Archive for September, 2010

NATURAL GAS……….. THE FUEL OF THE 21ST CENTURY

Natural gas has emerged as the most preferred fuel and vital component of theworld’s supply of energy due to its environmentally cleanest, safest and most useful nature, greater efficiency and cost effectiveness among all energy sources.Natural gas is a mixture of hydrocarbon gases. In its purest form, such as the naturalgas that is delivered to your home, is almost pure methane.

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Growing importance: We require energy constantly, to heat and cook food, and generate electricity. Due to clean burning and lower emission levels of potentiallyharmful byproducts into the air as compared to other fossil fuels, the importance of natural gas in our lives is growing constantly. The demand of natural gas has sharplyincreased in the last two decades at the global level. In India too, the natural gas sector has gained importance, particularly over the last decade, and is being termedas the fuel of the 21st Century.The industrial and electricity sector accounts for the greatest proportion of natural gas use across the world. The US residential sector consuming the second greatestquantity of natural gas.

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Global Production: According to U.S. Department of Energy, globally total provedreserves of natural gas is 6,254.364 trillion cubic feet (tcf) in 2009 with an increase of0.68% as compared to 2008. Russian federation has largest reserve of 1,680.00 tcffollowed by Iran and Qatar with 991.600 and 891.945 tcf reserve respectively. Russiais largest producer of natural gas with 23 tcf followed by USA with over 20 tcf. Majorexporters of piped natural gas are Russia (154 bcm), Canada (103 bcm) and Norway(93 bcm), the major importers are US (104 bcm), Germany (87 bcm) and Italy (75bcm). The major exporters of CNG are Qatar (40 bcm), Malaysia (29 bcm), Indonesia(27 bcm) and the major importers are Japan (92 bcm), South Korea (36 bcm) andSpain (30 bcm.)

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Production in India: Natural gas production in India grows at averaging 11.7percent per year. Total production is estimated to grow from 1.1 trillion cubic feet in2007 to 2.7 trillion cubic feet in 2015. Most of the production of gas comes from theWestern offshore area. The on-shore fields in Assam, Andhra Pradesh and Gujarat States are other major producers of gas. Fertilizer (41%) and power (37%) are themajor users of natural gas in India.

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Factors affecting demand for Natural Gas: There are two primary drivers thatdetermine the demand for natural gas in the short term-Weather and Fuel Switching.Natural gas demand typically peaks during the coldest months for heating homes anddips during the warmest months, with a slight increase during the summer to meetthe demands of electric generators. Hurricanes and severe weather also disrupt the supply.

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While most residential and commercial customers rely solely on natural gas to meetmany of their energy requirements, some industrial and electric generationconsumers have the capacity to switch between fuels. For instance, during a periodof extremely high natural gas prices, many electric generators may switch from using natural gas to using cheaper coal, thus decreasing the demand for natural gas.

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Generally the state of the U.S. economy can have a considerable effect on thedemand for natural gas in the short term, particularly for industrial consumers. When the economy is expanding or declining, the consumption of natural gas fromindustrial sectors is generally increasing or decreasing at a similar rate.Long term demand factors reflect the basic trends for natural gas use into the future.The analysis of factors that affect long term demand across all sectors arecomplicated.

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Probably the most important long term driver of natural gas demand isfuture residential heating applications. Due to the retirement of old nuclear,petroleum, and coal powered generation plants leaves a significant requirement fornatural gas use for electric generation to meet the commercial demand forelectricity generation and transportation.

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Outlook: Currently the future prices of natural gas in MCX are trading in sidewaysmanner. It has strong support at `170. Seasonal demand from mid oct can support therecovery upto `220 in mid term.

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COMMODITY WEEKLY COMMENTARY 27th September – 1st October

Gold prices hover around its life time highs last week on international as well as on domestic bourses as European stock markets extended their losses and crude oil dropped below $75 per barrel. However domestic silver futures gain reclaimed a new life time high on MCX while U.S silver hit a 30-year high as precious and base metals were further aided by a weaker dollar along with new data meantime revealed a downturn in European services and manufacturing output.

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A further decline in U.K mortgage and business lending, plus higher-than-expected U.S jobless claims for last week also supported the bullion counter last week. Base metal prices which were mostly trading lower during the beginning of the week bounced back strongly in the later part as investors moved to buy dollar denominated commodities to take advantage of fall in the dollar index. US equity markets ended lower as data indicated that house prices fell in July marking the eighth consecutive decline. Fed bought $2.07 billion worth of bonds, thereby boosting treasury prices and dollar continued to lose ground. In energy counter crude prices witnessed see saw moves during the week on mixed fundamentals. Crude traded below $75 per barrel as jitters increased due to the rise in U.S inventories highlighting weak demand, in spite of the dollar’s continued drop against its major rivals.

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Yellow spice turmeric showed wonderful recovery on dip in arrivals amid lower level buying. Domestic demand is expected to be strong during the ongoing festival season. With the same reason of dip in arrival, chilli futures also spurt in both spot and future market. Pepper surrendered its strength on heavy selling pressure, weak export demand in the middle of sluggish spot market. Fresh arrivals put pressure on jeera and cardamom futures and they closed the week on negative note. Fresh buying noticed in chana futures. Indian oil seeds and edible oil futures were moving on their own fundamentals. Fall in dollar index supported the price. Comfortable stocks could not give much impact on the prices. Soyabean and crude palm oil moved northward. Refined soya oil and mustard seed also closed the week on positive note.

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Fear of yield loss due to excessive rain in producing areas lent support to the guar counter; however upside was limited on lack of aggressive fresh buying. Technical support zoomed up mentha oil. Furthermore, temporary supply propped up potato in both physical and future market.

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Equity News 27th September – 1st October

DOMESTIC NEWS

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Economy

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·Food inflation, as measured by the Wholesale Price Index (WPI), rose to 15.46 per cent for the week ended September 11, primarily due to rise in prices of potatoes and onions. Food inflation stood at 14.77 per cent during the corresponding week in 2009 and at 15.1 per cent during the previous week ended September 4.
Realty/ Construction ·IVRCL Infrastructures & Projects Ltd (IVRCL) has bagged orders worth `750
crore for four laning and improvement of Karanji-Wani-Ghuggus – Chandrapur Road Maharashtra State Highway – 6&7 in Yavatmal and Chandrapur district on DBFOT basis.


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Cement

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·J K Lakshmi Cement would invest `1,800 crore over the next three-four years to double its cement production capacity to 10 million tonnes.

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Oil & Gas

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·GAIL India will make capital investment of around `40,000 crore ($8.8 billion) by 2014-15, mainly to expand its pipeline network and boost petrochemicals capacity.

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Telcommunication

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·Kavveri Telecom has bagged a contract worth `30 crore from one of the telecom operators for the supply of equipment and antennas. The order is to be completed within a year.

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·Bharti announced its entry into the fast-growing mobile handset business as group firm Beetel launched eight handsets in the price range of `1,750- 7,000. Bharti is India’s number one mobile service provider with over 140 million subscribers and the company recently acquired Zain Telecom in Africa to expand its footprint in 16 countries.

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Capital Goods

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·BHEL said it is in talks with SAIL and Vizag Steel to tie up for manufacturing high grade steel, while Korean steel maker Posco may join the proposed joint venture company as a technology partner.

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·Bharat Heavy Electricals Ltd has got a contract worth `2,665 crore ($583 million) to set up a 1,200 megawatts coal-fired power plant at Chhattisgarh in central India.

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Paint

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·Berger Paints India Limited has proposed to set up a paints manufacturing complex at Hindupur in Anantapur district of Andhra Pradesh comprising three units and involving an investment of around `350 crore.

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Pharmaceuticals

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·Aurobindo Pharma has received USFDA approvals for ampicillin and.sulbactam injections in bottle, single-use vial and bulk pack formats.

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Ampicillin and sulbactam is a sterile semi-synthetic penicillin product falling under the anti-infective segment.

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FMCG

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·Procter & Gamble India (P&G) is set to bring in one of its biggest global brands–Wella hair colour—as it looks to strengthen its health and beauty business in India. This is the first time that the detergents-to-diaper maker will enter the Indian hair colour market, which is dominated by L’Oreal India’s L’Oreal Excellence Crème and Garnier, and Godrej Consumer Products.

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INTERNATIONAL NEWS

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·US Fed left policy rates unchanged but appears to have begun preparations for additional easing-possibly at the post-election November FOMC. The fed funds target range was left unchanged at a range of zero to 0.25 percent and, again, the Fed stated that this rate is expected to remain low for an “extended period.”

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·US Housing starts showed unexpected strength in August with even the single-family component increasing. Housing starts in August jumped 10.5 percent after rising a modest 0.4 percent in July. The August annualized pace of 0.598 million units clearly topped analysts’ expectations for 0.550 million units and is actually up 2.2 percent on a year-ago basis. The gain in August was led by a 32.2 percent surge in multifamily starts, following a 36.0 percent increase in July. The single-family component rebounded 4.3
percent after dipping 6.7 percent in July.

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·US Existing home sales rose 7.6 percent in August to a 4.130 million annual rate, up substantially from July’s 3.840 million rate (revised from 3.830).

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Gains swept regions with supply coming down a bit, at a still extremely swollen 11.6 months. Prices are softening, down 1.9 percent to a median $178,600. The gain in sales was predicted by the pending homes sales report released early in the month, data that popped higher.

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Weekly Update 27th September – 1st October 2010

Indian Markets posted fourth weekly consecutive gains led by rising optimism of growth and portfolio investments. The run up in the market was phenomenal and beyond expectations of market participants. Global investors seems to be going more anxious about India consumption and growth, complemented by continued monetary accommodation by developed nations in  order to propel growth. Indian Government recently raised the cap of foreign investments by $ 5 billion in federal and corporate bonds with a residual maturity of over five years. The step is viewed very positively in the sense that the ease of limit in federal bonds will take out interest rate pressure from the banks. The ease in corporate bonds issued by companies in the infrastructure sector will fill the estimated financing requirement of $1 trillion in the five years to 2017.


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U.S. central bank kept its benchmark interest rate in the range of zero to 0.25 percent .The bank said that they are prepared to provide additional accommodation in the light of slower economic recovery. The statement raised the speculation that the bank may buy more treasuries down the year. Weaker growth has still kept the unemployment at above 9 percent levels and reflects that companies are still cautious. The U.S. markets surged to highest level since May as the orders for durable goods rose the double of market expectations.

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Another happening that market is keeping an eye on is the political pressure building on Obama administration to take a stance on the China’s currency policy. The yuan has appreciated about 2 percent against the dollar since the central bank said it would pursue a more flexible exchange. However U.S. wants to see more rapid and “significant” rise in the yuan’s value.

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With the visible positivity across the globe, Indian markets are maintaining up move and managed to close above the psychological mark of 6000 levels on the weekly basis. The weakness in the dollar index clearly strengthens the equity markets and lead to the fresh breakout especially in US and European counterparts.

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One should maintain the stance of buying on dips. The Midcap stock may provide handsome return in the near future. Nifty has support between 5900- 5810 and Sensex between 19640-19200 levels.

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It appears that bullion counter is taking advantage of every opportunity and making new highs now and then on rock solid fundamentals. Weaker than expected growth in manufacturing and services industries of euro zone, sovereign debt crisis in Ireland, plummeting dollar index amid some poor economic releases fuelled rally in bullions. Negative tone of global economy capped the upside of base metals and energy  counter, even fall in dollar index could not give much impact and they appeared shy to break the resistance. Local currency appreciation locked the movement of commodities. This week is full of event risk. GDP data of US and UK, consumer confidence data and employment data of US may give further direction to  commodities. Crude oil is witnessing lackluster trading and thus moving in range on ambiguity in the world economy. Energy counter needs big news for further direction. Spices should revive in this week.

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SEBI Chief Bhave Displeased with Overpricing of IPOs

CB Bhave, the Chairman of Securities and Exchange Board of India (SEBI), has voiced his concern over the unrealistic pricing of initial public offers (IPOs) by investment bankers. The chairman stated  that the bankers should not overlook the interests of investors at large just to maximize returns for promoters, as it is they who feel the brunt when the steeply priced shares of companies decline when market tide overturns. Bhave stated “in a bid to maximise returns for promoters, they (investment bankers) are not looking at the interests of investors…. You need to introspect whether it is a healthy practice. If you keep investors disappointed day in and day out, the cause of investors will only be a lip service.”

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Bhave’s displeasure on the IPOs by companies at prices disproportionate to their revenues, profits and net worth came after a recent report by one of the leading rating agency showed that out of the 116 IPOs that surfaced between August 2007 and August 2010 as high as 62% of the IPOs are trading lower than their respective price bands. In addition, the BSE IPO index which gained 14.5% in the last 12 months underperformed against the Sensex which increased by 19.45%.

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The investment banker’s ploy of quoting near-zero fees to garner divestment issuances too has not gone down well with the SEBI Chairman who expressed reservations over the prcatice as he stated “they need to decide as to whether they can go on charging zero fees for doing work. What mechanism they evolve is for them to decide.”  He also is of the belief that a code of conduct or ethics should be put into practice to avoid such competition. ‘The industry body can do this by bringing in a certain degree of quality and behaviour,’ said Bhave.

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IDFC leads the gainers of group ‘A’ on BSE

Infrastructure Development Finance Company (IDFC) is currently trading at Rs 204.80, up by 9.15 points or 4.68% from its previous closing of Rs 195.65 on the BSE.

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The scrip opened at Rs 197.00 and has touched a high and low of Rs 205.30 and Rs. 196.00 respectively. So far 1985833 shares were traded on the counter.

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The BSE group ‘A’ stock of face value Rs 10 has touched a 52 week high of Rs 201.05 on 16-Sep-2010 and a 52 week low of Rs 139.80 on 04-Nov-2009.

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Last one week high and low of the scrip stood at Rs 205.30 and Rs 191.10 respectively. The current market cap of the company is Rs 29243.72 crore.

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The Institutions holding in the company stood at 86.68% and Non institution were holding 13.32% of stake respectively.

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The other top gainers of BSE group ‘A’ were DLF up by 4.86%, Centeral Bank up by 4.58%, Aban Offshore up by 4.57%, Federal Bank up by 4.48% and Everest Kanto up by 4.38%

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The Institutions and Non-Institutions holding in the company stood at 86.68% and 13.32% respectively.

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Infrastructure Development Finance Company (IDFC) is planning to mop up about Rs 3,400 crore via issue of long-term bonds which is expected to open in the first week of October. In this regard, the company has already filed the draft papers with the market regulator Securities and Exchange Board of India (SEBI).

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According to the Draft Shelf Prospectus, the said bonds will have the face value of Rs 5,000 and some part will be utilized for infrastructure lending. This will be the first public issue under the new rule that allows tax benefits for investment in long-term infrastructure bonds.

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The company has reported a net profit of Rs 319.71 crore for the quarter ending on June 30, 2010 against Rs 243.49 crore for the quarter ending on June 30, 2009, up 31.30%.

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The company provides financial assistance to various segments such as power, roads, ports, telecommunications, information technology, urban infrastructure, healthcare, education infrastructure, food and agri-business infrastructure, healthcare and tourism.

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Indian Banking System Witnesses Slowdown in Deposit Growth

Despite deposit rates being revised by various commercial banks, the Indian banking system is witnessing a lull in deposit growth, according to data released by the Reserve Bank of India (RBI). On a year-on-year (YOY) basis, the deposit growth in the banking system rose 14.79% (34 bps higher over the previous fortnight) to Rs 46,90,703.28 crore during the fortnight ended September 10. Further, during the previous fortnight ended August 27, 2010; the deposits mobilized by banks grew by 14.45% to Rs 46,70,237 crore. Hence, the deposits collected by banks went up by Rs 20,465 crore, against an increase of around Rs 38,658 crore in the previous fortnight.

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People from the top management of various banks are citing their reasons for this lull. B A Prabhakar, ED, Bank of India (BoI) said, “Like credit growth, deposit growth is looking sticky. It is because people may be holding a lot of cash in hand.” Further, HSU Kamath, ED, Canara Bank, said, “People are putting their money in other schemes like post office savings schemes, mutual funds and stock market investment. With the sensex touching 20,000 mark, equity market investments look attractive to the people. It should be one of the causes of slower deposit growth. Now rate of deposits have gone up by 100-200 basis points across the banking industry, that situation will be corrected soon and deposit growth is expected to pick up by the end of September,” he added.

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Industry experts also believe the current rally in equity markets to be the major reason for this slowdown and argue that this jump has lured people’s attention to equity market instruments from the traditional banks’ term deposits. In this backdrop, Reserve Bank of India (RBI) raised repo and reverse repo rates by 25 and 50 basis points (bps), respectively, on September 16, though most banks are yet to follow suit. Worried over this development, RBI is prodding banks to increase their deposit rates.

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Going further, though the central bank had projected 18% growth in deposits for 2010-11, it has not exceeded 15% in this financial year so far.

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MUSTARD/RAPESEED SEED

Mustard/Rapeseed oil is the third largest edible oil produced in the world after soy oil and palm oil with accounts of about 12% of the total World’s edible oil production. By crushing rapeseed or mustard seed, oil and meal are obtained. The average oil recovery from the seed is about 33%. The remaining is obtained as cake, which is rich in proteins and is used as an animal feed ingredient. Being an important source of edible oil and feed meal to the country, mustard is undoubtedly the focus of Indian edible oil industry. In EU, rapeseed oil is mainly used for biofuel production.

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Global scenario

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The production and consumption of this oil has been growing at the rate of 4.65% and 5.03% respectively over the last decade. According to USDA, global rapeseed output for 2010/11 is forecast 400,000 tonnes higher this month to 57.1 million as a larger crop in Canada. While world production of mustard oil is estimated to 20-22 million tonnes. Canada is the major producer and exporter of seed and oil followed by Australia. China, European Union, Canada and India are leading producers of mustard seed and consumer as well as. The major seed importing countries are Japan and Mexico and US leads the list of mustard and rapeseed oil importing countries. Global rapeseed exports are estimated 410,000 tonnes higher this month due to lower exports from Ukraine and Russia as record heat wave in August causes crop damage.

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Indian scenario

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The Central Organisation for OilIndustry and Trade, the apex trade body, estimated the country’s mustard seed output at 64.2 lakh tonnes in 2009-10 (October-September) as against 63.5 lakh tonnes a year earlier,
while oil is around 21 lakh tonnes in 2009-10. The country also generates 24 lakh tonnes of oil cake.

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Rajasthan, Uttar Pradesh and Haryana produce the major share of rape /mustard contributing to over 70% of the total Indian produce. The crop accounts for nearly one-third of the oil produced in India, making it the country’s second most important edible oil after groundnut. Mustard oil is consumed wholly in the domestic market. The demand for the consumption of mustard/rape seed comes mainly from eastern and northern areas of the country.


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Hence, India does not export mustard seed but imports some amount of oil. However India exports around 400,000 tonnes of oil cake. Recently due to the dominance of comparatively other cheaper oils like palm and soya, the import share has come down.

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Climatic conditions, especially progress of South-West monsoon is a major factor shaping the fortunes of  mustard seed. Price of other domestic and global oil seeds would also have significant bearing on mustard seed prices. Major trading centres  in mustard seed in the country are Jaipur, Sriganganagar and Alwar in Rajasthan, Hapur in UP, Delhi, Mumbai and Kolkatta.

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Outlook

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The mustard seed futures are likely to trade under selling pressure. Higher warehouse stock, poor buying interest, weakness in soy market, projection of record Kharif oilseeds production due to higher acreage and favorable weather condition is likely keep prices down. As on 13th September, NCDEX warehouses are
having a stock of 123,236 tonnes. Rise in volume, fall in open interest and price is indicating further weakness in the prices.

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Weekly Update 20th – 24th September 2010

Global market rallied in the week gone by after Japan intervened in the currency market to weaken yen and Chinese and U.S. economic reports raised the confidence of global growth. Stocks rallied in Japan after it intervened in the currency market to stem the Yen appreciation. The yenweakened to 85.85 per dollar after climbing as high as 82.88 per dollar earlier inthe week, the strongest level since May 1995.

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Continuous reversal in Yen may leadto more investment in exporter companies in the region. The concerns overmoderate expansion in China got erased as the data showed that Industrial Production expanded 13.9 percent in August. The data gave optimism on global growth and led to rally in metals.

Consumer sentiment in U.S. fell to one year lowof 66.6 from 68.9 in August increasing the risk that consumer will cut back on theirpurchases.In India, RBI, in order to anchor inflationary expectations and as a step tocontinue the process of normalisation of the monetary policy instruments raisedborrowing costs for the fifth time this year.

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It raised Repurchase (repo) Rate to 6percent from 5.75 percent, and the reverse-repurchase rate to 5 percent from4.5 percent. It seems that for now, RBI has done enough to contain inflationarypressures and as the repo rate is the operative policy rate therefore thetransmission from policy rates to market rates has strengthened.

Going forward,we expect that RBI would give due weigh to the macro economic situation ratherthan only inflationary pressures before doing any adjustment in monetary policyinstruments.We expect the market to remain firm as even advance tax numbers were higherthan that of last year. Next week U.S. Federal Reserve is expected to give stimuluspackage in its meeting scheduled on 31st September seeing the worrisomesituation of high unemployment and weakness in construction activity asindicated by the latest Fed Beige book finding.

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With the positivity from the global front, we are steadily approaching near the alltime high zone and likely to extend the up move in the coming weeks withrequired consolidation for the sustainable move. Nifty has support between 5700-5550 and sensex between 19200-18800.Another round of quantitative easing by the fed amid falling dollar proved supportive to the bullions and once again lovable gold made life time high acrossthe bourses. Though it made life time high on MCX as well but upside was limiteddue to appreciation in local currency. Silver is also rocking on heavy investmentdemand. Even base metals recovered as many central banks maintained low borrowing cost but slow recovery is capping the upside of industrial metals. Evenfalling crude oil is indicating ambiguous trend. This week, bullions may see aconfident move further on fundamental and technical support.

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Nevertheless,appreciation in currency may lock the price movements to some extent on domestic bourses. FOMC meet regarding interest rate will provide further direction to commodities. Expect a volatile week for agro commodities as expiryof September contract is scheduled on Monday.

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Commodity Weekly Commentary 20th – 24th September 2010

Its seems that sky is the limit for bullion counter now a days, as prices surged high to their life time highs on domestic bourses. However, strong Indian rupee limit the upside movement in prices in both gold and silver. In international markets gold hit a record high above $1,280 per ounce last week, as currency market jitters and broader economic uncertainty enticed more investors towards the metal’s safe-haven credentials. The metal’s rise this year has been fueled largely by investor nervousness that stemmed from the fallout from the euro zone debt crisis and from economic data that has suggested global economic growth may be losing momentum.

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Base metals also surged high last week on weakness in dollar index and after reassuring comments from China’s central bank about its plans to keep monetary policy loose. In energy counter crude oil lost its esteem and traded down. Crude traded around $76 per barrel amid low U.S inventories, while Chicago pipeline leak continues weighing on prices as new Tropical Storm Karl threatens the Gulf of Mexican. The EIA report showed a drop in fuel demand by 1% to 19.5 MB. Gasoline also shed 694 thousand barrels to 224.5 MB. This comes at a time where imports have reached their lowest level in five months.

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Unlike metals, agro commodities fell like nine pin, even fall in dollar index could not supported them very much. It was not a good week for spices as sellers were more active than buyers in spot market. Future market reacted in the same fashion. Panic selling was continued in turmeric, jeera and chilli as well. Cardamom was also the victim of arrival pressure and closed down. Stockiest liquidation at higher levels dragged down chana futures on NCDEX as well. With declining prices of churi and korma, guarseed and guargum continuously traded southward.

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Wheat closed down on negative cues. Furthermore, traders preferred profit booking at higher levels in menthe futures. Strong crop projection of soya bean along with rise in crop projection of mustard seed crop in rabi season compelled oilseeds and edible oil futures to trade in negative zone. Higher domestic stocks, imports in the middle of arrivals in the domestic mandies further pressurized the oil seeds prices. As per expectation, the total crop size of soyabean in the current season is likely to be around 95 lakh tonnes, up 2% from last year.

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However there was a commodity which surprised the market with its nonstop three week upside on higher offtake amid tight supply and it was maize.

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