), Rashtriya Chemicals and Fertilisers (up 3.90% to Rs 70.55), Chambal Fertilisers and Chemicals (up 3.60% to Rs 79.15), Gujarat State Fertiliser Corporation (up 6.11% to Rs 176.25), Zuari Industries (up 3.24% to Rs 235.55), and National Fertiliser (up 14.53% to Rs 54.40), advanced.
Chambal Fertilisers and Chemicals clocked volumes of 59.20 lakh shares, Nagarjuna Fertilisers saw volumes of 28.30 lakh shares while 3.44 lakh shares changed hands on the Rashtriya Chemicals and Fertilisers counter on BSE.
Fertiliser shares had risen in a weak market yesterday, 27 May 2008, when the news of higher subsidy hit the market during trading hours. On that day, Nagarjuna Fertilisers and Chemicals rose 2.36% to Rs 45.55, Rashtriya Chemicals and Fertilisers gained 1.04% to Rs 67.90, and Chambal Fertilisers and Chemicals jumped 6.85% to Rs 76.40
The substantially higher subsidy bill is a part of the strategy of the government to safeguard farmers from sharp price spiral for both raw materials and finished fertilisers in the global market.
Meanwhile, the government's new fertiliser investment policy is likely to be finalised in the next two to three weeks. The new policy will aim at linking production cost of new fertiliser units to the international prices, in order to encourage fresh investments in the sector.
Robust quarterly earnings propel Neyveli Lignite Corporation
Neyveli Lignite Corporation jumped 6.51% to Rs 148 at 9:56 IST on BSE after reporting 1357.10% surge in net profit to Rs 384.68 crore on 128.9% jump in net sales to Rs 801.74 crore in Q4 March 2008 over Q4 March 2007.
The company announced the results after trading hours on Tuesday, 27 May 2008.
Meanwhile, the BSE Sensex was up 84.87 points, or 0.52%, to 16,360.46.
On BSE, 49,343 shares were traded in the counter. The scrip had an average daily volume of 11.09 lakh shares in the past one quarter.
The stock hit a high of Rs 148 and a low of Rs 142.10 so far during the day. The stock had a 52-week high of Rs 273.90 on 4 January 2008 and the stock hit a 52-week low of Rs 58.85 on 12 June 2007.
The mid-cap company had underperformed the market over the past one month till 27 May 2008, declining 5.99% compared to the Sensex’s decline of 4.35%. It had also underperformed the market in the past one quarter, declining 10.70% compared to Sensex’s decline of 8.70%.
The company’s current equity is Rs 1677.71 crore. Face value per share is Rs 10.
The current price of Rs 148 discounts its Q4 March 2008 annualised EPS of Rs 9.17, by a PE multiple of 16.14.
Neyveli Lignite Corporation (NLC)’s net profit surged 94.36% to Rs 1101.57 crore on 34.48% rise in total income to Rs 3638.07 crore in the year ended March 2008 over the year ended March 2007.
On 15 May 2008, NLC got approval from the Union government for development of 1000-megawatt coal based thermal power project at Tuticorin in Tamil Nadu.
Neyveli Lignite Corporation’s principal activities are exploration of lignite mines and power generation. The company owns three lignite mines and two thermal power stations in Neyveli and Cuddalore district in the state of Tamil Nadu. It generates power by using lignite as fuel.
The company announced the results after trading hours on Tuesday, 27 May 2008.
Meanwhile, the BSE Sensex was up 84.87 points, or 0.52%, to 16,360.46.
On BSE, 49,343 shares were traded in the counter. The scrip had an average daily volume of 11.09 lakh shares in the past one quarter.
The stock hit a high of Rs 148 and a low of Rs 142.10 so far during the day. The stock had a 52-week high of Rs 273.90 on 4 January 2008 and the stock hit a 52-week low of Rs 58.85 on 12 June 2007.
The mid-cap company had underperformed the market over the past one month till 27 May 2008, declining 5.99% compared to the Sensex’s decline of 4.35%. It had also underperformed the market in the past one quarter, declining 10.70% compared to Sensex’s decline of 8.70%.
The company’s current equity is Rs 1677.71 crore. Face value per share is Rs 10.
The current price of Rs 148 discounts its Q4 March 2008 annualised EPS of Rs 9.17, by a PE multiple of 16.14.
Neyveli Lignite Corporation (NLC)’s net profit surged 94.36% to Rs 1101.57 crore on 34.48% rise in total income to Rs 3638.07 crore in the year ended March 2008 over the year ended March 2007.
On 15 May 2008, NLC got approval from the Union government for development of 1000-megawatt coal based thermal power project at Tuticorin in Tamil Nadu.
Neyveli Lignite Corporation’s principal activities are exploration of lignite mines and power generation. The company owns three lignite mines and two thermal power stations in Neyveli and Cuddalore district in the state of Tamil Nadu. It generates power by using lignite as fuel.
Cement shares build on relaxation of export ban
Four frontline cement shares rose between 1.37% and 3.69% after the Union government partially lifted a ban on cement exports.
Meanwhile the BSE Sensex was down 19.92 points or 0.12% to 16,259.98
Ambuja Cement (up 3.69% to Rs 101.20), UltratechCement Company (up 2.52% to Rs 651.95), ACC (up 1.37% to Rs 664.50), and India Cement (up 3.51% to Rs 162.30), advanced.
Ambuja Cement clocked volumes of 1.28 lakh shares, UltratechCement Company notched volumes of 3228 shares, ACC clinched volumes of 33,701 shares and 61,827 shares were traded on India Cements counter on BSE.
As per the notification of Directorate General of Foreign Trade (DGFT) issued yesterday, 27 May 2008, export of cement will be allowed from ports based in Gujarat. Gujarat accounts for almost 90% of the country’s cement exports and approximately two million tonne of cement is exported annually from Gujarat.
The partial relaxation on the export ban comes at a time of expectation of slow down in the demand of cement in the country with monsoons approaching.
Earlier, on 11 April 2008, the government had banned cement export to increase availability of the construction material in the domestic market and keep a check on prices, which among other items had fuelled inflation.
Earlier this month, the government had allowed export of cement and cement clinkers to Nepal.
Meanwhile the BSE Sensex was down 19.92 points or 0.12% to 16,259.98
Ambuja Cement (up 3.69% to Rs 101.20), UltratechCement Company (up 2.52% to Rs 651.95), ACC (up 1.37% to Rs 664.50), and India Cement (up 3.51% to Rs 162.30), advanced.
Ambuja Cement clocked volumes of 1.28 lakh shares, UltratechCement Company notched volumes of 3228 shares, ACC clinched volumes of 33,701 shares and 61,827 shares were traded on India Cements counter on BSE.
As per the notification of Directorate General of Foreign Trade (DGFT) issued yesterday, 27 May 2008, export of cement will be allowed from ports based in Gujarat. Gujarat accounts for almost 90% of the country’s cement exports and approximately two million tonne of cement is exported annually from Gujarat.
The partial relaxation on the export ban comes at a time of expectation of slow down in the demand of cement in the country with monsoons approaching.
Earlier, on 11 April 2008, the government had banned cement export to increase availability of the construction material in the domestic market and keep a check on prices, which among other items had fuelled inflation.
Earlier this month, the government had allowed export of cement and cement clinkers to Nepal.
Singapore Hot Stocks-Raffles Education hits 3-mth high on JVs
Raffles Education Corp (RLSE.SI: Quote, Profile, Research) rose as much as 6.3 percent to a three-month high of S$1.36 after the firm formed joint ventures with India's Educomp Solutions (EDSO.BO: Quote, Profile, Research) in India and China.
The $150 million joint ventures with Educomp Solutions, which provides multimedia teaching aids and computer education programmes to schools, allows Raffles Education to tap into the Indian market.
"The Indian education market mirrors that of China in many ways -- inefficient spending by the government on infrastructure and restrictive regulations that stagger private sector participation," Credit Suisse said in a client note.
Credit Suisse analysts kept Raffles Education at "outperform" with a price target of S$1.75, a 30-percent upside from the stock's last traded price.
They said both firms would have limited near-term synergies, and that their education programmes and systems would take time to gain recognition in China and India.
The $150 million joint ventures with Educomp Solutions, which provides multimedia teaching aids and computer education programmes to schools, allows Raffles Education to tap into the Indian market.
"The Indian education market mirrors that of China in many ways -- inefficient spending by the government on infrastructure and restrictive regulations that stagger private sector participation," Credit Suisse said in a client note.
Credit Suisse analysts kept Raffles Education at "outperform" with a price target of S$1.75, a 30-percent upside from the stock's last traded price.
They said both firms would have limited near-term synergies, and that their education programmes and systems would take time to gain recognition in China and India.
MARKET PREDICTION
GLOBAL MARKET IS MIXED...OIL CORRECTED SIGNIFICANTLY FROM HIGH TO $128.
RUPEE GOT WEAK AGAINST DOLLAR 42.78.
JUST BEFORE CLEARING DAY MARKET IS REALLY BAISED TOTAL ROLL OVER SEEN IS 42% JUNE SERISE O I IS 37 K CR AND MAY SERISE O I IS 48 K CR TOTAL O I IS PREVALING IS 85 K CR.
PUT CALL RATIO IS 1.25%.LEVEL OF NOFTY IS 4800 AND 4920 IS CRUCIAL LEVEL FOR THE DAY.
GO SHORT FROM 4900 WITH SL OF 4920 AND BUY FROM LOWER SUPPORT OF 4820 WITH S L OF 4800.IN LONG SIDE IT AND PHARMA LOOK ATTRACTIVE AND IN SHORT SIDE BANKING , FINANCIAL SERVICES AND CONSTRUCTION LOOKS GOOD.
HAVE A NICE TRADING DAY.
-MR SAM
RUPEE GOT WEAK AGAINST DOLLAR 42.78.
JUST BEFORE CLEARING DAY MARKET IS REALLY BAISED TOTAL ROLL OVER SEEN IS 42% JUNE SERISE O I IS 37 K CR AND MAY SERISE O I IS 48 K CR TOTAL O I IS PREVALING IS 85 K CR.
PUT CALL RATIO IS 1.25%.LEVEL OF NOFTY IS 4800 AND 4920 IS CRUCIAL LEVEL FOR THE DAY.
GO SHORT FROM 4900 WITH SL OF 4920 AND BUY FROM LOWER SUPPORT OF 4820 WITH S L OF 4800.IN LONG SIDE IT AND PHARMA LOOK ATTRACTIVE AND IN SHORT SIDE BANKING , FINANCIAL SERVICES AND CONSTRUCTION LOOKS GOOD.
HAVE A NICE TRADING DAY.
-MR SAM
Tuesday, May 27, 2008
MARKET PREDICTION
GLOBAL MARKET IS MIXED TODAY.
OIL HIT $133 APROX AFTER 2ND ATTACK IN NIGERIA.
RUPEE VS DOLLAR SETTLE AT 42.63.IN NIFTY WE HAVE SEEN HAVY SELLING PRESURE AFTER BRECH 4900 LEVEL,IF MARKET DO NOT TAKE SUPPORT AT 4800 IT COULD TUMBLE TO 4700 TOO WHICH IS IMMEDIATE SUPPORT TO MARKET IN SHORT TERM,TOTAL O I IS 83 K CR,IN MAY SERISE 54 K CR AND IN JUNE SERISE 29 K CR.
TOTAL MARKET WIDE ROLL OVER IS 25% AND PUT CALL RATIO IS HOVERING AROUD 1.27.
LEVEL OF NIFTY 4850-4920-4980.
IF MARKET HOLD 4800 GO LONG IN PHARMA AND TECH SHARE,ALSO IN SHORT SIDE IF MARKET DOES NOT HOLD 4920 GO SHORT WITH S L OF 4950 IN BANK AND CONSTRUCTION.
HAVE A NICE TRADING DAY..
-MR SAM
OIL HIT $133 APROX AFTER 2ND ATTACK IN NIGERIA.
RUPEE VS DOLLAR SETTLE AT 42.63.IN NIFTY WE HAVE SEEN HAVY SELLING PRESURE AFTER BRECH 4900 LEVEL,IF MARKET DO NOT TAKE SUPPORT AT 4800 IT COULD TUMBLE TO 4700 TOO WHICH IS IMMEDIATE SUPPORT TO MARKET IN SHORT TERM,TOTAL O I IS 83 K CR,IN MAY SERISE 54 K CR AND IN JUNE SERISE 29 K CR.
TOTAL MARKET WIDE ROLL OVER IS 25% AND PUT CALL RATIO IS HOVERING AROUD 1.27.
LEVEL OF NIFTY 4850-4920-4980.
IF MARKET HOLD 4800 GO LONG IN PHARMA AND TECH SHARE,ALSO IN SHORT SIDE IF MARKET DOES NOT HOLD 4920 GO SHORT WITH S L OF 4950 IN BANK AND CONSTRUCTION.
HAVE A NICE TRADING DAY..
-MR SAM
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