I I n n t t e e r r – – c c o o n n n n e e c c t t e e d d S S t t o o c c k k E E x x c c h h a a n n g g e e o o f f I I n n d d i i a a L L t t d d RBI SLASHED REPO RATE BY 50bps TO BOLSTER THE ECONOMY GROWTH…. Majority of the Global economies performed on the gains but a sense of cautious was seen on account of rise in European debt crisis widely gaining grip on the countries like Spain and Italy while Greece and Ireland already struggling hard to come out from the deep debt burden. Although much has been done by the Troika i.e. European Commission (EC), the IMF and ECB but the crises situation would take its own time before it gets fade away from the system. In Europe, the chance of government bond purchase program by European Central Bank has increased as the economists are of the debt crisis are worsening. Spain’s jobless rate rose to 24.4% in the first quarter, the highest in almost two decades and the economy is mired in a recession that the IMF predicts will cause it to shrink by 1.8% in 2012. The real estate industry of Spain bust is the biggest test to date for European Authorities. Whereas, Spain’s economy is almost twice that of Greece, Portugal and Ireland combined. Yield on Spain’s 10-year bonds climbed by nine basis points to 5.86% from April, approaching the level of those countries when they had to be bailed out. Spain and Ireland have had the similar type of problems and symptoms i.e. availed cheap credit, a construction boom and over investment in various projects without realizing the revenue outcome potential from it. The expectations of easing by Bank of Japan led to fall in the yen against all the major currencies. Further monetary easing in China is increasing as the corporate are seeing erosion in profitability. Chinese 764 companies released this year annual combined growth of 14.9% in the profits as compared to 38% reported last year. Monetary stimulus in the immediate future to prosper the growth arrested the appreciation in Yen. Banks lending in China increased sharply in the month of March after the cut in Reserve Ratio Requirement by the People’s Bank of China. The China government is assuring the record credit growth in the sense that the government would not let growth dip sharply and would continue to alter the policies in synchronies with the changes in the macro environment. For the first time since 2007, China has widened the Yuan’s trading band to 1% from 0.5% which reflects that China is moving further on its stance against currency. Economic growth slowed in the first quarter to 8.1% , the least in almost 3yeras. Monthly Newsletter (May 2012)
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IInntteerr ccoonnnneecctteedd SSttoocckk EExxcchhaannggee ... · 8.5% previously. The rate at which RBI borrows from banks (reverse repo) now stands 7% post the review. The central
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The recent cut down in the key lending rate by Reserve Bank of India (RBI) hardly brought any relief to the banking
sector. Coerced into reducing lending rates, many PSU banks are already set to face
pressure on margins. To top that, every now and then there are reports of jump in
the loan restructuring. The latest numbers published in a financial daily peg the
loans referred for recast at Rs 2.05 trillion. This is 48% higher than last year! What is
more worrying is that the number is three times the total profit of the listed banks in
the country in FY11 i.e Rs 669 bn. Agreed that all the restructured loans are not to be
written off. However even if a third of them are to become delinquent, it would wipe
off an entire year's profits for the sector. It’s needless to say that the statistics are
worrying indeed. Moreover, the reporting for such restructured assets is still very
opaque. Hence it is time the RBI should come out with some guidelines to better reflect the same. Until then, investors
in the sector will have to tread very cautiously in terms of valuations.
Health Insurance:
A recent report by Deutsche Bank compares prices of US goods and services to those of other economies across the
globe. One interesting parameter, among other things, is health insurance costs. The chart shows annual premium paid
in US dollars for the most basic health insurance. As is
evident from the chart, health insurance in the US is
the most expensive in the world. Even Australia,
which is the second most expensive country in terms
of health insurance, has an annual premium which is
less than half of that of the US. On the other extreme,
emerging economies like India and China have
relatively lower insurance costs. While it is certain that
healthcare costs in India are quite cheaper in
comparison to several other countries, poor
healthcare infrastructure still remains a major hurdle.
Source: Deutsche Bank (*for a basic policy for a local resident between 25-35 years)
DOMESTIC NEWS
RBI in its annual monetary policy for 2012-13 slashed the policy rates by 50 basis points.
The repo rate at which banks borrow money from the RBI now stands at 8% from 8.50%
earlier. Similarly, the Reverse Repo Rate at which RBI borrows money from banks is now
at 7% from 7.50% earlier. However, the Cash Reserve Ratio (CRR) or the portion of
deposits banks keep with the RBI, was left unchanged at 4.75%.
India's inflation declined marginally to 6.89 percent in March as compared to 6.95 percent in the previous
month.
India's exports during the fiscal year 2012 registered a growth of 21 percent at $303.7 billion, while imports
were $488.6 billion with a growth of around 32 percent and Trade Deficit at $184.9 billion.
INDUSTRY/COMPANY REVIEW
Telecom: 2G Spectrum License Auctions
Telecom operators have been fretting and fuming over the price set for 2G license
auctions. They have termed the prices are sky high and unreasonable. But the
Chairman of TRAI (Telecom Regulatory Authority of India) stands firmly behind
the math in his pricing. In his opinion, spectrum is a scarce commodity. Therefore
the pricing that the TRAI has proposed is justified. He has also stated that the
operators can look at increasing the lucrative data revenues rather than
promoting voice over the new spectrum. This would help them recover the high
spectrum prices. The truth is that the government is in dire need of funds. It was
able to make up a large part of its fiscal targets in FY11 mainly from the funds it
received from the 3G auction. So why should it lose an opportunity to repeat history with the 2G auction as well. In
reality, the price being asked for the 2G spectrum is ridiculously high. One should not forget that the 3G spectrum is
premium to the 2G spectrum. Therefore the price of the latter should ideally be below that of 3G and not higher.
Coal may no longer be referred to as the 'black gold'!
At a time when Coal India is struggling to meet the domestic demand for coal, globally the resource seems to be finding
fewer takers. As per the US Energy Information Administration estimate, share of coal in US energy generation could fall
to 40% this year. This is against 57% in 1985. The reason for the falling demand for coal is its struggle with ultra cheap
natural gas. With all the shale reserves being unlocked, gas prices have steadily declined since mid-2008.
To the point where they are hovering around US$ 2 per m British thermal units for the first time in a decade. That makes
natural gas prices lower than coal prices. And more trouble lies ahead. A number of old coal-fired plants are scheduled
to be shut down in the US by the end of 2014. There will be more such cases world over as environmental norms
beckon. That could drive another 5% of coal demand out of the market. Hence, the faster Coal India gets its act together
in meeting domestic needs, the better it will be. Else it may be too late for the PSU behemoth to reap the richness of
black gold.
Banking Sector:
>> The Export-Import Bank of India (Exim Bank) is planning to set up a new fund of USD 500 million (Rs 2,500 crore),
which will provide MSMEs with long- term foreign currency loans.
>> Standard & Poor's has lowered the outlook on 11 financial institutions, including State Bank of India and ICICI Bank, to
negative from stable. It, however, said a rating downgrade is unlikely since the individual finances of the institutions are
unlikely to deteriorate sharply. The revision follows a similar move in terms of the sovereign as financial institutions
from India cannot be viewed above the sovereign since policy changes have substantial impact on them.
Internet / Technology:
India may lag most countries in internet
penetration but it has still managed to earn the
dubious distinction of being the spam capital of
the world. A report from SophosLabs, a software
security firm states that more than 9% of all spam
messages transmitted in the first quarter of 2012
were relayed through India before coming into
people's inboxes. The US was close on India's
heels, accounting for more than 8% of all spam
mails. Countries like South Korea, Indonesia and
Russia helped round off the top five.
Source: Sophos.com
COMMODITY
GOLD
Akshaya Tritiya is considered as one of the most auspicious day to buy gold. According to Indian belief, this day is
blessed by the goddess of wealth and investment on this day is likely to grow throughout the year. The chart depicts the
volume and price of gold on Akshaya Tritiya in the years 2004-2011. The gold price has steadily increased and breached
Rs. 21,000/- mark in 2011 while the highest volume recorded in the year 2010.
According to industry estimates, a gold
sale on Akshaya Tritiya this year is
around 17 tonnes. In the spot trade,
standard gold (purity of 99.5) prices
opened at Rs. 28,820, per 10 grams and
ended at Rs. 28,885. On the other hand,
pure gold (purity of 99.9) price opened
at Rs. 28,950 per 10 grams and ended
higher at Rs. 29,025. Gold futures prices
rose 0.22 per cent to Rs. 29,242 per 10
grams.
Presently around 15 companies in India offer gold ETF's. As per the data released by AMFI, Assets under management
(AUM) with gold exchange traded funds have risen 124 per cent in March 2012 on a y-o-y basis. AUM's of gold ETF''s has
increased from Rs. 4,400 cr on March 31, 2011 to Rs. 9,886 cr on March 31, 2012.
The chart depicts the movement of gold price during the
period Mar 26, 2012 to Apr 24, 2012. The gold price recorded
highest level of $ 1694 per ounce and the lowest level of $
1620 per ounce.
The gold price decelerate on April 18 as investors squared off
positions from the commodity after the US dollar appreciated
against a basket of currencies pressuring most dollar-
denominated commodities. Gold futures for June delivery
declined 0.7 per cent to $1,639.60 an ounce after trading as
high as $1,655.20 and as low as $1,638.10 an ounce on the
Comex division of the New York Mercantile Exchange, whereas the spot gold prices eased 0.6 per cent to $1,639.81 an
ounce.
Gold gained more than half a percent on April 9 after disappointing U.S. jobs data revived hopes for further monetary
easing, while appetite for the metal was also boosted as China inflation spiked. Rampant inflation in China contributed
to the explosive gold demand from investors in 2011. According to the World Gold Council (WGC), China's physical gold
demand jumped 20 per cent last year, compared to a 7 per cent rise in global demand.
SILVER
On the auspicious occasion of 'Akshaya Tritiya', the silver prices
moved up by 0.34 per cent to Rs. 55,741 per kg in futures
trading. At the Multi Commodity Exchange, silver for delivery in
July traded higher by 0.33 per cent to Rs. 57,375 per kg. Silver
futures prices fell over one per cent to Rs. 56,657 per kg on April
4, 2012 as speculators reduced their holdings amid weak Asian
markets. At the Multi Commodity Exchange, silver for delivery in
May declined by 1.07 per cent to Rs. 56,967 per kg. Similarly,
July prices fell by one per cent to Rs. 58,614 per kg.
CRUDE OIL
Currently, India imports more than 2.4 million barrels of oil a day of which approximately 0.75 million barrels come from
domestic supplies. As per data from the Ministry of Petroleum and Natural Gas, the production of crude oil has dropped
in the month of March 2012. Crude oil output, which had marginally increased y-o-y in February, dropped to 3.218
million tonnes in March. This was mainly because production from Assam fields fell 100 per cent and ONGC’s Mumbai
High fields produced 4.7 per cent less y-o-y. Mumbai High fields, which account for 42 per cent of domestic oil
production, are experiencing a natural decline in output.
India which currently importing 14 million tonnes of crude from Iran has substantially reduced its imports from the
country as part of the deadline to comply with Western sanctions against Tehran looms. Iran's trading partners, such as
India, China and South Korea, are trying to stop relying on Iranian crude by the end of June this year, when US sanctions
on Iranian oil transactions would come into effect.
Crude oil climbed over half a percent to settle above $104 a barrel levels
on April 25, 2012. The fuel prices got support from the US Federal
reserve's reaffirmation to its commitment to the ultra-loose monetary
policy while refraining from employing quantitative easing measures.
Benchmark crude for June delivery added 0.55 per cent to $104.12 a
barrel, after trading as high as $104.57 and as low as $103.11 a barrel, on
the New York Mercantile Exchange. In London, June delivery Brent crude
climbed $0.96 or 0.80 per cent to end at $119.12 a barrel on the ICE.
Oil slipped below $125 a barrel on April 3, 2012 after US gasoline demand data weakened sentiment though the
prospect of tighter North Sea supplies and positive economic data provided some support. Brent crude futures were
down to $124.64 a barrel, after settling up $2.55 at $125.43 on the previous day.
COPPER
China (the top industrial metal consuming nation) aims to shut down 7.8 million tonnes
of steelmaking capacity and 700,000 tonnes of copper smelting capacity this year as
part of its efforts to reduce pollution. It is projected that this target could have a major
impact on demand and prices of copper in near future.
Copper prices decelerate around half a percent on April 25 as investors grew worried
over renewed debt crisis in Euro-zone. Copper futures for May delivery declined 0.4 per
cent to close at $3.6310 per lb, after trading as high as $3.6745 and as low as $3.6120
per lb on the Comex metals division of the New York Mercantile Exchange.
Copper prices plummeted by around two percent on April 9 because of the consumer price index inflation in China
exceeded forecasts in addition to the weaker than expected US employment report. Copper futures for May delivery
declined 2 per cent to close at $3.72 per lb on the Comex metals division of the New York Mercantile Exchange.
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