Archive for April, 2010

COPPER…WHAT’S REALLY DRIVING THE PRICE?

Copper is a reddish brown non-ferrous mineral which has been used for thousands of years by many cultures. The metal is closely related with silver and gold, with many properties being shared among these metals. With world population and development on the increase, demand for copper is expected to continue to build well beyond current annual consumption to:

•conducting electricity and heat

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•communications

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•transporting water and gas

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•roofing, gutters and downspouts

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•protecting plants and crops, and as a feed supplement and

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•Making statues and other forms of art.

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World copper consumption is expected to grow 5.4 per cent this year, led by China which is expected to buy nearly 40 per cent of global output, industry experts told the World Copper Conference on 8th April, 2010.

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Primary copper production starts with the extraction of copper bearing ores. There are three basic ways of copper mining: surface, underground mining and leaching.

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Open-pit mining is the predominant mining method in the world. These are the top ten ranked mining countries.

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IN THE GLOBALEXCHANGES

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Three commodity exchanges provide the facilities to trade copper: The London Metal Exchange (LME), the Commodity Exchange Division of the New York Mercantile  Exchange (COMEX/NYMEX) and the Shanghai Metal Exchange (SHME). In these exchanges, prices are settled by bid and offer, reflecting the market’s perception of supply and demand of a commodity on a particular day. Exchanges also provide for warehousing facilities that enable market participants to make or take physical delivery of copper in accordance with each exchange’s criteria.

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FACTS

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The average LME futures price for March 2010 was US$7,790 per tonne, almost double from the March 2009 average of US$4,040 per tonne. The 2010 high and low copper prices through the end of March were US$7,870 and US$7,265 per tonne, respectively. As of the end of March 2010, copper stocks held at the major metal exchanges LME, totalled 514325 tonnes.

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ICGS PREDICTIONS

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As per ICSG press release on 1st February 2010 & based on existing facilities and announced project developments, annual mine production capacity in the period 2009-2013 is expected to grow at an average rate of around 4.3% per year (%/yr) to reach 23.1 Mt in 2013, an increase of around 3.6 Mt (19%) from that in 2009.

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CURRENT SCENARIO

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Copper hit a 20-month high above $8,000 a tonne on 6th April,2010, after reports showed manufacturing expanded in India, the US and Europe, as well as China, and after US payrolls expanded by the most in three years. Most gains were driven by upbeat employment data out of the U.S., which led markets to view the state of the world’s largest economy in a more positive light. Slow but sure decreases in LME inventories provided added signs of a recovering physical market. Again, pulling back from a 20-month high copper looks uncomfortable at $7850 along with copper futures at MCX tracking overseas markets and a firm rupee.

Weekly Update 12th-16th April 2010

The markets continued with their upward momentum despite the concerns arising that Greece may default on 304.2 billion euros ($405.2 billion) of its debt. Trichet expressed confidence that Greece won’t default & many believe that IMF may come in for a bailout.

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Concerns also arose over the huge gains that markets world over has seen in a year. All in all the optimism about the strength of the recovery in global economy suggested by various positive economic data kept the market pace intact. According to National Institute of Economic and Social Research, UK GDP expanded by 0.4% in the first quarter matching the increase seen in the last quarter of the previous calendar year.

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Huge bank credit offtake in the last fortnight ending 26 March 2010 to the tune of Rs. 1.15 lakh crore after the continuous signs of Industrial,service & external sector recovery will increase the faith among the investors about the economy. The recent run up in the markets hassomewhat discounted the expected good corporate results & the increase in policy rates by the RBI to avoid the danger of generalised inflation in the economy. From the market activity, it looks that the Midcap & small cap would remain the favorites among the investors due to relative valuations. In the coming week, focus of the market would be on the Infosys results & guidance & market would also look on to the IIP numbers, especially the capital goods to gauge the momentum in the Industrial activity.

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Trend of all world markets is up and so have the Indian Stock Markets posted a 9 week continuous rally. The falling dollar index and the rising rupee gave steam to various asset classes which all moved up. The debate between the problems of Greece or other European nations will be unending but till the trend is up, one should look at longs. Nifty has support between 5250-5150 levels and Sensex between 17700-17300 levels.

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Recent buoyancy coupled with projected tightness in the supply of various commodities is signifying the bottoming out of global economy.

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Improvement in housing, job and retail sales data are stimulating fresh buying in commodities, especially in metals and energy. Remarkable jump in dollar index is unable to give much impact on commodities as they are trading on their own fundamentals. Nevertheless, several commodities hit multi months high, hence cautious approach is advised here. Appreciating rupee, which gained more than 5% in just nine weeks, is most likely to eat up the volatility in domestic exchanges. Price movements could be locked in agro commodities as well, particularly in spices, as export activities have become subdued due to the same reason of appreciation in rupee.

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Stay Tuned for More Updates :)

Milk, Fruits and Pulses Raised Food Inflation to 17.70%

Higher prices of milk, fruits and pulses raised food inflation to 17.70% for the week ended March 27.

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This was due to the expectations that RBI may further tighten rates in its annual monetary policy on April 20.

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Meanwhile, food inflation in the previous week stood at 16.35%.

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The overall inflation for March is likely to cross the double digit mark.

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This is with prices of vital items increasing and fears of food inflation spreading to manufactured goods.

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The overall inflation, which includes variation in prices of food and non-food items, was 9.89 per cent in February.

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On an annual basis, pulses became dearer by 32.60 per cent, milk by 21.12 per cent, fruits 14.95 and wheat by 13.34 per cent.

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Moreover, on a weekly basis, the index for food articles rose by 0.9 per cent as fish marine, milk, fruits, masur and vegetables became costlier.

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In order to rein in inflation, the PM is holding a meeting of the core committee of Chief Ministers with representations from 10 states and senior Cabinet ministers.

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The core group of chief ministers comprises Andhra Pradesh, Assam, Bihar, West Bengal, Punjab, Gujarat, Haryana, Tamil Nadu, Madhya Pradesh and Chhattisgarh.

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Besides CMs, the other members of the committee are Finance Minister Pranab Mukherjee, Food and Agriculture Minister Sharad Pawar and Planning Commission Deputy Chairman Montek Singh Ahluwalia.

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General inflation has already surpassed RBI”s March end projection of 8.5 per cent.

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On the other hand, RBI governor D Subbarao had also said that the apex bank will carry on its exit from monetary stimulus policy to check high inflation and ensure sustainable growth.

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Earlier, according to the government data, released yesterday states the India”s Consumer Price Index (CPI) increased by 14.86 % in the month of February 2010 as against a year ago, which is lower than January”s annual growth of 16.22 %.

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During the month of February 2010, the CPI for Industrial Workers reduced by 2 points to 170.

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Also, India”s annual wholesale inflation rose to 9.89 % in February 2010 as compared to an increase of 8.56 % in January 2010 and 3.50 % against a year ago.

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The wholesale price inflation is more closely watched in India because it covers a higher number of products.

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The Wholesale Price Index (WPI) based inflation rate is rising quite sharply ever since it came out of the negative territory in September 2009.

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Stay Tuned for More Updates :)

THE CHANGING COLOURS OF COMMODITY EXCHANGES

Trading Hours is basically the hours of a day where trading of a futures contract can take place in an exchange. Again, this varies widely according to the asset being covered. Some commodities futures are traded only a couple of hours a day and some index futures are traded 24 hours a day non-stop.

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With a number of exchanges around the world, trading takes place almost 24 hours a day, except on weekends. There are at least a dozen major exchanges that serve as a marketplace for commodities worldwide. Each of these specializes in certain commodities, while others trade in whole different set.

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Additionally, as the side effect of being such a huge market, the market is extremely liquid and numerous transaction volumes takes place daily.

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Instruments (contracts) traded on commodity exchanges include futures, options and other derivatives. Agricultural products, precious metals, industrial metals, and fossil fuels and other forms of energy are other products are among the primary goods that are traded in these exchanges.

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A concept is emerging for trading in movie futures. Media Derivatives, a division of Veriana Networks, and Cantor are racing to set up the first US exchanges to offer futures on movie box office receipts. They are closing in on their goal of offering hedging — and speculation — instruments to investors and movie studios wary of audience fickleness and box office volatility.

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The basic purpose of commodity futures markets is to allow suppliers/users of the product to sell/buy such contracts, whereby they can “lock in” a future price of the commodity and thereby eliminate the uncertainty and risk of doing business while facing an unknown future price. However, commodity trading has moved to electronic trading from open outcry systems, following the trend in financial securities trading. Electronic trading has been found to affect areas like bid-ask spreads, transaction costs and speed of information dissemination.

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Commodity trading market is a lucrative field for investors. It generally refers to the future market, which empowers the traders investments, needs and can be gainful, expensive and enjoyable.

Commodity Weekly Commentary 5th-9th April

In the week gone by interesting moves were witnessed in gold futures. Gold prices surged high on international bourses while strong rupee kept domestic gold prices under check. International gold futures ended the first quarter with a positive note on buying driven by volatile currencies, firm stock markets and oil as well as euro zone debt but it struggled to sustain gains since hitting a record above $1,200 an ounce last December.

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The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust said that its holdings stood at 1,129.823 tonnes as of March 31, 2010. Even, silver showed smart gains on international as well as on domestic exchanges. In base metal pack; copper futures hit 20-month highs last week, starting the second quarter in upbeat mood as improving demand sentiment and investor cash supported metals.

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Falling LME inventories helped aid sentiment in recent weeks, with copper stocks dipping 1,875 tonnes to 512,450 tonnes, having hit 6-1/2 year highs at 555,075 tonnes in mid-February. Nickel stood as outperformer last week among all the base metals as prices rose 34.9 percent in the first quarter of this year, outperforming other metals traded on the LME.

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The buying was triggered by expectations of stronger demand from stainless steel mills. In energy counter;  crude oil futures hit their highest level this year and posted the loftiest settlement for a front-month crude  contract in almost 1.5 years as a weakening dollar attracted buying.

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Bearish trend was witnessed in most of agri commodities in the week gone by. Guar pack futures fell last week tracking weakness in the spot market, hopes of normal monsoon rains in 2010 and sufficient stocks. The movement in guar seed is largely driven by the monsoon report as it is a rain-fed crop.

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However, in top producer Rajasthan, output is likely to drop by 80% to 241,000 tonnes in 2009/10 as scanty  rains trimmed area and yields. Profit booking at higher levels, drop in spot prices and rising arrivals  kept chana futures under check last week. In oil seeds section; soya bean and soya oil futures also  tad down tracking losses in the U.S. market, while rapeseed traded sideways tracking weakness in soya  market on output concerns.

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Traders are now speculating that output would be lower for mustard than the estimates considering the arrivals in spot market. In spices pack; jeera and chilli prices settled in red zone while pepper futures surged high for the third consecutive week due to extended bargain buying on the exchange platform. The factors supporting the rise in prices are firm rates in the international markets and active buying of exchange because of tight supply situation in the physical markets.

Weekly Update 5th-9th April

Domestic markets continued to build on the gains for the eighth consecutive week. The undertone remained buoyant as the growth signs are becoming clearer. A closer look on the gains gives impression that emerging economies would continue as a favorite investment destination. Hopes of good result season, continued buying by foreign institutional investors & recent upgrade of India’s credit rating are some of the factors that are keeping up the investment momentum in the market. On the global front, in US the recent payroll data has further boosted the confidence among the investors as it looks the deepest recession has ended.

Payrolls, a major indicator rose by 162,000 workers, the third gain in the past five months and the most since March 2007. Home prices in US unexpectedly rose in January for an eighth month. Home prices in 20 US cities rose 0.3% in January, indicating the housing market is stabilizing as the economy expands.

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According to some estimates US economy probably grew by 2.8 percent in the first quarter of 2010 after a 5.6 percent pace of expansion in the fourth quarter of 2009. Apart from the tightening in monitory policy by RBI the other trigger for the markets would be monsoon forecast. A healthy monsoon would improve agriculture output & thereby rural incomes. It would also be crucial from the inflation point of view, as it is still a worry factor & may affect the growth momentum.

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Tokyo-based Research Institute for Global Change has predicted normal monsoon rains in India for the current year. The Indian Meteorological Department (IMD) issues a monsoon forecast, usually in the second half of April after considering weather observations in different parts of the world and extrapolating statistical data.

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Overall trend of world stock markets is up and Commodities which were under pressure some time back also had a good rally last week. It seems now the mid cap and small cap are leading with mainline Nifty or Sensex lagging behind. The global liquidity is leading to various asset classes being chased by investors at every reaction. Nifty has support between 5150-5050 levels and Sensex between 17200-16800 levels.

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Firm U.S., Chinese and European manufacturing figures along with decline in SHFE and LME stockpiles may continue to keep the base metals on upbeat note. Lack of clear risk sentiment may keep gold directionless. Drop in U.S. jobless claims may lend further support to crude prices. Oil prices have risen about 23 percent from early February as the industrial sector leads a gradual recovery in the US economy. Possible new round of sanctions against Iran, maybe within weeks rather than months, could be underpinning the crude market.

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Spices pack may extend further gains while oilseeds may witness some short covering.

Single policy platform for FDI

Union Commerce and Industry Minister Anand Sharma released the final document of FDI Policy Framework.

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It would now comprise the single document on FDI policy and mark the inception of a whole new chapter on FDI policy.

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Meanwhile, he said that the current exercise had been started with the goal of incorporation of all prior regulations on FDI.

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That contained in Foreign Exchange Management Act (FEMA), RBI circulars, and various Press Notes into one consolidated document.

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This is so as to reflect the current regulatory framework.

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Moreover, having a single policy platform would also ease the regulatory burden for Government.

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The intention of this exercise is not to make changes in the extant guidelines, but to deal with them comprehensively.

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The government stated that it was considering permitting FDI in limited liability partnership (LLP) firms.

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It was also considering to clearly define whether shares and bonds issued to overseas investors could be treated as foreign direct investment.

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On the other hand, the government may also do away with Schedule IV of the FEMA that deals with sale and purchase of shares and debentures by NRIs and overseas corporate bodies on non-repatriable basis.

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Earlier, it was said that India”s Foreign Direct Investment (FDI) inflows reduced by 25 % to $2.04 bn in January 2010 as compared to the corresponding period of the previous year, breaking a trend of positive growth in the previous 3 consecutive months.

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An official said there is no specific reason why the inflows in January inched down. India”s total FDI by the end of the current financial year, will not be more than last financial year”s.

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However, last year in January 2009, FDI inflows were $2.73 bn. India attracted FDI of $2.33 bn in October 2009, about 56 % jump over the same period last year, while in November FDI surged by 60 % to $1.73 bn.

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Previously, as the response from investors did not warrant such a move, the government does not have any plan to increase the cap of foreign investments in bonds stated a top Finance Ministry official.

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The existing limit is not being used up for a long time while there is no proposal to raise the foreign institutional investment (FII) debt limit.

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Currently, the government allows foreign investments of up to $15-billion in corporate bonds and up to $5-billion in government bonds.

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India received $1.5 billion foreign direct investment (FDI) in December 2009 that is an increase of over 10% over that in the same month of previous year.

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FDI was $1.36 billion in December 2008.

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The overseas inflows decreased marginally to $20.9 billion in April-December compared to $21.15 billion in the corresponding period last year.

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In addition, Commerce and Industry Minister Anand Sharma stated that the government plans to introduce a single FDI document by end-fiscal, with a view to simplify foreign direct investment (FDI) process, and is currently discussing the various modalities.

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He said they have put this document for discussions with all stakeholders to invite their comment which is likely to close by January 31.

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By March 31, they will have single FDI document to ensure simplification, easy comprehension and predictability.

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Moreover, Commerce and Industry Minister Anand Sharma stated that India”s share in the global Foreign Direct Investment has almost doubled to 2.45% in 2008.

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India was fourth in 2008, in terms of FDI inflows, among developing countries with reference to UNCTAD World Investment Report (WIR) 2009.

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However, earlier, in order to attract $50 billion of foreign direct investment (FDI) annually by 2012, the Centre is creating an investor friendly environment, to keep up with the economic growth and build infrastructure.

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It is said that the government will aim at $50 billion annual FDI flows by 2012 and $100 billion by 2017 whereas last year the FDI inflows were $35 billion and in the H1 of 2009-10, the FDI inflows were around $15 billion.

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On the other hand, the government approved 17 foreign direct investment (FDI) proposals worth Rs 1,158.78 crore where among the major proposals are the FDI applications of ArcelorMittal and ductile iron pipe maker Electrosteel Castings.

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ArcelorMittal, with an FDI of Rs 503.37 crore, plans to infuse foreign equity into a company engaged in manufacturing cold-rolled semi-finished iron and steel products.

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Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization.

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Savings accounts are accounts maintained by retail financial institutions that pay interest but can not be used directly as money ( for example, by writing a cheque).

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These accounts let customers set aside a portion of their liquid assets while earning a monetary return..

NEWS ROUND UP 29th March – 02nd April

Economy

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·India’s annual food price index stood at 16.22% as on week ended March 13, slower than the 16.30% growth recorded last week. A year ago, food prices were up 7.46%. At the same time, primary articles inflation rose to 13.88% from 4.91% last year, while fuel, power, light & lubricants prices climbed to 12.68%.

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Power

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·NTPC, the state owned power generator, has evinced interest to set up solar and wind projects in Orissa with aggregate generation capacity of 500 Mw.

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The company has sent a draft MoU for approval of the Orissa government in this regard.

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·GMR Energy will soon raise over Rs 1,600 crore from a group of private equity players led by Singapore-based Temasek Holdings and banks to fund its expansion. The company is a subsidiary of the G M Rao-led GMR Infrastructure that has interests in highways, airports, agri-business and urban infrastructure.

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Oil & Gas

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·ONGC has approved investing Rs 3,240 crore ($712 million) for the first phase development of three marginal fields located in Mumbai offshore on the western coast.

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Capital Goods

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·L&T has been awarded a contract by the Ministry of Defense for the design and construction of 36 high speed interceptor boats for the Indian Coast Guard. The contract is valued at Rs 977 crore. The design is being carried out in house by the Company and its ship design center, that is a part of the Company’s Heavy Engineering division. The boats are planned to be constructed at the Company’s existing shipyard at Hazira and at its new shipyard coming up at Katupalli near Ennore.

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·L&T bagged six orders worth Rs 1,181 crore for construction of power transmission line and sub-station works. Three of these six orders worth Rs 741 crore have been secured from the Gulf markets and the other orders worth Rs 440 crore are for domestic projects. These orders will be executed by electrical and gulf projects operating company, a part of L&T’s construction division.

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Automobile

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·Tata Motors, India’s largest vehicle manufacturer by revenue, is selling a third of its stake in the construction equipment-making subsidiary, Telcon, to its joint venture partner, Hitachi, for Rs 1,000 crore.

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·Tata Motors had signed an agreement with the Myanmarese government for setting up a heavy truck plant in the South-East Asian nation, with an installed capacity of up to 5,000 units annually.

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·TVS Motor Company has announced the launch of its new model TVS Jive, India’s first auto-clutch motorcycle, in Chandigarh. With this launch, the company expects that it sales in Punjab will grow significantly from 2,000 motorcycles to 3,600 motorcycles per month.

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Realty/ Construction

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·Patel Engineering has been awarded the contract to develop the largest waterfront project in the southern hemisphere. The project, an integrated township in Port Louis, the capital of Mauritius, is valued at $1 billion.

Spread over more than 24 hectares, the project involves residential, commercial, entertainment and real estate.

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·Punj Lloyd plans to sell its 19.4 per cent stake in Pipavav Shipyard to co-promoter Skil Infrastructure through an inter se promoter transfer. The stake is valued at Rs 825 crore at the company’s current market
capitalisation of Rs 4,251 crore. The Nikhil Gandhi-promoted Skil Infrastructure has an 18.27 per cent stake in Pipavav Shipyard.

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Telecommunication

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·Kuwait-based Zain Telecom’s board cleared Bharti Airtel’s proposal to buy its African assets for $10.7 billion (around Rs 48,600 crore), marking the Indian company’s first successful attempt to acquire operations in Africa after two failures.

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Cement

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·Shree Cement has got the Central Electricity Regulatory Commission’s (CERC) approval to start inter-state trading business in power it produces at its merchant plant. The company has 260 MW installed captive power generation capacity and is in the process of putting up additional 300 MW merchant capacity, which is set to go on stream in a few days.